F254381; F257677; F260683

Full text

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

THREE SHOPPING CENTER ASSOC. v. BOARD OF ASSESSORS OF
THE TOWN OF SWANSEA

Docket Nos. F254381 (FY 1999) F257677 (FY 2000) Promulgated:
F260683 (FY 2001) June 6, 2003

These are appeals filed 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 Swansea assessed under G.L. c. 59, §§ 11 and 38 for fiscal years 1999 through 2001, inclusive.
Commissioner Scharaffa heard these appeals. Chairman Burns and Commissioners Gorton, Egan, and Rose, all joined him in the decisions for the appellant.
These findings of fact and report are made pursuant to requests by both parties pursuant to G.L. c. 58A, § 13, and 831 CMR 1.32. A Revised Decision is promulgated simultaneously with these findings.

David G. Saliba, Esq. for the appellant.

Clement Brown, Esq. for the appellee.

FINDINGS OF FACT AND REPORT

On January 1, 1998, 1999, and 2000, the appellant, Three Shopping Center Associates, was the assessed owner of the property located at 579 GAR Highway (Route 6) in the Town of Swansea, which is the subject of these appeals. The irregularly shaped site has a total area of 16.81 acres and is improved with two one-story commercial buildings that were constructed in 1974 along with approximately 250,800 square feet of asphalt paved parking for an estimated 890 cars. The buildings contain 169,731 square feet of gross leasable space of which 16,077 square feet are contained in an out-building and 153,654 square feet are contained in four semi-detached buildings that are clustered in an L-shape. There are 116,375 square feet of anchor space in two stores, Building 19 and Hi-Lo Foods, and 53,356 square feet of small tenant space suitable for about ten to twelve commercial occupants. The subject property is commonly referred to as the Swansea Place Shopping Center or, simply, Swansea Place.
The appellants acquired Swansea Place in December 1995 as part of a larger leased-fee acquisition that included two other Massachusetts shopping centers located in Raynham and Kingston. The $8 million purchase price appearing on the deed for Swansea Place is an allocation. On the basis of these facts, the Board found that the sale price appearing on the deed was not the result of negotiations between willing and knowledgeable sellers and buyers for the subject property's fee-simple interest.
Swansea Place is located on the north side of Route 6 around the corner from two other malls, the Swansea Mall and Swansea Crossing. Route 6 has four lanes without a median or turning lanes. I-195 is located one-half mile to the west. The front of the site has over 1,000 feet of frontage on Route 6 along with two access cuts; the rear has approximately 810 feet of frontage on two-lane Milford Road, along with two smaller curb cuts. There is a six-foot high chain link fence along the property's Milford Road boundary. Route 6 is well lit and maintained by the state. Visibility is good in both east and west directions. The property is served by town water, private septic, gas, telephone, and electricity. There are no easements that impact the value or highest and best use of the subject property.
The buildings are constructed of painted concrete blocks with steel columns on reinforced concrete slabs. The façade contains double-hung windows with insulated anodized aluminum frames. Most units have single or double anodized swinging aluminum frame front doors with safety glass. The units' rear or service entrances have steel fire doors. The roof is flat and covered with rubber membrane in some places and tar and stone in others. Each store has its own gas-fired FHA unit with roof-mounted compressors and heating units. Canopies overhang front sidewalks as extensions or drop-downs from the roof, and columns support the canopies. There are exterior security lights, pole-mounted parking lot lights on concrete stanchions, and direct sign lighting, as well as a freestanding-lighted marquee at the main entrance to the shopping center.
The interior floorings are either tile or carpet installed over concrete slab. The interior walls and partitions are painted or papered drywall, and the ceilings

are drop-hung acoustic tile with recessed fluorescent or incandescent lighting. There is one handicap-accessible restroom with a ceramic commode and sink along with a mirror and lighting for each of the commercial units.
The property is in good condition overall with deferred maintenance along the periphery of the parking lot and around the surface drains. The shopping center has undergone some cosmetic rehabilitation since it was purchased in 1995 that included primarily exterior work to the façades and signage and relining the parking spaces. In a return filed with the assessors, pursuant to G.L. c. 59, § 38D, the appellant quantified the renovations at $1.2 million. The septic system has also been rebuilt, and the portion of the parking lot affected by that construction was resurfaced.
For each of the fiscal years at issue, the Board of Assessors of Swansea ("assessors") valued the property and assessed real estate taxes at the rates specified in the following table.
Assessed
Value Tax Rate
per $1,000 Tax
Assessed

FY 1999 $6,480,900 $21.74 $140,894.77
FY 2000 $6,480,900 $22.28 $144,394.45
FY 2001 $6,480,900 $22.98 $148,931.08

For all of the fiscal years at issue, the appellant timely paid the taxes due. The appellant also timely filed applications for abatement with the assessors and, following their denials, seasonably filed appeals with the Appellate Tax Board ("Board"). A summary of the pertinent jurisdictional information is contained in the following table.
Actual Tax
Bills
Mailed Application
for Abatement
Filed Application for Abatement Denied or Deemed Denied Petition Filed With Board

FY 1999 01/15/1999 04/12/1999 07/12/1999 07/16/1999
FY 2000 12/31/1999 01/19/2000 04/19/2000 07/05/2000
FY 2001 12/31/2000 01/08/2001 04/08/2001 06/19/2001

On the basis of these facts, the Board found that it had jurisdiction over all three of these appeals.
The appellant contested the assessment in these appeals through the testimony of three witnesses, Bernard P. Giroux, a real estate valuation expert, James G. Bendall, Jr., the manager of the shopping center, and John Donahue, the principal assessor for Swansea. The appellant also submitted several exhibits into evidence, including Mr. Giroux's appraisal report. In support of the assessments, the assessors relied on the testimony and appraisal report of their real estate valuation expert, Jeff Hyland, and the testimony of John Donahue. They also submitted several exhibits, including Mr. Hyland's appraisal report. In addition, the parties submitted post-hearing briefs and requests for rulings of law and, in the appellant's case, requests for findings of fact.
Bernard P. Giroux, whom the Board qualified as an expert in commercial real estate appraisal, was the appellant's first witness. In his testimony, as well as his report, Mr. Giroux described the property, the surrounding area, the existing economic conditions, and the excessive amount of commercial turnover and vacancies in both the area and the subject property itself. He also discussed the significant functional obsolescence associated with the subject in terms of its age, design, small tenant limitations, access and egress. He observed, among other things, that the small tenant spaces were archaic elongated designs that provided rear storage for excess inventory, which retailers who practice more updated methods of inventory control, no longer need. In addition, the limited amount of small tenant space compared to anchor space generated less income for the property, and access to the subject from the east-bound side of Route 6 was restricted because of a lack of turning lanes. On the whole, he considered the property to be a "tertiary" or third-rate shopping center. The Board found his testimony on these topics to be credible.
To estimate the value of the subject property, Mr. Giroux first performed a highest and best use analysis. He concluded that the subject's existing use as a shopping center was its highest and best use for the fiscal years at issue. Mr. Giroux then considered all three of the traditional methods for determining an opinion of value on real property, but decided that the cost and sales comparison approaches were not appropriate because of the age of the property and the lack of truly comparable arm's-length sales. He relied on the income capitalization approach to estimate the value of the subject property for the fiscal years at issue primarily because the subject is income-producing property. In developing this approach, Mr. Giroux recognized that the property is a high-risk, non-investment grade shopping center with historically high vacancy rates and capital expenses. He also considered the property's lack of long-term credit-worthy anchors and smaller tenants as well as its functional obsolescence and higher-grade competition in an over-stored market. He concluded that "as long as [Building 19 and Hi-Lo Foods were the anchors] the sales and rent levels . . . for small tenant space [would] remain low." Mr. Giroux noted that the property is located in a good commercial area.
To determine the property's market rents, Mr. Giroux analyzed the subject's actual rents and those in other similar and proximate shopping centers. He determined that, under the circumstances, $4.00 and $8.00 per square foot were reasonable rentals for anchor and smaller tenants, respectively. Again, based on the subject's experience and market data, Mr. Giroux determined a vacancy rate of 5% for anchor tenants for all three fiscal years at
issue and 25% for smaller tenants for fiscal years 1999 and 2000, decreasing to 20% for fiscal year 2001.
For operating expenses, Mr. Giroux relied on the subject's actual expense history coupled with some minor adjustments and rounding. He considered the actual expenses reflective of the market for this property. Because the subject's tenants reimbursed the appellant for common area expenses (CAM) and real estate taxes, Mr. Giroux also included in his methodology as additional income, in the form of tenant reimbursements, 75% of the total operating expenses for fiscal years 1999 and 2000 and 80% of the expenses for fiscal year 2001. The 25% and 20% that were not reimbursed in fiscal years 1999 and 2000 and 2001, respectively, represented the vacancies and, therefore, the pro rata amount of reimbursements that went unpaid for those fiscal years.
Mr. Giroux developed his capitalization rate using a band-of-investment method. To derive a capitalization rate using this technique, he relied on discussions with knowledgeable individuals in commercial lending and investment, and he researched relevant data provided by the Federal Reserve Bank in Boston and contained in the Korpacz Report. He determined that the most favorable lending terms available for the subject property for all three fiscal years at issue included a 9.25% interest rate over fifteen years, with a 70% loan-to-value ratio, a 0.1235 loan constant, and an equity yield requirement of 12%.
These assumptions resulted in a capitalization rate of 12.245%. Mr. Giroux reported that he confirmed this rate with one that he derived from sales of what he considered to be reasonably comparable shopping centers in the area. He then calculated his overall capitalization rate by adding in tax factors of 0.02174, 0.02228, and 0.02376 for fiscal years 1999, 2000, and 2001, respectively.
To estimate the value of the subject property using his income capitalization methodology for the fiscal years at issue, Mr. Giroux divided each fiscal year's net incomes by the overall capitalization rate that he calculated for that fiscal year. Accordingly, he determined that the value of the subject property for fiscal years 1999, 2000, and 2001 was $4,812,474, $4,894,109, and $5,038,178, respectively.

A summary of Mr. Giroux's income capitalization methodology is contained in the following table.
FY 1999 FY 2000 FY 2001
Income
Anchor Tenants @ $4.00/sq. ft. $ 465,500.00 $ 465,500.00 $ 465,500.00
Small Tenants @ $8.00/sq. ft. 426,848.00 426,848.00 426,848.00
Gross Income 892,348.00 892,348.00 892,348.00

Less Vacancy
Anchor Tenants @ 5% 23,275.00 23,275.00 23,275.00
Small Tenants @ 25% (20% FY 2001) 106,712.00 106,712.00 85,369.60
Total Vacancy 129,987.00 129,987.00 108,644.60

Effective Gross Income
762,361.00
762,361.00
783,703.40

Operating Expenses
Insurance ($0.09/sq. ft.) 15,275.79 15,275.79 15,275.79
Management (6%)
45,741.66 45,741.66 47,022.20
Utilities
25,000.00 27,725.00 30,000.00
CAM
Maintenance & Repair 57,600.00 58,003.00 58,003.00
Misc. Expenses & Admin. 12,000.00 41,970.00 41,970.00
Reserves (3%) 22,870.83 22,870.83 23,511.10

Commissions 6,183.00 2,145.00 4,575.00
Tenant Improvements 89,130.00 2,415.00 15,000.00
Total Operating Expenses (TOE) 273,801.28 216,146.28 235,357.10

Net Op. Inc. Before Reimbursements 488,559.72 546,214.72 548,346.30

Ten. Reimburse (75% of TOE) 205,350.96 162,109.71 188,285.68

Net Operating Income 693,910.68 708,324.43 736,631.98

Capitalization Rate
Mortgage & Equity Rate 0.12245 0.12245 0.12245
Tax Rate 0.02174 0.02228 0.02376
Overall Capitalization Rate 0.14419 0.14473 0.14621

Indicated Fair Cash Value $4,812,474.37 $4,894,109.24 $5,038,177.83

The appellant's second witness was James G. Bendall, Jr. Mr. Bendall was the regional property manager for Hayman Company, the leasing and management agent for the appellant and the subject property. He had personally negotiated most of the leases at the subject. In his testimony, he described the negotiations with Hi-Lo Foods in 1996 for leasing approximately 16,000 square feet of space at the subject property for $4.00 per square foot for the first five-year period, and for providing approximately $165,000 in tenant improvements and other concessions. Mr. Bendall confirmed that all of the tenants paid their pro rata share of the real estate taxes, and most paid a pro rata share toward common maintenance as well. The Board found his testimony to be credible.
For its final witness, the appellant called John Donahue, the principal assessor for Swansea. Mr. Donahue testified that the assessors valued the subject property using both an income capitalization and a cost approach but apparently relied primarily on the cost approach. In their income capitalization methodology, which was developed by Mr. Donahue's predecessor, Mr. Donahue confirmed that the assessors used a capitalization rate of 12.5%, vacancy rates of ten percent and twenty to twenty-five percent for the anchor and smaller tenants, respectively, and apparently did not account for the subject's real estate taxes in either the expense portion of their methodology or with a tax factor added to their capitalization rate. He also verified that the land associated with the subject property is 16.81 acres and not 19.27 acres as depicted on the assessors' Income Valuation Report for the fiscal years at issue.
After the presentation of the appellant's case, the Board allowed, without objection from the appellant, the assessors' motion to strike from the appellant's petition its allegations regarding disproportionate assessment, improper classification, exemption, and illegal or unconstitutional assessments. The Board denied the assessors' motion to strike the valuation report submitted by Mr. Giroux, the appellant's valuation expert.
In defense of the assessments, the assessors called Jeffrey A. Hyland as their commercial real estate valuation expert. Mr. Hyland's description of the subject property in his testimony and report was essentially the same as Mr. Giroux's. He also determined, like Mr. Giroux, that the property's highest and best use was its present use as a shopping center. To estimate the value of the property, Mr. Hyland considered the three traditional approaches to
value and settled on the sales comparison and income capitalization approaches as the most appropriate ones to use for this property.
In his sales comparison approach, Mr. Hyland examined five sales of shopping center properties, including the leased-fee bundled sale of the subject itself in December 1995 and sales involving two other Swansea properties, Milford Plaza in June 1999 and Swansea Crossing in October 1997. He also included in his analysis the sale of Executive Plaza in Fall River in March 1994, and Raynham Plaza in Raynham in September 1999. The Milford Plaza and Executive Plaza sales were both foreclosures. Swansea Crossing was newer construction than the subject property, and it was anchored with a Sears HomeLife and also contained a Marshall's and a regional pharmacy. During the relevant time period, Swansea Crossing experienced a twenty-three percent vacancy rate. Raynham Plaza is located approximately ten miles north of the subject property off of Routes 24 and 44.
Mr. Hyland adjusted his comparable sale properties' sale prices for such factors as condition of sale, location, physical condition, presence of anchor tenant(s), size, vacancy rate, and amount of excess land. He did not include an adjustment for time despite testifying that the commercial market improved from 1994 onward, and he also did not adjust for the leased-fee sales. Mr. Hyland determined an adjusted price per square foot for each of his comparable sale properties. These prices ranged from $39.19 to $51.88 per square foot. He considered the Raynham Plaza with an adjusted sale price of $42.17 per square foot to be the most comparable to the subject property. This plaza had both K-Mart and Staples as its anchor tenants. His research at the appropriate registry of deeds indicated that the Raynham Plaza had sold as a bundled sale with two other properties. He did not, however, look behind the sale prices recited on the deeds despite the probability of allocations. Using this approach, Mr. Hyland estimated the fee-simple market value of the subject property for the fiscal years at issue at $42.00 per square foot or $7,123,746, which he rounded to $7,100,000.
Mr. Hyland also used the income capitalization method to value the subject property for the fiscal years at issue. He developed his income and expense figures primarily from the market, but he stated that he also considered the actual rents and expenses. The rents that he ascribed to Building 19 and Hi-Lo Foods, the subject's two anchor properties, were $5.00 and $5.50 per square foot, respectively. Their actual rents were $3.07 and $4.00 per square foot, respectively. With the exception of D'Angelos, a fast-food restaurant to which he applied a rent of $16.00 per square foot, Mr. Hyland assigned rents ranging from $8.00 to $9.50 per square foot to the smaller stores. The actual rents for most of these stores, including D'Angelos, were lower. The rental area that he used in his methodology totaled 169,001 square feet for fiscal years 1999 and 2000 and 171,354 square feet for fiscal year 2001, including 94,500 square feet for Building 19, 21,763 square feet for Hi-Lo Foods, and the remaining 52,738 or 55,091 square feet for the smaller tenants. His gross annual income figures were $1,049,434 for fiscal years 1999 and 2000 and $1,065,064 for fiscal year 2001.
Mr. Hyland testified that the marketplace supported the application of a ten-percent vacancy and rent loss factor, which resulted in an effective gross income of $944,491 for fiscal years 1999 and 2000 and $958,558 for fiscal year 2001. Mr. Hyland admitted that he did not perform any studies concerning vacancy rates but was relying on his professional judgment.
Mr. Hyland's expense categories and percentages, which he purportedly based on market research that he checked with the actuals, include insurance at two percent, water at two percent, electric at two percent, maintenance and repairs at five percent, snow removal at two percent, miscellaneous at two percent, and management at five percent, for a total of twenty percent. By subtracting expenses of $188,898 for fiscal years 1999 and 2000 and $191,712 for fiscal year 2001 from the same fiscal years' effective gross incomes, he calculated net operating incomes of $755,592 and $766,846 for fiscal years 1999 and 2000 and fiscal year 2001, respectively. Mr. Hyland did not include an expense category for reserves for replacement, arguing that it was included in his miscellaneous costs, and he did not include any CAM or real estate reimbursement income in his methodology.
Mr. Hyland then applied a capitalization rate of 10.3 percent without a tax factor to arrive at his rounded estimate of $7,300,000 for the subject property's value in all of the fiscal years at issue. In developing this rate, he initially used four rates in his report, ranging from ten to 11.5 percent, to value the property from a high of $7,694,802 to a low of $6,691,132. In his testimony, however, he explained that he later used a mortgage-equity or Elwood approach to develop a 10.3% capitalization rate, which he divided into the net operating incomes for the fiscal years at issue to reach his rounded estimate of $7,300,000 for the subject property's value. A separate work sheet showing Mr. Hyland's calculations and assumptions in this regard was submitted into evidence at the hearing. He testified that he did not use a tax factor because the tenants paid the real estate tax under tax reimbursement clauses contained in the leases. He testified that the landlord's obligation for at least the part of the tax that was not reimbursed by the tenants because of vacancies was included in the miscellaneous expense category.
Mr. Hyland then reconciled the different values for the subject property that he estimated using the sales comparison and income capitalization approaches by apparently granting them equal weight. Accordingly, he estimated the value of the subject property at $7,200,000 for all of the fiscal years at issue.
The final witness to testify for the assessors was John Donahue, the principal assessor for Swansea who had also testified in the appellant's case in chief. Mr. Donahue opined that the income capitalization approach was a proper technique to use to estimate the value of the subject property for the fiscal years at issue. He also testified that the 1995 sale of the property for $8 million was the best indicator of value even though it was a bundled leased-fee sale with a possibly allocated sale price. Moreover, he believed that because the actual leases and rents were negotiated before the relevant assessment dates, they were probably below market and therefore not useful in determining the fair cash value of the subject property.
Mr. Donahue reviewed the income capitalization figures and assumptions contained in his predecessor's valuation report. Mr. Donahue confirmed that the figures, including $5.50 for anchor rents and $8.80 for small store rents, ten percent for anchor vacancies, and fifteen percent for total operating expenses were, in his opinion, reasonable and supported by the market. He believed that twenty percent for small tenant vacancies was excessive and that a reasonable capitalization rate was 10.5%, not 12.5% as used by his predecessor. Mr. Donahue also testified that a tax factor should not be added to the capitalization rate here because the tenants paid the taxes under the terms of their leases. With these changes in his predecessor's income capitalization methodology, he determined an indicated value of $7.7 million as opposed to his predecessor's value of $6,471,441 for the subject property. He concurred with the assessors' valuation expert, Mr. Hyland, that the discrepancy in the size of the parcel between the assessors' records and the parties' stipulation did not affect the value of the property.
On the basis of all of the evidence, the Board agreed with the parties' valuation experts that the highest and best use of the subject property was its continued use as a commercial shopping plaza. The Board found that for the fiscal years at issue the most appropriate methodology to use to estimate the value of this income-producing commercial property was the income capitalization approach. Both of the parties' valuation experts also used this approach for at least part of their methodology, and the town's principal assessor recommended the use of the income capitalization approach for valuing the subject property. Neither party's valuation expert used the cost approach, and only Mr. Hyland used a sales comparison technique as part of his methodology. The Board, like the parties' valuation experts, found that the cost approach was inappropriate because of the nature and age of the subject property and also found, like Mr. Giroux, that the sales comparison approach was inappropriate because of a lack of reasonably comparable and reliable sales. The sales upon which Mr. Hyland relied were either foreclosure sales that were sold under duress or bundled and/or leased-fee sales where the individually allocated sales prices were suspect or simply sales of properties that were not sufficiently comparable to the subject. In addition, the Board found that some of Mr. Hyland's adjustments or lack thereof, for differences between the purportedly comparable properties and the subject property, were inconsistent and in some cases improper.
The Board adopted the parties' stipulation regarding the size of the parcel and Mr. Giroux's measurements of 116,375 square feet and 53,356 square feet for the amount of anchor and small tenant space, respectively. The Board further found that $4.00 per square foot for the rental of anchor space at the subject property for the fiscal years at issue, as suggested by Mr. Giroux, was supported by the property's experience and the market. Accordingly, the Board adopted that rent in its income capitalization methodology. The Board selected $9.00 and $9.50 per square foot as the most appropriate rentals for the small tenant spaces for fiscal years 1999 and 2000 and 2001, respectively. These figures reflect not only the actual rents, but also the evidence of an improving market, plus the significantly higher rent paid by the fast-food restaurant, D'Angelos. In assigning this rent, the Board also considered the property's functional obsolescence and the nearby availability of superior space.
For vacancy rates, the Board essentially adopted those proposed by Mr. Giroux, five percent for anchor tenants for all three fiscal years at issue and twenty-five percent for fiscal years 1999 and 2000 reduced to twenty percent for fiscal year 2001 for small tenants. The Board, however, further reduced Mr. Giroux's vacancy rate for small tenants for fiscal year 2000 from twenty-five percent to twenty-three percent to better reflect the gradually improving market from January 1, 1998 to January 1, 2000 and the property's actual experience. The Board noted that Mr. Giroux reduced his vacancy rate for smaller tenants as of January 1, 2000 to twenty percent. The Board found that the rates suggested by Mr. Hyland were not supported by any reliable underlying data.
For operating expenses, the Board found that the actual expenses, including six percent for management fees and three percent for reserves for replacement were appropriate under the circumstances. The Board recognized the uniqueness of the subject plaza and its idiosyncrasies in finding that Mr. Giroux's approach of using the actual expenses with some minor adjustments and rounding best reflected the market for and costs associated with the subject property. The Board also stabilized over three years certain categories of expenses, including commissions, tenant improvements, and miscellaneous expenses to even out yearly fluctuations.
As suggested by Mr. Giroux, the Board added to the operating income tenant reimbursements or recoveries. The Board found that the tenants were required to pay CAM and real estate tax reimbursements and that these recoveries, therefore, should be included as income in its income capitalization methodology. Unlike Mr. Giroux, however, the Board used the actual recoveries for the fiscal years at issue that were contained in his valuation report and then stabilized them over three years as well. The Board found that, under the circumstances present in these appeals, its approach better reflected and approximated reimbursement income for the fiscal years at issue.
For its base capitalization rate, the Board used 0.1200 for fiscal year 1999 and 0.1150 for fiscal years 2000 and 2001. These rates fell between the parties' valuation experts' suggested rates of 0.12245 and 0.1030 and the principal assessor's recommendation of 0.1050. The Board's rates were supported by the underlying data contained in both experts' reports and exhibits, and it reflected the third-rate nature of the subject shopping plaza, the improving economy, and the level of risk associated with investing in the shopping plaza for each fiscal year at issue. Like Mr. Giroux, the Board also added a tax factor in determining its overall capitalization rate. Even though most of the leases associated with the subject property required pro rata reimbursements for CAM and real estate taxes, the Board found that the addition of a tax factor was appropriate because of the addition of the real estate tax reimbursement income in its methodology. See Appraisal Institute, Shopping Center Appraisal and Analysis at 271-72 (1993). The following table summarizes the Board's income capitalization methodology.

FY 1999 FY 2000 FY 2001
Potential Income
Anchor Tenants (116,375 sq. ft.) $ 465,500.00 $ 465,500.00 $ 465,500.00
Small Tenants (53,356 sq. ft.) 480,204.00 480,204.00 506,882.00
Gross Potential Income 945,704.00 945,704.00 972,382.00

Less Vacancy
Anchor Tenants (@ 5%) 23,275.00 23,275.00 23,275.00
Small Tenants (@ 25%, 23%, & 20%) 120,051.00 110,446.92 101,376.40
Total Vacancy 143,326.00 133,721.92 124,651.40

Effective Gross Income (EGI) 802,378.00 811,982.08 847,730.60

Operating Expenses
Insurance ($0.09/sq. ft.) 15,275.79 15,275.79 15,275.79
Management (6% of EGI) 48,142.68 48,718.92 50,863.84
Utilities 25,000.00 27,725.00 30,000.00
Maintenance & Repair 57,600.00 58,003.00 58,003.00
Misc. Expenses & Admin. 31,980.00 31,980.00 31,980.00
Reserves (3% of EGI) 24,071.34 24,359.46 25,431.92
Commissions 4,300.00 4,300.00 4,300.00
Tenant Improvements 35,500.00 35,500.00 35,500.00
Total Operating Expenses 241,869.81 245,862.17 251,354.55

Net Op. Inc. Bef. Reimbursements 560,508.19 566,119.91 596,376.05

Tenant Reimbursements 195,545.00 195,545.00 195,545.00

Net Operating Income 756,053.19 761,664.91 791,921.05

Capitalization Rate
Base Rate 0.12000 0.11500 0.11500
Tax Rate 0.02174 0.02228 0.02298
Overall Rate 0.14174 0.13728 0.13798

Indicated Value 5,334,084.80 5,548,258.30 5,739.390.10

Fair Cash Value 5,335,000.00 5,550,000.00 5,740,000.00

Abatement 24,911.87 20,740.45 17,025.88

On the basis of this analysis, the Board found that the subject property was overvalued for all three fiscal years at issue. Therefore, in its Revised Decision, promulgated simultaneously with these findings, the Board decided these appeals for the appellant and granted abatements in the amounts of $24,911.87, $20,740.45, and $17,025.88 for fiscal years 1999 through 2001, respectively. The Board also granted the assessors' request to separately value the land and buildings. To determine these values, the Board first calculated the percentage value of the land and the percentage value of the improvements compared to the overall value of the subject property as contained in the property record cards. The Board then used these percentages with minor adjustments to estimate in its Revised Decision the separate values attributable to the land and improvements associated with the subject property for the fiscal years at issue.

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). Accordingly, fair cash value means its fair market value. Id.
"Prior to valuing the subject property, its highest and best use must be ascertained, which has been defined as the use for which the property would bring the most." Tennessee Gas Pipeline Co. v. Assessors of Agawam, 26 Mass. App. Tax Bd. Rep. 226, 234 (2000)(citing Conness v. Commonwealth, 184 Mass. 541, 542-43 (1903); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989) and the cases cited therein). A property's highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. Appraisal Institute, The Appraisal of Real Estate at 305-308 (12th ed., 2001). See also Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972). In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted. Appraisal Institute, The Appraisal of Real Estate at 315-16 (12th ed., 2001); Tennessee Gas Pipeline Co., 26 Mass. App. Tax Bd. Rep. at 235. In the present appeals, both parties' valuation experts and this Board found that the continuation of the subject property's existing use as commercial shopping plaza constituted its highest and best use. Accordingly, the Board ruled that the subject property's highest and best use was its continued existing use. The Board also found and ruled that Mr. Giroux's depiction of the relevant economic environment and his description of the subject property itself accurately reflected the market and the property during the applicable time period.
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 reproductions. See 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), but the income capitalization method "is frequently applied with respect to income-producing property such as [a] shopping mall." Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984). Use of the income capitalization method 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).
In the present appeals, the appellant's valuation expert considered a sales comparison approach but did not use it because of a lack of comparable sales. The assessors' valuation expert attempted to use one, but the Board found that the purportedly comparable sales were either foreclosure sales that were sold under duress or leased-fee bundled sales where the individual sales prices were suspect or simply sales of properties that were not sufficiently comparable to the subject. In addition, the Board found that some of Mr. Hyland's adjustments or lack thereof, for differences between the purportedly comparable properties and the subject property, were inconsistent and in some cases improper. See The Westwood Group, Inc. v. Assessors of Revere, 391 Mass. 1012, 1013 (1984); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); Jordan Marsh Co. v. Assessors of Malden, 359 Mass. 106, 108 (1971). Furthermore, the Board found that the 1995 bundled leased-fee sale of the subject property was an unreliable gauge of the subject's fee simple fair market value for the 1999, 2000, and 2001 fiscal years at issue. The sales price recited on the deed is not conclusive evidence of fair cash value. Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682-83 (1982) (rejecting sale price recited in deed where "unilaterally determined by the seller" and not the result of arm's-length negotiation between seller and buyer). Under the circumstances, the Board found and ruled that the sales comparison approach was not an appropriate technique to use to value the subject property for the fiscal years at issue.
"[T]he introduction of evidence concerning value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods." Correia, 375 Mass. at 362. The appellant's valuation expert did not use a cost approach because of the subject building's age and nature. The assessors' valuation expert eschewed a cost approach as well. The Board agreed with the parties' valuation experts and found and ruled that the cost approach was not an appropriate technique to use to value the subject property for the fiscal years at issue.
The income capitalization method is appropriate for valuing a commercial income-producing shopping center. See, e.g., Alstores Realty Corporation v. Assessors of Peabody, 391 Mass. 60 (1984); Lilarn Properties Corp. v. Assessors of North Adams, 24 Mass. App. Tax Bd. Rep. 28 (1998); Frager v. Assessors of Everett, 6 Mass. App. Tax Bd. Rep. 50 (1985); Kimco of New England, Inc. v. Assessors of Leominster, 5 Mass. App. Tax Bd. Rep. 150 (1985). Both parties' valuation experts used an income capitalization methodology to estimate the value of the subject real estate. The Board found and ruled that an income capitalization methodology was the most appropriate approach for estimating the value of the subject property for the fiscal years at issue. The Board further found that there were an adequate number of comparable rentals to support the use of a direct income capitalization methodology. Under this approach, the property's capacity to generate income over a one-year period is analyzed and converted 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). Net operating income is obtained by subtracting expenses from gross income. Assessors of Brookline v. Buehler, 396 Mass. 520, 523 (1986). The capitalization rate should reflect the return on investment necessary to attract investment capital. Taunton Redevelopment Associates, 393 Mass. at 295. The "tax factor" is a percentage added to the capitalization rate "to reflect the tax which will be payable on the assessed valuation produced by the [capitalization] formula." Assessors of Lynn v. Shop-Lease Co., 364 Mass. 569, 573 (1974).
In the present appeals, the Board adopted Mr. Giroux's suggested rent for the anchor space, which was based primarily on the actual rents for the subject property, confirmed with market data. The Board relied on actual and market rents for its small tenant rentals and also considered the evidence of an improving market as well as the significantly higher rent paid by the fast-food restaurant, D'Angelos. The Board further considered the buildings' physical limitations and the shopping center's location and surroundings. "The use of actual rents is an acceptable method of valuation as long as they adequately reflect earning capacity . . . [and relate] to market rental value." Pepsi-Cola Bottling Co., 397 Mass. at 451 (citations omitted).
For vacancy and credit loss, the Board accepted Mr. Giroux's recommendations as the most persuasive ones. The Board, however, reduced Mr. Giroux's vacancy rate for small tenants for fiscal year 2000 from twenty-five percent to twenty-three percent to better reflect the gradually improving market from January 1, 1998 to January 1, 2000 and the property's experience. For operating expenses, the Board essentially adopted Mr. Giroux's figures as appropriate under the circumstances because they were based on the subject's actual expenditures and were for the most part verified by market data. The Board also stabilized over three years the expenses that fluctuated dramatically from year to year. "The issue of what expenses may be considered in any particular piece of property is for the board." Alstores Realty Corp., 391 Mass. at 65. The Board also found that it was appropriate to include in income the actual tenant recoveries stabilized over three years. The Board found and ruled that, under the circumstances present in these appeals, these stabilized amounts were the best reflection of tenant reimbursements for inclusion in its methodology.
After analyzing each expert's underlying data and methodology, the Board developed its own base capitalization rate, which fell between those suggested by the parties' valuation experts and reflected the third-rate nature of the subject shopping plaza, the improving economy, and the level of risk associated with investing in the shopping plaza for each fiscal year at issue. The Board used a tax factor to offset the reimbursements for real estate taxes that the Board included in the income portion of its methodology. See Alstores Realty Corp., 391 Mass. at 69-70; Irving Sanders Trust, 26 Mass. App. Ct. at 846.
The mere qualification of a person as an expert does not endow his testimony with any magic qualities. Boston Gas Co., 334 Mass. at 579. "The board [is] not required to believe the testimony of any particular witness but it [can] accept such portions of the evidence as appear[] to have the more convincing weight. The market value of the property [can] not be proved with mathematical certainty and must ultimately rest in the realm of opinion, estimate, and judgment . . . (citations omitted). The board [can] select the various elements of value as shown by the record and from them form . . . its own independent judgment." Boston Consolidated Gas Co., 309 Mass. at 72. See also North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984); New Boston Garden Corp., 383 Mass. at 473; Jordan Marsh Co., 359 Mass. at 110. In these appeals, the Board was persuaded from a consideration of all of the evidence that the subject property was overvalued for fiscal years 1999, 2000, and 2001.
The burden of proof is upon the appellant 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). "By holding that the assessment is entitled to a presumption of validity, we are only restating that the taxpayer bears the burden of persuasion of every material fact necessary to prove that its property has been overvalued." General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 599 (1984). 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." Id. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
The Board found and ruled here that, upon consideration of all of the evidence, the appellant met its burden of proving that the property was overvalued for fiscal years 1999, 2000 and 2001. Accordingly, in its Revised Decision, the Board decided all three of the appeals at issue for the appellant.

APPELLATE TAX BOARD

By: _____________________________
Abigail A. Burns, Chairman

A true copy,

Attest:_________________________
Clerk of the Board

"GAR" is an acronym for Grand Army of the Republic.
For the fiscal years at issue, the tax bills indicate that the subject property contained 19.27 acres of land. At the hearing, the parties stipulated that the property's actual size is 16.81 acres.
The measurement for the buildings' total area by the assessors' valuation expert inexplicably varied from 169,001 to 171,354 square feet from the first two fiscal years to the last. The assessors' brief describes the property as containing a "total floor area of approximately 169,731 square feet." Accordingly, the Board adopted the appellant's valuation expert's measurement as the more credible of the valuation experts' measurements.
There is an easement for a bicycle path at the rear of the property. There are also traffic-flow easements between the subject property and the adjacent McDonald's properties. The easements have no effect on the subject property's utility.
Because the FY 1999 actual tax bills were not mailed until January 15, 1999, the filing deadline for the FY 1999 applications for abatement was Monday, May 3, 1999. "In the event that actual tax bills are not mailed by December thirty-first, then upon the establishment of the tax rate there shall be a single actual bill due and payable on May first, or thirty days after the date of mailing, whichever is later." G.L. c. 59, § 57C. When the last day of a payment or filing period falls on a Saturday, Sunday, or holiday, the payment or filing is still considered timely if it is made on the following business day. G.L. c. 4, § 9. The deadline for filing applications for abatement is the same deadline as that for payments of the actual tax bills. G.L. c. 59, § 59. Accordingly, the Board found that the appellant's April 12, 1999 filing for FY 1999 was timely.
The FY 2000 and 2001 tax bills were mailed on or before December 31, 1999 and 2000, respectively. If mailed on or before December 31, "the actual tax bill . . . shall be due and payable in two installments, on February first and on May first." G.L. c. 59, § 57C. Applications for abatement are due "on or before the last day for payment . . . of the first installment of the actual tax bill." G.L. c. 59, § 59. Therefore, the FY 2000 and 2001 third quarter actual tax payments and applications for abatement were due on February 1, 2000 and 2001, respectively. G.L. c. 59, §§ 57C and 59. Accordingly, the Board found that the appellant's January 19, 2000 filing for FY 2000 and January 8, 2001 filing for FY 2001 were timely.

Mr. Giroux developed two income capitalization approaches, but did not rely on the one that used all unadjusted actual figures.
Mr. Giroux testified that CAM is an additional amount, beyond the base rent, that the tenant pays to the landlord for "common area maintenance for the shopping center, which may include items of expense that are agreed to in advance before a tenant will sign a lease."
The Board noted that the tax rates for fiscal years 1999, 2000, and 2001 were $21.74, $22.28, and $22.98, respectively. The tax factor that Mr. Giroux erroneously included in his income capitalization methodology for fiscal year 2001 was 0.02376 instead of 0.02298.
Perhaps the greatest discrepancy between Mr. Giroux and Mr. Hyland's descriptions of the subject property was their different measures of the land: 16.81 and 19.27 acres, respectively. The parties' stipulation at the hearing resolved this dispute and placed the size of the parcel at the 16.81 acres. At any rate, Mr. Hyland testified that the approximate 2½-acre difference did not affect his estimate of the subject property's value for the fiscal years at issue. See footnote 3.
In the narrative of his appraisal report, Mr. Hyland stated: "A management fee of 6% has been applied as a market standard for investment property." When questioned about the discrepancy between his narrative and his calculations, he admitted that his calculations should have used a management fee of 6%.

ATB 2003-213

Three Shopping Center Assoc. v. Board of Assessors of the Town of Swansea (June 6, 2003)

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