Bodwell Extension, LLC v. Board of Assessors of the Town of Avon (May 17, 2006)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



BODWELL EXTENSION, LLC		v.	BOARD OF ASSESSORS OF 
THE TOWN OF AVON

Docket No. F274269				Promulgated:
							May 17, 2006
							


	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 Town of Avon assessed to appellant under G.L. c. 59, §§ 11 and 38 for fiscal year 2004.  
	Commissioner Rose heard the appeal.  Commissioners Scharaffa, Gorton, and Egan joined him in a decision for the appellee.     
	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.
	Ellen M. Hutchinson, Esq. for the appellee.  

FINDINGS OF FACT AND REPORT
	On January 1, 2003, Bodwell Extension, LLC ("appellant") was the assessed owner of a 4.95 acre parcel of land improved with an industrial building located at 660 Bodwell Street Extension in the Town of Avon ("subject property").
	For fiscal year 2004, the appellee Board of Assessors of the Town of Avon ("assessors") valued the subject property at $2,829,100 and assessed a tax, at the rate of $24.55 per thousand, in the amount of $69,454.41, which appellant paid without incurring interest.  Appellant timely filed its application for abatement with the assessors on January 28, 2004.  Following the assessors April 13, 2004 denial of the application, appellant timely filed its appeal with the Appellate Tax Board ("Board") on June 18, 2004.  On the basis of these facts, the Board ruled that it had jurisdiction over this appeal.
	At the hearing of this appeal, appellant presented its case through the testimony of Allan Goodhue.  Mr. Goodhue and his brother are the sole members of appellant.  Mr. Goodhue is responsible for the operation of the subject property.  The assessors presented their case through the testimony and appraisal report of Thomas J. Mulhern, a licensed real estate appraiser whom the Board qualified as an expert witness in the field of real estate valuation.  On the basis of the testimony and documents submitted into evidence at the hearing, the Board made the following findings of fact.
	Mr. Goodhue and his brother formed appellant in 1998 for the purpose of purchasing the subject property.  Appellant purchased the subject property in August, 1998 for $2,210,000.
	The subject property is located within the Avon Industrial Park ("Industrial Park") on Bodwell Street Extension, near its intersection with Wales Avenue.  The neighborhood is developed with other industrial uses along Bodwell Street and the other industrial feeder streets off Bodwell Street.  The location is near the Stoughton/Avon town line and is about two miles east of Exit 19 off Route 24.  Route 24 is a major highway connecting to Route 128 to the north and Route 495 to the south.
	The building on the subject property is primarily a one-story industrial production/warehouse structure.  The building also has a small front sector which contains two floors of office space.  The warehouse/production space contains 66,240 square feet and the office space contains 4,560 square feet on each level, resulting in a total area of 75,360 square feet.
	The building was constructed around 1981 and is of typical industrial construction, consisting of a steel frame bolted to a concrete slab foundation. There is a rubber roof cover and metal upper and concrete block lower sidewalls.  A sprinkler system and hard-wired smoke detectors service the entire building.  The building is adequately heated and cooled.  There is an eighty-space parking lot providing employees and visitors with off-street parking.
The production/warehouse space is divided into production, warehousing, and shipping/receiving areas.  There is also a small tool shop. Ceiling heights in the production/warehouse space are twenty-four feet, allowing for stacking multiple pallets and easy maneuverability of product within the warehouse.  There are twelve loading areas, including ten "dock-height" doors measuring eight feet by eight feet and two "drive-in" doors measuring ten feet by twelve feet.   
The office space has suspended ceiling tiles with a ceiling height of eight feet. Walls are made of drywall and there is standard commercial-grade carpeting throughout the office space.  The appellant uses the first floor office space but has left the second floor office space vacant.  The appellant has not attempted to lease the second floor office space or any other part of the building.
In arriving at an opinion of value for the subject property, Mr. Goodhue testified that he performed comparable sales and capitalization of income analyses.  Prior to Mr. Goodhue's testimony, appellant had offered as an exhibit, without objection from the assessors, a "report" containing these analyses.
For his comparable sales analysis, Mr. Goodhue considered two sales of properties located within the Industrial Park and one sale in Canton.  The first sale property was located at 41 Devlin Drive, a site he
described as a better location within the Industrial Park, about one-half mile closer to the front of the Industrial Park than the subject property.  Like the subject property, the Devlin Drive property was an industrial/warehouse building with office space.  The building area was 36,900 square feet, ten percent of which was office space with the remainder industrial/warehouse space.  The property sold on February 16, 2001 for $1,240,000, or $33.60 per square foot.  Mr. Goodhue adjusted the sale price downward by six percent to account for what he described as a decline in the market between February, 2001 and the assessment date of January 1, 2003, to arrive at an adjusted selling price for the property of $1,165,600 or $31.59 per square foot.
Mr. Goodhue's next sale property was located at 15  North Street, Canton, which he believed was approximately three and three-quarter miles from the subject property.  The Canton building had an area of 42,375 square feet, with four percent office space and the remainder industrial/warehouse space.  The property sold on July 26, 2001 for $1,550,000 or $36.58 per square foot.  Mr. Goodhue also adjusted this sale price downward by six percent for the decline he found in the market between July, 2001 and January 1, 2003, to arrive at an adjusted selling price of $1,457,000 or $34.38 per square foot.
Mr. Goodhue's final sale property was located in the Industrial Park at 54 Bodwell Street.  Like his first comparable sale property, Mr. Goodhue believed that this property was in a better location within the Industrial Park than the subject property.  The Bodwell Street building had an area of 69,780 square feet, with ten per cent office space and the remainder industrial/warehouse space.  The property sold on March 6, 2002 for $2,225,000 or $31.89 per square foot.  Mr. Goodhue made a downward adjustment of two and one-half per cent to account for a declining market between March, 2002 and January 1, 2003, to arrive at an adjusted selling price of $2,169,375 or $31.09 per square foot.
Mr. Goodhue concluded that his comparable sales analysis indicated a value for the subject property of $2,300,000, or $31.17 per square foot.
Mr. Goodhue also performed an income capitalization approach to value the subject property.  He selected a fair market rent of $5.00 per square foot and arrived at a gross potential income of $369,000.  From that figure, he
deducted twelve per cent for vacancy and collection loss to arrive at an effective gross income of $324,720.  He then deducted building expenses of $92,849, or 28.6 per cent of effective gross income, to reach a net income of $231,871.  He divided his net income by a capitalization rate of eleven per cent to conclude that the indicated value of the subject property under his capitalization of income approach was $2,100,000.  
His final opinion of fair cash value of the subject property for the fiscal year at issue was the average of his values under the comparable sales and capitalization of income analyses, $2,200,000 or $29.81 per square foot.
Mr. Goodhue's credibility was seriously undermined by cross-examination. He admitted that he had never done an appraisal report before the one he submitted to the Board.  He conceded that his tax representative, Rocco Beatrice, "helped" him prepare the report.  Mr. Goodhue contracted with Mr. Beatrice to pay him a percentage of any abatement received in these proceedings.
Mr. Goodhue admitted that Mr. Beatrice provided him with the following information contained in the report:  the three sales used in his comparable sales analysis; "CoStar reports" which included pertinent information concerning the sales; the "offering rents" upon which his fair market rent was based; and vacancy reports from Spaulding & Slye and other sources, together with Mr. Beatrice's handwritten notation to "use 12%."
Mr. Goodhue did not investigate the circumstances surrounding the sales and rents he proffered, did not know whether the final contract rents were higher or lower than the "offering rents" he used, and offered no market data upon which to base his conclusion that the market for property such as the subject declined between 2001 and 2003.  He conceded that there were approximately ten sales of properties within the Industrial Park during 2001 and 2002, but used only two of those sales together with the sale of a property in another town.  Further undermining his credibility, he admitted that appellant granted a security interest in the subject property to Citizens Bank nine days before the relevant valuation date, despite signing responses to the assessors' document requests which stated that no documents evidencing the granting of a security interest in the subject property existed. 
On the basis of the foregoing, the Board found that the appellant's evidence was lacking in credibility and was not persuasive.  Mr. Goodhue gave no indication that he was familiar with the market data that he offered as evidence of the subject property's fair cash value.  Rather, it appeared that he hired a third party "consultant" on a contingent-fee basis to prepare a valuation report, or at the very least, to supply the necessary data and analyses described in the report that Mr. Goodhue presented to the Board.  The Board found that the existence of a contingent-fee arrangement raised the issue of bias on the part of the consultant, which appellant failed to address, thereby undercutting the credibility of appellant's valuation evidence.  
Further, by presenting a witness to testify to data and analyses supplied by a third party consultant who did not appear at the hearing, appellant insulated the consultant from cross-examination. Mr. Goodhue was unable to provide reasonable explanations for the most basic elements of the valuation analyses contained in the report, and failed to confirm any of the data on which he relied.  His inability to explain the basis of the valuation analyses he presented rendered his opinion of value unreliable, speculative and lacking in probative value.  

In contrast, the assessors' expert witness presented thoroughly researched and documented analyses establishing that the assessed value of the subject property did not exceed its fair cash value as of January 1, 2003.  In his comparable sales approach, the assessors' expert witness found that there were ten sales of comparable industrial properties in the Industrial Park during 2001 and 2002.  He considered two of those sales to be non-arm's-length sales and therefore focused on the remaining eight sales.  
The sale prices for the eight properties ranged from $31.89 to $70.16 per square foot, with a mean price of $47.63 per square foot.  After adjusting the sale prices for building area and condition, the adjusted sale prices ranged from $37.00 to $50.00 per square foot, with a mean of $41.72.  In contrast to the appellant, the assessors' expert witness made no adjustment for time for the 2001 sales; if anything, he believed that the market improved between 2001 and 2002 because interest rates had declined, stimulating investment in such properties. 
On the basis of his review of the market data, best exemplified by eight sales of industrial properties within the Industrial Park, the assessors' expert witness concluded that the value of the subject property was $40 per square foot, or $3,015,000, as of January 1, 2003.
The assessors' expert witness also performed a sound capitalization of income approach.  He found eight leases of comparable space within the Industrial Park.  The range of rentals was $4.50 to $6.75 per square foot.  Like appellant, he selected $5.00 per square foot as the fair market rental for the subject property.
Further, his selection of a vacancy and credit loss allowance of 7 per cent, operating expenses of 11.5 per cent of effective gross income, and a capitalization rate of 11.15 per cent, including a tax factor, were all well reasoned and documented.  On the basis of his capitalization of income approach, the assessors' expert witness concluded that the fair cash value of the subject property as of January 1, 2003 was $3,070,000.  Reconciling his opinions of value under the comparable sales and capitalization of income approaches, the assessors' expert concluded that the fair cash value of the subject property as of the relevant valuation date was $3,070,000.
On the basis of all the evidence of record, the Board found and ruled that appellant failed to meet its burden of proving that the assessed value of the subject property exceeded its fair cash value as of January 1, 2003.  Accordingly, the Board issued a decision for the appellee in this appeal.

OPINION
	The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38; Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975).  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) ("Schlaiker") (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) ("General Electric Co.") (quoting Schlaiker, 365 Mass. at 245).  
In appeals before this Board, a taxpayer "'may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation.'"  General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).  The Board found and ruled in this appeal that the appellant failed to produce persuasive, credible evidence either that the assessors' valuation method was flawed or that the assessed value of the subject property exceeded its fair cash value. "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).  
If a valuation witness is to be paid on a contingent-fee basis, the Board may consider that fact as bearing on the credibility of the witness due to bias. See New England Telephone Company v. Assessors of Boston, 392 Mass. 865, 873-74 (1984).  "It is the potentially adverse influence of the motivation to enhance his compensation that makes a contingent fee arrangement for an expert witness inappropriate."  Id. at 867.  
Much, if not all, of the data and analyses contained in the report on which appellant relied in the present appeal were supplied by a consultant being paid on a contingent-fee basis.  The existence of the contingent fee raises the issue of bias, affecting the credibility of the evidence supplied by the consultant.  Further, the consultant did not appear at the hearing to defend the data and analyses, or to address the issue of bias. Instead, appellant presented a witness who could not adequately answer questions concerning fundamental elements of appellant's valuation analyses, such as why only two of ten sales in the Industrial Park were considered and what market data supported his conclusion that the market declined between 2001 and the valuation date.
In addition, the analyses presented by appellant were fundamentally flawed.  Regarding appellant's comparable sales approach, an analysis based on recent sales of comparable properties in the market is, of course, a recognized method of determining fair cash value. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  "Comparability depends on fundamental similarities . . . That is, basic comparability is established upon considering the general character of the properties."  New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981).  Choosing only two of eight available arm's-length sales of comparable property in the Industrial Park during 2001 and 2002 unreasonably limited the market data available for the Board's consideration and rendered appellant's opinion based on this limited market evidence suspect.
Further, when comparable sales are used as evidence of fair cash value, allowance must be made for various factors which would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Board of Assessors of the Town of Pembroke, ATB Findings of Fact and Reports 1998-1072, 1082.   "Adjustments for differences are made to the price of each comparable property to make the comparable equal to the subject on the effective date of the value estimate." Appraisal Institute, The Appraisal of Real Estate 403 (12th ed. 2001).  In the present appeals, the Board found that Mr. Goodhue failed to justify his selection of only two of the ten sales of comparable properties within the Industrial park and failed to sufficiently explain the adjustments he made, particularly his time adjustment.  Accordingly, the Board ruled that appellant's sales comparison methodology was flawed, lacked substantiation, and was therefore unreliable.  
With regard to appellant's second approach to value, the income-capitalization approach is useful for determining the value of income-producing property when the sales comparison method is unavailable or less probative.  See Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 698-701 (1972).  However, Mr. Goodhue failed to explain his limited selection of comparable rental properties when at least eight leases of space in the Industrial Park were available for comparison and his use of offering rent rather than contract rent.  Although his fair market rental was the same as that found by the appellee's valuation expert, this similarity appears to be more of a coincidence than a reasoned opinion.  
The Board also found that Mr. Goodhue failed to prove that the rates used for vacancy/rent loss and operating expenses were reflective of relevant market conditions.  In addition, the Board found that Mr. Goodhue did not provide verification of, or a reasoned analysis for, the component parts of his recommended capitalization rate.  Consequently, the Board ruled that Mr. Goodhue's income approach was not a reliable means for estimating the value of the subject property for the fiscal year at issue.
In contrast, the assessors' expert witness presented a thoroughly documented and well-reasoned valuation analysis using both a market data and capitalization of income approach which amply supported the assessed value of the subject property.  Accordingly, on the basis of the evidence presented, the Board found and ruled that the appellant failed to meet its burden of proving that the subject property were overvalued for fiscal year 2004.  The Board, therefore, decided this appeal for the appellee.

						APPELLATE TAX BOARD

				By:	___________________________________
					Anne T. Foley, Chairman


					___________________________________
					Frank J. Scharaffa, Commissioner


					___________________________________
					Donald E. Gorton, III, Commissioner


					___________________________________
					Nancy T. Egan, Commissioner


					___________________________________
					James D. Rose, Commissioner


A true copy,



Attest:	____________________________
		Assistant Clerk of the Board

 The Board adopted these figures from the property record card for the subject property, on which the assessors' expert witness also relied. The appellant's figures were different: slightly more warehouse space (67,646 square feet), and less office space (6,154 square feet), resulting in 1,560 square feet less area than the assessors' total building area.  Because, as will be detailed below, the appellant's testimony and "report" lacked credibility, the Board adopted the assessors' figures.
 As the name suggests, "dock-height" doors close at a level even with the warehouse loading dock, allowing trucks to back up to the door for loading and unloading of product.  In contrast, "drive-in" doors close at street level, allowing trucks to drive into the warehouse.  
 The Board notes that the report was submitted as an exhibit at the outset of the hearing, prior to any testimony and without objection or a motion to strike from the assessors.  The marking of the report as an exhibit under these circumstances should not be read as precedent that the Board will accept such reports as evidence in future cases.

ATB 2006-351