Valkyrie Company v. Board of Assessors of the City of Worcester (July 11, 2005)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



VALKYRIE COMPANY          v. 	        BOARD OF ASSESSOR OF
   THE CITY OF WORCESTER                        


Docket No. F272005	        Promulgated:
		   July 11, 2005


    This is an appeal under the formal procedure pursuant to G.L. c. 59, § 64 and 65, from the refusal of the appellee to abate taxes on certain real estate in the City of Worcester assessed under G.L. c. 59, § 11  and 38 for Fiscal Year 2004.
	Commissioner Gorton heard the appeal and was joined in the decision for the appellee by Commissioners Scharaffa, Egan, and Rose. The decision in this appeal was rendered on February 9, 2005.
	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.

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


FINDINGS OF FACT AND REPORT
	On January 1, 2003, Valkyrie Company (the "appellant") occupied as lessee the property at 60 Fremont Street in Worcester (the "subject property"). The appellant, a corporation, was wholly owned by James J. Devaney, who also owned the subject property. Appellant bore responsibility under its lease for property tax payments. 
	The subject property consists of a contiguous complex of former mill brick buildings and a newer addition at the rear, with mixed industrial, warehouse, and office uses. The original construction occurred around 1910 or 1915. The property is the locus of appellant's business operations, which center on the manufacture of leather products, especially wallets.
	The building has a total area of 110,644 square feet, and the site is approximately 5.7 acres. Although a diagram of the building was included with the property record card, a lack of descriptive detail in either the documentary or testimonial evidence precludes even basic findings about the components, configuration, and condition of the building. The site apart from its total acreage was left similarly undescribed. 
	For fiscal year 2004, the Assessor of the City of Worcester ("appellee") valued the subject property at $1,459,700, and assessed a tax thereon, at the rate of $29.60 per thousand, in the amount of $43,207.12. The tax was timely paid without any interest being incurred.
	On January 22, 2004, appellant timely filed its application for abatement with the appellee, which was denied on March 4, 2004. Appellant filed a timely petition with the Appellate Tax Board ("Board") on March 19, 2004. The foregoing facts establish the Board's jurisdiction over this appeal. The trial in this matter was conducted on November 4, 2004.
	Appellant's case at trial consisted of the testimony of the property owner, Mr. Devaney, and appellant's Chief Financial Officer, Martin Nathan. Mr. Devaney testified that in his opinion the subject property was worth $740,000 as of January 1, 2003. He admitted, however, that he valued the property without distinguishing between the real estate and the going concern value of the business. He formed his opinion relying on information from Mr. Nathan.
	Mr. Nathan's testimony drew on a report regarding the subject property. Unsigned and of unattributed authorship, the report was apparently compiled by Mr. Nathan with assistance from Rocco Beatrice, who did not testify at trial. The report, marked Exhibit 1 for Identification, was not itself admitted in evidence given its character as hearsay, and its inclusion of opinions of Mr. Beatrice. Nevertheless, public records contained in the report, including the property record cards and deeds for the subject property and assertedly comparable properties, were allowed as evidence. Allowed also was the chart at page 12 of Exhibit 1 for Identification, reflecting a proffered "comparable sales analysis" of four properties, identified below, and the schedule of "actual" income and expenses for the subject property. The remaining portion of Exhibit 1 for Identification not authenticated or given foundation by the testimony was excluded. 
	Mr. Nathan testified about the four properties which had been selected as comparable to the subject property by Mr. Beatrice. These properties, all labeled "Industrial Warehouse/Office" in the chart at page 12 of Exhibit 1 for Identification, included 93 Grand Street, 243 Stafford Street, and 55 Tainter Street, all in Worcester, and 65 Canal Street in Millbury. The properties were considerably larger than the subject property in gross building area. The property at 65 Canal Street, Millbury, nearest to the subject in size at 134,066 square feet of gross building area, was located some five miles away. 
	Mr. Nathan had looked at the suggested comparable properties, or in one case, had heard about the sale through work for his former employer. His testimony contained little descriptive detail of the properties Mr. Beatrice had deemed comparable. 
	Mr. Nathan relied entirely on Mr. Beatrice to make "adjustments" to the sale prices of the proffered comparable properties, supposedly to account for differences between them and the subject property. However, no adjustments were made for the various dates of sale, to bring the "comparable" properties into temporal alignment with the valuation date of January 1, 2003. Nor were adjustments offered to account for the different locations of the properties within the City of Worcester. 
	Mr. Nathan mentioned a purported income approach analysis of value. A document entitled "Schedule of Your 'Building's' 'Operating' Income and Expenses" was allowed into evidence as Exhibit 2. Although Exhibit 2 purportedly reflected actual income and expenses for the subject property, numerous expense categories, and an item for the subject property's rental income, were left blank or marked "Not Applicable." No net operating income figure was adduced based on the items listed on the Schedule. Mr. Nathan characterized the income approach to value as "Not Meaningful" since the building was "Owner Occupied." Mr. Nathan did not elaborate on the information contained in Exhibit 2 or supply missing data, rendering the document of little use to the Board. Asserting that the income approach did not yield a positive value, Mr. Nathan said he gave Mr. Devaney valuation information based solely on the purported comparable sales analysis.
	Both Mr. Devaney and Mr. Nathan failed in their testimonies to describe the subject property in sufficient detail to enable the Board to evaluate the reasonableness of the opinion of value. The dearth of descriptive information left the Board without the evidence needed to make findings relevant to the value of the subject property. 
	Moreover, the Board rejected the comparable sales and income analyses as hearsay, incomplete, and unpersuasive. The Board found that the appellant failed to carry its burden of proof to show overvaluation of the subject property. The Board accordingly decided this appeal for the appellee. 

OPINION
	"In an appeal to the Appellate Tax Board from the denial of a tax abatement, the taxpayer bears the burden of proof on the issue of overvaluation." Mann v. Board of Assessors of Wareham, 387 Mass. 35, 42 (1982) ("Mann"). This burden encompasses a requirement that the taxpayer prove "every material fact necessary to prove that its property has been overvalued." General Electric Co. v. Board of Assessors of Lynn, 393 Mass. 591, 599 (1984) ("General Electric"). "The [B]oard's decision must, in turn, be supported by substantial evidence." Mann, 387 Mass. at 42. See also RCN-BecoCom LLC v. Commissioner of Revenue, 443 Mass. 198, 204 (2005) ("RCN-BecoCom"). The Supreme Judicial Court has defined "substantial evidence" as "`such evidence as a reasonable mind might accept as adequate to support a conclusion.'" RCN-BecoCom, 443 Mass. at 204, quoting Boston Edison Co. v. Selectmen of Concord, 355 Mass. 79, 92 (1968). 
	Accordingly, it is incumbent upon the owner of a property under appeal to "introduc[e] credible evidence of value in a proceeding before the [B]oard to obtain an abatement of taxes." Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982). "Until the taxpayer sustains his burden of proof, the valuation made by the assessors will be presumed valid." Id. at 684. The absence of "credible or persuasive evidence that the taxpayers' property had a lower value than that assessed" is fatal to a claim for abatement. See Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974) ("Schlaiker").
	It is well-settled that "[t]he value of property … [is] a proper matter for expert opinion." Sheffer v. Rudnick, 291 Mass. 205, 212 (1935). Experts and the Board typically consider "three valuation approaches, the replacement cost, market, and capitalization of income methods…." General Electric, 393 Mass. at 595. "The Board is entitled to select valuation methods, as long as they are reasonable and supported by the record." Blakeley v. Board of Assessors of Boston, 391 Mass. 473, 477 (1984).
	The market or comparable sales method requires that the taxpayer show transactions involving properties with such a "degree of similarity … that the sales of [the] other properties will furnish a practical aid in determining the market value of the property in issue …." Amory v. Commonwealth, 321 Mass. 240, 255 (1947). Comparisons to the sales of other properties will typically entail adjustments to account for differences in such "variables … as location, time and amenities …" See General Electric, 393 Mass. at 595. However, "too many adjustments" or an absence of transactions in properties sufficiently similar to the subject property will undermine the utility of the market approach in a particular case. See id. Likewise, the inclusion of elements of value other than real estate in a transaction can render the sale non-probative in establishing the value of supposedly similar property. See Analogic Corporation v. Board of Assessors of Peabody, 45 Mass. App. Ct. 605, 609 (1998) ("Analogic").
	"The capitalization of income approach is … frequently applied with respect to income-producing property …" like the subject property. See Taunton Redevlopment Associates v. Board of Assessors of Taunton, 393 Mass. 293, 295 (1984). The party offering such evidence "must establish the existence of an income stream which 'adequately reflect[s] earning capacity' for purposes of its application." Analogic, 45 Mass. App. Ct. at 610, quoting Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 451 (1986). This method of valuation also entails proof of other factors like an appropriate capitalization rate and the "proper allowance" for vacancy and management, which have been recognized as "matter[s] of expert judgment and experience in the field of appraisal." Ruth W. Gottlieb Trusts v. Board of Assessors of Boston, 4 Mass. App. Tax Bd. Rep. 31, 34 (1984).
	Nevertheless, it is also established that "'[a]n owner of real estate … having adequate knowledge of his property may express an opinion as to its value.'" See CBI Partners Limited Partnership v. Town of Chatham, 41 Mass. App. Ct. 923, 924 (1996), quoting Southwick v. Massachusetts Turnpike Authority, 339 Mass. 666, 668 (1959). "The rule which permits an individual owner to testify to the value of real … property does not rest upon his holding the legal title, but is based upon his familiarity with the characteristics of the property, his knowledge or acquaintance with its uses, and his experience in dealing with it." Winthrop Products Corporation v. Elroth Co, 331 Mass. 83, 85 (1954). Non-experts other than owners, including corporate officers, may testify as to the value of property if they are found to have adequate familiarity. Blais-Porter, Inc. v. Simboli, 402 Mass. 269, 273 (1988). Admissibility of non-expert opinion evidence of value requires a proper foundation, and is discretionary with the trial court. See Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authority, 335 Mass. 189, 198 (1956).
	In the instant appeal, the evidence of the value of the sizeable, income-producing subject property consisted of the opinion of the owner, Mr. Devaney, based upon information received from appellant's Chief Financial Officer, Mr. Nathan. The opinion evidence was bereft of supporting testimony giving important descriptive detail about the subject property, such as its configuration and the construction, uses, and square footage of its component parts. Moreover, the opinion evidence drew on hearsay: Mr. Nathan's analysis relied heavily on Mr. Beatrice, about whom little was said and who did not testify. Mr. Beatrice made the selection of comparable properties supposedly supporting the opinion of value, and recommended certain adjustments to account for differences with the subject property. Mr. Nathan adopted information received from Mr. Beatrice, yet neither Mr. Beatrice nor Mr. Nathan was
shown to have knowledge or expertise warranting the conclusions they drew. The Board found that the opinions expressed about the properties used for comparison, lacking in foundation, were not credible. 
	Furthermore, there was inconsistency between the opinion of value asserted in the testimony, and the value indicated in the original answers to appellee's interrogatories, signed by Mr. Nathan. The interrogatory responses also contradicted Mr. Nathan's testimony about the application of the income approach in this case: after claiming to have arrived at a value of $1,000,000 based on the income approach, Mr. Nathan attempted to reject it altogether at trial. Finally, Mr. Devaney included elements of value other than that of the real estate as a basis for his opinion.
	Given these many deficiencies in the evidence presented, the Board was unable to find the facts needed to sustain appellant's claim. Under the circumstances present in this appeal, the Board could not accept hearsay and the proffered lay opinion evidence, as "adequate" for a finding of value for this subject property. Cf. RCN-BecoCom, 443 Mass. at 204. As was true in Schlaiker, with "no credible or persuasive evidence that the taxpayers' property had a lower value than that assessed, it was proper for the [B]oard to conclude that the taxpayers had not sustained the burden of proof." 365 Mass. at 245.  The Board, accordingly, decided this matter for the appellee.
		
THE APPELLATE TAX BOARD

By:_____________________________Chair

   _____________________________Commissioner


   _____________________________Commissioner


   _____________________________Commissioner


   _____________________________Commissioner
					

A true copy,



Attest:_____________________________
                Assistant Clerk of the Board




	

  Mr. Nathan, an accountant, was not qualified as an expert, had no training as an appraiser, and lacked any background relating to the valuation of real estate.
 Neither Mr. Nathan nor Mr. Devaney said anything about Mr. Beatrice's education, experience, or other credentials.
 The chart at page 12 of Exhibit 1 for Identification reflects no adjustments for size. Mr. Nathan testified to an erroneous understanding of why and how such adjustments are made.
 Mr. Nathan also referred to additional properties in his testimony, but did not review "detailed assessors' cards" for these properties, or deeds of sale. Information about the properties not included in the chart at page 12 of Exhibit 1 for Identification was not allowed as evidence.
 The details of the income analysis in Exhibit 1 for Identification were excluded, apart from the income and expense schedule also reflected in Exhibit 2.
 In the original answers to interrogatories served upon the appellant by appellee, Mr. Nathan stated the opinion of value as $1,000,000.  He said he had based this conclusion on the income approach. At trial Mr. Devaney indicated he had consulted with Mr. Nathan about that value. Explaining the discrepancy between the $1,000,000 figure and the value he testified to, Mr. Devaney said he believed the value (as of January 1, 2003) had "deteriorated" between the time of his original discovery response in May and the trial date in November 2004. Mr. Nathan, on the other hand, attributed the change in the opinion of value largely to the information received from Mr. Beatrice.

ATB 2005-407