Vertex Pharmaceuticals, Inc. v. Board of Assessors of the City of Cambridge (November 17, 2009)

 COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


VERTEX PHARMACEUTICALS,    	v. 	   BOARD OF ASSESSORS OF
INC.							   THE CITY OF CAMBRIDGE
					
Docket Nos. F277257, F277258 (05)
            F282968, F282970 (06) 
            F287970, F287971 (07) 	   Promulgated: 
							   November 17, 2009
							

These are appeals under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the City of Cambridge ("assessors" or "appellee") to grant an abatement of tax on certain real estate located in the City of Cambridge for the fiscal years 2005, 2006 and 2007 ("fiscal years at issue").  
Commissioner Rose heard the appeals and was joined in the decisions for the appellant by Chairman Hammond and Commissioners Scharaffa, Egan and Mulhern.  On its own motion, the Board issued revised decisions for the appellant in Docket Nos. F287970 and F282968, which are promulgated simultaneously with these findings.  
These findings of fact and report are made at the request of the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

John M. Lynch, Esq. and Stephen W. DeCourcey, Esq. for the appellant.

Anthony M. Ambriano, Esq. for the appellee.


			    FINDINGS OF FACT AND REPORT

Introduction 
These are appeals from the refusal of the assessors to abate real estate taxes assessed on two parcels of real estate, 130 Waverly Street and 200 Sidney Street (together, the "subject properties"), located in the City of Cambridge.  On the basis of the testimony and exhibits offered into evidence at the hearing of these appeals, and the view taken by the Appellate Tax Board ("Board") of the subject properties, the Board made the following findings of fact.
	On January 1, 2004, January 1, 2005 and January 1, 2006, the assessment dates for the fiscal years at issue, Vertex was a tenant at the subject properties and, by the terms of its lease, under an obligation to pay more than one-half of the taxes assessed on the subject properties.  The subject properties are connected through an enclosed bridge and are known together as the Fort Washington Research Center.  Each building houses laboratory and office space.  They are located in Cambridgeport, which is a heavily residential, mixed-use neighborhood in East Cambridge, with proximity to the Massachusetts Institute of Technology, Kendall Square and Central Square.  
	The subject properties lie within Special District Eight for zoning purposes.  Permitted uses include a wide range of residential, office, retail, laboratory and industrial uses.  The existing use of the subject properties is a permitted use within Special District Eight. The subject properties are accessible via curb cuts along Waverly and Erie Streets.  
	B. 130 Waverly Street
130 Waverly Street is a 1.8-acre parcel of land improved with a one and two-story building containing approximately 100,854 square feet of rentable area.  130 Waverly Street was constructed as an industrial building in 1950 and was converted for lab, office and other uses in the 1990s.  It has a poured concrete foundation, concrete block and steel framing, concrete and brick exterior walls, and fixed aluminum thermopane windows.  The roof is primarily flat and made of ballasted rubber membrane, but the two-story sections have a gabled roof with steel panels.  
Interior features at 130 Waverly Street include carpeted flooring in the office areas, vinyl-tiled flooring in the hallways and lab areas, and vinyl and carpeted flooring in the kitchen and cafeteria areas.  The basement has poured concrete walls and concrete flooring; the rest of the walls are painted sheetrock.  Ceilings are either acoustical tile or painted sheetrock and the lighting is primarily suspended or recessed fluorescent lighting.  The building has appropriate heating and cooling, electrical, plumbing and fire protection systems in place.  
There are only four on-site parking spaces, which are located at the Erie Street entrance.  The remaining parking for 130 Waverly Street consists of 22 spaces available through a perpetual easement at an adjacent lot and monthly, paid parking for 175 parking spots at a garage located at 47 Erie Street.  
C.   200 Sidney Street
	200 Sidney Street is a 2.44-acre parcel of land improved with a four-story, free-standing building containing approximately 191,904 square feet of rentable area.  It was constructed in 1999 and has a poured concrete foundation, steel frame with brick and metal exterior, fixed aluminum thermopane windows and a flat, ballasted rubber membrane roof.  It also has a partial basement.  
Interior features at 200 Sidney Street include carpeted flooring in the office areas, vinyl-tiled flooring in the hallways and lab areas, ceramic-tiled flooring in the bathrooms and concrete flooring in the basement and mechanical areas.  The walls are mostly painted sheetrock; the basement has painted concrete walls.  The ceilings in the lab and office areas are acoustical tile, while the ceilings in the basement and mechanical areas are exposed metal or steel beam.  The lighting is primarily recessed or suspended incandescent or fluorescent lighting.  The building has appropriate heating and cooling, electrical, plumbing and fire protection systems in place.  It is serviced by three, 2,500-pound passenger elevators and one freight elevator.  
	200 Sidney Street has limited on-site parking, with approximately 20 parking spaces.  Vertex's lease for 200 Sidney Street includes the right to use 166 parking spaces at a garage located at 47 Erie Street.  Vertex pays for the spaces on a monthly basis.  


	D. Ownership, Assessments, and Jurisdiction
	130 Waverly Street was owned by Fort Washington Realty Trust on both January 1, 2004 and January 1, 2005.  It was sold in May of 2005 to BMR-40 Erie Street LLC, which was the owner on January 1, 2006.  200 Sidney Street was owned by 200 Sidney Street Realty Trust on January 1, 2004 and January 1, 2005.  It was also sold in May of 2005 to BMR-200 Sidney Street LLC, which was the owner on January 1, 2006.  At all times relevant to these appeals, Vertex was a tenant of both properties and, by the terms of its leases, under an obligation to pay at least half of the taxes assessed on the subject properties.  The Board therefore found and ruled that the appellant had standing to prosecute these appeals under G.L. c. 59, § 59.  
	The assessed fair cash values, applicable tax rates, and total tax assessments for both of the subject properties for each of the fiscal years at issue are summarized in the following tables:

			      130 Waverly Street
Fiscal
Year	Assessed
Value	Tax Rate
per $1,000	Total Tax	
2005	$33,766,700	$18.28	$617,255.28	
2006	$33,766,700	$17.86	$603,073.26	
2007	$33,766,700	$18.30	$617,930.61	

			       200 Sidney Street 
Fiscal
Year	Assessed
Value	Tax Rate
per $1,000	Total Tax	
2005	$64,506,800	$18.28	$1,179,184.30	
2006	$64,506,800	$17.86	$1,152,091.45	
2007	$64,506,800	$18.30	$1,180,474.44	

	Additional jurisdictional information appears in the following tables:

			    	130 Waverly Street
Fiscal  Year	Actual Tax
Bills Mailed	Abatement Application Filed	Abatement Denied	Petition Filed	
2005	11/1/04	11/29/04	12/10/04	3/9/05	
2006	10/17/05	11/14/05	12/30/05	3/22/06	
2007	10/20/06	11/20/06	12/19/06	3/14/07	

				 
200 Sidney Street
Fiscal  Year	Actual Tax
Bills
Mailed	Abatement Application
Filed	Abatement
Denied	Petition
Filed	
2005	11/1/04	11/29/04	12/10/04	3/9/05	
2006	10/17/05	11/14/05	12/30/05	3/22/06	
2007	10/20/06	11/20/06	12/19/06	3/14/07	

For each fiscal year at issue, the appellant timely paid the tax due without incurring interest.  Based on the foregoing facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.  
E. The Appellant's Valuation Evidence  
The appellant presented its case-in-chief primarily through the testimony and appraisal report of its expert real estate appraiser, Emmet T. Logue, the President of Hunneman Appraisal & Consulting, Inc. and a licensed appraiser.   Mr. Logue has nearly four decades of experience as an appraiser.  He is a member of the Appraisal Institute, and has achieved the designation of MAI.  He is also a member of the Counselors of Real Estate.  In the course of his career, Mr. Logue has appraised numerous commercial properties, including many in Cambridge.  On the basis of his experience, the Board qualified Mr. Logue as an expert witness in the field of real estate valuation. 
As part of his appraisal, Mr. Logue inspected the subject properties on more than one occasion.  Mr. Logue also interviewed the Vice President of Facilities and Operations for Vertex and reviewed assessing records, zoning by-laws, and data compiled by various companies within the real estate industry, such as Spaulding & Slye, NAI Hunneman Commercial, and CB Richard Ellis/Whittier Partners.  Based upon his inspection and research, Mr. Logue considered 200 Sidney Street to be "Class A" lab space while he considered 130 Waverly Street to be "Class B" lab space because of its age.  He considered both of the subject properties to be in overall good condition, and he opined that their highest and best use was their continued use as lab and office space.  
	Mr. Logue considered the three usual approaches to valuation for the purposes of his appraisal.  He stated that the cost approach was not a reliable valuation method for either of the subject properties.  Mr. Logue opined that the age and configuration of 130 Waverly Street precluded the use of the cost approach for that property. Similarly, he opined that the external obsolescence caused by market conditions during the relevant valuation dates for the fiscal years at issue made it difficult to use the cost approach for either property.  
Mr. Logue also rejected the sales-comparison approach because he sought to value the fee-simple interest of the subject properties, while the most recent sales of the subject properties, and other comparable sales that Mr. Logue identified, involved sales of leased-fee interests.  In Mr. Logue's opinion, "the investment characteristics" of leased-fee interests and fee-simple interests differ considerably.  In addition, although the most recent sales of the subject properties occurred within a time period during or close to the relevant valuation dates, the subject properties were sold as part of an eight-property portfolio sale, and as such, did not provide reliable evidence of the fair market value of any of the individual properties in the portfolio.  He therefore concluded that the sales-comparison approach was not a reliable valuation approach for the subject properties.    
Accordingly, Mr. Logue relied on the income-capitalization approach to value the subject properties.  Using the income-capitalization approach, Mr. Logue first conducted an analysis of 130 Waverly Street.  For fiscal year 2005, Mr. Logue identified nine comparable
laboratory/office buildings in Cambridge.  A chart containing the relevant data from those comparable properties and the adjustments made by Mr. Logue to them is reproduced below:
    Mr. Logue's Comparable Leased Properties for FY 2005

Address	Tenant	Leased SF	Lease
Date	Annual Rent
$/SF	Lease
Term	TI
$/SF	Time Adj.
$/SF	Time Adj. $/SF
As Is		128 Sidney St.	Immunogen	37,300	3/1/03	45.00	5 Yrs.	As is	37.50	37.50		21 Erie St.	Metabolix	29,000	4/1/04	27.50-30.0	10 Yrs.	50	29.00	22.05		195 Albany St.	TKT	48,000	1/1/04	47.33	5 Yrs.	As is	47.33	47.33		38 Sidney St.	ETEX	26,468	5/1/03	28.89	5
Yrs.	10	25.25	23.50		1 Kendall Sq.	Suntory Pharm.
Research	24,000	7/1/03	45.00-52.90	10 Yrs.	100	47.50	33.55		60 Hampshire St.	Idenix
Pharm.	39,014	12/15/03	28.25-33.65	10 Yrs.	40	31.00	25.50		100 Tech.
Sq.	Novartis	255,441	3/1/03	53.00-61.83	15 Yrs.	90	46.00	33.50		300 Third St.	Alnylam
Pharm.	45,000	9/1/03	41.50-45.50	7.5
Yrs.	90	40.50	25.00		245 First St.	Viacell	24,909	1/6/04	40.00-50.00	10
Yrs.	105	43.20	28.60		
Mr. Logue noted in his appraisal report that leases for laboratory space usually include an allowance for TI because of the specialized nature of laboratory improvements.  Because Mr. Logue's appraisal of the subject properties assumed that they were leased "as is," with no landlord TI, he stated that he made adjustments to his comparable lease rents by amortizing the reported TI allowances over the term of the lease at 7% per annum.  Accordingly, Mr. Logue accounted for TI in his capitalization of income analysis by adjusting his market rents, rather than deducting TI as an expense.
Based upon this data, Mr. Logue concluded that the fair market rent for 130 Waverly Street as of January 1, 2004 was $33.00 per square foot, on a triple-net basis ("triple-net"), with the tenant bearing most of the expenses.   
	The next step in Mr. Logue's income-capitalization approach was to determine appropriate vacancy and rent loss rates.  Although 130 Waverly Street was 100% occupied by the appellant through a multi-year lease, Mr. Logue noted that vacancy rates in the East Cambridge market had increased in recent years, from rates near 15% in 2002 to rates as high as 23% by 2004 and 2005, according to sources such as Spaulding & Slye and NAI Hunneman Commercial.  However, Mr. Logue also noted that, as of January 1, 2006, vacancy rates improved, and ranged on average from 15% to 17%.  Based upon this market data, Mr. Logue used a 15% vacancy/rent loss rate for fiscal year 2005. 
	In order to determine appropriate expenses, Mr. Logue first reviewed the actual operating expenses for 130 Waverly Street.  As reported by Mr. Logue, the actual operating expenses for 130 Waverly Street were $7.07 per square foot for fiscal year 2005.  Based on his discussions with several brokers and property managers, and his own recent appraisal experience, Mr. Logue determined that the range of reported expenses was in line with other Cambridge lab/office buildings.  Because Mr. Logue concluded that certain expenses, such as those for heating and cleaning, would be less for vacant space, he used a rate of $6.00 per square foot for operating expenses for the 15% of leasable space which he considered to be vacant for purposes of his analysis.  Consistent with his triple-net lease model, he took an operating expense deduction only for the vacant space to account for the fact that there is no mechanism for reimbursement to the landlord in vacant space.  
	Mr. Logue then determined appropriate allowances for brokerage commissions and reserves for replacement.  Based on his experience and his knowledge of similar leases in the Cambridge market, he utilized $0.60 per square foot for brokerage commissions and $0.25 per square foot for reserves for replacement.   After accounting for the 15% vacancy rate/rent loss and deducting the various expenses and allowances from the calculated gross annual rent of $3,328,182 ($33.00 per square foot x 100,854 square feet), Mr. Logue determined a stabilized net operating income ("NOI") of $2,652,460.  
	The final step in Mr. Logue's income-capitalization analysis was the selection of an appropriate capitalization rate.  To aid in the selection of a capitalization rate, Mr. Logue used the mortgage equity technique.  After reviewing industry information about prevailing financing practices for properties like 130 Waverly Street around January 1, 2004, Mr. Logue observed that interest rates ranged from 5.88% to 6.38%, with an average rate of 6.13%.  He therefore assumed a 6.0% interest rate with a 20-year mortgage period and a 65% loan-to-value ratio.  He further assumed a 10-year projection period, a 16% equity yield rate and a 20% appreciation on the subject property over the projection period. Applying these factors, he calculated a rounded capitalization rate of 9.2%.  
	To assist in the selection of an appropriate capitalization rate, Mr. Logue also consulted the 2003 Korpacz Real Estate Investor Survey ("Korpacz Survey").  The Korpacz Survey indicated overall rates for institutional grade office buildings in the Boston market ranging from 7.5% to 11.25% with an average rate of 9.25%.  Non-institutional grade office buildings had rates ranging from 8.5% to 12.75% with an average rate of 10.65% during the same time period.  Mr. Logue considered 130 Waverly Street to be an institutional grade building, but with a relatively higher risk level because of the volatility of the biotechnology sector.  He therefore concluded that an appropriate base capitalization rate would be 9.0%.  
	To this capitalization rate Mr. Logue added a tax factor of 0.274%.  He arrived at the tax factor by applying a 15% vacancy rate to the total tax rate, based again on the premise that the owner would only be responsible for taxes on vacant space in a triple-net lease arrangement.  Applying the combined rate of 9.274% to his stabilized NOI of $2,652,460, Mr. Logue derived a rounded, indicated value of $28,600,000 for 130 Waverly Street for fiscal year 2005. 
	For fiscal year 2006, Mr. Logue noted that, overall, rents for office and lab space in Cambridge had declined approximately 5% between the relevant assessment dates for fiscal years 2005 and 2006.  With this trend in mind, Mr. Logue identified eight comparable leased properties in the Cambridge area and made appropriate adjustments to account for the decline in the office and lab market as well as other relevant differences.  A chart containing the relevant data from those eight comparable properties and Mr. Logue's adjustments thereto is reproduced in the following table:
       Mr. Logue's Comparable Leased Properties for FY 06
Address	Tenant	Leased SF	Lease
Date	Annual Rent
$/SF	Lease
Term	TI
$/SF	Time Adj. $/SF	Time Adj. $/SF
As Is		245 First St.	Viacell	24,909	1/6/04	40.00-50.00	10
Yrs.	105	41.00	26.37		245 First St.	Organon Internat'l	26,610	9/1/04	39.00-45.00	7 Yrs.	105	42.00	23.00		21 Erie St.	Metabolix	29,000	4/1/04	27.50-30.00	10
Yrs.	50	27.50	20.50		195 Albany St.	TKT	48,000	1/1/04	47.33	5
Yrs.	As Is	45.00	45.00		38 Sidney St.	Genelogic	19,093	9/1/04	33.00	4
Yrs.	10	32.50	29.65		300 Third St.	Archemix	34,014	12/1/05	43.00-46.00	10
Yrs.	150	44.80	23.90		64 Sidney St.	Genzyme
Biosurgery	41,000	1/1/06	35.00	5
Yrs.	10	35.00	32.60		500 Tech.
Sq.	Novartis	76,209	1/1/06	52.00	7
Yrs.	135	52.00	27.55		
Based on this data and an analysis of market changes during the course of 2004, Mr. Logue concluded that for fiscal year 2006, the market rent for 130 Waverly Street was $31.50 per square foot.  Mr. Logue noted that this rate was approximately 5% less than the $33.00 per square foot rate which he used for fiscal year 2005, a decrease which, in his opinion, was consistent with the overall market trend.  
	Mr. Logue used the same vacancy and rent loss rate and the same allowances for brokerage commissions and reserves for replacement that he used for fiscal year 2005.  As he had for fiscal year 2005, Mr. Logue reviewed the actual operating expenses for 130 Waverly Street.  As reported by Mr. Logue, the actual operating expenses for 130 Waverly Street for fiscal year 2006 were $7.22 per square foot, which he considered to be within the range of expenses in the market.   He again adjusted the expense rate downward to reflect the owner's operating expenses in vacant space and therefore used an expense rate of $6.00 per square foot, applied to the 15% of leasable space that he considered vacant.   Using these figures, he derived a stabilized NOI of $2,523,871.  He next selected a base capitalization rate of 8.5%, which was lower than the capitalization rate which he used for fiscal year 2005.  Mr. Logue stated that he used a lower capitalization rate based on downward trends reported in the Korpacz Survey and other market sources.  
	After prorating the applicable tax rate to account for his vacancy rate, Mr. Logue added the prorated tax rate to his selected capitalization rate for a combined rate of 8.768%.  He then applied the combined tax rate to his stabilized NOI of $2,523,871, for a rounded, indicated value of $28,800,000 for 130 Waverly Street for fiscal year 2006.
	For fiscal year 2007, Mr. Logue used the same comparable leased properties that he used in his income-capitalization analysis for fiscal year 2006.  Mr. Logue concluded from his review of market conditions during 2005 that market rents for lab and office space remained stable during 2005.  He therefore used the same $31.50 per square foot rate for rent that he used for fiscal year 2006.  
	Mr. Logue noted that vacancy rates decreased moderately during the course of 2005 and he therefore used a 12% vacancy/rent loss rate. In addition, market data reviewed by Mr. Logue indicated that operating expenses increased during the course of 2005, and he therefore increased the operating expenses to a rate of $6.25 per square foot.  Again, Mr. Logue applied that rate to only the vacant portion of the building, because expenses associated with the occupied space were the tenant's responsibility.   Mr. Logue used the same figures for brokerage commissions and reserves for replacements that he had used for the prior two fiscal years.  Using these figures, Mr. Logue calculated a stabilized NOI of $2,634,306.  
	Mr. Logue selected a base capitalization rate of 8.25% because he determined that capitalization rates continued their downward trend during the course of 2005.  He prorated the applicable tax factor to account for vacancy, resulting in a combined rate of 8.47% and, after applying that rate to his stabilized NOI of $2,634,306, Mr. Logue derived a rounded, indicated value of $31,100,000 for 130 Waverly Street for fiscal year 2007.  
	 Mr. Logue next turned his attention to 200 Sidney Street. At the outset, Mr. Logue noted that 200 Sidney Street was in superior condition to 130 Waverly Street, having been built in 1999-2000 rather than rehabilitated for laboratory and office use.  For fiscal year 2005, after using the same comparable leased properties that he used in his income-capitalization analysis of 130 Waverly Street for fiscal year 2005, Mr. Logue determined that the market rental rate for 200 Sidney Street was $36.00 per square foot.  However, because 32,211 square feet of the leased space at 200 Sidney Street was basement storage space, rather than office or laboratory space, Mr. Logue concluded that a different rental rate was necessary for that portion of the building.  While Mr. Logue was unable to identify comparable leased space within the biotechnology market, after discussions with property brokers in the Cambridge area, and based on his own past appraisals of properties involving basement storage area in different types of buildings, Mr. Logue concluded that a rental rate of $12.00 per square foot reflected a fair market rate for the basement storage area.  
	After applying the rate of $12.00 per square foot to the 32,211 square feet of basement storage area and $36.00 per square foot to the 154,693 square feet of office and lab space, Mr. Logue determined a gross annual rent of $6,015,480.  From that amount he deducted allowances for vacancy/rent loss and expenses.  Because the market conditions were the same, he used the 15% vacancy/rent loss rates which he had used for 130 Waverly Street for fiscal year 2005 and further used the same rates for brokerage commissions and reserves for replacement, which were $0.60 per square foot and $0.25 per square foot, respectively.  Mr. Logue used an operating expense rate of $5.00 per square foot, which was lower than the actual expenses reported by Vertex, but in his opinion reflected the fact that the basement area would have lower operating expenses because it was vacant. 
After deducting all of these items from his gross annual rent, Mr. Logue derived a stabilized NOI of $4,806,112.  Because the market conditions were the same, Mr. Logue used the same base capitalization rate - 9.0% - which he had used for 130 Waverly Street for fiscal year 2005.  After adding the applicable, prorated tax factor to yield a combined rate of 9.274%, Mr. Logue applied that rate to his stabilized NOI to yield a rounded, indicated value of $51,800,000 for 200 Sidney Street for fiscal year 2005.
For fiscal year 2006, Mr. Logue used the same comparable leased properties that he used in his income-capitalization analysis for 130 Waverly Street for fiscal year 2006.  Once again, because there was a decrease in rental rates over the course of 2004, Mr. Logue opined that $34.25 per square foot was a realistic rental rate for 200 Sidney Street, with the exception of the basement storage space, for which he used the same $12.00 per square foot rate that he had used for fiscal year 2005.  
Using those rental rates, Mr. Logue determined a gross annual rent of $5,744,676.  From that gross annual rent, Mr. Logue made allowances for vacancy/rent loss.  Because vacancy rates had not changed appreciably from the previous year, Mr. Logue used the same 15% vacancy/rental loss rates that he used for fiscal year 2005.  Further, Mr. Logue deducted expenses from his gross annual rent.   He used the same $5.00 per square foot rate for operating expenses that he had used for the previous fiscal year. Mr. Logue also used the same allowances for brokerage commissions and reserves for replacement, which were $0.60 per square foot and $0.25 per square foot, respectively.  After deducting these items from his gross annual rent, Mr. Logue calculated a stabilized NOI of $4,576,006.  Applying his selected base capitalization rate of 8.5% plus the applicable, prorated tax factor of .268% to that NOI, Mr. Logue determined a rounded, indicated value of $52,200,000 for 200 Sidney Street for fiscal year 2006.
For fiscal year 2007, Mr. Logue's income-capitalization analysis of 200 Sidney Street used essentially the same data as his analysis for fiscal year 2006.  However, he increased the operating expenses to $5.25 per square foot to reflect the market, which indicated an increase in operating expenses over the course of 2005.  Similarly, Mr. Logue adjusted his selected capitalization rate to reflect the downward trend in capitalization rates during 2005.  Mr. Logue selected a base capitalization rate of 8.25%, to which he added the applicable tax factor of 1.83%, prorated for vacant space, for a combined rate of 8.47%.  Using these figures, Mr. Logue calculated a stabilized NOI of $4,771,337.  After applying the combined capitalization rate to his stabilized NOI, Mr. Logue yielded a rounded, indicated value of $56,300,000 for 200 Sidney Street for fiscal year 2007.
The appellant also subpoenaed and called as a witness Ms. Lillian Orchard, the commercial review appraiser for the Cambridge Assessing Department.  Ms. Orchard testified that she gathered data to assist the assessors in setting the assessed values for commercial and industrial properties in Cambridge, including the subject properties, for the fiscal years at issue.  
Like Mr. Logue, the assessors used the income-capitalization approach to value the subject properties.  Ms. Orchard testified that the rents for each of the subject properties were determined by first calculating the average rent for all life-science properties in Cambridge, which was $34.00 per square foot. The assessors considered 130 Waverly Street to have certain above-average qualities and adjusted upwards to a rate of $36.04 per square foot, which they applied to the building's entire square footage.  The assessors used the same $36.04 per square foot rate for 200 Sidney Street, again applying that rate to the entire square footage of the building, including the basement space.  
Ms. Orchard testified that the assessors used a 5% vacancy rate for both of the subject properties, which was the same rate used for all commercial properties throughout Cambridge during the relevant assessment periods.  Further, Ms. Orchard testified that the assessors used an expense rate of 12% and a capitalization rate of 9%.  Ms. Orchard stated that 9% was the predominant capitalization rate used for life-science properties in Cambridge during the relevant assessment periods for the fiscal years at issue.  
	F. The Appellee's Valuation Evidence 
The appellee presented its case-in-chief primarily through the testimony of its expert real estate appraiser, Mr. Steven R. Foster.  Mr. Foster is a licensed real estate appraiser and a Senior Vice President of Lincoln Property Company.  He has achieved the designation of MAI.  During the course of his career, Mr. Foster has appraised numerous commercial properties in Cambridge, including several laboratory buildings.  Based on his experience, the Board qualified Mr. Foster as an expert witness in the field of real estate valuation.   
	In conjunction with his appraisal, Mr. Foster inspected the subject properties and reviewed the subject properties' actual financial statements as well as several industry publications.  Mr. Foster's description and observations about the subject properties were largely identical to Mr. Logue's descriptions and observations, with the exception that Mr. Foster considered both of the subject properties to be good, Class "A" lab/office space, whereas Mr. Logue had considered 200 Sidney Street to be Class "A" space but he considered 130 Waverly Street to be Class "B" space.  Like Mr. Logue, Mr. Foster opined that the highest and best use of the subject properties was their continued use as laboratory and office space.  
To value the subject properties, Mr. Foster considered the three usual valuation approaches.  He rejected the cost approach because it is generally used only for the valuation of special purpose properties.  He conducted an extensive sales-comparison analysis of both of the subject properties, which he included in his appraisal report.  However, he relied on the indicated values derived through the sales-comparison approach only to "gauge" the reasonableness of the indicated values derived through his income-capitalization approach, upon which he ultimately relied.  
For his income-capitalization approach, Mr. Foster identified ten comparable leased lab/office properties in Cambridge.  The following table summarizes the relevant data about those ten comparable leased properties:
     Mr. Foster's Comparable Leased Properties 

Address	Tenant	Leased SF	Lease Date	Annual Rent $/SF	Lease Term	
1 Kendall Sq.	Multiple	650,000	1/03-7/06	30.00-60.00	1.5-10 Yrs.	
100 Tech. Sq.	Novartis	255,441	1/1/03	53.00-61.83	15 Yrs.	
60 Hampshire St.	Idenix	39,000	12/1/03	28.25-33.65	10 Yrs.	
21 Erie St.	Metabolix	28,019	3/15/04	27.00	10 Yrs.	
300 Third St.	Alnylam Pharm.	44,058	5/1/04	41.50-45.50	7.5 Yrs.	
675 West Kendall St.	Momenta Pharm.	78,454	9/1/04	46.00	6.5 Yrs.	
245 First St.	Viacell	24,900	6/1/04	40.00-50.00	10 Yrs.	
790 Memorial Dr.	Hydra Biosciences	16,167	12/1/04	30.33	3 Yrs.	
245 First St.	Diosynth RTP	26,610	3/1/05	42.71	7 Yrs.	
500 Tech. Sq.	Novartis	80,005	5/1/05	52.00	5 Yrs.	

Based on these comparable leases, and taking into consideration differences for, among other things, the varying age of the buildings and quality of space, Mr. Foster estimated the following fair market rents for 130 Waverly Street: $37.50 per square foot for fiscal years 2005 and 2006 and $40.00 per square foot for fiscal year 2007.  
For 200 Sidney Street, Mr. Foster took into consideration the fact that a significant portion of the building consisted of basement and mechanical space. He therefore bifurcated the rental rates by valuing the space on floors one through three at $45.00 per square foot for fiscal years 2005 and 2006 and $50.00 per square foot for fiscal year 2007.  At the same time, he valued the basement and mechanical space at $20.00 per square foot for all three of the fiscal years at issue.  This approach resulted in blended rates of $36.87 per square foot for fiscal years 2005 and 2006 and $40.24 per square foot for fiscal year 2007.  Ultimately, Mr. Foster used rates of $37.50 per square foot for fiscal years 2005 and 2006 and $40.00 per square foot for fiscal year 2007.  Mr. Foster's calculations assumed that the rents were on a triple-net basis.  
In addition to the income generated from the rental of the office and lab space, Mr. Foster concluded that each building had between 20 and 30 on-site parking spaces which could be leased to generate income.  For 130 Waverly Street, he estimated 20 parking spaces leased at $125 per space per month, for a total annual income of $30,000.  For 200 Sidney Street, he estimated 30 parking spaces leased at $125 per space per month, for a total annual income of $45,000.  
The next step in Mr. Foster's income-capitalization approach was to make appropriate adjustments to income to account for vacancy and rent loss.  Mr. Foster noted in his appraisal report that Spaulding & Slye's reported vacancy rates for lab space in Cambridge were 14.8% as of January 1, 2004, 15.3% as of January 1, 2005, and 12.4% as of January 1, 2006.  Mr. Foster also cited additional industry sources such as CB Richard Ellis and Meredith & Grew.  Those sources, as he noted, largely corroborated the vacancy rates compiled by Spaulding & Slye, which reported vacancy rates in the range of 16.0% to 21.2% for 2004 and 2005.  In his appraisal Mr. Foster stated that Class "A" laboratory space had vacancy rates ranging from 5% to 10% during the relevant time periods.  Based on the subject properties' location and quality, he estimated a vacancy rate of 7.5% for each of the fiscal years at issue.  
To determine appropriate expenses, Mr. Foster considered both the typical expenses for commercial buildings in Cambridge as well as the subject properties' reported actual operating expenses.  According to Mr. Foster, typical expenses for office buildings in Cambridge ranged from $9.00 to $14.00 per square foot, inclusive of taxes.  As reported by Mr. Foster, the actual operating expenses for 130 Waverly Street ranged from $10.92 to $11.36 between 2003 and 2005.  As reported by Mr. Foster, the actual operating expenses for 200 Sidney Street ranged from $9.53 to $9.94 between 2003 and 2005.  Based on this data, Mr. Foster ultimately selected an expense rate of $10.00 per square foot for both of the subject properties for all of the fiscal years at issue.
The next step in Mr. Foster's income-capitalization analysis was the selection of a capitalization rate.  In his appraisal report, Mr. Foster indicated that he reviewed the sales of many leased properties in the Cambridge and Boston areas, as well as the surrounding suburban areas.  Mr. Foster stated that the range of capitalization rates evident from these sales spanned from 6% to 10%.  Further, a review of the sales which he utilized in his sales-comparison approach, as well as data from several property sales in Cambridge between 2003 and 2005 which were not included in his sales-comparison approach, revealed capitalization rates ranging from 6.4% to 10%.  
In addition, Mr. Foster consulted various industry sources to aid in the selection of an appropriate capitalization rate.  According to Mr. Foster, the Korpacz Survey indicated average rates in the vicinity of 8.5% to 9.5% for the first quarter of 2004; average rates in the vicinity of 8.25% to 8.75% for the first quarter of 2005; and average rates in the vicinity of 7.25% to 8.15% in the first quarter of 2006.  Information contained in Real Capital Analytics, as reported by Spaulding & Slye, showed a similar range of rates and that, overall, rates declined from 2001 through 2005.  
Mr. Foster also used the band-of-investment and mortgage equity techniques to aid in the selection of a capitalization rate.  Those analyses yielded capitalization rates between 8.0% and 9.0% during the relevant valuation periods.  Because capitalization rates, as Mr. Foster noted, can be applied to NOI before certain deductions or after those deductions, Mr. Foster included two sets of capitalization rates in his income-capitalization analysis:
to apply to NOI before deductions for brokerage commissions, reserves for replacement and tenant improvements, Mr. Foster selected capitalization rates of 9.0% for fiscal year 2004, 8.5% for fiscal year 2005, and 8.0% for fiscal year 2006; to apply to NOI after deductions for brokerage commissions, reserves for replacement, and tenant improvements, Mr. Foster selected capitalization rates of 8.0% for fiscal year 2004, 7.5% for fiscal year 2005, and 7.0% for fiscal year 2006.  
	For each of the fiscal years at issue, Mr. Foster applied both sets of capitalization rates to the stabilized NOI for both of the subject properties to arrive at their indicated values.  Mr. Foster's final opinions of value for each of the subject properties were the values calculated using the higher capitalization rates, or in other words, the capitalization rates applied before deductions from NOI for brokerage commissions, reserves for replacements, and tenant improvements.  For 130 Waverly Street, Mr. Foster's rounded, indicated values were: $37,700,000 for fiscal year 2005; $39,900,000 for fiscal year 2006; and $45,350,000 for fiscal year 2007.  For 200 Sidney Street, Mr. Foster's rounded, indicated values were $72,000,000 for fiscal year 2005; $76,300,000 for fiscal year 2006; and $86,600,000 for fiscal year 2007.  
	G. The Board's Valuation Findings 
	On the basis of all of the evidence, the Board found that the subject properties were overvalued for the fiscal years at issue.  In making this finding, the Board, like the parties, found that the highest and best use of the subject properties was their continued use as office/lab buildings.  The Board agreed with both parties that the income-capitalization approach was the best method for valuing the subject properties as it is the method most often used to value income-producing properties.  
Further, the Board found that the other valuation methods were not reliable methods to value the subject properties.  The age of 130 Waverly Street prevented the effective use of the cost approach for that property, while overall market conditions during the relevant assessment periods and the difficulty of accurately estimating appropriate depreciation factors made the cost approach an unreliable valuation method.  In addition, recent sales of the properties most comparable to the subject properties, including the subject properties themselves, involved the conveyance of leased-fee interests, rather than fee-simple interests, or were portfolio sales, in which numerous properties were sold in one transaction for a lump-sum price. The sales-comparison approach was therefore not  a  reliable valuation method.  Accordingly, although Mr. Foster conducted a sales-comparison analysis and used it as a "guide" to test the reasonableness of his income-capitalization analysis, the Board placed no weight on his sales-comparison analysis and instead used the income-capitalization approach to determine the fair market value of the subject properties.  
The Board found that Mr. Foster's rents, which were well above the $34.00 per square foot average rate for life-science properties in Cambridge, and which increased between fiscal years 2005 and 2006, were not supported by the market data.  That data indicated that rents were in decline during the relevant assessment periods.  
Similarly, the Board found that the rents used by Ms. Orchard and the assessors were not supported by the evidence of record.  The rate used by the assessors - $36.04 per square foot - was above the average rate for all life-science properties in Cambridge and was applied across the board for all three of the fiscal years at issue.  Like Mr. Foster, the assessors did not adjust their rents to account for the declining market in arriving at their assessed values for the fiscal years at issue. 
Further, Ms. Orchard acknowledged that the subject properties' location in Cambridgeport was not as desirable a location as the Kendall Square/MIT area, which offers better proximity to public transportation and other businesses.  In addition, the evidence of record established that the subject properties offer comparatively less parking than other comparable life-science properties.  Nevertheless, the assessors used a rent for the subject properties which exceeded the citywide average for life- science properties, because, in their opinion, the subject properties possessed certain superior qualities as compared to other life-science properties.  The Board found no evidence in the record to support the assessors' assertion, or their rents. 
In arriving at his opinion of fair market rents, Mr. Logue considered 200 Sidney Street to be good, Class "A" office/lab space but considered 130 Waverly Street to be good, Class "B" office/lab space, while Mr. Foster considered both of the subject properties to be good, Class "A" office/lab buildings.  Based on the evidence of record and the Board's own view of the subject properties, the Board agreed with Mr. Logue and found 200 Sidney Street to be good, Class "A" office/lab space and 130 Waverly Street to be good, Class "B" office/lab space because of its age and idiosyncratic design.  For this and other reasons, the fair market rents found by the Board were more closely aligned with the rents used by the appellant's expert than those used by the appellee.  
For 200 Sidney Street for fiscal year 2005, Mr. Logue used a rent of $36.00 per square foot, which was nearly identical to the rent of $36.04 used by the assessors in arriving in their assessment of the subject properties.  However, the assessors applied that rate to the building's entire square footage, and did not take into consideration the fact that a significant portion of the rentable area consisted of basement storage space.  Mr. Logue, on the other hand, used a rate of $12.00 per square foot for the basement portion of the building.  The Board agreed with Mr. Logue that the determination of rent for 200 Sidney Street must take into consideration the fact that a significant portion of the building is basement space.   For 200 Sidney Street, the Board found that the fair market rent for fiscal year 2005 was $37.50 for the lab and office areas.  The Board adopted Mr. Logue's rate of $12.00 per square foot for the basement area.   For fiscal years 2006 and 2007, based on Mr. Logue's testimony and report, the Board found that the fair market rent for the lab and office area declined by approximately 5%.  The Board therefore found that the fair market rent for the lab and office areas was $35.75 per square foot, while the fair market rent for the basement storage area remained at the same $12.00 per square foot.  
 	For 130 Waverly Street, the Board found that the fair market rent for fiscal year 2005 was $34.50 per square foot.  For fiscal years 2006 and 2007, the Board found that the fair market rent declined by approximately 5% to $32.75 per square foot.    
	One of the greatest differences between the parties was the vacancy rate.  The Board found the vacancy rates used by Mr. Logue to be reasonable and well-supported by the market data, and it therefore adopted those rates.  The Board found insufficient support in the record for Mr. Foster's vacancy rate of 7.5%.  Mr. Foster's conclusion that 7.5% was an appropriate vacancy rate was based largely on his opinion that both buildings were Class "A" lab/office space.  The Board did not find 130 Waverly Street to be Class "A" space and a vacancy rate based on that rating was improper.  Further, multiple industry publications cited by both Mr. Foster and Mr. Logue contained vacancy rates far greater than 7.5%, and in some instances, more than triple that rate.  Mr. Logue's vacancy rates - 15% for fiscal years 2005 and 2006 and 12% for fiscal year 2007 - were within the ranges reported in industry publications and market sources.   Accordingly, the Board adopted the vacancy rates used by the appellant's expert.  
Mr. Logue selected overall capitalization rates of 9.274% for fiscal year 2005, 8.768% for fiscal year 2006, and 8.47% for fiscal year 2007.  Mr. Foster conducted separate computations using two different sets of capitalization rates, but his final opinions of value relied upon calculations made using capitalization rates of 9.0% for fiscal year 2005, 8.5% for fiscal year 2006, and 8.0% for fiscal year 2007.  
The assessors attempted to discredit Mr. Logue's capitalization rate determination by questioning his consideration of capitalization rates reported to and compiled in the Korpacz Survey, arguing that they were derived from NOIs calculated before deductions for reserves for replacement, tenant improvements, and brokerage commissions and were based on leased-fee, rather than fee-simple, sales.  However, the Korpacz Survey data was only one factor which Mr. Logue considered in deriving his capitalization rates; in fact, the Korpacz Survey data caused him to reduce the base capitalization rate he determined under the mortgage equity technique.    
On the basis of all of the evidence, the Board found that a capitalization rate of 9.0% for fiscal year 2005, which was identical to the rate used by the assessors and Mr. Foster and only slightly lower than the overall rate used by Mr. Logue, was appropriate.  The assessors used the 9.0% rate for each of the fiscal years at issue, which Ms. Orchard testified was the predominant capitalization rate used for life-science properties in Cambridge during the relevant assessment periods.  However, both expert appraisers agreed that capitalization rates declined during fiscal year 2005 and again during fiscal year 2006.  The Board therefore adopted slightly decreased capitalization rates of 8.7% for fiscal year 2006 and 8.4% for fiscal year 2007.  These rates were within the range of capitalization rates offered by Mr. Logue and Mr. Foster, and the Board found the rates to be supported by the evidence of record, including information regarding the ranges reported by industry publications.    
The parties also differed significantly on the matter of expenses.  First, the Board noted that there was a discrepancy between the actual expenses for both of the subject properties reported by Mr. Logue and Mr. Foster for the same time periods. Further, the ultimate expense rates selected by both experts differed significantly.  For 130 Waverly Street, Mr. Logue used an expense rate of $6.00 per square foot for fiscal years 2005 and 2006, and $6.25 per square foot for fiscal year 2007.  For 200 Sidney Street, Mr. Logue used an expense rate of $5.00 per square foot for fiscal years 2005 and 2006, and $5.25 for fiscal year 2007.  Mr. Foster used an expense rate of $10.00 per square foot for both of the subject properties for each of the fiscal years at issue.  
The Board found that Mr. Logue's lower expense rate was more appropriate for the subject properties.  The subject properties are not in campus-like settings with significant acreage, and therefore, certain expense items, such as landscaping and maintenance, would likely be lower than for other properties.  Similarly, because the layout of each building limited occupancy to only one or two tenants, rather than multiple tenants, expenses would likely be lower for the subject properties than buildings with multiple tenants.  The Board found Mr. Logue's expense rate to be credible and well-supported by the market data.  On the other hand, Mr. Foster's $10.00 across-the-board rate was not well-supported by the evidence of record.  Mr. Foster's uniform rate, applied to both buildings and for each of the fiscal years at issue, did not seem to take into account the meaningful differences between the two buildings, such as the lower expense of the basement storage space at 200 Sidney Street.  Accordingly, the Board adopted the expenses used by Mr. Logue for the subject properties for each of the years at issue.   
On the basis of these findings, the Board arrived at findings of fair cash value for both of the subject properties and for each of the fiscal years at issue as set forth in the following tables:  

   Board's Income-Capitalization Methodology 


	  130 Waverly Street FY 2005
Rent
100,854 @ $34.50/sf				     	 $3,479,463.00

Vacancy  	 (15%)					  $(521,919.45)

Effective Gross Income				       $2,957,543.55

Expenses							
Operating  	 (15% x 100,854 @ $6.00/sf)	     	   $(90,768.60)
Commissions	 (100,854 @ $0.60/sf)			   $(60,512.40)
Reserves	 (100,854 @ $0.25/sf)			   $(25,213.50)
Total								  $(176,494.50)

NOI							       $2,781,049.05

Overall Capitalization Rate				          9.0%

Indicated Value				     		 $30,900,545.00

Fair Cash Value						 $30,900,500.00


			  130 Waverly Street FY 2006

Rent
100,854 @ $32.75/sf					 $3,302,968.50

Vacancy	 (15%)					  $(495,445.28)

Effective Gross Income					 $2,807,523.23

Expenses							
Operating	 (15% x 100,854 @ $6.00/sf)		   $(90,768.60)
Commissions	 (100,854 @ $0.60/sf)		         $(60,512.40)
Reserves	 (100,854 @ $0.25/sf)			   $(25,213.50)
Total								   $176,494.50)

NOI								 $2,631,028.73

Overall Capitalization Rate				          8.7%

Indicated Value						$30,241,709.48

Fair Cash Value				            $30,241,700.00
		

  130 Waverly Street FY 2007

Rent
100,854 @ $32.75/sf					 $3,302,968.50

Vacancy	(12%)						  $(396,356.22)

Effective Gross Income					 $2,906,612.28

Expenses
Operating 	(12% x 100,854 @ $6.25/sf)	         $(75,640.50)
Commissions (100,854 @ $0.60/sf)			   $(60,512.40)
Reserves	(100,854 @ $0.25/sf)			   $(25,213.50)
Total       						  $(161,366.40)

NOI								 $2,745,245.88

Overall Capitalization Rate			                 8.4%

Indicated Value						$32,681,498.57

Fair Cash Value						$32,681,500.00

				

  200 Sidney Street FY 2005
Rent
Office/Lab   (154,693 @ $37.50/sf)			 $5,800,987.50
Storage      (37,211 @ $12.00/sf)		         $446,532.00
Total							       $6,247,519.50

Vacancy      (15%)					  $(937,127.93)

Effective Gross Income				       $5,310,391.58

Expenses
Operating    (15% x 191,904 @ $5.00/sf)	         $143,928.00
Commissions  (191,904 @ $0.60/sf)			   $115,142.40
Reserves     (191,904 @ $0.25/sf)			    $47,976.00
Total								   $307,046.40

NOI								 $5,003,345.18

Overall Capitalization Rate				          9.0%

Indicated Value						$55,592,724.17

Fair Cash Value					   	$55,592,700.00


			  200 Sidney Street FY 2006

Rent 	 
Office/Lab   (154,693 @ $35.75/sf)			 $5,530,274.75
Storage	 (37,211 @ $12.00/sf)			   $446,532.00
Total	 	 						 $5,976,806.75

Vacancy	 (15%)		  			  ($896,521.01)

Effective Gross Income					 $5,080,285.74

Expenses
Operating	 (15% x 191,904 @ $5.00 sf)		   $143,928.00
Commissions  (191,904 @ $.60/sf)			   $115,142.40
Reserves	 (191,904 @ $.025/sf)			    $47,976.00
Total								   $307,046.40

NOI								 $4,773,239.34

Overall Capitalization Rate				          8.7%

Indicated Value						$54,864,819.97

Fair Cash Value						$54,864,800.00



   			  200 Sidney Street FY 2007

Rent
Office/Lab	  (154,693 @ $35.75/sf)			 $5,530,274.75
Storage	  (37,211 @ $12.00/sf)			   $446,532.00
Total		  						 $5,976,806.75

Vacancy	  (12%)		 			  ($717,216.81)

Effective Gross Income					 $5,259,589.94

Expenses
Operating	  (12% x 191,904 @ $5.25/sf)		   $120,899.52
Commissions	  (191,904 @ $0.60/sf)			   $115,142.40
Reserves	  (191,904 @ $0.25/sf)			    $47,976.00
Total								   $284,017.92

NOI								 $4,975,572.02

Overall Capitalization Rate				          8.4%

Indicated Value						$59,233,000.24

Fair Cash Value						$59,233,000.00


On the basis of the foregoing, the Board found that the appellant met its burden of proving that the subject properties were overvalued for each of the fiscal years at issue.  The Board found that the fair cash value of 130 Waverly Street was $30,900,500 for fiscal year 2005, $30,241,700 for fiscal year 2006, and $32,681,500 for fiscal year 2007.  Accordingly, the Board decided these appeals for the appellant and granted abatements in the amount of $52,394.14 for fiscal year 2005, $62,956.50 for fiscal year 2006, and $19,859.16 for fiscal year 2007.  
The Board found that the fair cash value of 200 Sidney Street was $55,592,700 for fiscal year 2005, $54,864,800 for fiscal year 2006, and $59,233,000 for fiscal year 2007.  Accordingly, the Board decided these appeals for the appellant and granted abatements in the amount of $162,949.75 for fiscal year 2005, $172,206.12 for fiscal year 2006, and $96,510.54 for fiscal year 2007.  

				    OPINION
The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The ascertainment of a property's highest and best use is a prerequisite to a valuation analysis. See Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 429 (2004); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). "A property's highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive." Northshore Mall Limited Partnership, et al v. City of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 246, aff'd, 63 Mass. App. Ct. 1116 (2005).   In the instant appeals, both valuation experts concluded, and the Board ruled, that the highest and best use of the subject properties was a continuation of their existing use as office and laboratory space.  
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of reproduction.  Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  "The Board is not required to adopt any particular method of valuation."  Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  Regardless of which method is employed to determine fair cash value, the Board "must determine 'the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market.'"  Irving Saunders Trust, 26 Mass. App. Ct. at 843. (citations omitted.) "The validity of a final estimate of market value depends to a great extent on how well it can be supported by market data." Chatham Investment Trust of Newton v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2007-298, 308,(citing The Appraisal Institute, The Appraisal of Real Estate (12th ed. 2001) 134).    
In the instant appeals, the Board found and ruled that the income-capitalization approach was the best method for valuing the subject properties.  The income-capitalization approach "is frequently applied with respect to income-producing property." Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  Further, the income-capitalization method "is appropriate when reliable market-sales data are not available."  Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810, 811 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972).  Moreover, it was the approach used by both expert witnesses and the assessors.  
In addition, the Board found and ruled that the cost approach was not a reliable method for valuing the subject properties. Generally, the cost-approach is used to value special-purpose properties.  Thomas and Barbara O'Brien, Trustees v. Board of Assessors of the Town of Berlin, Mass. ATB Findings of Fact and Reports, 2000-190, 201-02.  Moreover, the Board found that overall market conditions during the relevant assessment periods made it difficult to account for factors such as external obsolescence for both of the subject properties, while the age and configuration of 130 Waverly Street precluded the effective use of the cost approach for that property.  
Likewise, the Board found and ruled that the sales-comparison approach was not a reliable method for valuing the subject properties.  Most of the recent sales of comparable properties involved the sale of leased-fee rather than fee-simple interests.  Without appropriate adjustment, that discrepancy has been recognized as a barrier to the effective use of the sales-comparison approach in past appeals.  See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 247 (1998); Mayflower Liberty Tree, LLC v. Assessors of Danvers, Mass. ATB Findings of Fact and Reports 2005-291, 328; Fawcett Street Associates v. City of Cambridge, Mass. ATB Findings of Fact and Reports, 2008-813, 864-64.    Further, the most recent sales of the subject properties were part of a portfolio sale of multiple properties and did not present reliable evidence of the fair cash value of the subject properties individually.  See Northshore Mall Limited Partnership, Mass. ATB Findings of Fact and Reports at 2004-249.  The Board therefore rejected Mr. Foster's sales-comparison analysis, which he used as a check on his income-capitalization analysis, because it was not predicated on truly comparable data.  
The appellee advanced a number of arguments as to why Mr. Logue's valuation analysis was flawed and should be discredited.  None of them, however, was persuasive.  For example, the appellee asserted that Mr. Logue's refusal to conduct a sales-comparison analysis was merely a "subterfuge" because such an analysis would have yielded higher fair cash values.  In addition to being unfounded, the appellee's argument overlooks the fact that, in setting their assessed values, the assessors also declined to use a sales-comparison analysis and instead relied solely on an income-capitalization approach, as well as the fact that Mr. Foster himself ultimately relied on an income-capitalization analysis to arrive at his opinions of fair cash value in these appeals.  
Similarly, the appellee attempted to discredit Mr. Logue's income-capitalization analysis by demonstrating that Mr. Logue, who calculated his NOI by deducting reserves for replacement, brokerage commissions, and tenant improvements, based his capitalization rates on the Korpacz Survey, which contains capitalization rates derived from an NOI calculated before deductions for reserves for replacement, brokerage commissions, and tenant improvements.  Though the appellee is correct in stating that a capitalization rate should be applied to an NOI which contains the same income and expense elements as the NOI from which it is derived, (see The Appraisal Institute, The Appraisal of Real Estate at 520), this argument was futile.  For fiscal year 2005, Mr. Foster's final values for the subject properties were derived using a capitalization rate which was identical to the base rate used by both Mr. Logue and the assessors.   Mr. Foster's final values for fiscal years 2006 and 2007 were derived using capitalization rates only marginally lower than the rates selected by Mr. Logue.  Despite his apparent error, Mr. Logue's capitalization rates were well within the range of rates supported by the market data and used by both Mr. Foster and the assessors.  Further, Mr. Logue's capitalization rates were not derived solely by reference to the Korpacz Survey.  Mr. Logue also used the mortgage equity technique, through which he derived rates nearly identical to the average rates contained in the Korpacz Survey and those used by the assessors and Mr. Foster. Further, his consideration of the Korpacz Survey rates caused him to lower the capitalization rates he determined under the mortgage equity technique. Accordingly, the Board did not find the appellee's arguments to be persuasive.  See also Cambridge Park 125 Realty Corp. & another  v. City of Cambridge, Mass. App. Ct. No. 08-P-1530, Memorandum and Order under Rule 1:28 at 6-7 (June 23, 2009).  
In reaching its opinion of fair cash value in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested.  Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight.  Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); New England Oyster House, Inc., 362 Mass. at 702.  In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value.  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 605 (1984); North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).  Further, "'[t]he burden of proof is upon the [appellant] to make out [its] right as a matter of law to abatement of the tax.'"  Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974), (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  The Board applied these principles in reaching its opinion of the fair cash values of the subject properties and determined that the appellant met its burden of proving that the subject properties were overvalued for each of the fiscal years at issue.    
	The Board therefore decided these appeals for appellant and granted abatements for 130 Waverly Street in the amounts of $52,394.14 for fiscal year 2005, $62,956.50 for fiscal year 2006, and $19,859.16 for fiscal year 2007, respectively.  For 200 Sidney Street, the Board granted abatements in the amounts of $162,949.75 for fiscal year 2005, $172,206.12 for fiscal year 2006, and $96,510.54 for fiscal year 2007.  

     				APPELLATE TAX BOARD

				By:	________________________________
					Thomas W. Hammond Jr., Chairman





A true copy,

Attest:____________________________  
	       Clerk of the Board

 These appeals are being prosecuted by Vertex Pharmaceuticals, Inc. ("appellant" or "Vertex") under G.L. c. 59, § 59 as a tenant paying rent and under an obligation to pay more than one-half of the taxes assessed.

 130 Waverly Street is also known as 40 Erie Street.  The property consists of two attached buildings which are separated by a firewall.  
 The fiscal year 2007 actual tax bill was mailed on October 20, 2006.  The appellant's corresponding Application for Abatement was filed on November 20, 2006, thirty-one days later. Although Applications for Abatement must be filed within thirty days of the mailing of the actual tax bill, where, as here, the last day of a filing period falls on a Sunday, the filing is still considered timely if it is made on the following business day.  G.L. c. 4, § 9 (providing, in pertinent part, that "when the day or the last day for the performance of any act . . . falls on Sunday or a legal holiday, the act may . . . be performed on the next succeeding business day.").  Accordingly, the Board found and ruled that Vertex timely filed its fiscal year 2007 Application for Abatement on Monday, November 20, 2006.  
 For the same reasons discussed in footnote three, supra, the Board found that Vertex timely filed its Application for Abatement for fiscal year 2007.  
 Mr. Logue initially identified ten comparable leased properties.  Subsequently, he determined that the lease information for one of the properties, located at 770-780 Memorial Drive, was not accurate.   He therefore struck that information from his appraisal report and disregarded it for the purposes of valuing the subject properties.  
 "TI" refers to tenant improvement allowance, an amount paid to build-out space according to the particular needs of the tenant.  See Appraisal Institute, The Appraisal of real estate (12th ed. 2001) 508-509.
 A "triple-net" lease is a lease under which the tenant pays utilities, taxes, insurance, and maintenance, and the landlord pays for only structural repairs.  See Appraisal Institute, The Appraisal of real estate (12th ed. 2001) 477.

 The average rates cited in the Korpacz Survey vary by property type and location.  
 Although both experts' comparable leased properties show multi-year leases with gradually increasing rents, the subject properties must be valued as if unencumbered by leases.  Because the evidence of record showed that leases commencing during the relevant periods for fiscal years 2006 and 2007 in Cambridge generally leased at lower rates than during the relevant period for fiscal year 2005, the Board found it appropriate to use lower rents for fiscal years 2006 and 2007.  
 Like Mr. Logue, Mr. Foster applied a different rent to the basement area of 200 Sidney Street.  However, even his blended rents were in excess of the rate of $36.04 per square foot rent used by the assessors. The Board found that Mr. Foster's rents were overstated and were not supported by the market data.  

ATB 2009-1090