Lashway Lumber, Inc. v. Board of Assessors of the City of Westfield (April 8, 2009)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

LASHWAY LUMBER, INC.       v.      BOARD OF ASSESSORS OF
 							THE CITY OF WESTFIELD                 

Docket No. F292614                 Promulgated:
							April 8, 2009
							 

	This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the City of Westfield ("assessors" or "appellee") to abate taxes on real estate located in the City of Westfield owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38 for fiscal year 2007 ("fiscal year at issue"). 
	Chairman Hammond heard this appeal.  Commissioners Scharaffa, Egan, Rose and Mulhern joined him in the decision for the appellee. 
These Findings of Fact and Report are promulgated at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

	David J. Martel, Esq. for the appellant. 

	Peter H. Martin, Esq. for the appellee. 




FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.
On January 1, 2006, the relevant assessment date, Lashway Lumber, Inc. ("Lashway Lumber" or "appellant") was the assessed owner of a rectangular-shaped parcel of real estate located at 16 Ponders Hollow Road in Westfield ("subject property").  For assessment purposes, the parcel is identified as lot 016R-014.  For the fiscal year at issue, the assessors valued the subject property at $936,500 and assessed a tax thereon, at the rate of $26.41 per $1,000, in the total amount of $24,732.97.  The appellant timely paid the tax without incurring interest.  On January 30, 2007, the appellant timely filed an abatement application for the subject property with the assessors.  On April 30, 2007, the abatement application was deemed denied, and the assessors gave notice of the deemed denial to the appellant on May 4, 2007.  On July 18, 2007, the appellant seasonably filed its appeal for the subject property with the Board.  On the basis of the foregoing, the Board found and ruled that it had jurisdiction over this appeal.
The subject lot contains 4.33 acres.  The subject property is located on a lightly traveled secondary street, and access to the site is considered good, because there are three curb cuts off of the frontage on Ponders Hollow Road.  The subject property is located about three miles from the Massachusetts Turnpike.  
The lot is improved with a 36,377-square-foot industrial building built in 1965, and with additions added in later years.  The subject building is owner-occupied and used by the appellant for manufacturing.  The appellant offered into evidence a summary of improvement characteristics for the subject property.  According to this summary, the oldest portion of the building is of concrete block and steel frame construction on a poured concrete slab.  This section has a flat roof covered with a rubber membrane.  The newer sections are of steel frame and metal panel construction.  One section sits on a poured concrete slab and another sits on concrete pylons.  These sections have a center pitched roof covered with metal panels.  
The subject building contains an office area and warehouse area.  The office area contains vinyl tile flooring, drywall and concrete block walls, and a combination vinyl tile and poured concrete floor.  The interior walls are masonry and concrete.  There are metal-framed single-paned windows.  At the time of purchase, the ceiling was drop-tile with recessed fluorescent lighting, but as of the assessment date, the appellant had removed the drop-tile ceiling to create more ceiling height.  
The warehouse space is separated into three main sections.  The oldest section is improved with exposed web bar joists with an insulated decking, suspended florescent lighting, concrete block walls and a combination vinyl tile and poured concrete floor.  Located in this area is a single dock with an 8' by 10' overhead door, as well as a large bathroom equipped with a gang sink, three toilets and one urinal.  There is also a small bathroom equipped with one sink and one toilet.  The small additions added at different times over the years are improved in a similar fashion.  There is a 558-square-foot partial basement improved with concrete block walls and a poured concrete floor, which contains air compressors, an old gas-fired furnace, a 30-gallon gas-fired hot water heater, and areas for storage.  The newer sections are clear span construction and are improved with exposed steel trusses and insulated metal decking or a drop-tile ceiling, suspended florescent lighting, a combination of exposed insulated walls and drywall walls and a combination of poured concrete and vinyl tile floors.  There is also a  9'-by-10' overhead door leading to a covered exterior dock, which is equipped with a poured concrete ramp leading to the parking area. 
The building's exterior is brick with some vinyl siding.  The roof is flat and comprised of tar and gravel.  The heating is forced air powered by an outdoor wood boiler.  There is no air conditioning.  The building does not contain sprinklers.  The electrical service consists of a 2,500-ampere service.  The subject property is also improved with a 25,000-square-foot asphalt parking lot which can accommodate about 100 cars, two sheds and a 1,041-square-foot canopy.  The building is listed on the property record card as being in overall average condition.
In support of its contention that the subject property was overvalued for the fiscal year at issue, the appellant presented the testimony of Gerald Lashway, President of Lashway Lumber.  Mr. Lashway purchased the subject property on behalf of the appellant on January 30, 2003 for a stated consideration of $475,000.  He testified that he was personally involved in purchasing the subject property, and that the negotiations leading up to the $475,000 purchase price were at arm's length.  He then testified that the only improvement which he had made to the subject property since the date of purchase was the construction of a loading ramp to facilitate access to the building.  He also testified that he had removed the suspended ceiling and the air conditioning apparatus to provide more ceiling space, which he believed may have diminished the value of the building.  
Mr. Lashway testified to the numerous additions to the subject building, and how they had resulted in various ceiling heights throughout the building.  He claimed that these additions have created a hodgepodge property in which movement between the various sections is very difficult, resulting in a diminished property value.  Mr. Lashway also claimed that the subject property's location is a disadvantage, because access to the subject property requires travel through the center of town.  However, he was referring to his own travel between the subject property and other properties which he owned; the subject property itself was easily accessible from the Massachusetts Turnpike.  
Mr. Lashway opined that the subject property had probably increased in value since the appellant's purchase, but not as high as its assessment.  He claimed it was probably worth between $550,000 to $600,000 on the relevant assessment date.  To support his claim of value,         Mr. Lashway offered a comparable-sales analysis, providing evidence of three other recent sales of industrial property in Westfield.  Mr. Lashway submitted property record cards for each of his comparable properties, and he noted that the comparables' assessed values were less than their previous purchase prices.  
First, Mr. Lashway cited the sale of 6 Old Stage Road.  This property consists of a 1.5-acre lot improved with a manufacturing building containing 11,840 square feet.  The building's exterior is brick, its roof is gable, and the heating is forced air powered by oil.  This property sold for $345,000 on December 23, 2004 but was assessed at $339,000 as of the relevant assessment date. 
Mr. Lashway's second comparable was 30 Clifton Street.  This property consists of a 0.86-acre lot improved with a manufacturing building containing 20,650 square feet.  The building's exterior is concrete block, its roof is flat, and the heating is forced air powered by natural gas.  This property sold for $490,000 on September 8, 2004 but was assessed at $477,900 as of the relevant assessment date.
Mr. Lashway's third and final comparable was 1014 Southampton Road.   This property consists of a 2-acre lot improved with a manufacturing building containing 20,357 square feet.  The building's exterior is concrete block, its roof is flat, and the heating is forced air powered by oil.  This property sold for $800,000 on May 30, 2006 but was assessed at $514,600 as of the relevant assessment date.
 In further support of his opinion of value,        Mr. Lashway also offered a simple net-operating-income analysis of the subject property for calendar year 2005.  He testified that, during this time, his daughter had leased a portion of the subject as office space for her company.  Mr. Lashway's analysis, based on the rent that his daughter had paid for 4 months, is recreated below:
Income		
Rent (4 months at $800)	$3,200.00	
Expenses		
Water/Sewer	$  482.63	
Heat/Electricity	$3,760.78	
Telephone	$1,800.00	
Trash Collection	$2,172.61	
Flood Insurance	$2,925.00	
Liability Insurance	$8,349.00	

According to this analysis, the subject property's expenses of $19,490.02 exceeded its income of $3,200.00.
In support of the subject assessment, the appellee presented the testimony of James Pettengill, the Westfield Assessor.  Mr. Pettengill first offered an income-capitalization analysis to value the subject property.  In support of this approach, he submitted an exhibit listing the leasable area and gross rents collected from seven unidentified properties, which he had extracted from filings made in response to the assessors' requests pursuant to G.L. c. 59, § 38D.  Based on the listing,    Mr. Pettengill extrapolated an average gross rent of $3.45 per square foot and a net operating income of $109,218 for his unidentified comparables.  Mr. Pettengill did not have information as to all of the expenses for the subject property, but he assumed a 20% expense factor.           Mr. Pettengill next applied the band-of-investment approach to extrapolate a capitalization rate.  He chose 11.5% as the capitalization rate and 2.641% as the tax factor.  From these, Mr. Pettengill calculated a base rate of 8.9%, which he rounded to 9%.  Applying his capitalization rate to his assumed net operating income amount, Mr. Pettengill determined that the fair market value for the subject property under the income-capitalization approach was $936,500, the assessed value for the fiscal year at issue.  
Mr. Pettengill next offered a comparable-sales analysis.  In support of this approach, he submitted an exhibit listing the sales of six purportedly comparable factory properties in Westfield.  Mr. Pettengill's evidence is reproduced below:
Location	Sale date	Sale price	Bldg size	Cost sq/ft	Age	
subject	02/11/03	$475,000	36377	$13.06	1965	
66 Main Line Dr.	11/03/04	$500,000	12621	$39.62	1970	
30 Clifton St.	09/08/04	$490,000	20650	$23.72	1964	
6 Old Stage Rd.	12/23/04	$345,000	11840	$29.14	1985	
978 South-ampton Rd.	12/01/05	$850,000	17745	$47.90	1980	
288 Union St.	03/09/05	$400,000	 7860	$50.89	1978	
184 Falcon Dr.	10/02/06	$685,000	14707	$46.58	1988	

Two of these properties, Mr. Pettengill admitted, were not sold at arm's length - 978 Southampton Road was sold in conjunction with another parcel of property, and 288 Union Street was sold to a "motivated buyer."  Therefore, the Board disregarded these sales.  
On the basis of all of the evidence presented, and its subsidiary findings, the Board made the following ultimate findings of fact.  The subject is an owner-occupied, industrial building, which was built in sections.  The building is heated by means of an outdoor woodstove in lieu of a centralized heating system.  The appellant uses the subject property for manufacturing, and the Board found that the subject property would not be suitable for use as leasable office space.  The Board thus found and ruled that, given the subject property's current use and the credible testimony of Mr. Lashway regarding the hodgepodge layout of the building and its lack of an indoor heating system, the highest and best use of the subject property was its present use as an owner-occupied industrial building used for manufacturing.
Having found that the highest and best use of the subject property was its current use, the Board also found and ruled that Mr. Pettengill's income-capitalization analysis, which consisted of income information from seven unidentified leased properties with an unknown number of tenants and unknown lease terms, was not shown to correspond to the subject owner-occupied property.  The Board also was not persuaded by Mr. Pettengill's comparable-sales analysis.  As explained, the Board disregarded two of the sales because they were not made at arm's length.  With respect to the remaining four sales, the Board found that the square-foot size of the subject building was much larger than those of Mr. Pettengill's comparables.  The Board found that Mr. Pettengill failed to demonstrate that his comparable properties were sufficiently similar to the subject property to be probative of the subject's value.   
However, the Board was also not persuaded by the appellant's evidence.  The Board first found that the appellant failed to prove its contention that the subject property's location was undesirable.  Mr. Lashway's testimony that he was inconvenienced by traveling through the center of the city to access his other properties was insufficient to demonstrate that the subject property, located three miles off the Massachusetts Turnpike, was somehow inaccessible.  Moreover, while Mr. Lashway testified to the hodgepodge nature of the subject property resulting from its various additions over the years, he failed to demonstrate that the subject assessment did not take this configuration into account.  
The Board also found that the appellant did not present sufficient evidence of comparability between the subject property and its purported comparables to support its claim of overvaluation.  The appellant made no adjustment to its comparables' sale prices to account for differences between them and the subject property.  Without adjustments, the sale prices of the appellant's comparables were of little probative value when trying to determine the subject property's fair cash value.  
Moreover, the sale of the subject itself, three years prior to the assessment date, was not persuasive evidence of the subject's value in the absence of evidence of market conditions.  Mr. Lashway himself admitted that the subject property most likely had increased in value.  The lack of evidence comparing the market conditions on the sale date versus the assessment date, which would have enabled the Board to adjust the sales price to the valuation date, did nothing to further the appellant's claim of overvaluation.  Casting further doubt on the reliability of the stated purchase price was the fact that Mr. Lashway did not explain the disparity between the price that he paid for the subject property and the $1,000,000 mortgage secured by only the subject property, which the appellant entered into merely two weeks after the subject property's purchase.
Therefore, for the reasons explained in the Opinion, the Board found and ruled that the appellant failed to meet its burden of proving that the subject assessment exceeded the subject property's fair cash value.  Accordingly, the Board decided this appeal in favor of 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 are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).  
"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, Mass. ATB Findings of Fact and Reports 2000-859, 875 (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). "[T]he phrase 'highest and best use' implies the selection of a single use for a single property and . . . the Board is required to make its best judgment as to what that use is likely to be, considering all the evidence presented."  New England Telephone and Telegraph Co. v. Board of Assessors of the Town of Framingham, Mass. ATB Findings of Fact and Reports 1988-95, 150.  In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted.  See Leen v. Board of Assessors of Boston, 345 Mass. 494, 504 (1963); Boston Gas, 334 Mass. at 566.  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, 277-78 (13th ed., 2008); see also Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972);  DiBaise v. Town of Rowley, 33 Mass. App. Ct. 928 (1992).  Property cannot be valued on the basis of hypothetical or future uses that are remote or speculative.  See Skyline Homes, 362 Mass. at 687; Tigar v. Mystic River Bridge Authority, 329 Mass. 514, 518 (1952); Salem Country Club, Inc. v. Peabody Redevelopment Authority, 21 Mass. App. Ct. 433, 435 (1986).  
In the present appeal, certain features of the subject property - particularly its outdoor heating source and its many additions, which were added at various times - would significantly hinder its use for office or rental property.  The Board thus concluded that the subject property's highest and best use was its current use as an owner-occupied industrial building used for manufacturing. 
The appellant bears the burden of proving overvaluation.  "'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 [B]oard is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'"  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before the Board, taxpayers "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 assessed values placed on properties comparable to the subject are admissible in hearings contesting assessments before the Board.  G.L. c. 58A, § 12B.  
To determine fair cash value, the Board typically utilizes three principal methods of valuation: the cost approach, the income-capitalization approach, and the comparable-sales approach. See Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  Regardless of which method is employed to determine fair cash value, the Board must determine the highest price a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market. Irving Saunders Trust, 26 Mass. App. Ct. at 845.  The validity of a final estimate of market value depends to a great extent on how well it can be supported by market data. See The Appraisal of Real Estate at 147. 
"[S]ales of property usually furnish strong evidence of market value, provided they are arm's-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller."  Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 682 (1982).  Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue. McCabe v. Chelsea, 265 Mass. 494, 496 (1929).  When comparable sales are used, however, allowance must be made for various factors which would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082.  "After researching and verifying transactional data and selecting the appropriate unit of comparison, the appraiser adjusts for any differences."  The Appraisal of real estate at 307. 
In the instant appeal, the appellant offered sales evidence of three purportedly comparable properties but made no adjustments to account for differences including, but not limited to, location, lot size, square footage and age of the property.  Given the unique configuration of the subject property, the Board found that, without the appropriate adjustments, the appellant's reliance on its purported comparables did not provide a reliable indicator of the subject property's fair cash value.  Moreover, the evidence of the sale of the subject, three years prior to the relevant assessment date, without any evidence of market conditions in the period between the sale date and the assessment date, also failed to provide the Board with meaningful evidence upon which the Board could make a determination of value.   
The Board also rejected the appellee's sales-comparison and income-capitalization analyses.  However, the consequence of the Board's rejection of both parties' analyses is that the appellant failed to meet its burden of proving that the subject property was overvalued.  The May Department Store, Co. v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2009-153, 195 ("[T]he taxpayer loses when the taxpayer and the assessors present the board with equally footless cases.") (quoting Hampton Assocs. v. Assessors of Northhampton, 52 Mass. App. Ct. 110,        119 (2001)); see also Northshore Mall Ltd. Partnership, Mass. ATB Findings of Fact and Reports at 2004-234-35, 255, 259 (finding and ruling that where the income-capitalization methodology used by the appellant's valuation expert "was so replete with errors that it was unreliable and essentially without merit" and the record was otherwise devoid of competent valuation information upon which the Board could rely to develop a fair cash value for the subject property, the appellant failed to meet its burden of proof).     

Therefore, 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 was overvalued.  The Board accordingly decided the instant appeal in favor of the appellee. 

THE APPELLATE TAX BOARD



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





A true copy,

Attest:  __________________________________
	    Clerk of the Board

   Based on the evidence presented, a small portion of the building was leased at some point to Mr. Lashway's daughter as office space for her business.  
  Mr. Lashway was unable to explain the disparity between the purchase price and the $1,000,000 mortgage, secured by only the subject property, entered into less than two weeks after the purchase.
 General Laws chapter 59, § 38D states in pertinent part:
A board of assessors may request the owner or lessee of any real property to make a written return under oath within sixty days containing such information as may be reasonably required by it to determine the actual fair cash valuation of such property.  Failure of the owner or lessee to comply with such request within sixty days after it has been made shall bar him from statutory appeal under this chapter, unless such owner or lessee was unable to comply with such request for reasons beyond his control.

	ATB 2009-300