F309194; F312418; F316330; F319150

Full text

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

BEHRAKIS DRAKE G. & v. BOARD OF ASSESSORS OF
DONALD P. QUINN, TRUSTEES THE TOWN OF BOURNE
OF THE CLAYBOURNE REALTY
TRUST

Docket Nos.: F309194, F312418 Promulgated:
F316330, F319150 September 26, 2014

These are appeals filed 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 Town of Bourne ("appellee" or "assessors") to abate taxes on certain real estate in Bourne owned by and assessed to Behrakis Drake G. and Donald P. Quinn, Trustees of the Claybourne Realty Trust ("Trust" or "appellant") under G.L. c. 59, §§ 11 and 38, for fiscal years 2010 through 2013 ("fiscal years at issue").
Commissioner Good heard these appeals. Chairman Hammond and Commissioners Scharaffa, Rose, and Chmielinski joined her in the decisions for the appellant.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.

George A. McLaughlin, III, Esq. and Matthew E. Burke, Esq. for the appellant.

Robert S. Troy, Esq. for the appellee.
FINDINGS OF FACT AND REPORT

Introduction and Jurisdiction
These appeals involve the valuation of a 16.18-acre parcel of land improved with a 56,755 square-foot building located at 170 Clay Pond Road in Bourne (the "subject property"). The hearing of these appeals involved the testimony of numerous witnesses and generated a substantial documentary record, including an Agreed Statement of Facts. Additionally, at the request of the parties, Commissioner Good ("Presiding Commissioner") took a view of the subject property and other properties in its immediate vicinity which were offered as comparisons. On the basis of the Agreed Statement of Facts and attached exhibits, the testimony and additional documents entered into evidence at the hearing of these appeals, and the Presiding Commissioner's view of the subject and select comparison properties, the Appellate Tax Board ("Board") made the following findings of fact.
On January 1, 2009, January 1, 2010, January 1, 2011, and January 1, 2012, the appellant was the assessed owner of the subject property. The assessed values of the subject property and the taxes assessed thereon for each of the fiscal years at issue are set forth in the following table:

Fiscal
Year Assessed
Value ($) Tax Rate
($/1,000) Total Tax
Assessed ($)
2010 7,783,300 7.54 60,446.68
2011 7,783,600 8.21 66,287.46
2012 6,970,500 9.12 66,035.72
2013 6,198,400 9.45 60,828.01

For each of the fiscal years at issue, the appellant timely paid the tax due without incurring interest. Additional jurisdictional information for each of the fiscal years at issue is set forth in the following table:
Fiscal
Year Abatement Application Filed Abatement Application Denied Appeal Filed
2010 1/28/10 4/27/10 7/21/10
2011 1/29/11 4/29/11 6/10/11
2012 1/26/12 4/4/12 6/8/12
2013 2/1/13 2/15/13 5/3/13

Based on the foregoing facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The Subject Property

Physical Description
The subject property was constructed in 1992 and is a single-story, multi-tenant shopping center. As configured during the fiscal years at issue, the subject property had six separate retail premises, with the largest space, intended for an anchor tenant, at one end and five smaller in-line spaces comprising the rest of the center. The anchor space was approximately 36,325 square feet in size, while the remaining in-line spaces were 7,580, 4,850, 1,600, 3,200, and 3,200 square feet in size.
Consisting of masonry over steel trusses, the subject building is a Colonial-style edifice with wood shingles and a false gabled facade. The roof is flat with a rock ballasted membrane. There are three loading docks to the rear of the building servicing the anchor store, with smaller rear-entry doors for each of the in-line spaces. The record indicated that a building permit for $680,000 was issued to the appellant in 2008 for improvements to the subject property's exterior, and the Presiding Commissioner's view confirmed that the exterior was in good condition.
Interior features, such as lighting and flooring, varied from unit to unit, but included a mix of carpet and tile floors and fluorescent lighting fixtures.
Location, Access, and Neighborhood
The subject property is located just off of MacArthur Boulevard, which is State Route 28, but it is not accessible directly from Route 28. Instead, there is a turn-off lane from Route 28 onto Clay Pond Road, which thereafter inclines rapidly such that the subject property sits perched above Route 28.
Immediately to the rear of the subject property is a sizeable low-income housing development, and past the subject property, Clay Pond Road leads to a series of residential neighborhoods. Abutting the subject property at the corner of Route 28 and Clay Pond Road are two fast food establishments - McDonald's and Dunkin' Donuts - and a mix of other businesses, including a bank, a gas station, and a convenience store. Both before and past the exit for Clay Pond Road, additional commercial development exists along Route 28.
The subject property is located in the "Business 4" zoning district, and there was no indication in the record that any of the current or previous uses of the subject property were non-conforming.
Economic History: Sale, Rents, and Vacancies
The appellant purchased the subject property in November of 2007 in an arm's-length transaction for a total consideration of $8,000,000. At the time of the appellant's purchase, the anchor space was occupied by a Grand Union ("Grand Union") supermarket, which had entered into a 20-year lease with the subject property's previous owner in 2004. Under the terms of that lease, Grand Union was obligated to pay a rent of $11.79 per square foot on a net basis as of January 1, 2009, and it was obligated to pay a rent of $12.29 per square foot, also on a net basis, as of January 1, 2010, January 1, 2011, and January 1, 2012.
In addition, a 4,850 square-foot in-line space was rented by a liquor store, GU Market Spirits, LLC. That lease was later assigned to Bourne Liquors, Inc. d/b/a Luke's Liquor'N More ("Luke's"). As of the first valuation date at issue, Luke's paid a rent of $7.00 per square foot, on a net basis, and for the last three fiscal years at issue, the contract rent increased to $7.50 per square foot. Further, a 3,200 square-foot in-line space was rented by an establishment named Pizza by Evan, which was a dine-in and take-out restaurant serving primarily pizza and sandwiches. Throughout the fiscal years at issue, the rent for that space was $10.00 per square foot, also on a net basis. The remaining three in-line spaces were vacant at the time of the appellant's purchase of the subject property and throughout the fiscal years at issue.
In the fall of 2008, Stop & Shop Supermarkets ("Stop & Shop") acquired the leasehold interests of three Grand Union grocery stores, including the one located at the subject property. Timothy Mahoney, Senior Vice President of Real Estate for Ahold, USA, which is Stop & Shop's parent company, testified at the hearing of these appeals, and the Board found his testimony to be credible. Mr. Mahoney explained that the acquisition was driven by Stop & Shop's keen interest in obtaining the Provincetown grocery store that had been operated by Grand Union. He testified that the Provincetown location was so desirable because there was no other grocery store within a 20-mile radius. According to Mr. Mahoney, Stop & Shop was not interested in acquiring the leasehold interest at the subject property, but was informed by Grand Union that it had to buy all three locations or it would get none.
Mr. Mahoney explained that Stop & Shop was not interested in operating a grocery store at the subject property for several reasons. First, he stated that access to and visibility of the subject property were poor and further that area demographics were not conducive to the successful operation of a grocery store at that location. Second, Mr. Mahoney explained that the size of the anchor space was too small to meet the needs of a current-day grocery store. Third, Mr. Mahoney testified that Stop & Shop would have had to spend an estimated $6,000,000 to renovate the subject's anchor space to current operating standards, and it was his opinion that even after doing so, it would likely operate at a loss. Stop & Shop therefore determined that it would be less costly to leave the store vacant but honor the terms of the lease until its expiration in 2024 than to try to operate a store there. Thus, Stop & Shop took over the leasehold for the anchor space at the subject property in November of 2008, and immediately shuttered the store.
The lease, which was entered into evidence, contained a "recapture" provision, which allowed the appellant to terminate the lease, with notice to the tenant, if less than 50% of it was open for business for a period of 18 months. The appellant offered the testimony of several witnesses detailing the efforts that it has made to procure a new tenant for the anchor space, as well as the vacant in-line spaces. The evidence showed that both the appellant and Stop & Shop separately engaged brokers to try to lease or sublease the anchor space, but as of the hearing of these appeals, all efforts had been fruitless. Frederick McFadden, who works for the property management firm hired by the appellant to manage the subject property, testified that many prospective tenants looking at the in-line spaces lose interest when they learn that the anchor store is not occupied. Mr. McFadden further testified that a range of different types of users have inquired about leasing the anchor space, including people interested in operating a gym, a children's entertainment venue, and a kayak rental business, but none had ultimately entered into a lease.
John Sisk, an asset manager for Marwick Associates, a real estate firm that is the parent company of the appellant, also testified at the hearing of these appeals. Mr. Sisk testified that soon after Grand Union departed, he had discussions with representatives of Stop & Shop's main competitor - Market Basket - about locating at the subject property. According to Mr. Sisk, Market Basket was not interested in opening a store at the subject property. In 2012, Market Basket opened a 65,000-square-foot store elsewhere in Bourne. In addition, Mr. Mahoney testified that, in the fall of 2013, Stop & Shop purchased a large parcel of land in Bourne with plans to build a major mixed-use development, potentially including a grocery store.
The Appellant's Case-in-Chief
The appellant presented its case-in-chief through the testimony and self-contained appraisal report of Donald P. Bouchard. Mr. Bouchard is a certified real estate appraiser with extensive appraisal experience whom the Board qualified as an expert witness without objection.
To prepare for his appraisal, Mr. Bouchard physically inspected the subject property in 2012 and 2013. In both his testimony and his appraisal report, Mr. Bouchard discussed the many internal and external challenges facing the subject property which led him to conclude that it was a "distressed" property.
Foremost among these challenges, in Mr. Bouchard's opinion, were the poor visibility of and access to the subject property. As discussed above, the subject property is accessed primarily via a turn-off lane from the southbound lane of Route 28 onto Clay Pond Road, which inclines rapidly such that the subject property sits above Route 28 and is not highly visible from it. In addition, because the northbound lane of Route 28 is separated from the southbound lane by a large, grassy and treed median, those seeking to access the subject property from Route 28 North must first drive past it and then reverse direction at a turnaround lane onto Route 28 South. These visibility and access issues negatively impacted the market value of the subject property, in Mr. Bouchard's opinion.
In addition, Mr. Bouchard opined that relatively poor demographics in the subject property's immediate area negatively impacted its market value. According to Mr. Bouchard, the population within a three-mile radius of the subject property was approximately 11,399, and the presence of a large military base nearby further limited the potential commercial and residential development in the vicinity.
Finally, Mr. Bouchard stated that the physical configuration of the subject property was substantially obsolete, as the current industry standards for grocery stores require much more space than is offered by the subject property's anchor space. In making this assertion, Mr. Bouchard pointed out that the new Market Basket built in Bourne in 2012 had approximately 65,000 square feet of space. He stated further that the issues impacting the anchor space have had a cascading negative effect on the remaining retail spaces within the subject property. In support of this assertion, Mr. Bouchard cited the following excerpt from Shopping Center Appraisal Analysis, a publication of the Appraisal Institute: "The anchor tenant is the key to the success of a shopping center. It contributes enormously to the center's cumulative attraction potential and is the generative source of retail activity."
These issues of internal and external obsolescence caused Mr. Bouchard to conclude that the subject property was "approaching the end of its economic life." Nevertheless, Mr. Bouchard concluded that the subject property was more valuable as currently improved than as vacant, and he therefore concluded that its highest and best use was its continued use as a shopping center.
Mr. Bouchard next considered the three usual approaches to value. He opined that the cost-reproduction approach was an inappropriate methodology with which to value the subject property because of the aforementioned obsolescence issues, and he therefore declined to use that approach. Further, he did not use the sales-comparison approach because the vast majority of sales of comparable shopping centers were leased-fee sales, and he did not believe that the data would provide a reliable indication of the subject property's fee simple, fair cash value. Accordingly, Mr. Bouchard selected the income-capitalization approach to value, as the other methodologies were not reliable and the subject property was an income-producing property.
Selecting appropriate market rents was the first step in Mr. Bouchard's income-capitalization analysis, and to that end, he reviewed the leases in place at the subject property as well as eleven leases from purportedly comparable properties. Mr. Bouchard placed primary emphasis on the determination of a market rent for the anchor space, as it comprised 63% of the subject property. Thus, these eleven leases involved mainly large blocks of "second-generation anchor" space, that is, the types of discount retailers and other businesses that lease spaces formerly occupied by grocery stores or other large national or regional retail chains. Relevant information regarding Mr. Bouchard's selected comparable leases appears in the following table.

Mr. Bouchard's Comparable Leases

No. Address Tenant Square Feet Date Rent PSF ($)
1 10 Pilgrim Hill Rd., Plymouth Savers 30,800 9/09 9.00
2 10 Pilgrim Hill Rd., Plymouth Grossman's Bargain Outlet 30,000 10/10 6.50
3 10 Pilgrim Hill Rd., Plymouth Work Out World 24,000 9/12 7.60
4 160 North Main St., Carver USA Fitness 28,000 8/10 3.50
5 160 North Main St., Carver Dollar Tree 10,500 7/08 5.00
6 7 Long Pond Rd., Yarmouth Planet Fitness 15,080 10/03 7.00
7 137 Teaticket Hghwy.,
Falmouth Falmouth Cinema Pub 11,050 07/09 7.50
8 58 Swansea Mall Dr., Swansea Price Rite 30,000 03/06 5.25
9 310 Watertower Pl., Leominster Ocean
State Job Lot 33,400 09/10 6.00
10 1385 Washington St., North Attleboro Savers 28,500 06/09 9.00
11 1195 Washington St., North Attleboro Chris Gasbarro's Fine Wine and Spirits 21,500 03/10 8.00

Mr. Bouchard then made adjustments to account for differences in factors such as market conditions, location, and other discrepancies between his selected lease comparables and the subject property. His adjustments are summarized in the following table.

Mr. Bouchard's Adjustments to Comparable Leases
No. Rent PSF ($) Market Conditions Demographics/
Location Access/ Visibility Facility/ Obsolescence Total Adj. (%) Adj. Rent PSF ($) 1 9.00 Similar Superior Superior Superior -25 6.75 2 6.50 Similar Superior Superior Superior -25 4.88 3 7.60 Similar Superior Superior Superior -25 5.70 4 3.50 Similar Similar Superior Similar -10 3.15 5 5.00 Similar Similar Superior Similar -10 4.50 6 7.00 Superior Superior Superior Superior -20 5.60 7 7.50 Similar Superior Superior Superior -25 5.63 8 5.25 Superior Superior Superior Similar -15 4.46 9 6.00 Similar V. Superior Superior Similar -20 4.80 10 9.00 Similar V. Superior Superior Similar -25 6.75 11 8.00 Similar V. Superior Superior Similar -25 6.00
On the basis of these eleven comparable rents and his adjustments thereto, Mr. Bouchard concluded a market rent for the subject property's anchor space of $5.50 per square foot for each of the fiscal years at issue.
To form his opinion of market rent for the subject property's in-line spaces, Mr. Bouchard relied on a variety of sources. First, he gave weight to the rents being paid by Luke's and Pizza by Evan during the fiscal years at issue. Second, he gave weight to his comparable lease numbers five and seven, as they involved the smallest amounts of space among his lease comparables and therefore, he believed, were more probative of market rent for smaller to mid-size spaces. Third, he gave weight to the views offered by several commercial real estate brokers with whom he spoke, including those marketing the vacant spaces at the subject property. According to Mr. Bouchard, the brokers indicated that the asking rents for the subject property's vacant in-line spaces were between $10 to $12 per square foot during the periods at issue.
Based on all of these sources, Mr. Bouchard's opinions of market rent for the subject property's in-line spaces were: $10.00 per square foot as of January 1, 2009; $9.75 per square foot as of January 1, 2010; $9.50 per square foot as of January 1, 2011; and $9.25 per square foot as of January 1, 2012.
According to Mr. Bouchard, these rents reflected the trend illustrated by industry publications and other data, that is, that the market was better in early 2009 and then declined and stagnated in 2010 and 2011 before slightly rebounding in 2012.
Similarly, according to industry data contained within Mr. Bouchard's appraisal report, vacancy rates at national strip malls increased steadily from approximately 8% in the last quarter of 2008 to over 10% by mid-2011. This data was consistent with vacancy rates published by KeyPoint Partners, a firm which focuses on retail real estate trends, which indicated retail vacancy rates of approximately 9.4% in the Buzzards Bay area for the first quarter of 2009.
In addition to this industry data, in selecting appropriate vacancy rates for his income-capitalization analysis, Mr. Bouchard gave consideration to the subject's actual historical vacancy. From 2006 to 2008, prior to the exodus of the Grand Union, the subject property was approximately 22% vacant, or 78% leased. Following the departure of Grand Union in 2009, though it remained 78% leased, the subject property was 86% unoccupied, and Mr. Bouchard regarded the subject property as being 86% vacant during the fiscal years at issue.
After considering the market data, but relying most heavily on the subject property's historical vacancy rates, Mr. Bouchard selected a vacancy rate of 20% as of January 1, 2009 and 22% as of January 1, 2010, January 1, 2011, and January 1, 2012.
The next step in Mr. Bouchard's income-capitalization analysis was the determination of appropriate operating expenses. To determine appropriate expenses for the subject property, Mr. Bouchard reviewed the subject property's actual operating expenses for the years 2008 through 2011. He observed that the expenses exhibited a high degree of consistency, remaining at approximately $181,000 per year, or $3.19 per square foot, throughout that period. Mr. Bouchard therefore relied on the subject's reported operating expenses to form his estimated operating expenses. He began with a figure of $175,000 for fiscal year 2010, increasing by 2.5% per annum thereafter to account for inflation, and then pro-rating to reflect only the unrecovered expenses, consistent with his projected vacancy rates, as most retail leases are triple-net leases, under which the tenant pays the expenses.
The final step in Mr. Bouchard's income-capitalization analysis was the determination of an appropriate capitalization rate. Mr. Bouchard looked at industry surveys published by Fantini & Gorga, PWC Korpacz ("Korpacz"), and RealtyRates.com. According to Mr. Bouchard, Korpacz reported the following data for the fourth quarters of 2008 through 2011:
Non-Institutional Cap Rate Risk Premiums
Q4 2008 - 203 basis points
Q4 2009 - 278 basis points
Q4 2010 - 303 basis points
Q4 2011 - 256 basis points
National Strip Center - Non-Institutional Rates
Q4 2008 - 9.36%
Q4 2009 - 11.31%
Q4 2010 - 10.66%
Q4 2011 - 9.72%
It was Mr. Bouchard's opinion that, while these sources were helpful for determining appropriate capitalization rates for his income-capitalization analysis, this data almost certainly reflected superior assets than the subject property.
In addition to reviewing these published surveys, Mr. Bouchard also employed a band-of-investment analysis to assist in the selection of capitalization rates. Given the problems in the capital markets, Mr. Bouchard used a 50% loan-to-value ratio for fiscal years 2010 and 2011, while he used 55% and 60% loan-to-value ratios for fiscal years 2012 and 2013, respectively, to reflect the slight improvement in the capital markets. Further, Mr. Bouchard selected 7-year treasuries for each of the fiscal years at issue, while he used a 400 basis point loan rate premium for fiscal years 2010 through 2012 and a 350 basis point loan rate for fiscal year 2013. Lastly, he assumed a 20-year amortization schedule. Applying these factors yielded the following rounded mortgage rates: 7.00% for fiscal year 2010; 8.00% for fiscal year 2011; 7.25% for fiscal year 2012; and 6.00% for fiscal year 2013.
To select an equity component for his band-of-investment analysis, Mr. Bouchard consulted equity dividend rates published by RealtyRates.com, which reported the following rates for the first quarter of 2009:
Minimum Maximum Average
Anchored Retail 7.40% 14.94% 10.79%
Un-anchored 7.60% 16.14% 11.44%
Convenience/Gas 7.50% 15.54% 10.97%
Freestanding 7.35% 15.39% 10.97%

Mr. Bouchard concluded that, given the circumstances at the subject property, it was reasonable to employ equity dividend rates in excess of the average. Thus, for fiscal years 2010 through 2013, he used the following rates, respectively: 13.00%; 13.00%; 12.50%; and 12.00%.
Incorporating his selected mortgage and equity dividend rates in a band-of-investment analysis resulted in the following indicated capitalization rates: 11.89% for fiscal year 2010; 12.23% for fiscal year 2011; 10.84% for fiscal year 2012; and 9.95% for fiscal year 2013.
After considering the rates indicated by his band-of-investment analysis as well as the rates indicated in the industry publications, Mr. Bouchard ultimately selected the following capitalization rates for his income-capitalization analysis: 11.00% for fiscal year 2010; 11.50% for fiscal year 2011; 10.50% for fiscal year 2012; and 10.00% for fiscal year 2013. To these capitalization rates, he added tax factors pro-rated to reflect his selected vacancy rates.
Mr. Bouchard's income-capitalization approach for each of the fiscal years at issue is substantially reproduced below:

Mr. Bouchard's FY 2010 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 5.50
Anchor PGI ($) 199,788

In-line Retail SF 20,430
In-line Rent ($/sf) 10.00
In-Line PGI($) 204,300
Total PGI ($) 404,088

Vacancy &
Collection Loss @ 20% ($80,818)

EGI($) 323,270

Owner Expenses ($) (35,000)

NOI ($) 288,270

Cap Rate with
Partial Tax Factor 11.15%

Rounded Fair Cash ($) 2,600,000
Value

Mr. Bouchard's FY 2011 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 5.50
Anchor PGI ($) 199,788

In-line Retail SF 20,430
In-line Rent ($/sf) 9.75
In-Line PGI($) 199,193
Total PGI ($) 398,980

Vacancy &
Collection Loss @ 22% ($87,776)

EGI($) 311,204

Owner Expenses ($) (39,643)

NOI ($) 271,561

Cap Rate with
Partial Tax Factor 11.68%

Rounded Fair Cash ($) 2,325,000
Value

Mr. Bouchard's FY 2012 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 5.50
Anchor PGI ($) 199,788

In-line Retail SF 20,430
In-line Rent ($/sf) 9.50
In-Line PGI($) 194,085
Total PGI ($) 393,873

Vacancy &
Collection Loss @ 22% ($86,652)

EGI($) 307,221

Owner Expenses ($) (40,449)

NOI ($) 266,772

Cap Rate with
Partial Tax Factor 10.70%

Rounded Fair Cash ($) 2,500,000
Value

Mr. Bouchard's FY 2013 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 5.50
Anchor PGI ($) 199,788

In-line Retail SF 20,430
In-line Rent ($/sf) 9.25
In-Line PGI($) 188,978
Total PGI ($) 388,765

Vacancy &
Collection Loss @ 22% ($85,528)

EGI($) 303,237

Owner Expenses ($) (41,460)

NOI ($) 261,777

Cap Rate with
Partial Tax Factor 10.21%

Rounded Fair Cash ($) 2,575,000
Value

Based on his income-capitalization analysis, Mr. Bouchard's final opinion of the subject property's fair cash value for the fiscal years at issue was: $2,600,000 for fiscal year 2010; $2,325,000 for fiscal year 2011; $2,500,000 for fiscal year 2012; and $2,575,000 for fiscal year 2013.
The Assessors' Case-in-Chief
The assessors presented the testimony of two witnesses along with numerous documentary exhibits. Their first witness was Coreen Moore, Town Planner for Bourne. Ms. Moore's testimony was offered primarily to rebut the appellant's assertions that Bourne's demographics were unfavorable for grocery stores and other retail establishments.
Ms. Moore testified that Bourne has approximately 20,000 year-round residents, with double that many residents in the summertime. Ms. Moore also testified about the many business and other facilities proximate to the subject property, including the aforementioned military base and the National Cemetery associated therewith. Ms. Moore stated that the National Cemetery handles approximately 1,300 burials annually. Also located near the subject property, according to Ms. Moore, is the Barnstable County Jail, which has 350 employees, and the Bay View Campground, which has 462 seasonal campsites.
Ms. Moore testified that each day, an average of 50,000 vehicles cross the Bourne Bridge onto the rotary which leads to MacArthur Boulevard. From that point, it is about two miles to the exit for Clay Pond Road off of MacArthur Boulevard. In addition, Ms. Moore testified that 3.5 miles from the subject property, there is a satellite parking lot for the Steamship Authority in Woods Hole. The Steamship Authority transports passengers and vehicles to the island of Martha's Vineyard, and the evidence showed that in 2012, for example, some 2,224,441 passengers took the ferry to Martha's Vineyard from Woods Hole.
Ms. Moore also offered testimony to rebut the appellant's assertion that access to the subject property was poor. Ms. Moore testified that MacArthur Boulevard is well known to motorists, as is Clay Pond Road, which she stated is a major connector to County Road, which runs parallel to MacArthur Boulevard. She stated that first-time visitors might have difficulty, but "once you know the network," accessing the subject property is not at all difficult. The Board found her testimony to be credible.
The assessors presented their valuation evidence through the testimony and income-capitalization analysis of Janet Black, who is an assistant assessor for Bourne and a certified real estate appraiser with over 30 years of appraisal experience. Based on her experience and credentials, and without objection from the appellant, the Board qualified her as an expert in real estate valuation.
Ms. Black testified that she performed an income-capitalization analysis for the subject property for each of the fiscal years at issue in order to determine whether the assessed value for each of the fiscal years at issue accurately reflected the subject property's fair cash value. As part of her review and in preparation for her income-capitalization analysis, Ms. Black personally inspected the subject property and reviewed information provided by the appellant regarding its rental history.
Ms. Black began her analysis by reviewing leases at comparable properties in order to determine fair market rents. Ms. Black testified that she chose properties in the subject's immediate area to minimize differences in locational influence. She therefore selected seven leases from properties located directly on MacArthur Boulevard in Bourne and another lease for a property located on Cranberry Highway in Bourne. Ms. Black also included information about two leases for grocery stores outside of Bourne - one in Carver, one in Dedham - in an effort to demonstrate comparable grocery store rents. However, Ms. Black testified that she ultimately discarded those two rents and did not use them in selecting fair market rents for her income-capitalization analysis. Relevant information regarding Ms. Black's selected comparable leases is included in the following table:

Ms. Black's Comparable Leases

No. Address Tenant Size (sf) Lease Date/Length Rent PSF ($)
1 590 MacArthur Blvd., Bourne Portside Liquors 4,010 2006/4 yr.
2010/10 yr. 12.98
2 590 MacArthur Blvd., Bourne Primetime Pizza 1,344 2006/15 yr. 13.39
3 536 MacArthur Blvd., Bourne Children's Workshop 9,600 2006/15 yr. 16.50
4 160 MacArthur Blvd., Bourne Environmental Operating Systems 3,875 2009/3 yr. 9.29
5 160 MacArthur Blvd., Bourne Dean's Carpets 1,500 2009/1 yr. 11.79
6 160 MacArthur Blvd., Bourne Cape Cod Nails 1,441 2009/1 yr. 14.16
7 5 Cranberry Hwy., Bourne Christmas Tree Shop 16,375 1987/20 yr. 16.92
8 750 MacArthur Blvd., Bourne GZ Riders, Inc. 12,740 2006/5 yr. 11.38
9 100 N. Main St., Carver Shaw's Supermarket 68,000 2005/25 yr. 21.85
10 160 Providence Hwy., Dedham Stop & Shop 74,236 2006/20 yr. 20.00

In her testimony, Ms. Black discussed two general principles of strip-mall economics. First, she testified that the anchor tenant typically pays lower per-square-foot rents than the in-line tenants. Second, proximity to the anchor store influences rents for the in-line spaces, i.e., the closer the space is to the anchor store, the higher the per-square-foot rent. Thus, applying these principles, and based upon her eight comparable leases in Bourne, Ms. Black determined the following market rents for the subject property:

Ms. Black's Market Rents for the Subject Property, Per Unit

Unit # FY 2010 ($/psf) FY 2011
($/psf) FY 2012
($/psf) FY 2013
($/psf)
1 (anchor) 14.00 13.50 12.50 12.00
2 16.50 16.00 15.50 14.00
3 16.00 15.50 15.00 14.00
4 15.00 14.00 14.00 13.00
5 15.00 14.50 14.00 13.00
6 15.00 14.50 14.00 13.00

After determining market rents, Ms. Black next selected a vacancy rate. Based on her "observations of property in the area," Ms. Black determined the following vacancy rates for the subject property: 5% for fiscal years 2010 and 2011, 7.5% for fiscal year 2012, and 10% for fiscal year 2013. Ms. Black testified that, overall, the market declined during the fiscal years at issue, as evidenced by both her selected rents and vacancy rates.
The next step in Ms. Black's income-capitalization analysis was the determination of appropriate operating expenses. She testified that she "reviewed the expenses they were discussing, but [she] had so many conflicting numbers on the expenses" that she could not reconcile them. She also opined that, because most of the leases were triple-net leases, the expenses were less relevant. Without further explanation or elaboration, Ms. Black selected operating expenses of 5% of estimated gross income ("EGI") for fiscal years 2010, 2011, and 2012, and 10% of EGI for fiscal year 2013.
Lastly, Ms. Black determined capitalization rates for each of the fiscal years at issue using the band-of-investment technique. To select appropriate loan rates, loan terms, and other factors for her band-of-investment analysis, Ms. Black consulted information published by CDC Small Business Finance, an on-line resource that provides, among other things, information about commercial loans, as well as the authoritative book on capitalization rates published by L.W. Ellwood, which Ms. Black referred to as the appraisal "Bible."
Ms. Black's band-of-investment analyses for each of the fiscal years at issue are substantially reproduced below.
Ms. Black's FY 2010 Capitalization Rate Development
Loan to Value Ratio: 0.75
Equity: 0.25
Loan Term: 20 years
Loan Rate: 5.75%
Equity Rate: 12%

Projection Period: 5 years
Mortgage Constant Full Term: 0.08425
Mortgage Constant Projection Period 0.230601
Sinking Fund Factor 0.1574
Percent Paid 0.06844

Loan to Value Ratio: 0.75 x .08425 = 0.0632
Equity: 0.25 x .12 = 0.0300

Weighted Average 0.0932

Less Credit for 0.75 x .06844
Equity Build Up: x .15741 = 0.0081

Indicated Cap Rate: 0.0851

Tax Factor: 0.00754

OVERALL RATE (rounded): 9.25%

Ms. Black's FY 2011 Capitalization Rate Development
Loan to Value Ratio: 0.75
Equity: 0.25
Loan Term: 20 years
Loan Rate: 5.75%
Equity Rate: 12.25%

Projection Period: 5 years
Mortgage Constant Full Term: 0.08425
Mortgage Constant Projection Period 0.230601
Sinking Fund Factor 0.15741
Percent Paid 0.06844

Loan to Value Ratio: 0.75 x .08425 = 0.0632
Equity: 0.25 x .1225 = 0.0306

Weighted Average 0.0938

Less Credit for 0.75 x .06844
Equity Build Up: x .15741 = 0.0081

Indicated Cap Rate: 0.0857

Tax Factor: 0.00821

OVERALL RATE (rounded): 9.40%

Ms. Black's FY 2012 Capitalization Rate Development
Loan to Value Ratio: 0.75
Equity: 0.25
Loan Term: 20 years
Loan Rate: 4.75%
Equity Rate: 12.50%

Projection Period: 5 years
Mortgage Constant Full Term: 0.077547
Mortgage Constant Projection Period 0.225083
Sinking Fund Factor 0.1543
Percent Paid 0.06278

Loan to Value Ratio: 0.75 x .077547 = 0.0582
Equity: 0.25 x .1250 = 0.0313

Weighted Average 0.0895

Less Credit for 0.75 x .06278
Equity Build Up: x .1543 = 0.0073

Indicated Cap Rate: 0.0819

Tax Factor: 0.00912

OVERALL RATE (rounded): 9.10%

Ms. Black's FY 2013 Capitalization Rate Development
Loan to Value Ratio: 0.75
Equity: 0.25
Loan Term: 20 years
Loan Rate: 4.25%
Equity Rate: 12.75%

Projection Period: 5 years
Mortgage Constant Full Term: 0.074308
Mortgage Constant Projection Period 0.222355
Sinking Fund Factor 0.1543
Percent Paid 0.06006

Loan to Value Ratio: 0.75 x .074308 = 0.0557
Equity: 0.25 x .1275 = 0.0319

Weighted Average 0.0876

Less Credit for 0.75 x .06006
Equity Build Up: x .1543 = 0.0070

Indicated Cap Rate: 0.0806

Tax Factor: 0.00945

OVERALL RATE (rounded): 9.00%

In reviewing Ms. Black's final income-capitalization analysis, the Board noticed an inconsistency in the capitalization rates determined by her as reflected in the tables above and the rates she ultimately used in her income analysis calculations. Though she purported to have arrived at capitalization rates of 9.25%, 9.40%, 9.10%, and 9.0%, for fiscal years 2010 through 2013, respectively, the rates she used in her final calculations for those years were 9.64%, 9.25%, 9.40%, and 9.10%, respectively. There was no explanation in the record for this discrepancy and it appeared to have been an error or oversight on Ms. Black's part. Ms. Black's income- capitalization analysis for each fiscal year is substantially reproduced below, with the capitalization rates that she used in those analyses, rather than the rates she determined through her band-of-investment analysis.
Ms. Black's FY 2010 Income-Capitalization Analysis
Unit/SF Rent($/SF) Annual Income ($)
Unit 1: 36,325 14.00 508,550
Unit 2: 7,564 16.50 124,806
Unit 3: 4,850 16.00 77,600
Unit 4: 1,610 15.00 24,150
Unit 5: 3,200 15.00 48,000
Unit 6: 3,200 15.00 48,000

Total: 831,106

Potential Gross Income: $831,106

Vacancy (5%): ($41,555)

EGI: $789,551

Expenses (5%): ($39,478)

NOI $750,073

Cap. Rate: 9.64%

Indicated Value: $7,780,842

Ms. Black's FY 2011 Income-Capitalization Analysis
Unit/SF Rent($/SF) Annual Income ($)
Unit 1: 36,325 13.50 490,388
Unit 2: 7,564 16.00 121,024
Unit 3: 4,850 15.50 75,175
Unit 4: 1,610 14.00 22,540
Unit 5: 3,200 14.50 46,400
Unit 6: 3,200 14.50 46,400

Total: 801,927

Potential Gross Income: $801,927

Vacancy (5%): ($40,096)

EGI: $761,831

Expenses (5%): ($38,092)

NOI $723,739

Cap. Rate: 9.25%

Indicated Value: $7,824,205

Ms. Black's FY 2012 Income-Capitalization Analysis
Unit/SF Rent($/SF) Annual Income ($)
Unit 1: 36,325 12.50 454,063
Unit 2: 7,564 15.50 117,242
Unit 3: 4,850 15.00 72,750
Unit 4: 1,610 14.00 22,540
Unit 5: 3,200 14.00 44,800
Unit 6: 3,200 14.00 44,800

Total: 756,195

Potential Gross Income: $756,195

7.5% Vacancy: ($56,715)

EGI: $699,480

Expenses (5%): ($39,974)

NOI $664,506

Cap. Rate: 9.40%

Indicated Value: $7,069,213

Ms. Black's FY 2013 Income-Capitalization Analysis
Unit/SF Rent($/SF) Annual Income ($)
Unit 1: 36,325 12.00 435,900
Unit 2: 7,564 14.00 105,896
Unit 3: 4,850 14.00 67,900
Unit 4: 1,610 13.00 20,930
Unit 5: 3,200 13.00 41,600
Unit 6: 3,200 13.00 41,600

Total: 713,826

Potential Gross Income: $713,826

10% Vacancy: ($71,383)

EGI: $642,443

Expenses (10%): ($64,244)

NOI $578,199

Cap. Rate: 9.10%

Indicated Value: $6,353,835

It was Ms. Black's opinion that the fair cash values determined through her income-capitalization analyses supported the assessed values of the subject property for each of the fiscal years at issue.

The Board's Factual Findings and Conclusions
On the basis of all of the evidence, the Board found that the highest and best use of the subject property was its use as a retail shopping center, anchored by a second-generation retail tenant, rather than a grocery store. The evidence of record indicated a trend for large retail spaces like the subject's anchor space to be leased in a second generation by discount retail chains like Savers or Ocean State Job Lot, and the Board's conclusion as to the subject property's highest-and-best use was consistent with this trend.
The Board's determination of highest and best use was also based on its subsidiary finding that the subject property is not an optimal location for a grocery store and therefore was not likely to be leased for active use by a grocery store. The Board's conclusions were based in part on the credible testimony of Timothy Mahoney and Donald Bouchard, who both opined that the subject property is not a conducive location for a grocery store for a number of reasons. Among them was the size of the subject's anchor space, which was approximately half the size required for grocery stores according to current standards. Additional evidence in the record indicated that the subject property was not an optimal location for a grocery store, further corroborating the testimony of Mr. Mahoney and Mr. Bouchard. This evidence included the fact that Market Basket, a major grocery store chain, chose to locate elsewhere in Bourne in 2012, despite the availability of the anchor space at the subject property. Further, despite the fact that it was obligated to lease the subject property's anchor space, Stop & Shop declined to open a store at that location and instead acquired a sizeable parcel of land elsewhere in Bourne with plans for a mixed-use development, potentially including a grocery store. If the subject property presented a viable location to operate a grocery store, then it seems logical that large and sophisticated grocery store chains such as Market Basket and Stop & Shop would have done so. They did not, and the Board concluded, based on this evidence and the record in its totality, that the subject property's highest and best use was its use as a retail shopping center anchored by a second-generation retail tenant, rather than a grocery store.
The Board considered the income-capitalization approach to be the most reliable method with which to value the subject property. The subject property is an income-producing property and its value can reliably be estimated using the income-capitalization approach. Moreover, the other approaches were not suitable for use in the present appeals. The cost-reproduction approach is appropriate for use in only certain circumstances, none of which were present here. Similarly, neither of the parties relied on the sales-comparison approach or conducted sales-comparison analyses. As the record was devoid of comparable market sales, the Board did not use the sales-comparison approach to value. Thus, the Board, like the parties, used the income-capitalization approach to determine the fair cash value of the subject property.
However, for fiscal year 2010 alone, the Board gave a limited amount of weight to the actual sale of the subject property. That sale, for $8 million in November of 2007, was an arm's-length transaction which occurred 13 months prior to the relevant valuation date for fiscal year 2010. Though it was a leased-fee transaction, there was no indication in the record that the leases in place were not at or near market at the time, and the Board considered the actual sale price at least somewhat probative of the subject property's fee simple, fair cash value. It therefore placed a limited amount of weight on that sale for fiscal year 2010. It did not place weight on the subject property's actual sale price for fiscal years thereafter as the date of sale became less proximate to the relevant valuation dates and, further, the evidence indicated that market conditions had begun to decline.
The parties' valuation experts took different approaches in choosing lease comparables for their income-analyses. Mr. Bouchard focused on leases of larger spaces, with an emphasis on determining an appropriate rent for the subject property's anchor space. Ms. Black, on the other hand, focused on leases of smaller spaces within the subject property's immediate vicinity. In reaching its conclusions of fair market rent, the Board gave greater weight to Mr. Bouchard's lease comparables in determining a fair market rent for the subject property's anchor space while it gave more weight to Ms. Black's lease comparables in reaching its conclusions of fair market rent for the subject property's in-line spaces.
In particular, in determining a fair market rent for the anchor space, the Board placed the greatest reliance on Mr. Bouchard's first three lease comparables. Those lease comparables were all located in Plymouth, which is adjacent to Bourne, and were in a building that was entering into a second-generation of leases and had previously been substantially vacant. Further, the leases were for spaces ranging in size from 24,000 to 30,800 square feet, with lease commencement dates ranging from September of 2009 to September of 2012. The Board therefore concluded that these leases provided reliable evidence of market rent for the subject property's anchor space, as they were similar in size, location, and other characteristics as the subject property and the lease commencement dates were relatively proximate to the relevant dates of valuation for the fiscal years at issue.
The rents reflected in these three leases, which were all triple-net leases, commenced with $9.00 per square foot for the lease executed in September of 2009, dropping to a rent of $6.50 per square foot for the lease commenced in October of 2010, followed by a rent of $7.60 per square foot for the lease commenced in September of 2012. In other words, they were consistent with the overall trend reflected in the record, which was that the market was better in fiscal year 2009, then declined and stagnated before making a slight recovery by fiscal year 2013.
Accordingly, on the basis of all of the evidence, and placing the greatest reliance on these three lease comparables, the Board determined the following fair market rents for the subject property's anchor space, all on a triple-net basis: $9.00 per square foot for fiscal year 2010; $7.50 per square foot for fiscal years 2011 and 2012; and $8.00 per square foot for fiscal year 2013.
In reaching its conclusion of fair market rent for the subject property's anchor space, the Board did not place significant weight on the actual lease in place at the subject property for that space, as it was executed in 2004, and further, was for use of the space as a grocery store. As stated above, the Board found that the subject property was not likely to be occupied for active use by a grocery store, but instead by the type of discount retailers reflected in Mr. Bouchard's first three lease comparables, including Savers and Grossman's Bargain Outlet. Further, it did not place significant reliance on Mr. Bouchard's remaining lease comparables because it found that they were not comparable enough to provide a reliable indication of the anchor space's fair market rent during the fiscal years at issue. Several of them were in communities geographically remote from Bourne, while one was commenced in 2003, six years before even the earliest of the valuation dates at issue. For these reasons, the Board did not place significant reliance on Mr. Bouchard's other lease comparables.
With respect to the subject property's in-line spaces, the Board found that Ms. Black's lease comparables, for the most part, provided a reliable indication of fair market rent. Specifically, the Board placed reliance on Ms. Black's lease comparables one through six, as each was located in the subject's immediate vicinity and involved spaces under 10,000 square feet in size. Those rents ranged from $9.29 per square foot to $16.50 per square foot, on a net or triple-net basis, averaging approximately $13.00 per square foot. The Board, however, made a downward adjustment to account for the fact that these leases were all located directly on Route 28, and were therefore more visible and readily accessible than the subject property. In addition, in reaching its determination of fair market rent for the subject property's in-line spaces, the Board placed weight on the actual leases in place at the subject property. Luke's rent was either $7.00 or $7.50 per square foot while Pizza by Evan's rent was $10.00, both on a net basis.
The Board did not give weight to Ms. Black's remaining lease comparables. Two of the leases involved large supermarket leases and the other two were for spaces considerably larger than even the largest of the subject's in-line spaces, and therefore they were not as useful for determining fair market rents for those spaces.
Furthermore, the Board declined to adopt Ms. Black's graduated in-line rents, meant to reflect the value in being located closer to the anchor, for several reasons. First, the subject property is a comparatively small shopping center, and the distance from the anchor to any of the in-line spaces is minimal. Second, the evidence in this case did not bear out the principle cited by Ms. Black, as Luke's, which was located closer to the anchor unit, was paying a lower per-square-foot rent than Pizza by Evan, which was located further from the anchor. And third, while it may be true as a general principle that in-line tenants located closer to an anchor store will pay a higher per-square-foot rent, it is equally true, as a general matter, that tenants renting larger spaces will pay a lower per-square-foot rent. Here, the five in-line spaces varied considerably in size, ranging from a low of 1,600 square feet to a high of over 7,500 square feet, with the largest space being located directly next to the anchor. The Board concluded that the differences in the size of the in-line spaces would be as likely to influence their rents as would their proximity to the anchor space, and it therefore found it too speculative to make distinctions in market rent on that basis. It therefore declined to adopt graduated rents for the in-line spaces as Ms. Black did.
After giving weight to the subject's actual in-line rents, as well as Ms. Black's lease comparables one through six, with a downward adjustment to account for location, the Board determined the following fair market rents for the subject's in-line spaces, all on a triple-net basis: $11.00 per square foot for fiscal year 2010; $9.50 per square foot for fiscal years 2011 and 2012; and $10.00 per square foot for fiscal year 2013. These rents again reflect the consistent trend indicated in the record, which was that rents were higher in fiscal year 2010, then declined and stagnated before making a modest recovery in fiscal year 2013.
There was considerable disagreement between the parties' experts as to an appropriate vacancy rate. Ms. Black used rates ranging from 5 to 7.5%. However, she provided no documentation whatsoever, and rather little explanation, for her chosen vacancy rates, and the Board therefore gave them no weight.
Mr. Bouchard cited national strip mall market data and Buzzard's Bay retail market data, which reflected vacancy rates of approximately 10% during the relevant time period. Nevertheless, he placed significant reliance on the subject property's historical vacancy in selecting his final vacancy rates, which ranged from 20 to 22%.
On the basis of all of the evidence, the Board determined a vacancy rate of 10% for each of the fiscal years at issue. In reaching this conclusion, the Board placed reliance on the national and local market data cited by Mr. Bouchard, which reflected vacancy rates closer to 10% during the relevant time period. The Board did not place weight on the subject's historical vacancy rate, as there was considerable testimony in the record that the inactive status of the anchor space at the subject deterred prospective tenants from occupying the available in-line spaces. As the Board's conclusion as to highest and best use included occupancy of the anchor space by a second-generation, discount retailer, this problem would be substantially reduced.
With respect to operating expenses, Ms. Black used 5% of estimated gross income for fiscal years 2010, 2011, and 2012, and she used 10% of estimated gross income for fiscal year 2013. Once again, however, she provided no documentation in support of these figures and virtually no explanation. The Board therefore declined to give weight to her estimated operating expenses.
Mr. Bouchard explained that he analyzed several years of the subject property's actual reported operating expenses, and because they exhibited a high degree of consistency, he opted to use those as a basis for his estimated operating expenses. According to Mr. Bouchard, those expenses totaled approximately $181,000 per year, or $3.19 per square foot. He therefore selected a base amount of $175,000 for fiscal year 2010, increasing by 2.5% each year thereafter. Because he assumed triple-net leases, his calculations reflected only the unrecovered expenses attributable to vacancy.
Because Mr. Bouchard's expense estimates were reasonable and supported by the evidence, and the assessors presented no credible evidence to the contrary, the Board adopted his operating expenses, adjusted to reflect its conclusion of a lower vacancy rate.
Lastly, with respect to capitalization rates, Ms. Black relied exclusively on a band-of-investment analysis to determine her capitalization rates, while Mr. Bouchard utilized a number of different sources, including national rates for non-institutional grade, strip shopping centers reported by Korpacz as well as a band-of-investment analysis.
The Board declined to give weight to Ms. Black's capitalization rates. As an initial matter, it was unclear from the record how Ms. Black determined the capitalization rates she ultimately used. As noted above, her band-of-investment calculations resulted in different capitalization rates than were used in her final income-capitalization calculations, and there was no explanation in the record for this deviation. In addition, her calculated rates remained extremely consistent, fluctuating approximately just a half of a percentage point throughout the fiscal years at issue. The range of rates calculated by Ms. Black did not track the rise and fall in the markets demonstrated elsewhere in the record, including in the capitalization rates published by Korpacz and those selected by Mr. Bouchard, and the Board therefore declined to rely on her selected capitalization rates.
Mr. Bouchard's band-of-investment analysis resulted in the following capitalization rates for the fiscal years at issue, respectively: 11.89%; 12.23%; 10.84%; and 9.95%. Korpacz's reported rates for national, non-institutional grade strip shopping centers were: 9.36% for the fourth quarter of 2008; 11.31% for the fourth quarter of 2009; 10.66% for the fourth quarter of 2010; and 9.72% for the fourth quarter of 2011. Because Mr. Bouchard considered the subject property to be a "distressed" property, suffering from significant issues of obsolescence, he ultimately selected rates towards the higher-end of these ranges. His capitalization rates for the fiscal years at issue, respectively, were: 11.0%; 11.5%; 10.5%; and 10.0%, to which he added appropriate tax factors.
The Board did not agree with Mr. Bouchard's conclusion that the subject property was "distressed" or suffering from such significant issues of obsolescence that it represented a high-risk investment. The Presiding Commissioner's own view of the subject property revealed it to be a well-maintained shopping center that was not, contrary to the appellant's suggestion, adrift in a sea of vacancy during the periods at issue. Rather, the evidence indicated that, throughout the time period at issue, the subject property was surrounded by other well-established and active businesses, including a bank, a gas station, a convenience store, a McDonald's restaurant, and a Dunkin' Donuts. Therefore, because it did not agree with certain factual underpinnings that informed Mr. Bouchard's conclusions, the Board gave only limited weight to his selected capitalization rates. After placing limited weight on Mr. Bouchard's calculated capitalization rates, and taking into consideration the totality of the evidence, including the capitalization rates for non-institutional grade national strip shopping centers as reported by Korpacz, the Board determined the following capitalization rates for the fiscal years at issue, respectively: 9.5%, 11.0%; 10.5%; and 9.5%. The Board added tax factors to these rates, pro-rated to reflect its conclusions as to vacancy.
After performing income-capitalization analyses using its selected market rents, vacancy rates, operating expenses, and capitalization rates for each of the fiscal years at issue, and after giving limited weight to the November 2007 sale price of the subject property for fiscal year 2010 alone, the Board determined the following fair cash values for the subject property: $5,500,000 for fiscal year 2010; $3,625,000 for fiscal year 2011; $3,785,000 for fiscal year 2012; and $4,450,000 for fiscal year 2013. The Board's income-capitalization analyses are reproduced below.
Board's FY 2010 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 9.00
Anchor PGI ($) 326,925

In-line Retail SF 20,430
In-line Rent ($/sf) 11.00
In-Line PGI($) 224,730
Total PGI ($) 551,655

Vacancy &
Collection Loss @ 10% ($55,165)

EGI($) 496,490

Owner Expenses ($) (17,500)
(175,000 x .10)

NOI ($) 478,990

Cap Rate with
Partial Tax Factor 9.58

Indicated Fair 4,999,890
Cash Value($)

Final Fair
Cash Value ($) 5,500,000

Board's FY 2011 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 7.50
Anchor PGI ($) 272,437.50

In-line Retail SF 20,430
In-line Rent ($/sf) 9.50
In-Line PGI($) 194,085.00
Total PGI ($) 466,522.50

Vacancy &
Collection Loss @ 10% ($46,652.25)

EGI($) 419,870.25

Owner Expenses ($) (17,937.50)
(17,937.50 x .10)

NOI ($) 401,932.75

Cap Rate with
Partial Tax Factor 11.09

Rounded Fair
Cash Value ($) 3,625,000

Board's FY 2012 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 7.50
Anchor PGI ($) 272,437.50

In-line Retail SF 20,430
In-line Rent ($/sf) 9.50
In-Line PGI($) 194,085.00
Total PGI ($) 466,522.50

Vacancy &
Collection Loss @ 10% ($46,652.25)

EGI($) 419,870.25

Owner Expenses ($) (18,385.90)
(183,859 x .10)

NOI ($) 401,484.35

Cap Rate with
Partial Tax Factor 10.6

Rounded Fair
Cash Value ($) 3,785,000

Board's FY 2013 Income-Capitalization Analysis
Anchor Space SF 36,325
Anchor Rent ($/sf) 8.00
Anchor PGI ($) 290,600

In-line Retail SF 20,430
In-line Rent ($/sf) 10.00
In-Line PGI($) 204,300
Total PGI ($) 494,900

Vacancy &
Collection Loss @ 10% ($49,490)

EGI($) 445,410

Owner Expenses ($) (18,845)
( x .10)

NOI ($) 426,565

Cap Rate with
Partial Tax Factor 9.61

Rounded Fair
Cash Value ($) 4,450,000

Accordingly, the Board found that the appellant met its burden of proving that the assessed value of the subject property exceeded its fair cash value for each of the fiscal years at issue. It issued decisions for the appellant in these appeals, and granted abatements in the following amounts: $17,732.56 for fiscal year 2010; $35,166.37 for fiscal year 2011; $29,923.31 for fiscal year 2012; and $17,018.05 for fiscal year 2013.
OPINION
"All property, real and personal, situated within the commonwealth . . . shall be subject to taxation." G.L. c. 59, § 2. The assessors are required to assess real estate at its fair cash value determined as of the first day of January of each year. G.L. c. 59, §§ 2A and 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. See Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956). It must reflect the property's highest and best use. See Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386 (1975).
The appellant has the burden of proving that the subject property has a lower value than that assessed. "'The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.'" Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). "[T]he board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer "'may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation.'" General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction. See Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).
The cost-reproduction approach "has been limited to special situations in which data cannot be reliably computed under the other two methods." Id. Those circumstances were not present in these appeals, and accordingly, the Board declined to use the cost-reproduction approach. Similarly, though sales of comparable properties generally "furnish strong evidence of market value, provided they are arm's-length transactions," Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); see also New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971), neither party in these appeals relied on the sales-comparison methodology or introduced evidence of comparable sales. The record therefore lacked sufficient evidence to use the sales-comparison methodology, and the Board declined to use that method.
The use of the income-capitalization approach is appropriate when reliable market-sales data are not available. See 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). It is also an appropriate technique to use for valuing income-producing property. See Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64-5 (1941). Having ruled that the other approaches to value were not suitable in this case, the Board found and ruled that the income-capitalization approach was the most reliable method to determine the subject property's fair market value.
"The direct capitalization of income method analyzes the property's capacity to generate income over a one-year period and converts the capacity into an indication of fair cash value by capitalizing the income at a rate determined to be appropriate for the investment risk involved." Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 239 (1998). "[I]t is the net income that a property should be earning, not necessarily what it actually earns, that is the figure that should be capitalized." Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 436 (2008) (emphasis in original). Accordingly, the income stream used in the income-capitalization method must reflect the property's earning capacity or economic rental value. Pepsi-Cola Bottling Co., 397 Mass. at 451. Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, they are indicative of the subject property's earning capacity. See Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 878 (1980)(rescript).
In the present appeals, the Board gave limited weight to the actual rents in place at the in-line spaces at the subject property, and no weight whatsoever to the rent in place at the anchor space, and instead relied primarily on the party's experts' comparable rents. In particular, the Board relied more heavily on Mr. Bouchard's lease comparables to determine a market rent for the anchor space, and placed more weight on Ms. Black's lease comparables to determine a rent for the in-line spaces.
After accounting for vacancy and rent losses, net-operating income is obtained by deducting the landlord's appropriate expenses, and the fair market value is then determined by capitalizing the net-operating income at a rate determined to be appropriate for the investment risk involved. General Electric Co., 393 Mass. at 610; Olympia & York State Street Co., 428 Mass. at 239. The reliability of any of the elements of an income-capitalization analysis, and ultimately final opinions of market value, will depend on how well they are supported by the market data. See appraisal institute, the appraisal of real estate 147 (13th Ed., 2008).
Given the lack of support for or explanation of the vacancy rates and operating expenses selected by Ms. Black, the Board found and ruled that her estimates for those items were not entitled to weight. It likewise rejected her capitalization rates because of the lack of independent market data supporting them and also due to the aforementioned inconsistencies in her computations.
Instead, the Board selected the operating expenses suggested by Mr. Bouchard, which were based on a review of the subject's actual operating expenses. See generally Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. at 449 (1986) (using actual figures is acceptable as long as they reflect the market). However, the Board did not adopt his estimated vacancy rates, which were also predicated largely on the subject's historical vacancy. The evidence of record indicated that the subject's inactive anchor space was a major deterrent for prospective in-line tenants. Given the Board's conclusion as to highest and best use, which included an active anchor tenant, the Board found and ruled that reliance on the subject's historical vacancy rates was not appropriate, and it therefore selected vacancy rates more reflective of the subject's general geographic area and other retail shopping centers like the subject property.
Similarly, the Board gave only limited weight to the capitalization rates suggested by Mr. Bouchard, as they were heavily influenced by his opinion that the subject property was so plagued by negative attributes, including its location, that it was a "distressed" property. The Board did not share in that opinion, having observed in the record and its view that the subject was a well-maintained property, bordered by numerous active businesses. It therefore selected capitalization rates more in line with similar, non-institutional grade shopping centers.
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. "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the [B]oard." Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977). Further, the mere qualification of a person as an expert does not endow his testimony with any magic qualities. Boston Gas Co., 334 Mass. at 579. Rather, the Board could accept those portions of the evidence that it determined had more convincing weight. Foxboro Associates, 385 Mass. at 683; New Boston Garden Corp., 383 Mass. at 473; New England Oyster House, Inc., 362 Mass. at 702.
Applying these principles, the Board selected the most probative evidence in the record regarding the subject property's valuation for the fiscal years at issue. After doing so, it determined fair cash values as follows: $5,500,000 for fiscal year 2010; $3,625,000 for fiscal year 2011; $3,785,000 for fiscal year 2012; and $4,450,000 for fiscal year 2013.

Accordingly, the Board found and ruled that the appellant met its burden of proving that the assessed value of the subject property exceeded its fair cash value for each of the fiscal years at issue. The Board therefore issued decisions for the appellant in these appeals, and granted abatements as follows: $17,732.56 for fiscal year 2010; $35,166.37 for fiscal year 2011; $29,923.31 for fiscal year 2012; and $17,018.05 for fiscal year 2013.

THE APPELLATE TAX BOARD

By: ________________________________ Thomas W. Hammond, Jr., Chairman

A true copy,

Attest: _________________________
Clerk of the Board

These amounts include a Community Preservation Act ("CPA") surcharge and district taxes.
Various documents in the record reported marginally different sizes for the in-line spaces, but any differences were de minimus and the Board therefore disregarded them.
The third leasehold interest was located in Seekonk.
All rents were on a triple-net basis with the exception of lease numbers four, five, and six, which Ms. Black identified as being net leases.
This figure reflects weight given to the actual sale of the subject property for $8,000,000 in November of 2007.
These amounts include the CPA surcharge and district taxes.
The Board did, however, give limited weight to the actual sale price of the subject property for fiscal year 2010 alone. Actual sales of the subject property generally "furnish strong evidence of market value, provided they are arm's-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller." Foxboro Associates, 385 Mass. at 682; see also New Boston Garden Corp., 383 Mass. at 469; First National Stores, Inc., 358 Mass. at 560. Nevertheless, the sale price recited in the deed of the subject or purportedly comparable properties is not conclusive evidence of fair cash value, and in certain circumstances, the actual sale price of a property is not indicative of its fee simple, fair cash value. See Foxboro Associates, 385 Mass. at 682-83; Aramark Uniform & Career Apparel, LLC v. Assessors of Norwell, Mass. ATB Findings of Fact and Reports 2014-137, 166. Here, the Board found it appropriate to give some weight to the November 2007 sale price of the subject property for fiscal year 2010. The sale was reasonably proximate to the relevant date of valuation and was an arm's-length transaction. Although it was a leased-fee transaction, there was no evidence in the record that the leases in place were not at or near market at the time, and the Board found and ruled that the sale price was entitled to at least some weight for fiscal year 2010. The Board, however, gave no weight to the subject's actual sale price for the remaining fiscal years, as the evidence showed that there was a material change in market conditions following fiscal year 2010.

These amounts include the CPA surcharge and district taxes.

ATB 2014-649

Behrakis Drake G. & Donald P. Quinn, Trustees of the Claybourne Realty Trust v. Board of Assessors of the Town of Bourne (September 26, 2014)

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