Executive 3 Trust v. Board of Assessors of the Town of Norwell (August 18, 2000)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



EXECUTIVE 3 TRUST           v.	BOARD OF ASSESSORS OF  
				THE TOWN OF NORWELL

Docket Nos. F254876, F247004 		Promulgated:
		                   		August 18, 2000


	These are appeals under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Norwell to abate taxes assessed on real estate located in the Town of Norwell owned by and assessed to Executive 3 Trust under G.L. c. 59, § 38, for fiscal years 1998 and 1999.    
	Commissioner Egan heard the appeals and was joined by Commissioners Scharaffa and Gorton in a decision for the Trust.  Chairman Burns took no part in the deliberations or decisions of these appeals.	These findings of fact and report are promulgated at the request of the Assessors, pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32. 
 
John Lynch, Esq. for appellant.

Charles R. Markham, Assessor, for the appellee.



FINDINGS OF FACT AND REPORT
These appeals raise the issue of whether the Board of Assessors of the Town of Norwell ("Assessors") properly refused to abate taxes on certain real estate located in the Town of Norwell.  Based on testimony and exhibits offered at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
	On January 1, 1997 and January 1, 1998, the Executive 3 Trust ("Trust") was the assessed owner of a 5.26-acre parcel of real estate located at 600 Cordwainer Drive.  This parcel is situated at the intersection of Route 3 and Route 228 in Norwell.  At all relevant times, the parcel was improved with a four-story steel and brick structure containing approximately 52,773 square feet of gross commercial space.  The structure has a membrane covered flat roof topped with HVAC equipment.  The lowest level of the structure contains a garage.  There is also convenient parking adjacent to the building.  
The parcel and building are part of a larger "campus," which includes another similar office building, 200 Cordwainer Drive.  Both 200 and 600 Cordwainer Drive are utilized solely for office space.  As of the first valuation date at issue in these appeals, January 1, 1997, 600 Cordwainer Drive was one-hundred percent vacant.  As of the second valuation date, January 1, 1998, the subject property was over ninety percent tenanted. 
On January 1, 1997, the Assessors valued the subject property at $4,517,600 and assessed a tax at a rate of $15.86 per thousand, in the amount of $71,649.14.  On January 1, 1998, the Assessors valued the subject property at $4,541,500 and assessed a tax at the rate of $15.52 per thousand, in the amount of $70,484.08.  For both years at issue, the Trust paid the tax without incurring interest and applied for abatements within 30 days of the mailing of the actual tax bill.  The Assessors denied the abatement applications.  Within three months of the respective denial dates, the Trust filed its fiscal years 1998 and 1999 appeals with this Board.  On this basis, the Board found that it had jurisdiction to hear these appeals.
	To prove its case, the Trust relied on the testimony and appraisal report of its real estate appraiser, Richard J. Dennis, Sr., whom the Board qualified as an expert witness. In defense of the assessments, the Assessors relied on the testimony of Rosemary Durica, a member of the Assessors, and the fiscal year 1999 property record card, which was prepared by Appraisal Consultants of New England ("ACONE").  ACONE is an outside consulting company that was hired by Norwell to assist in its three-year revaluation of the town's property.  In addition to the Assessor's general knowledge of Norwell real estate, they were aided by the property record card prepared by ACONE in valuing the subject property for the years at issue in these appeals.
	The Trust's expert testified that the income capitalization approach was the most appropriate method of valuing the subject property.  He dismissed the comparable sales approach because of the lack of comparable sales data.  Further, he dismissed the cost approach because the subject property was not special purpose. 
The Assessors asserted that, generally, their methodology for valuing property includes all three approaches - sales comparison, replacement cost and income capitalization, as well as a review for overall reasonableness based on the Assessors' knowledge of the Norwell commercial property market.  In the instant appeals, the Assessors offered no testimony regarding the replacement cost approach.  However, they did offer, but for identification only, some data regarding comparable sales.  The Assessors never moved to enter this data into the record.  Consequently, the Board did not consider it in its valuation analysis.  
The property record card prepared by ACONE was entered into evidence.  It used an income capitalization approach to value the property.  Accordingly, the Board found that the income capitalization approach was the most appropriate method to value the subject property, because it was income producing property and, at any rate, no reliable evidence was presented regarding comparable sales or replacement cost approaches. 
As discussed previously, 200 and 600 Cordwainer Drive are adjacent to one another in the same enclave or campus of office buildings.  They were both built and are now used solely for office space.  The Board found that 200 Cordwainer Drive contains approximately 29,000 square feet of office space, while 600 Cordwainer Drive contains 52,773 square feet.  200 Cordwainer Drive is slightly older than the subject property.  Both have adequate and convenient parking.  Their exteriors also share similar characteristics, but 200 Cordwainer Drive lacks the visually and architecturally appealing interior vaulted atrium found at 600 Cordwainer Drive.  In addition, 200 Cordwainer is a more modest, slightly older building.  However, 200 Cordwainer is more efficient in terms of operating costs because it lacks the unusable vaulted atrium space, instead possessing a modest entry vestibule.  The Trust's expert testified that he considered both buildings to be Class B office space.  Under these circumstances, the Board finds that 200 Cordwainer Drive is sufficiently comparable to 600 Cordwainer Drive to provide the Board with a reasonable basis for extrapolating income and other expense data for its income capitalization analysis. 
The Trust's expert testified that there were no actual rent figures from the subject property to consider as evidence of fair rental values on the relevant assessment date of January 1, 1997, because the subject was completely vacant at that time.   However, by January 1, 1998, the building was more substantially tenanted.  To provide an opinion as to appropriate rents for the years at issue, the Trust's expert relied primarily on the rents received at the comparable 200 Cordwainer Drive property.  Those rents ranged from $14.83 to $15.50 per square foot, depending on the space rented and the date and term of the lease.  The Trust's expert also considered some of the subject property's actual leases.  All of the leases that the Trust's expert considered were gross, as opposed to triple net, leases.  The Trust's expert concluded, based on the above-mentioned information, that the fair rental value of the subject property was $15.00 per square foot. 
The Assessors' lone witness testified that the property record card assumed a rent of $14.00 per square foot under a triple net lease.  However, the Assessors did not present any other evidence showing that a triple net lease was in any way appropriate for this multi-tenanted property.  Accordingly, for fiscal year 1998, the Board determined that the most appropriate rent for the subject property under a gross lease scenario was $15.25 per square foot.  The Board based this figure on the Trust's expert's gross lease analysis as well as several factors including the actual rental experience at 200 Cordwainer Drive, adjusted upward to reflect the subject property's newer physical plant and more dramatic and prestigious architecture.  For similar reasons, the Board found that $15.50 per square foot was the most appropriate rental figure for fiscal year 1999. 
The parties were in agreement as to the ten percent vacancy rate for fiscal year 1999.  For fiscal year 1998, however, the Assessors used a vacancy rate of ten percent, while the Trust urged a vacancy rate of fifteen percent.  The Board adopted the Trust's fifteen percent vacancy rate for fiscal year 1998 because the building was totally vacant as of the relevant valuation date, and was not meaningfully tenanted until fiscal year 1999. 
The Trust's expert testified to expenses of $5.00 per square foot, a tenant improvement figure of $0.75 per square foot, and a reserve account of two percent of effective gross income.  These figures were derived from the actual experience at both the subject property and 200 Cordwainer Drive.  The Trust's expert adjusted the 200 Cordwainer Drive property's expenses upward because it is a more "efficient" building than the subject.  For example, it lacks the unusable floor to ceiling vaulted atrium entry space that 600 Cordwainer possesses. 
To counter the Trust's expert's analysis, the Assessors asserted that the building was rented using a triple net lease, and consequently, expenses for tenant improvements or reserves were not necessary.  They simply offered the property assessment record card listing expenses at fifteen percent of gross effective income as their support for this proposition.  Given the lack of evidence of the appropriateness of a triple net leasing scenario and the lack of support for the fifteen percent expense figure, the Board disregarded the Assessor's expense figures.  Instead, the Board adopted the Trust's expense figures because they were supported by credible evidence and testimony. 
The Assessors suggested a capitalization rate of 10.5% for both of the fiscal years at issue in these appeals.  The Trust's expert used a capitalization rate of eleven percent for fiscal year 1998 and 10.5% for fiscal year 1999.  Thus, the parties were in agreement for fiscal year 1999.  Accordingly, the Board adopted that rate for fiscal year 1999 before adding in a tax factor to account for its use of gross leases.  For fiscal year 1998, the Board adopted the Assessors' suggested capitalization rate of 10.5%, again before adding in a tax factor, because that rate represented a reasonable rate of return on the investment under the circumstances and was supported by the Trust's expert's underlying data.
	The following table summarizes the Trust's, the Assessors' and the Board's income capitalization analysis for fiscal year 1998.
	Trust	Assessors	A.T.B.	
Area	52,773 sq. ft.	46,000 sq. ft.	52,773 sq. ft.	
Rent Per
Square Foot 	$15.00
(gross)	$14.00 
(triple net)	$15.25 
(gross)	
Gross Rental
Income	$791,595	$644,000	$804,788	
Vacancy	15% 
($118,739)	10%
($64,400)	15%
($120,718)	
Effective Gross Income	$672,856	$579,600	$684,070	
Maintenance	$5.00/sq. ft.
($263,865)	15% of e.g.i.  
($86,940)	$5.00/sq. ft.
($263,865)	
Tenant         Improvement	$0.75/sq. ft.
($39,580)	0	$0.75/sq. ft.
($39,580)	
Reserves	2% of e.g.i.
($13,457)	0	2% of e.g.i.
($13,681)	
Total Expenses	($316,902)	($86,940)	($317,126)	
Net Operating Income	$ 355,954	$492,660	$366,944	
  Rate of Return	0.11	0.105	0.105	
  Tax Factor	0.01586	0	0.01586	
Capitalization Rate Total	0.12586	0.105	0.12086	
Indicated Value	$2,828,173	$4,692,000	$3,036,108	
Fair Cash Value	$2,800,000	$4,517,600	$3,000,000	

	The following table summarizes the Trust's, the Assessors', and the Board's income capitalization analysis for fiscal year 1999.
	Trust	Assessors	A.T.B.	
Area	52,773 sq. ft.	46,000 sq. ft.	52,773 sq. ft.	
Rent Per
Square Foot 	$15.50
(gross)	$14.00
(triple net)	$15.50
(gross)	
Gross Rental
Income	$817,982	$644,000	$817,982	
Vacancy	10% 
($81,798)	10%
($64,400)	10%
($81,798)	
Effective Gross Income	$736,183	$579,600	$736,184	
  Maintenance	$5.00/sq. ft.
($263,865)	15% of e.g.i.
($86,940)	$5.00/sq. ft.
($263,865)  	
  Tenant
  Improvement 	$0.75/sq. ft.
($39,580)	0	$0.75/sq. ft.
($39,580)   	
  Reserves	2% of e.g.i.
($14,724)	0	2% of e.g.i.
($14,724)	
Total Expense 	($318,168)	($86,940)	($318,169)	
Net Operating Income	$418,015	$492,660	$418,015	
  Rate of Return	0.105	0.105	0.105	
  Tax Factor	0.01552	0	0.01552	
Capitalization Rate Total	0.12052	0.105	0.12052	
Indicated Value	$3,468,428	$4,692,000	$3,468,428	
Fair Cash Value	$3,450,000	$4,541,500	$3,450,000	
 
	On this basis, the Board determined that the subject property was overvalued in fiscal year 1998 by $1,517,600 and in fiscal year 1999 by $1,091,000.  Therefore, the Board granted the Trust abatements in the amount of $24,069.14 for fiscal year 1998 and $16,940.08 for fiscal year 1999. 
OPINION
The assessors are required to assess all property at its fair cash value.  G.L. c. 59 § 38.  Fair cash value is customarily 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); Reservoir Place Realty v. Bd. Of Assessors of Waltham, 17 Mass. App. Tax Bd. Rep. 129, 140 (Docket Nos. 170317, 172764, February 17, 1995).
The taxpayer has the burden of proving that the property has a lower value than that assessed.  "[T]he Board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'"  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) quoting Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  'The burden of proof is upon the petitioner to make out his right as [a] matter of law to [an] abatement of the tax.'"  Schlaiker, 365 Mass. At 245, quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922).  The Board ruled that the Trust met its burden in this regard.
To actually determine fair cash value, Massachusetts courts, real estate valuation experts, and this Board generally rely upon three methods:  sales comparison, income capitalization, and replacement cost.  Correira v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  In the present appeal, pursuant to the evidence in the record, the Board relied on the income capitalization approach to determine the fair cash value of the subject property.  Under this approach, an estimate of value is determined by dividing net operating income by a capitalization rate.  Assessors of Brookline v. Buehler, 396 Mass. 520, 52 (1986), citing General Elec. Co. v. Assessors of Lynn, 393 Mass. 591 (1985).  The net income is computed by deducting operating expenses from potential gross income, the capitalization rate is the sum of the appropriate rate of return and, where the owner pays the real estate taxes, the given year's tax factor.  Buehler, 396 Mass. at 523;  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 609 (1984).
Ultimately, the market value of the subject property is a matter of judgment.  The Board must make its decision on evidence presented but need not adopt the valuation of any particular witness.  Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941).  Based on the evidence and testimony presented, the Board made its determination of the appropriate rental rates to calculate the property's gross income figure.  Choosing an appropriate gross income figure for determination of an income stream is within the Board's discretion and expertise.  Pepsi-Cola Bottling Co. v. Bd of Assessors of Boston, 397 Mass. 447, 452 (1986).
The Board is not required to believe the testimony of any particular witness, but can accept those portions of the evidence which the Board determined had more convincing weight.  New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981).  After reviewing the evidence and testimony, the Board adopted the Trust's income capitalization approach figures set forth in its expert appraiser's report and testimony, with the exception of the capitalization rate for fiscal year 1998 and the rent per square foot for fiscal year 1998.  Instead, the Board made its own determinations in these regards, relying on the evidence presented.  
"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).  The Board's experience and expertise "must be recognized" and its decisions are due deference.  HRS Trust #5, et. al. V. Bd. Of Assessors of West Boylston, 20 Mass. App. Tax Bd. Rep. 1, 4 (Docket Nos. 203805, 203808, 206671, 206672, 206674, October 29, 1996).  See French v. Assessors of Boston, 383 Mass. 481, 482 (1981).

	Based on the foregoing, and the values derived in applying the capitalization of income method, the Board issued a decision for the years at issue for the Trust and granted abatements in the amount of $24,069.14 for fiscal year 1998 and $16,940.08 for fiscal year 1999. 

					      APPELLATE TAX BOARD

					By:						
						Nancy T. Egan, Member




A true copy,


Attest:________________________
         Clerk of the Board

 


	

   Neither party raised the issue of the disparity in the property record card's and appraisal report's square footage figures for the subject property.  The Board adopts the Trust's representation of square footage because the expert actually measured the property. 
  The abbreviation e.g.i. stands for the phrase "effective gross income."
  The Trust appears to have made a mathematical error here.  The calculation bears out a figure of $2,828,174.
 The property record card prepared by an outside valuation firm for Norwell indicates "IA Value" of $4,692,000, and deducts value for "CA Less XS Land," stating a final value of $4,541,500.  The Assessors did not offer an explanation regarding the meaning of the XS land deduction.  
 The figure offered by the Trust was inaccurate by one dollar.
 The figure offered by the Trust was inaccurate by one dollar.
 See footnote 4.

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