53 Millbrook, LLC v. Board of Assessors of the City of Worcester (December 18, 2014)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


53 MILLBROOK, LLC			   v.	  BOARD OF ASSESSORS OF   
								  THE CITY OF WORCESTER
					
	         
Docket Nos.: F305869, F318096			  Promulgated:
		  						  December 18, 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 Worcester ("appellee" or "assessors") to abate taxes on certain real estate in Worcester, owned by and assessed to 53 Millbrook, LLC ("53 Millbrook" or "appellant") under G.L. c. 59, §§ 11 and 38, for fiscal years 2010 and 2012 ("fiscal years at issue").  
	Commissioner Chmielinksi heard theses appeals. Chairman Hammond and Commissioners Scharaffa and Rose joined him in the decision for the appellee in Docket No. F305869 (FY 2010) and for the appellant in Docket No. F318096 (FY 2012).  
	These findings of fact and report are made pursuant to the request under G.L. c. 58A, § 13 and 831 CMR 1.32 of the appellant.  

	Matthew A. Luz, Esq. for the appellant.
	
John F. O'Day, Jr., Assistant City Solicitor, for the appellee. 

Findings of Fact and Report

Introduction and Jurisdiction
On the basis of all of the evidence, including the testimony and documentary exhibits entered into the record, the Appellate Tax Board ("Board") found the following.  
On January 1, 2009, the appellant was the assessed owner of an approximately 4.72-acre parcel of land, identified on the appellee's Map 13 as Block 25A, Parcel 100, located at 53 Millbrook Street in the City of Worcester (the "subject property").  
For fiscal year 2010, the assessors valued the subject property at $2,969,800 and assessed a tax thereon, at the rate of $33.28 per thousand, in the total amount of $98,834.94.  The Collector of Taxes for Worcester mailed the fiscal year 2010 actual tax bills on December 31, 2009, and the appellant paid the tax due without incurring interest.  On January 15, 2010, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors, which they denied on April 2, 2010.  In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its petition with the Board on May 7, 2010.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2010.
For fiscal year 2012, the assessors valued the subject property at $4,292,000 and assessed a tax thereon, at the rate of $29.07 per thousand, in the total amount of $124,768.44.  The Collector of Taxes for Worcester mailed the fiscal year 2012 actual tax bills on May 25, 2012, and the appellant paid the tax due without incurring interest.  On June 12, 2012, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors, which they denied on August 9, 2012.  In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its petition with the Board on August 24, 2012.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2012.
The subject property is a 4.72-acre parcel of land, improved with a 113,760-square-foot industrial manufacturing building ("subject building"), located at 53 Millbrook Street in Worcester.  It is situated in the northeastern section of Worcester within a mixed commercial-, industrial- and residential-use area that is bordered by Interstate 190 to the northeast, Interstate 290 to the east, and Route 12 to the west.  The subject property is situated along Millbrook Street, a moderately traveled roadway.  
The subject building, constructed in 1910, has a steel-frame structure with a concrete slab foundation, a flat roof with a rubber membrane covering, and a brick exterior.  The subject building is designed for industrial use by a single occupant.  The right side of the building contains second-floor office space consisting of a waiting room, a reception/administrative office area, twenty-nine private offices, an open office area containing temporary cubicles, a conference room, three testing lab areas, two lab areas, two storage areas, a vault room, an employee break area, and three lavatories.  In addition, there is a mezzanine storage area that is accessed by a freight elevator.  Access to the second-floor level is provided by four interior staircases.
The remaining area of the subject building consists of industrial-use space, including: manufacturing areas; a warehouse area; a machine shop; two private offices; a supply room; an employee break area; and a locker room with one lavatory.  The industrial space also includes a separate office area that contains four private offices; a "timing room"; an open office area; and a tool room.  
There is a loading dock area at the front of the subject building, which has drive-in access by an overhead door, as well as tailboard access by ten overhead doors; however, five of those doors have been blocked off.  There is also an overhead door with tailboard access along the side of the subject building.
The appellant's case-in-chief
The appellant presented its case-in-chief through the testimony and appraisal report of its witness, Mr. Eric Wolff, whom the Board qualified as an expert in the area of commercial and manufacturing real estate valuation.
Mr. Wolff began his testimony by pointing out the appellant's concern with the high level of lead contamination present at the subject property.  Mr. Wolff's understanding was that, as of the date of his inspection, the appellant had spent about $100,000 in testing to determine the extent of the contamination.  These initial costs did not include any costs for remediation.  Mr. Wolff opined that any contamination that may be present would negatively affect the marketability of the subject property; however, he readily admitted that he is not an expert in the area of hazardous waste or toxic materials, as he is not licensed or qualified in that area.
Mr. Wolff first determined that the highest and best use of the subject property was its current use as an industrial-use property.  Mr. Wolff next considered the three approaches to value - sales comparison, income capitalization, and cost.  He determined that the income-capitalization approach provided the most meaningful measure for valuing the subject property but that the sales-comparison approach also provided additional support.
Sales-comparison approach
Mr. Wolff testified that his investigation of sales activity in the greater Worcester area resulted in five applicable sales of industrial-use buildings.  His sales-comparison analysis is reproduced in the following tables:
	Sale #1	Adj	Sale #2	Adj.	Sale #3	Adj.		Address	20-28 Dana Rd., Oxford		69 Main St. Leicester		35A, 35B Lyman St., Northborough			Sale date	12/23/2008
		10/31/2008		07/24/2008			Sale price
Psf	$2,400,000
$32.17 	
$20.91	$1,910,000
$29.37 	
$19.09	$3,650,000
$41.00	
$24.60		Location	Good
	 10%	Good		Good			Lot size	36.41 acre
	-10%	26.25	-10%				Building condition	Average	-10%	Fair		Good	-20%		Building size	74,600 sf	-15%	65,032 sf	-15%	89,030 sf	-10%
		Site condition		-10%		-10%		-10%
		Total adjustments		-35%		-35%		-40%
		
	Sale #4	Adj	Sale #5	Adj.	
Address	120 Goddard Memorial Dr., Worcester		134 Ferry St., Grafton		
Sale date	06/11/2008
		02/22/2008		
Sale price	$1,500,000
$35.11 sf	
$21.06	$1,450,000
$21.03 sf	
$17.88	
Location	Good
		Average	10%	
Lot size	
				
Building condition	Average	-10%	Fair		
Building size	42,725 sf
	-20%	68,942 sf	-15%	
Site condition
		-10%		-10%	
Total adjustments		-40%		-15%	

According to Mr. Wolff's analysis, the above purportedly comparable sales yielded adjusted sales prices of approximately $18 to $25 per square foot with an average (mean) of $21 per square foot.  Mr. Wolff selected $21 per square foot as the indicated value for the subject property's 113,760 square feet, which yielded a rounded value of $2,390,000 as the fair market value for the subject property for both fiscal years at issue.
Income-capitalization approach
Mr. Wolff selected the following purportedly comparable leased properties for his income-capitalization approach.
#	Location	Tenant	Area (sf)	Date
Term	$/sf
NNN	
1	57 Millbrook St.
Worcester	ECM Plastics Inc.	 49,933	02/2010
5 yrs	$3.95	
2	53 Northboro St. Worcester	STAG-Parkway, Inc.	 49,822 	01/2010
1 yr	$3.95	
3	57 Armory St.
Worcester	Sullivan Metals	 25,000	02/2007
3 yrs	$4.00	
4	6 Dexter St.
Worcester	Mass Web Printing	 18,700	05/2009
2 yrs	$3.00
effective	
5	31-33 Lafayette St., Worcester	Confidential	  5,000	05/2010	$2.00
Effective	
6	55 Millbrook St. Worcester	Compass Group USA	  7,476	07/2009
4 yrs	$3.95	
7	8A New Bond St.
Worcester	Quabaug	 30,200	10/2009
5 yrs	$3.00	
8	10 New Bond St. Worcester	Rand-Whitney Group	119,000	10/2008
3 yrs	$3.13	
9	10 New Bond St. Worcester	Thermoenergy Corp.	 28,800	10/2010
3 yrs	$2.80	
10	1075 Southbridge St, Worcester	Polar Beverages	172,937	12/2009
3 yrs	$3.75	
11	31 Wells St. Worcester	STAG-Parkway	 42,322	11/2010
3 yrs	$3.95	
12	6 Brussels St. Worcester	Nations Roof of New England	 11,000	11/2007	$3.00	
13	28-30 Sword St. Auburn	Confidential	 75,000	09/2010	$3.50	
14	420 Boston Tnpk Shrewsbury	Worcester Flea Mkt	106,400	01/2010
5 yrs	$3.00
effective	

Mr. Wolff's purportedly comparable lease properties yielded rents ranging from $2.20 to $4.00 per square foot on a triple-net basis.  Mr. Wolff opined that the fair market rent for the subject property was $3.00 per square foot on a triple-net basis for both fiscal years at issue.  This produced a potential gross income of $341,280 for the subject property.
For vacancy and collection loss, Mr. Wolff reported that local brokers were estimating that vacancy rates for industrial space similar to the subject property ranged from about 12% to 16%.  Mr. Wolff selected 15% as the vacancy and collection loss deduction for the subject property for both fiscal years at issue, testifying that this rate was justified because of the subject property's location, relative size, and current physical condition.
Mr. Wolff next opined that, based on his expertise, operating expenses for the subject property should be as follows, for both fiscal years at issue:  management fee at 5% of effective gross income; replacement reserve allowance at 3% of potential gross income; and commission expense at 1% of potential gross income.
In determining the capitalization rate for each fiscal year at issue, Mr. Wolff employed the band-of-investment technique.  He derived the following capitalization rates:  9.5% for fiscal year 2010 and 9.0% for fiscal year 2012.  Mr. Wolff opined that these rates were consistent with rates published by national surveys, including Korpacz, CB Richard Ellis Cap Rate Survey, and Real Estate Research Corporation.
Mr. Wolff's analysis for each fiscal year is reproduced below:
Fiscal Year 2010
Rental space			       113,760
 @ Market Rent psf of $3.00
Potential Gross Income			$   341,280

Vacancy/collection (@ 15%)	     ($    51,192)
Effective Gross Revenue			$   290,088 
Management Fee (@ 5% EGI)          ($    14,504)

Replacement Reserve (@ 3% PGI)     ($    10,238)

Commissions (@ 1% PGI)       	     ($     3,413)

Net operating income			$   261,932
Capitalization rate			/9.5%
Total Indicated Value		      $ 2,757,179
Rounded					$ 2,755,000














Fiscal Year 2012
Rental space			       113,760
  @ Market Rent psf of $3.00
Potential Gross Income			$   341,280

Vacancy/collection (@ 15%)	     ($    51,192)
Effective Gross Revenue			$   290,088 
Management Fee (@ 5% EGI)          ($    14,504)

Replacement Reserves (@ 3% PGI)    ($    10,238)

Commissions (@ 1% PGI)             ($     3,413)

Net operating income			$   261,932
Capitalization rate			/9.0%
Total Indicated Value		      $ 2,910,356
Rounded					$ 2,910,000

Reconciliation
Finally, Mr. Wolff reconciled the values he obtained by both valuation methods to determine his opinion of fair market value.  He arrived at the following reconciled values for the subject property:  $2,570,000 for fiscal year 2010; $2,880,000 for fiscal year 2012.
Based on his analyses, Mr. Wolff concluded that the subject property was overvalued for both fiscal years at issue.
The appellee's case-in-chief
The appellee presented its case-in-chief through the testimony and appraisal report of William Ford, the Assessor for the City of Worcester.  
Mr. Ford first testified that the subject property had been renovated considerably with financing assistance from the City.  He further testified that the subject property benefitted from a Tax Increment Financing ("TIF") agreement and a reduction in assessment for a seven-year period, as well as "micro loans" from the City.   
Mr. Ford next described the subject property.  He testified that the subject property served as the world headquarters for ECM Plastics.  The subject property contained both office space for the board of directors' meetings and industrial laboratory space for the manufacture of the plastics.  Mr. Ford testified that the office space had a recreational area for the staff and management, including a locker room and sauna, so he opined that "it's pretty nice office space for an industrial area."  Mr. Ford further testified that the office space consisted of approximately 21.5% of the subject building, as compared with the typical 5-10% range of industrial buildings in Worcester.  Mr. Ford opined that the subject property's highest and best use was its current use as an industrial facility.
Mr. Ford found that there were not a sufficient number of sales of comparable realty in the subject property's market area to justify development of a sales-comparison approach, and that the cost approach was too speculative to value the subject property given the age of the subject's improvements.  Therefore, Mr. Ford performed only an income-capitalization analysis for the fiscal years at issue.  
Mr. Ford determined a market rent for the subject property.  He separately valued the industrial and office spaces.  Mr. Ford's purportedly comparable Worcester industrial leases are reproduced below:
Comparable	One	Two	Three	
Address	66 Atlas Street
Worcester	2 Pullman Street
Worcester	207 Greenwood St.
Worcester	
Asking Rent	$4.50 NNN	$4.50 NNN	$3.50 NNN	
Expenses	$0.55 psf (2007)	$1.51 psf	$0.54 psf (2008)	
Effective Rent 	$4.50 NNN	$4.50 NNN	$5.08 NNN	
Leased Area (sf)	60,000 	50,400 	126,490 	
Lease Term 	38 months	5 yrs	5 yrs	
Starting Date	June, 2011	August, 2012	June, 2001	
Base Annual Rent 	$270,000	$201,600	$201,600	
Tenant 	The Wolfe Organization	Clinton Recycling	Technology Container Corp.	
Space Use	Warehouse	Warehouse	Warehouse	
Note	Building available for sale for $5,750,000		Tenant improvements of $1,000,000 amortized over    5 yrs $1.58 psf	

These purportedly comparable industrial-use leases yielded effective rents ranging from between $4.50 per square foot to $5.08 per square foot.  Mr. Ford selected $4.50 per square foot as the market rent for the subject property's 89,760 square feet of industrial warehouse space for each of the fiscal years at issue.  
Next, Mr. Ford's purportedly comparable Worcester office leases are reproduced below:



Comparable	One	Two 	Three	
Address	45 Arctic St., 4th floor, Worcester	45 Arctic St., 1st floor, Worcester	199 Chandler St., 3-4 floors, Worcester	
Effective Rent	$14.00 NNN	$14.00 NNN	$12.80 NNN	
Leased Area (sf)	14,200	14,200	12,000	
Lease Term	25 years	25 years	4 years	
Starting Date	December, 2010	September, 2010	September, 2010	
Base Annual Rent	$198,000	$198,800	$153,600	
Tenant				
Space Use	Office/Retail	Office/Retail	Office	
Note	In area of recent demolitions	In area of recent demolitions	Inferior Location	
 
These purportedly comparable office-use leases yielded effective rents ranging from between $12.80 per square foot to $14.00 per square foot, with two out of the three leases being $14.00 per square foot.  Considering the third lease to be in an inferior location, Mr. Ford selected $14.00 per square foot as the market rent for the subject property's 24,000 square feet of office space for each of the fiscal years at issue.  
Next, Mr. Ford determined the vacancy allowance.  He analyzed the market conditions in the Worcester market for different quality grades and classes of buildings.  Based on his research, Mr. Ford selected the following vacancy rates:  12.5% for fiscal year 2010; and 10.7% for fiscal year 2012.
Mr. Ford next selected, based on his experience, the following deductions:  4% from potential gross income for management; 1.5% from potential gross income for insurance; 4% from potential gross income for reserves; and 32.5% of potential gross office-space income for office expenses.  
Finally, Mr. Ford determined the capitalization rate for each fiscal year at issue.  Mr. Ford performed a mortgage-equity analysis for determining the capitalization rate.  Using a loan-to-value ratio of 70%, an interest rate of 9%, an equity rate of 12.5%, a loan term of 20 years and a holding period of 7 years with no annual appreciation, Mr. Ford determined that the capitalization rate for each of the fiscal years at issue was 9.5631%.  He also consulted the PriceWaterhouseCoopers Real Estate Investor Survey for overall capitalization rate trends in the national warehouse market from the fourth quarter of 2007 through the fourth quarter of 2010 and found that his selected capitalization rate was consistent with these market sources.  
Mr. Ford's income-capitalization analysis for each fiscal year at issue is reproduced below:

Fiscal Year 2010
Industrial space			        89,760
 @ Market Rent psf of $4.50
Annual Income				$  403,920

Office space				    24,000
 @ Market Rent psf of $14.00
Annual Income				$  336,000

Potential Gross Income	("PGI")	$  739,920

Vacancy/collection (@ 12.5% PGI)   ($   92,490)
Management Fee (@ 4% PGI)          ($   29,596.80)

Insurance (@ 1.5% PGI)		     ($   11,098.80)

Replacement Resvs. (@ 4% PGI)      ($   29,596.80)

      Office Expenses 
        (@ 32.5% of gross office income) ($  109,200)

Net operating income			$  467,937.60
Capitalization rate			/9.5631%
Capitalized Value		      	$4,893,154.91
Rounded					$4,900,000

Fiscal Year 2012
Industrial space			          89,760
 @ Market Rent psf of $4.50
Annual Income				$  403,920

Office space				    24,000
 @ Market Rent psf of $14.00
Annual Income				$  336,000

Potential Gross Income		      $  739,920

Vacancy/collection (@ 10.7% PGI    ($   79,171.44)
Management Fee (@ 4% PGI)          ($   29,596.80)

Insurance (@ 1.5% PGI)		     ($   11,098.80)

Replacement Resvs. (@ 4% PGI)      ($   29,596.80)

Office Expenses 
  (@ 32.5% of gross office income) ($  109,200)

Net operating income			$  481,256.16
Capitalization rate			/9.5631%
Capitalized Value		      	$5,032,425.14
Rounded					$5,030,000
As Mr. Ford did not perform a sales-comparison approach or cost approach analysis, Mr. Ford's final determinations of value were the values he had arrived at via the income-capitalization approach.  Mr. Ford thus determined the following fair market values for the subject property:  $4,900,000 for fiscal year 2010; $5,030,000 for fiscal year 2012.
The Board's valuation findings
The Board first determined that the highest and best use of the subject property was its continued use as an industrial warehouse property with some dedicated office space.  Both the appellant's expert witness and the appellee found the subject property's current use to be its highest and best use, and the Board found that this determination was reasonable.  
The Board next agreed with the appellee that there were not a sufficient number of sales of comparable realty for development of a sales-comparison approach, and that the cost approach was too speculative.  Therefore, the Board found that the income-capitalization approach was the best method for determining the subject property's fair market value.  
For the subject property's income, the Board agreed with Mr. Wolff that the subject property's market rent should be one consolidated rate, rather than parceling out the office and industrial spaces as separate rates, because, while the subject property contains a relatively high percentage of office space, the Board found that the subject property was designed for use by a single occupant, not multiple occupants.  The Board also found, on the basis of the evidence of record, including testimony and comparable properties offered by the witnesses, that industrial manufacturing buildings in Worcester typically contained some designated office space, which was reflected in their single-rate rent.  The Board thus adopted the appellant's methodology of using one blended rental rate for the subject property.  However, considering that the subject property was recently renovated and contained a relatively high percentage of designated office space, the Board adopted its own independent rental rate.  The Board found that the market rent for the subject property for both fiscal years at issue was $3.75 per square foot on a triple-net basis, which was within the range suggested by each party's witness and at the higher end of the range suggested by Mr. Wolff.
The Board next adopted Mr. Wolff's vacancy rate of 15% for both fiscal years at issue and also adopted Mr. Wolff's percentages of operating expenses, with some minor adjustment.  The Board found these expenses to be well supported and reasonable.
For the capitalization rate, the Board adopted Mr. Wolff's base rate of 9.5% for fiscal year 2010, finding that it was well supported and very close to the rate adopted by Mr. Ford.  For fiscal year 2012, however, the Board selected a rate of 9.25%, which was between the capitalization rates determined by Mr.  Wolff (9.0%) and Mr. Ford (9.5631%).  To these base rates, the Board then added a prorated portion of the appropriate property tax factor, adjusted for the vacancy rate for each tax year at issue.  The Board thus arrived at the following overall capitalization rates:  9.992% for fiscal year 2010; and 9.68605% for fiscal year 2012.   
The Board's income-capitalization analysis for each fiscal year at issue is presented below:

Fiscal Year 2010
Building square foot area		 113,760 sf
  @ Triple net market rent of $  3.75 psf   
Potential gross income             $  426,600
Vacancy/collection (@ 15%)	     ($   63,990)
Effective gross income			$  362,610 
Operating exp. 
	Management (@ 5% EGI)	     ($   18,131)	  
	Replacement res. (@ 3% PGI)  ($   12,798)   
	Commissions (@ 1% EGI)       ($    3,626)    
Total operating expenses  	     ($   34,555)   
Net operating income			$  328,055   
Overall Capitalization rate 		/9.992%     
Indicated value				$ 3,283,177  
Fair cash value (rounded)		$ 3,300,000
Assessed value				$ 2,969,800
No abatement

Fiscal Year 2012
Building square foot area		 113,760 sf
 @ Triple net market rent of	$  3.75 psf   
Potential gross income             $  426,600
Vacancy/collection (@ 15%)	     ($   63,990)   
Effective gross income			$  362,610 
Operating exp. 
	Management	(@ 5% EGI)	     ($   18,131)	
	Replacement res. (@ 3% PGI)  ($   12,798)
	Commissions (@ 1% EGI)       ($    3,626)
Total operating expenses  	     ($   34,555)  
Net operating income			$  328,055   
Overall Capitalization rate   	/9.68605%           
Indicated value				$ 3,386,881  
Fair cash value (rounded) 		$ 3,400,000
Assessed value				$ 4,292,000
Overvaluation				$   892,000
Abatement (@ $29.07 per $1,000)	$    25,930.44

The Board thus found that the subject property was not overvalued for fiscal year 2010, and that the subject property was overvalued by $892,000 for fiscal year 2012.  Accordingly, the Board issued a decision for the appellee for fiscal year 2010 and a decision for the appellant ordering abatement of $25,930.44 for fiscal year 2012.

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 both parties' witnesses and found that the highest-and-best use of the subject property during the fiscal years at issue was its existing use as an industrial warehouse property containing some office space.            
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).  While arm's-length sales of comparable realty generally produce persuasive evidence of value (see Correia, 375 Mass. at 362), 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).  Furthermore, 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, both parties' witnesses also agreed that the cost approach was too speculative a valuation method under the circumstances present in these appeals.  While the appellant's expert witness developed both a sales-comparison analysis and an income-capitalization analysis, the appellee relied solely on the income-capitalization method, finding that there were not a sufficient number of sales of comparable realty to justify development of a sales-comparison approach.  The Board agreed with the appellee and found that the income-capitalization approach provided the most accurate indication of the fair cash value of the subject property for the fiscal years at issue.     
"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). 
In these appeals, the parties differed in their determination of the rental rate, with Mr. Wolff using one blended rate for the entire subject property's rentable area and the appellee employing two separate rates for office space and industrial space.  The Board found that Mr. Wolff presented the more convincing evidence with regards to the treatment of the entire subject property's rental space as industrial.  Given that industrial space in Worcester typically contains some degree of office space, the Board agreed with Mr. Wolff that the subject property should be treated as being leased at a single rent, not at divided rents.  However, with respect to determining the rental amount per square foot, the Board weighed the evidence presented and made its own independent determination that a rate $3.75 per square foot was the appropriate rental value for the subject property for both fiscal years at issue, considering evidence from both parties of the subject property's high percentage of office space and the fact that the subject property was recently renovated.  
Next, the Board agreed with Mr. Wolf that the vacancy allowance should be 15% for both fiscal years at issue, finding this rate to be reasonable and well supported.  
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 Board adopted Mr. Wolff's expenses for landlord operating expenses, finding them to be reasonable and well supported, to arrive at the net operating income for the subject property for both fiscal years at issue. 
The capitalization rate should reflect the return on investment necessary to attract investment capital.  Taunton Redevelopment Associates, 393 Mass. at 295.  The Board found Mr. Wolff's analysis to be well-supported and his base capitalization rate was very close to Mr. Ford's rate for fiscal year 2010.  Therefore, the Board adopted Mr. Wolff's base capitalization rate for fiscal year 2010.  However, for fiscal year 2012, the Board considered both witnesses' calculations and exercised its own independent judgment in selecting 9.25%, a rate between the expert witnesses' selected rates, as the base capitalization rate for fiscal year 2012. To these base capitalization rates, the Board then added a pro rata portion of the property tax rate to account for the landlord's responsibility for taxes on the vacant portion of the subject building to arrive at its overall capitalization rates for both fiscal years at issue.  See, e.g., Market Forge Industries, Inc. v. Assessors of Everett, Mass. ATB Findings of Fact and Reports 2014-186, 209 (citing 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.    
The Board is not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggests.  Rather, the Board can accept those portions of the evidence that the Board determines have more convincing weight, and form its own independent judgment of fair market value.  Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 473 (1981); Board of Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 701-702 (1972); General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).  In evaluating the evidence before it in the instant appeals, 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., 392 Mass. at 300.  "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 the following fair cash values for the subject property: $3,300,000 for fiscal year 2010 and $3,400,000 for fiscal year 2012.  The Board, therefore, issued a decision for the appellee for fiscal year 2010 and a decision for the appellant granting an abatement of $25,930.44 for fiscal year 2012.

   THE APPELLATE TAX BOARD




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



A true copy,


Attest:				_____undefinedundefinedundefinedundefined______
	    Clerk of the Board

 While Mr. Wolff's analysis appears to income some minor mathematical calculations, the Board is hereby merely reproducing his analysis.
 Mr. Ford's analysis seems to contain some minor mathematical inaccuracies but the Board here is simply reproducing his analysis.
 While Mr. Wolff calculated his commissions expense as a deduction from PGI, the Board calculated this expense as a deduction from EGI.

ATB 2014-1249