Market Forge Industries, Inc. v. Board of Assessors of the City of Everett (April 17, 2014)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
	
MARKET FORGE INDUSTRIES, INC.     v.      BOARD OF ASSESSORS 	
                 OF THE CITY OF EVERETT

Docket Nos.: F313977-F313995 	   	       Promulgated:
								  April 17, 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 City of Everett ("assessors" or "appellee"), to abate taxes on certain real estate located in the City of Everett owned by and assessed to Market Forge Industries, Inc. ("Market Forge" or "appellant") under G.L. c. 59, §§ 11 and 38 for fiscal year 2011 ("fiscal year at issue").
	Commissioner Mulhern heard these appeals and was joined by Chairman Hammond and Commissioners Scharaffa, Rose and Chmielinski in the corrected d ecisions for the appellant.
 These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.

Kevin D. Batt, Esq. for the appellant.
Kenneth W. Gurge, Esq. for the appellee.

  			FINDINGS OF FACT AND REPORT
On the basis of testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact. 
On January 1, 2010, the relevant assessment date for the fiscal year at issue, the appellant was the assessed owner of an industrial complex consisting of a series of parcels totaling 4.68 acres -- including parcels improved with mill buildings as well as unimproved parcels -- all separately identified on appellee's Map K Block 7 as Lots 81, 86, 88, 102, 105, 109, 109A, 110, 113, 116, 116A and 116C and located along Spring, Second and Garvey Streets, with a single address of 35 Garvey Street in Everett ("subject property").  The appellee valued the subject property at $4,644,100 and assessed a tax thereon, at the rate of $43.74 per $1,000, in the total amount of $203,132.93.  The appellant paid the tax without incurring interest.  On January 18, 2011, the appellant filed abatement applications with the assessors, which were deemed denied on April 18, 2011.  By notice dated April 28, 2011, the appellee informed the appellant that its abatement applications had been denied by vote of the assessors on April 25, 2011.  On July 22, 2011, the appellant seasonably filed its Petitions Under Formal Procedure with the Board.  On the basis of the preceding facts, the Board found and ruled that it had jurisdiction over the instant appeals.
The subject property is located about one block from Revere Beach Parkway (Route 16), about one mile from Route 1, about one-quarter mile from Broadway (Route 99) and about 3.5 miles from Interstate 93.  This sector of Everett is heavily developed with a variety of commercial uses and is very congested.  
The subject property consists of a complex of fifteen detached and interconnected mill buildings ("subject buildings"), as well as vacant parcels.  The mill buildings were constructed between approximately 1900 and 1945 and are of varying sizes and uses including metal fabrication, storage, company office areas, and shipping and receiving.  Many of the buildings are interconnected via passageways.  The appellant occupies the subject property for its business of fabricating commercial-grade stainless steel kitchen equipment, including storage shelves, racks and small hand-held equipment like spatulas and ladles.  A large portion of the buildings' space is in disrepair and no longer needed for the appellant's business.  The parties disagreed on the building area: the property record cards indicate that the fifteen subject buildings constitute a total building area of about 183,907 square feet, while the appellant's expert claimed that the total building area was only 161,390 square feet. 
The appellant presented its case-in-chief through the testimony of two witnesses -- David Zappala, the President and CEO of the appellant, and Mark Reenstierna, a real estate appraiser -- and through the submission of exhibits.
Mr. Zappala testified regarding the condition of the subject property.  He testified that various small buildings had collapsed because they had been in a state of total disrepair and that other buildings had been razed in recent years.  He was unsure whether the assessors had the correct inventory of buildings, and he thus questioned whether the appellant was being over assessed as a result of an incorrect number of buildings.  
Mr. Zappala further testified that the subject property's site is below street grade and that there is flooding at the site during heavy rains.  Mr. Zappala presented several photographs of flooding conditions.  He also testified that during heavy rains, he needs to remove staff from their regular assembly-line duties to place sand bags around the perimeters of the subject buildings, a procedure which he stated lasts about seven hours.  Mr. Zappala also testified that flooding has caused mold in the basement of one of the main subject buildings. 
Mr. Zappala further testified that the lease between the appellant and MF Properties LLC, the owner of the property, was an inter-company lease, because officers and staff of the appellant are also members of MF Properties, LLC.  Therefore, Mr. Zappala opined that the lease was not at arm's length.
The appellant presented its next witness, Mark Reenstierna, whom the Board qualified as an expert in the area of commercial real estate valuation.  Mr. Reenstierna prepared an appraisal report, which the appellant offered into evidence.
Mr. Reensteirna first determined the highest and best use of the subject property.  He testified that although the subject property could accommodate greater development, until the market conditions improved for redevelopment, the subject property's highest and best use was its current use as an industrial complex.  His report notes that the subject buildings are in "fair cosmetic condition" and that they create a value for the subject property that is greater than it would be if the subject property were vacant.
Mr. Reensteirna then performed two approaches to value the subject property -- the comparable-sales approach and the income-capitalization approach.  For the comparable-sales approach, Mr. Reensteirna used six purportedly comparable sales and presented a limited analysis of those sales.  The sales were properties improved with older mill-style buildings that were owner-occupied or occupied by a single tenant.  The purportedly comparable properties were located in Watertown, Malden, Leominster, Saugus, Gloucester and Dorchester.  These sales indicated an unadjusted range of values between $7.41 and $53.69 per square foot of building area, but Mr. Reensteirna noted that the majority of buildings fell within a tighter range of $11 to $25 per square foot.  Although his report stated that he made adjustments for attributes including date of sale, building and lot size, building condition, building site appeal and amenities like parking, build-out and location, Mr. Reensteirna did not disclose in his report or testimony the actual adjustments that he made or the basis of these adjustments.  After adjustments, Mr. Reensteirna's purportedly comparable sale properties yielded a value range between $12 and $18 per square foot of building area.  Based on his analysis, Mr. Reensteirna selected an overall unit value of $15 per square foot for the subject property.  
In calculating the building area, Mr. Reensteirna testified that the appellant reported its total gross building area of all  structures at approximately 203,097 square feet.  Mr. Reensteirna then considered that 22,957 square feet had been razed, and he also deducted an additional 18,750 square feet as unusable basement space.  He thus concluded that the gross building area of the subject property was 161,390 square feet.  Mr. Reensteirna applied the $15-per-square-foot value to his opinion of the subject property's building area of 161,390 square feet and calculated the estimated value of the subject property under his comparable-sales approach to be $2,420,850, which he rounded to $2,420,000.
For the income-capitalization approach, Mr. Reensteirna performed a survey of rental properties in the subject property's general market area.  He testified that, in the Everett market during the relevant time period, modern industrial space has been leasing at rates ranging from $6.00 to $12.00 per square foot on a triple-net basis.  He testified that older mill buildings, like those at the subject property, leased for lower figures, with decreasing amounts for upper floors because of deficiencies such as lower ceiling heights and poor access to loading docks and drive-in doors.  Mr. Reensteirna testified that he surveyed a number of mill buildings and older industrial buildings as well as the local industrial market, and his findings indicated a range from $4.00 to $7.50 per square foot.  He indicated that older properties, such as his comparable at 9 Charlton Street, brought lower rents while newer properties, particularly those that benefit from closer proximity to Logan Airport, such as a property he cited on Griffin Way in Chelsea, attained higher rents.  From his study, Mr. Reensteirna selected a rent of $5.50 per square foot for the first floor space, $3.50 per square foot for the second floor space, and $2.00 per square foot for the third floor space, on a triple-net basis. 
For the vacancy deduction, Mr. Reensteirna considered that vacancy was between 15% and 20% in the subject property's immediate area.  Considering the size of the subject property and that it was owner-occupied, Mr. Reensteirna applied a vacancy and collection loss factor of 17% of the subject property's gross potential revenue.  Mr. Reensteirna further accounted for the landlord's share of expenses for the vacant space, and he determined $4.25 per square foot to be the estimated cost for insurance, utilities and maintenance.  He did not include taxes on vacant space in the landlord's expenses, but instead added the tax factor to the capitalization rate, as will be discussed below. 
Mr. Reensteirna next considered other expenses. For management expenses, Mr. Reensteirna's market survey revealed management costs ranging from 3% to 7% of effective gross income, with the lower end of the range for single-user properties and the higher end of the range for multi-tenant office, retail and industrial facilities.  Mr. Reensteirna estimated a management fee at 4% of effective gross income for the subject property, which was a single-user, owner-occupied property.  For commissions, Mr. Reensteirna opined that property owners can expect to pay an average of 3.6% of effective gross income each year on commissions.  He assumed a 50% probability that an existing tenant would remain at the subject property, and thus estimated commissions at 1.8% annually.  For reserves for replacements, Mr. Reensteirna determined that, for modern industrial facilities, the cost to replace building components with a relatively short life -- such as roofing, heating systems, and paving -- is generally in the range of $0.15 to $0.25 per square foot.  However, given the age, size, and configuration of the subject buildings, Mr. Reensteirna estimated that a reasonable reserve for the subject property would be $0.75 per square foot of building area.  Applying $0.75 per square foot to the 161,390-square-foot building area resulted in a reserve of $121,043, or about 20% of effective gross income.  Finally, Mr. Reensteirna calculated miscellaneous expenses at 2.5% of effective gross income.
For his capitalization rate, Mr. Reensteirna testified that he referred to several publications, including Korpacz, The Investment Bulletin and Appraisers News, as well as local financial news articles.  These sources indicated a range of capitalization rates for industrial/warehouse properties from 6.5% to 12.0%.  Mr. Reensteirna's interviews with area brokers revealed that local buyers of industrial space were seeking rates in the range of 8.0% to 11.0%.  Based on his information, Mr. Reensteirna selected 8.5% as his capitalization rate, to which he added the entire tax factor of 4.374% for the fiscal year at issue.    
A summary of Mr. Reensteirna's income-capitalization analysis is presented below:
Fiscal Year 2011

Building area			  161,390 square feet
Market Rent per square foot		    
93,780 sq. ft. 1st floor @ $5.50
53,800 sq. ft. 2nd floor @ $3.50
13,810 sq. ft. 3rd floor @ $2.00       
Total Gross Potential Revenue ("GPR")     $  731,710
Vacancy/Collection (@ 17% of GPR)	     ($  124,391)
Effective Gross Revenue ("EGR")	    = $  607,319
Expenses for vacant space 		     ($  116,604)
     (161,390 sq. ft. @ $4.25 psf @ 17%)  
Management (@ 4% of EGR)		     ($   24,293)
Commissions (@ 1.8% of EGR)		     ($   10,932)
Maintenance/Reserves (@ 20% of EGR)      ($  121,043)
Miscellaneous (@ 2.5% of EGR)		     ($   15,183)
Net Operating Income			    = $  319,265
Overall Cap. Rate incl. tax factor	    /	12.87%
Indicated Value				    = $2,479,921
Fair Cash Value opinion (rounded)		$2,480,000
Mr. Reensteirna then reconciled the values that he developed using the sales-comparison approach and the income-capitalization approach.  He testified that he placed more weight on the income-capitalization approach and used the sales-comparison approach as a check.  Mr. Reensteirna concluded that $2,480,000, the value derived from his income-capitalization approach, was sufficiently supported by the value derived from his sales-comparison approach and therefore was the fair market value of the subject property for the fiscal year at issue.
The assessors essentially rested on the validity of the assessment.  They did cross-examine the appellant's expert and they also answered questions posed by the Board member who presided over the hearing.  Mr. Reensteirna was questioned, among other issues, on his use of $0.75 per square foot for the reserves expense for the subject property.  The appellee's attorney challenged this figure as higher than the normal range for reserves for buildings with the same highest and best use as the subject property.  While his appraisal report recounts a typical range of $0.15 to $0.25 per square foot for modern industrial facilities regionally, Mr. Reensteirna selected $0.75 per square foot but gave no foundation or substantiation for this higher amount other than to cite generally to the age, size and configuration of the subject buildings.  
Also on cross-examination, Mr. Reensteirna confirmed that real estate taxes were the tenant's responsibility. The appellee's attorney further questioned Mr. Reensteirna about why he included the entire tax factor in his capitalization rate, when the landlord was actually being reimbursed for the tenant's portion of the taxes and Mr. Reensteirna did not take the reimbursed portion of taxes into account in the subject property's income.  Mr. Reensteirna replied simply that, in his opinion, this was the manner in which the Board calculates capitalization rates.
Members of the assessors were available at the hearing for questioning by the Board.  Upon questioning, members responded to the appellant's concern that razed buildings were still being carried on the assessment rolls.  Assistant Assessor Carl Surabian responded that he had re-measured the subject buildings himself, and that the appellee had corrected the property record cards for the fiscal year at issue.  Mr. Surabian testified that the property record cards for the prior fiscal year, 2010, reported a total building area of 211,418 square feet.  After removing the square footage of razed buildings from the count and re-measuring the remaining buildings, Mr. Surabian concluded that the subject property contained 183,907 square feet of building area.  The property record card for each subject building was also offered into evidence.  The Board noted that the measurements totaled 183,907 square feet of building area.    
At the request of the parties, the presiding member of the Board viewed the subject property on July 10, 2011, with representatives of both parties. 
Based on all of the evidence of record, as well as the Board's view of the subject property, the Board made the following findings of fact.  With respect to the highest and best use of the subject property, the Board agreed with Mr. Reensteirna that, while the subject property could accommodate greater development, market conditions as of the relevant valuation date were not yet ripe for redevelopment.  Therefore, the Board found that the subject property's highest and best use was its current use as an industrial complex.
The Board next determined the proper method for valuing the subject property.  The Board agreed with Mr. Reensteirna that the income-capitalization approach was the most reliable method under the circumstances of this appeal.  The Board found that the cost approach, employed by the appellee, was very speculative in these circumstances, as it required determination of the replacement or reproduction of old and outdated buildings and an estimation of the proper depreciation rate to be applied.  The Board further found that there were insufficient fee-simple market sales of reasonably comparable properties to meaningfully estimate the value of the subject property using a sales-comparison technique.  Accordingly, the Board found that the income-capitalization method was the most reliable method of valuing the subject property in these appeals.
With respect to the building area of the subject property, the Board noted that Mr. Reensteirna did not personally measure all of the buildings and did not otherwise substantiate how he arrived at his figure of 161,390 square feet, other than his reliance on what the appellants had reported.  Mr. Surabian, on the other hand, personally measured the buildings, and the Board found his testimony on this matter to be credible.  Accordingly, the Board adopted the appellee's figure of 183,907 square feet as the building area of the subject property. 
Next, the Board determined the subject property's total gross potential income.  The Board found that Mr. Reensteirna's testimony projecting the rental calculations per square foot and according to flooring level was credible.  The Board therefore adopted Mr. Reensteirna's rental projections with the exception of adding in the additional 22,517 square feet of building area as measured by Mr. Surabian and adopted by the Board.  Based on its view of the subject property, which revealed a large amount of old, unused mill space in poor condition, the Board applied Reensteirna's lowest-tier of $2.00 per square foot to the additional 22,517 square feet of rental area.  
The Board next determined the appropriate vacancy.  Mr. Reensteirna's research indicated vacancy in the subject property's area to be between 15% and 20%.  During its view, the Board observed a large amount of unused space in poor condition.  Therefore, the Board agreed with Mr. Reensteirna's 17% vacancy figure.  The Board also adopted Mr. Reensteirna's figure of $4.25 per square foot for the operational expenses that would be borne by the owner for vacant space.  However, because the Board adopted the appellee's figure of 183,907 square feet for the  subject property's building area, application of Mr. Reensteirna's 17% vacancy rate to this figure resulted in an upward adjustment of his operating expenses.
With respect to Mr. Reensteirna's other expenses, the Board found his expenses for management, broker's commissions, and miscellaneous items to be credible.  However, with respect to the reserves for maintenance and replacements, the Board found that, while Mr. Reensteirna's research indicated a range of $0.15 to $0.25 per square foot in the subject property's market area, he failed to substantiate his selection of $0.75 per square foot.  Given the poor condition of the subject property, the Board found that the highest end of the range -- $0.25 per square foot -- was justifiable.  The Board thus adopted $0.25 per square foot as the reserves for maintenance and replacement expense.  
The Board next reviewed the capitalization rate. As Mr. Reensteirna testified, his 8.5% base rate was on the lower end of the range of rates he found in several publications and local financial news articles and revealed in his interviews with area brokers.  The Board found that a higher rate of 10%, which was within the range determined by Mr. Reeinsteirna, was merited for the subject property, because of its deferred maintenance and functional issues, which would make the investment more speculative to a prospective investor.  
Mr. Reensteirna had added the full tax factor of 4.374% to his base capitalization rate.  The Board, however, agreed with the appellee's contention that, when tenants lease on a triple-net basis, the tenant bears the real estate tax burden.  Therefore, it is improper to apply the entire tax factor to the capitalization rate, unless the landlord includes all of the tenants' tax reimbursement in its income.  On the present record, the Board found that the appropriate calculation would be to include only a pro rata portion of the tax factor based on the appellant's responsibility for paying taxes on vacant space, which the Board determined to be 17% of the building area.  Therefore, the Board found that 17% of the 4.374% tax factor (0.7436%) should be added to the base capitalization rate of 10%, producing an overall capitalization rate of 10.7436%.

The Board's determination of fair cash value is as follows:
Fiscal Year 2011

Building area			       183,907 square feet
Market Rent per square foot		    
93,780 sq. ft. 1st floor @ $5.50
53,800 sq. ft. 2nd floor @ $3.50
13,810 sq. ft. 3rd floor @ $2.00
22,517 sq. ft. excess   @ $2.00       
Gross Potential Income ("GPI")            $  776,744
Vacancy/Collection (@ 17% of GPI)	     ($  132,046)
Effective Gross Income ("EGI")	    = $  644,698
Expenses for vacant space 		     ($  132,873)
     (183,907 sq. ft. @ $4.25 psf @ 17%)  
Management (@ 4% of EGI)		     ($   25,788)
Commissions (@ 1.8% of EGI)		     ($   11,605)
Maintenance/Reserves (@ $0.25 psf)       ($   45,977)
Miscellaneous (@ 2.5% of EGI)		     ($   16,117)
Net Operating Income			    = $  412,338
Overall cap. rate including portion	     / 10.7436%
     of tax rate due to vacancy
Indicated value				    = $3,837,987
Fair cash value               		$3,838,000
Assessed value					$4,644,100
Overvaluation					$  806,100

Abatement (@ $43.74 per thousand)		$   35,258.81

On the basis of the above calculation, the Board thus found and ruled that the subject property was overvalued.  Accordingly, the Board issued corrected decisions for the appellant and granted an abatement in the amount of $35,258.81.

						
						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 appellant has the burden of proving that the 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 determining fair cash value, all uses to which the property was or could reasonably be adapted on the relevant assessment dates should be considered.  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989).  The goal is to ascertain the maximum value of the property for any legitimate and reasonable use.  Id.  If the property is particularly well-suited for a certain use that is not prohibited, then that use may be reflected in an estimate of its fair market value.  Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386 (1975).  "In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted."  Peterson v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2002-573, 617 (citing Appraisal Institute, The Appraisal of Real Estate 315-316 (12th ed., 2001)), aff'd, 62 Mass. App. Ct. 428 (2004).  In the instant appeals, the Board agreed with the appellant's expert witness and ruled that the highest-and-best use of the subject property during the fiscal year at issue was its existing use as an industrial mill-style property.  In making this ruling, the Board considered, among other factors, the subject property's history, size, location, and layout, as well as the fact that market conditions during the relevant time period did not warrant redevelopment.           
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.  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).  The fair cash value of property may often best be determined by recent sales of comparable properties in the market.  See Correia, 375 Mass. at 362; McCabe v. Chelsea, 265 Mass. 494, 496 (1929).  Actual sales 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 v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); 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).  
However, the use of the income-capitalization approach 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); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941).  The income-capitalization method "is frequently applied with respect to income-producing property."  Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  
In the present appeals, although the appellant's expert witness used both a sales-comparison method and an income-capitalization method, he preferred the income-capitalization method and applied greater weight to the value he obtained using this method.  The Board found credible Mr. Reensteirna's premise that, while the sales-comparison approach was useful as a check on value, the income-capitalization approach provided the most accurate indication of the expectations and criteria of investors for the continued use of warehouse/manufacturing facilities like the subject property.     
"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).  "It 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).  
After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co., 393 Mass. at 610.  The expenses should also reflect the market.  Id.; see Olympia & York State Street Co., 428 Mass. at 239, 245.  The capitalization rate should reflect the return on investment necessary to attract investment capital.  Taunton Redevelopment Associates, 393 Mass. at 295.  
In these appeals, the selection of the appropriate figure for the building area was a point of contention between the two parties.  In weighing the evidence, the Board found that Mr. Reensteirna failed to substantiate how he had arrived at his 161,390-square-feet figure, while Mr. Surabian testified that he had personally measured the buildings, and the Board found his testimony on this matter to be credible.  The Board thus found that the appellant failed to meet its burden on the issue of the square footage of the subject property and instead accepted the appellee's 183,907-square-feet figure as the building area for the subject property.  
With respect to the rental income, the Board found credible Mr. Reensteirna's testimony regarding rental projections for the subject property, and accordingly, the Board adopted Mr. Reensteirna's rental rates as follows:  $5.50 per square foot for 93,780 square feet of first-floor space; $3.50 per square foot for 53,800 square feet of second-floor space; and $2.00 per square foot for 13,810 square feet of third-floor rental space.  However, the Board found that the appellee credibly demonstrated that there was an additional 22,517 square feet of rental space within the subject property.  Based on the Board's viewing of the poor condition of the subject property, the Board applied the rate of $2.00 per square foot for this additional 22,517 square feet of rental space.  
The Board further adopted Mr. Reensteirna's 17% figure for vacancy, which was in the middle of the range that Mr. Reensteirna had extrapolated from commercial publications and which the Board found to be well supported in the relevant market.  The Board also found credible Mr. Reensteirna's testimony on amounts for expenses with the exception of the reserves for maintenance and replacements.  The Board found that, while Mr. Reensteirna's appraisal report had cited a market range of $0.15 to $0.25 per square foot for modern industrial facilities, he then used a figure of $0.75 per square feet, with no foundation or substantiation for the additional $0.50 other than his vague reliance on the condition of the subject property.  The Board thus adopted the $0.25-per-square-foot figure, the top of Mr. Reensteirna's range for industrial facilities, but not his unsubstantiated $0.75-per-square-foot figure.  
Finally, with respect to Mr. Reensteirna's capitalization rate, the Board noted that 8.5% was at the low end of the range which Mr. Reeinsteirna found in the publications and local financial news articles that he had reviewed, as well as the range quoted to him in interviews with area brokers.  The Board found that 8.5% was too low for the subject property, considering that its deferred maintenance and functional issues would make it a more speculative investment for a prospective investor.  The Board instead selected 10%, which was within the range determined by Mr. Reeinsteirna, as the appropriate capitalization rate.  Furthermore, when the tenant bears the real estate tax burden, it is not appropriate to add the entire tax factor to the base capitalization rate unless the landlord includes all of the tenants' tax reimbursement in income.  Under the facts of these appeals, the Board added a pro rata portion of the tax rate that reflects the landlord's payment of the taxes for the vacant portions of the subject property.  See, e.g., USAA Properties IV, Inc. v. Assessors of Chelmsford, Mass. ATB Findings of Fact and Reports 2012-1191, 1223; Genzyme Corporation, et al. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2011-280, 304; Vertex Pharmaceuticals, Inc. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2009-1090, 1104.  Therefore, the Board applied 17% of the 4.374% tax factor to the base capitalization rate of 10%, thus producing an overall capitalization rate of 10.7436%.  
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, 385 Mass. at 683; New Boston Garden Corp., 383 Mass. at 473; 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 appropriately formed its own independent judgment of fair cash value.  General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).  "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the Board.  Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).  


On the basis of the Board's calculations, the Board found a fair market value of $3,838,000, and thus ruled that the subject property was overvalued by $806,100.  The Board thus issued corrected decisions for the appellant and granted an abatement in the amount of $35,258.81.

   THE APPELLATE TAX BOARD



	By:	_____	   __________________	       
   Thomas W.  Hammond, Jr., Chairman 






A true copy,

Attest:				_____undefinedundefinedundefinedundefined______
	      Clerk of the Board

	

 Although the assessors voted to deny the abatement application on April 25, 2011, the abatement application was already deemed denied on April 18, 2011 pursuant to G. L. c. 58A § 6 and G.L. c. 59, §§ 64 and 65.
 Pursuant to G.L. c. 59, § 63, the notice of denial from the appellee "shall indicate . . . the date the application is deemed denied" and reference the statutory appeal provisions.  The April 28, 2011 notice failed to notify the appellant of the deemed denial of its application on April 18, 2011, thus rendering the notice invalid.  Because the assessors failed to properly notify the appellant of their inaction under § 63, the Board found and ruled that the appellant had two extra months in which to file its appeal pursuant to G.L. c. 59, § 65C.  Accordingly, the appellant's July 22, 2011 petition was timely.

 Mr. Reensteirna refers to this expense in the summary chart below as "maintenance/reserves."  

ATB 2014-186