Martin Wood & Wood Development LP v. Board of Assessors of the City of Fall River (February 26, 2008)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD

MARTIN WOOD &               v.       BOARD OF ASSESSORS OF                                  
WOOD DEVELOPMENT LP      		  THE CITY OF FALL RIVER

Docket Nos. X295567, X295568		  Promulgated:	 
		  F281210, F281211		  February 26, 2008
		  F283204, F283205		  							  
	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 appellee Board of Assessors of the City of Fall River ("appellee" or "assessors") to abate taxes on real estate located in the City of Fall River, owned by and assessed to appellants Martin Wood and Wood Development LP (collectively "appellants") under G.L. c. 59, §§ 11 and 38, for fiscal years 2005 and 2006. With respect to fiscal year 2004, appeals pertaining to the same properties were filed under the informal procedure pursuant to G.L. c. 58A, § 7A and G.L. c. 59, §§ 64 and 65.
	Commissioner Gorton heard these appeals. With Commissioner Gorton materially participating in the deliberations of these appeals, Chairman Hammond and Commissioners Scharaffa, Egan, Rose, and Mulhern joined in the decisions for the appellee.
These findings of fact and report are made on the Appellate Tax Board's ("Board's") own motion under G.L. c. 58A, § 13 and 831 CMR 1.32 and are promulgated simultaneously with its decision.

Martin Wood, pro se
Pam Davis and Bruce Lane, Assessors, for the appellee.

FINDINGS OF FACT AND REPORT
	On January 1, 2004 and January 1, 2005, appellant Martin Wood was the assessed owner of a parcel of real estate located at 10 Purchase Street in Fall River. For fiscal year 2004, appellant Martin Wood prosecuted the appeal of the tax assessed for the property at 10 Purchase Street, having acquired it from the previous owner Ten Purchase Realty, Inc. on January 16, 2003. See G.L. c. 59, § 59. 
On January 1, 2004, and January 1, 2005, appellant Wood Development LP was the assessed owner of a parcel of real estate located at 33-45 North Main Street in Fall River. For fiscal year 2004, appellant Wood Development LP prosecuted the appeal for the tax assessed for 33-45 North Main Street, having acquired the property from the previous owner Forty Five North Main LLC on June 5, 2003. See G.L. c. 59, § 59. Both parcels were improved with five-story office buildings. 	
	For both subject properties and all fiscal years at issue, taxes due were timely paid without incurring interest. The appellants timely filed applications for abatement with the assessors. Appellants also timely filed Petitions Under Formal Procedure with the Board for fiscal years 2005 and 2006; Petitions Under the Informal Procedure were timely filed with the Board for fiscal year 2004. Jurisdictional information for the subject properties is summarized in the following tables: 
10 Purchase Street
	Actual Tax
Bills Sent	Abatement Apps. 
Filed	Dates of 
Denials   	Petitions Filed
With Board	
FY 2004	1/31/04	2/13/04	5/13/04	5/24/04	
FY 2005	12/31/04	1/18/05	4/18/05*	7/8/05	
FY 2006	12/31/05	1/9/06	2/10/06	4/21/06	

33-45 North Main Street
	Actual Tax
Bills Sent	Abatement Apps. 
Filed	Dates of 
Denials   	Petitions Filed
With Board	
FY 2004	1/31/04	2/13/04	3/22/04	5/24/04	
FY 2005	12/31/04	1/18/05	4/18/05*	7/8/05	
FY 2006	12/31/05	1/9/06	2/10/06	4/21/06	
(* Applications were deemed denied.)

	The foregoing facts establish the Board's jurisdiction over these appeals for both subject properties and all fiscal years at issue. The following table sets forth assessment information for the subject properties for the fiscal years at issue. 
Valuation
Date	10 Purchase St.	33-45 N. Main St.	
1/1/03	$723,300	$1,595,100	
1/1/04	$814,700	$2,158,400	
1/1/05	$956,700	$2,526,100	

	The property at 10 Purchase Street has a land area of 2,936 square feet, improved with a five-story office building. The building has a steel-frame structure with a brick façade situated on a concrete foundation. The structure was built in 1914 and has a finished area of 13,533 square feet, according to the property record card. The roof is flat and membrane-covered. The physical condition is described as "average" on the property record card; the grade is given as B+ or "good." The interior walls are drywall, while the floors in the finished area are carpeted. The building has steam heat fueled by gas. The building also has an elevator and 10 half-bathrooms. 
	The parcel at 33-45 North Main Street contains 28,067 square feet of land, and is also improved with a five- story office structure. The building has a fireproof steel frame on a foundation of brick and stone. The exterior walls are brick and stone. The building dates from 1928 and has a finished area of 48,606 square feet. The roof is flat and covered with tar and gravel. The physical condition is described as "average" on the property record card; the grade is "C" or average. The interior walls are primarily drywall, and secondarily plywood. The flooring is carpeted, with about 15% of the floor area tiled. The building has forced hot water heating.
	Martin Wood testified as the owner of both properties. He indicated that 10 Purchase Street has a gross leaseable area of 11,918 square feet, but no on-site parking. 33-45 Main Street has a gross leaseable area of 38,200 square feet, according to Mr. Wood, and on-site parking for 72 vehicles.  Mr. Wood bought 10 Purchase Street in January of 2003 for $800,000, while Wood Development LP acquired 33-45 Main Street in June of 2003 for $2,250,000.
	Mr. Wood's principal complaint was a rise in levels of vacancy in both buildings since the purchases. He indicated that 10 Purchase Street had a vacancy rate of 20% as of January 1, 2004 and January 1, 2005. His opinion of value for 10 Purchase Street was $500,000 for both fiscal years 2005 and 2006. He testified that 33-45 North Main Street was 40% vacant on January 1, 2004, and 48% vacant on January 1, 2005. His opinion of value for 33-45 North Main Street for fiscal years 2005 and 2006 was $1,100,000. He offered information on actual income and expenses for both properties in support of his opinions of value. 
	Mr. Wood introduced documents styled "unofficial property record cards" for a number of properties in Fall River, the assessed values of which he offered as evidence of fair cash value. See G.L. c. 58A, § 12B. According to Mr. Wood's information, an office building at 56 North Main Street with 42,610 square feet of finished area had assessed values of $981,800 ($23.04 per square foot) for fiscal year 2005 and $1,135,100 ($23.64 per square foot) for fiscal year 2006. A retail building at 66 Troy Street with 34,500 square feet of finished area was assessed for $869,900 ($25.21 per square foot) for fiscal year 2005 and $912,700 ($26.46 per square foot) for fiscal year 2006. A bank at 1 North Main Street with a finished area of 11,526 square feet was said to be assessed at $380,400 ($33.00 per square foot) for fiscal year 2005 and $468,200 ($40.62 per square foot) for fiscal year 2006. An office building at 80 North Main Street with 22,869 square feet of finished area was assessed at $633,800 ($27.71 per square foot) for fiscal year 2005 and $750,500 ($32.82 per square foot) for fiscal year 2006. Finally, an office building at 13 North Main Street with a finished area of 12,040 square feet was assessed for $315,900 ($26.24 per square foot) for fiscal year 2005 and $390,700 ($32.45 per square foot) for fiscal year 2006. 
Mr. Wood argued that the subject properties were overassessed relative to the valuations of the comparison properties. 10 Purchase Street was assessed at $60.52 per square foot in fiscal year 2005, and $70.69 per square foot in fiscal year 2006. 33-45 North Main Street was assessed at $44.41 per square foot in fiscal year 2005 and $51.97 per square foot in fiscal year 2006.
	However, Mr. Wood failed to establish basic comparability between the properties offered for comparison purposes and the subject properties. He offered no descriptive detail on the comparison properties beyond the information contained in the unofficial property record cards, nor did he attempt to adjust for differences between the comparison properties and the subject properties. Mr. Wood offered insufficient evidence from which to derive indicated values for the subject properties based on the assessed values of the comparison properties.
	The assessors also offered comparable assessment information in defense of the assessed values of the subject properties. Like the appellants, the assessors drew comparisons to the bank building at 1 North Main Street and the office building at 13 North Main Street for both subject properties. However, the assessors reported that there were errors in the assessed values on the property record cards for 1 North Main Street and 13 North Main Street for the fiscal years at issue, due to excessive amounts allowed for depreciation. According to the assessors, the correct assessed values for 1 North Main Street were $748,200 ($64.91 per square foot of finished area) for fiscal year 2005 and $892,500 ($57.55 per square foot of finished area) for fiscal year 2006. The assessors gave the assessed values as corrected for 13 North Main Street as $582,600 ($48.39 per square foot of finished area) for fiscal year 2005 and $692,900 ($77.43 per square foot of finished area) for fiscal year 2006. 
	The assessors also cited the office property at 56 North Main Street for purposes of comparison to 33-45 North Main Street. The assessors gave assessed values for 56 North Main Street which they said had also been corrected for excessive depreciation: $2,192,300 ($51.45 per square foot of finished area) for fiscal year 2005 and $2,478,200 ($58.16 per square foot of finished area) for fiscal year 2006. 
The overall selection of properties the assessors used to compare to 10 Purchase Street had assessed values per square foot of finished area ranging from $48.39 to $136.37 for fiscal year 2005, and $57.55 to $156.99 for fiscal year 2006. The properties the assessors used for comparison to 33-45 North Main Street had assessed values per square foot of finished area ranging from $48.39 to $119.28 for fiscal year 2005, and $57.55 to $129.93 for fiscal year 2006. The assessors argued that the subject properties were assessed less per square foot than similar properties in their respective neighborhoods. 
However, like the appellants, the assessors failed to establish basic comparability between the properties offered for purposes of comparison and the subject properties. Apart from introducing the property record cards, the assessors offered no descriptions of the properties the assessed values of which were invoked as evidence of fair cash value. Nor did they make adjustments to the assessed values of the properties offered for comparison purposes, to account for any differences with the subject properties.
Relying on the hearing officer in matters of witness credibility, the Board found and ruled that appellants failed to carry their burden of proving that the values of the subject properties were lower than the values assessed for the relevant valuation dates. First, appellants failed to establish basic comparability between the subject properties and the properties offered for comparison. The record lacks the descriptive detail about the assertedly comparable properties which would be needed to support a finding of comparability. Absent a threshold showing of comparability, the assessed values of the other properties which appellants relied upon lacked probative force as indications of the value of the subject properties. 
Moreover, appellants failed to provide reliable evidence of value by offering the actual income and expenses and actual vacancy levels for the subject properties, without reference to relevant conditions in the market for office rental space in Fall River. Income and expenses and levels of vacancy must reflect the earning capacity of the subject properties in the relevant market environment to be probative of fair cash value. Moreover, the absence of expert real estate valuation evidence undercut the probative force of any indications of value based on the income of the property.
Because appellants failed to prove that the subject properties had fair cash values lower than those assessed as of the relevant dates, the Board relied on the presumption of validity attending the assessments. The Board decided the instant appeals for the appellee.

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 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 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, 363 Mass. at 245).
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of reproduction.  Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  "The Board is not required to adopt any particular method of valuation."  Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  Regardless of which method is employed to determine fair cash value, the Board "must determine 'the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market.'"  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). (Citation omitted.) "The validity of a final estimate of market value depends to a great extent on how well it can be supported by market data." Chatham Investment Trust of Newton v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2007-298, 2007-308, citing Appraisal Institute, THE APPRAISAL OF REAL ESTATE 134 (12th Ed. 2001). See also 45 Rice Street Realty Trust v. Assessors of Cambridge, Mass. ATB Findings of Fact and Report 2007-1269, 2007-1325.  
"Evidence of the sale prices of 'reasonably comparable property' is the next best evidence to the sale of the property in question." Lattuca v. Robsham, 442 Mass. 205, 216 (2004). Required are "'fundamental similarities'" between the subject property and the comparison properties. See Lattuca, 442 Mass. at 216. (Citation omitted.) The appellant bears the burden of "establishing the comparability of … properties [used for comparison] to the subject propert[ies]." Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 1998-554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981). "Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value." New Boston Garden Corp., 383 Mass. at 470.
"At any hearing relative to the assessed fair cash valuation … of property, evidence as to the fair cash valuation … at which assessors have assessed other property of a comparable nature … shall be admissible." G.L. c. 58A, § 12B. "The admissibility under G.L. c. 58A, § 12B, of evidence of assessments imposed on other property claimed to be comparable in nature to the subject property is largely a matter within the discretion of the board." Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 703 (1972). As with evidence of sales, evidence of assessed valuations of other properties requires a predicate of comparability to the subject properties in order to be probative of the fair cash value. See id. "Moreover, reliable comparable sales data will ordinarily trump comparable assessment information for purposes of finding a property's fair cash value." Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 2007-403.
The income capitalization method "is frequently applied with respect to income producing property."  Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  In applying this method, the income stream used must reflect the property's earning capacity or market rental value.  Pepsi-Cola Bottling, 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 Authority, 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Authority, 9 Mass. App. Ct. 877, 878 (1980) (rescript); AVCO Manufacturing Corporation v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142.  It is the earning capacity of real estate, rather than the actual income, which is probative of fair market value.  See Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64 (1941).  "There must be a relation to market rental value." Pepsi-Cola Bottling Co., 397 Mass. at 451. Vacancy rates must also be market based when determining fair cash value. See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 239, 241-42 (1998). 
An owner of real estate, having adequate familiarity with his property, may offer an opinion as to its value. 45 Rice Street Realty Trust, Mass. ATB Findings of Fact and Reports at 2007-1328. "Nevertheless, the rule permitting an owner to express an opinion of value as to his own property coexists with the 'well-settled [principle] that 'the value of property … [is] a proper matter for expert opinion.'" Id. at 2007-1328. (Citation omitted.) Expert judgment is typically required in order to project an income stream reflective of market conditions, to arrive at an indication of the fair market value of property using the income approach. See generally Pepsi-Cola Bottling Co., 397 Mass. at 452.
The appellants' showing at trial fell well short of supplying substantial evidence for findings of value contrary to the assessed values of the subject properties. First, appellants failed to demonstrate that the properties offered for comparison purposes shared "fundamental similarities" with the subject properties. See Lattuca, 442 Mass. at 216. There is insufficient information in the record about the characteristics of the comparison properties and how they lined up with the features of the subject properties in the various respects relevant to comparability analysis. Apart from the unelaborated property record cards, the Board lacked the narrative and descriptive detail upon which findings of comparability can be based. The paucity of evidence also precluded the necessary step of making adjustments to allow for differences between the subject properties and the other properties.
Second, the testimony of Mr. Wood about actual income, expenses, and vacancy levels was not probative of the fair cash values of the subject properties in the absence of any demonstrated relationship to conditions in the market for office rental space in Fall River. See Pepsi-Cola Bottling Co., 397 Mass. at 451. "While it is true that an appraiser may use actual rents and expenses of the subject property in an income capitalization analysis, these data must 'adequately reflect earning capacity' in the prevailing market environment." 45 Rice Street Realty Trust, Mass. ATB Findings of Fact and Reports at 2007-1325. (Citation omitted.) There was no basis for a finding that the high vacancy levels reported by Mr. Wood accurately reflected relevant market conditions, so as to have bearing on fair cash value. 
Finally, Mr. Wood's attempt to prove that the subject properties were worth less than the amounts assessed, by offering evidence of actual income and expenses, was unpersuasive in the absence of expert testimony. "There is no authority for the proposition that the owner's competence to offer an opinion of value about his own property extends to the application of complex appraisal techniques which are the province of experts in the field of real estate valuation." Id. at 2007-1328-29.
In the absence of a showing of market values lower than the assessed values of the subject properties, the Board relied on the presumption of the validity of the disputed assessments. Accordingly, the Board decided the instant appeals in favor of the appellee.

APPELLATE TAX BOARD


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



A true copy,

Attest: ______________________________
	         Clerk of the Board

 On September 11, 2006, Commissioner Gorton was sworn as a temporary member of the Appellate Tax Board pursuant to G.L. c. 58A, § 1, his status as a member of the Board having terminated on that date with the appointment and qualification of his successor. See G.L. c. 30, § 8. This appointment was renewed for an additional year commencing September 11, 2007. Commissioner Gorton's material participation in the deliberation of these appeals included, inter alia, drafting and distributing proposed Findings and giving a detailed report on the evidence and his observations as to witness credibility. He also made oral presentations of his recommendations to the Board members. 
 Appellant Martin Wood stated at the hearing that he and Wood Development LP intended to withdraw the Petitions Under the Informal Procedure filed with respect to both properties for fiscal year 2004. While no withdrawals have been filed with the Board, Mr. Wood confined his testimony to fiscal years 2005 and 2006. 
 Mr. Wood is the principal of Wood Development LP.
 Mr. Wood offered no opinions of value for fiscal year 2004 for either property.
 References throughout are to the overall assessed values of the properties in question, combining both land and building values.  "[A] parcel of land and the buildings thereon comprise a single taxable unit." Gloucester Community Pier Association, Inc. v. Dehydrating Process Co. of Gloucester, Inc., 339 Mass. 14, 16 (1959).
 The "corrected" assessed values do not appear on the relevant property record cards. The testimony of the assessors is the only evidence on the record that the assessed values reflected on the property record cards were incorrect.

ATB 2008-213