Holyoke Shopping Center, LLC v. Board of Assessors of the City of Holyoke (September 19, 2008)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


HOLYOKE SHOPPING          v.       BOARD OF ASSESSORS OF
CENTER, LLC                        THE CITY OF HOLYOKE
			   			            
Docket Nos. F276587-88,			Promulgated:
F277921-22, F285980-81			September 19, 2008
        
	  	                  
	These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the City of Holyoke, ("assessors" or "appellee") to abate taxes on certain parcels of real estate located in the City of Holyoke, assessed to Holyoke Shopping Center, LLC ("appellant") for fiscal years 2004, 2005 and 2006 (the "fiscal years at issue").  
	Commissioner Mulhern heard these appeals, and was joined by Chairman Hammond and Commissioners Scharaffa, Egan and Rose in a decision for the appellee in Docket Nos. F276587-88, and in decisions for the appellant in Docket Nos. F277921-22 and F285980-81. 
	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.
David G. Saliba, Esq. for the appellant. 
	
Anthony Dulude, assessor, for the appellee.
FINDINGS OF FACT AND REPORT

On the basis of testimony and exhibits introduced at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
On January 1, 2003, January 1, 2004, and January 1, 2005, the appellant was the assessed owner of certain abutting parcels of real estate located at 2217-2295 Northampton Street in the city of Holyoke (the "subject property").  For fiscal year 2004, the subject property consisted of parcels totaling 37.75 acres, improved with buildings comprising a community shopping center known as Holyoke Plaza ("Holyoke Plaza").  For fiscal years 2005 and 2006, the assessors carved out a 2.03-acre parcel from the 37.75 acres, and separately assessed that parcel and improvements thereon to Stop & Shop, a tenant at Holyoke Plaza (the "Stop & Shop property").  Accordingly, for fiscal years 2005 and 2006, the subject property consisted of two parcels totaling 35.72 acres and the improvements thereon.  
For the fiscal years at issue, the assessors valued the subject property and assessed a tax thereon as follows: 

Docket Nos.	   Fiscal
   Year	Assessed     Value	Tax
Assessed	
F276587
F276588	   2004
   2004	$15,540,500
$ 2,014,800	$576,863.36
$ 74,789.52	
F277922
F277921	   2005
   2005	$14,479,300
$ 2,014,800	$520,096.45
$ 72,371.61	
F285981
F285980	   2006
   2006	$14,396,000
$ 2,014,800	$534,523.48
$ 74,809.52	

	In accordance with G.L. c. 59, § 57C, the appellant timely paid the taxes due without incurring interest.  The appellant timely filed abatement applications with the assessors, which were denied, and thereafter the appellant timely filed its Petitions with the Board.  The abatement application, abatement denial, and Petition date for each assessment and fiscal year are contained in the following table:

Docket
Nos.	Fiscal
Year	Abatement      Application   Filed	Abatement      Denied/Deemed Denied	Petition
Filed	
F276587
F276588	2004
2004	4/12/04
4/12/04	7/12/04
7/12/04	10/4/04
10/4/04	
F277922
F277921	2005
2005	1/27/05
1/27/05	4/4/05
4/27/05	5/3/05
5/3/05	
F285981
F285980	2006
2006	3/22/06
3/22/06	6/22/06
6/13/06	6/27/06
6/27/06	


On the basis of the foregoing, the Board found that it had jurisdiction to hear and decide these appeals.  
	For fiscal year 2004, the subject property consisted of a total of 37.75 acres and the improvements contained a total of 211,630 square feet of gross floor area.  The layout of the subject property was two large retail strip buildings with several "in-line" retail shops and an anchor tenant, Stop & Shop, along with three freestanding buildings housing a Cingular Wireless store, a Kentucky Fried Chicken restaurant, and a Goodyear Tires service center.  A self-service gasoline station was constructed in 2004 on the Stop & Shop property.  The gas station improvement was not assessed until fiscal year 2006, when it was assessed as part of the Stop & Shop property, and therefore is not part of the subject property for the purposes of these appeals.  
	Holyoke Plaza is located in a mixed-use neighborhood which includes residential, commercial and industrial development.  It is located on Route 5, a major local thoroughfare, which connects the area to Route 91 a few miles from the subject property.  Holyoke Plaza is situated a little over a mile from the Holyoke Mall, a larger, more modern shopping center with major retail tenants such as Macy's and Sears.  
	The subject property was constructed in phases through the 1970s and 1980s, with the addition of the Stop & Shop in 2000 and its gas station in 2004.  The buildings were constructed with a steel frame and poured concrete, and the exterior walls are concrete block.  The storefronts have aluminum casement windows and separate aluminum/glass front entryways.  Interior finishes include tile or carpet flooring, sheetrock walls and suspended acoustic tile ceilings.  There are loading areas with overhead doors in the rear of the buildings.  The subject property contains parking for approximately 735 vehicles.  Overall, the subject property is in average condition.  
	In support of its claim that the subject property was overvalued for the fiscal years at issue, the appellant offered the testimony and appraisal report of Brian J. Fitzgerald, a certified general real estate appraiser.  Based on his education and experience, the Board qualified Mr. Fitzgerald as an expert witness in the field of real estate valuation.
	Mr. Fitzgerald concluded that the subject property's highest and best use was its continued use as a retail shopping plaza. To value the subject property, Mr. Fitzgerald used both the sales-comparison and income-capitalization approaches which yielded the following indicated values:	
Fiscal
Year	Sales
Comparison	Income
Capitalization	
2004	 $15,350,000	 $16,400,000	
2005	  $ 8,050,000	  $10,325,000	
2006	  $ 8,275,000        	  $10,325,000	

The properties from which Mr. Fitzgerald extrapolated his sales-comparison data were all more modern, higher grade shopping centers, which he considered superior to the subject property, and which required significant adjustments in comparison with Holyoke Plaza.  In consideration of the adjustments, Mr. Fitzgerald discounted the value indicated by the sales-comparison approach and accordingly relied entirely upon the income-capitalization approach.  
	In conducting the income-capitalization approach, the appellant's appraiser obtained data from five comparable shopping centers in the surrounding communities.  Lease rates from those properties indicated a rental range from $6.19 to $15.00 per square foot, with most tenants paying between $8.00 and $15.00 per square foot.  During the relevant time period, rents at the subject property ranged from $6.26 to $9.34 per square foot, slightly lower than the rents at comparable properties.  Based on the market survey, Mr. Fitzgerald estimated the following rental rates for the subject property's in-line space: $12.00 per square foot for 1,000 to 5,000 square-feet units; $10.00 per square foot for 5,000 to 10,000 square-feet units; and $8.00 per square foot for units above 10,000 square feet.  Based on market data from comparable properties, Mr. Fitzgerald estimated the rental rates for the outbuildings and Stop & Shop spaces as follows:  $14.00 per square foot for Stop & Shop; $13.25 per square foot for the Goodyear Tires space; $18.00 per square foot for the Cingular Wireless space; and $20.00 per square foot for the Kentucky Fried Chicken space.  Because virtually all of the leases in the relevant retail market were triple net leases, Mr. Fitzgerald added $1.25 per square foot to each of the above rents to account for the tenant's share of taxes.  Mr. Fitzgerald based that figure on market data showing a range of $1.03 to $1.62 per square foot for taxes in comparable retail leases.  
	Multiplying the applicable rental rates by the appropriate square footage, Mr. Fitzgerald calculated a potential gross income for fiscal year 2004 of $2,573,981. Mr. Fitzgerald then deducted estimated vacancy and credit loss as well as estimated operating expenses, to arrive at a net operating income ("NOI") of $2,242,210 for fiscal year 2004.  For fiscal years 2005 and 2006, Mr. Fitzgerald deducted the rent and expenses attributable to the Stop & Shop property, because that parcel had been separately assessed, and calculated an NOI for the subject property of $1,455,205 for fiscal year 2005 and an NOI of $1,413,958 for fiscal year 2006.
	In determining an appropriate capitalization rate, Mr. Fitzgerald consulted local market data, the simple band-of-investment analysis and the publication commonly referred to as the "Korpacz Survey."  The Korpacz Survey indicated steadily declining capitalization rates during the relevant time period, commencing at a high of 9.58% in the first quarter of 2003 and declining to 7.86% in the first quarter of 2005. The simple band-of-investment analysis yielded a capitalization rate of 10%, while market data selected by Mr. Fitzgerald indicated rates ranging from 9.0% to 10.11%.  Ultimately, Mr. Fitzgerald selected a capitalization rate of 10% for fiscal year 2004, 10.5% for fiscal year 2005, and 10% for fiscal year 2006.  Mr. Fitzgerald then added the applicable tax factors to his capitalization rates for each fiscal year.  Applying the capitalization rate with the added tax factor to his estimated NOI for each fiscal year resulted in the following values:
	
Fiscal Year	NOI	Rate	Rounded 
Value	
2004	$2,242,210	13.699%	$16,400,000	
2005	$1,455,205	14.092%	$10,325,000	
2006	$1,413,958	13.713%	$10,325,000	

	The assessors offered no testimony, did not cross-examine the appellant's expert, and rested their case upon the submission of the property record cards.  
	Based on all of the evidence, the Board found that the highest and best use of the subject property was its continued use as a retail shopping center, anchored by a major grocery store like Stop & Shop.  The appellant's expert witness testified that Stop & Shop was the anchor store for the subject property, and the absence of Stop & Shop would negatively impact the value of the subject property.  The Board agreed with this conclusion, which was undisputed by the assessors and supported by the evidence of record.  The importance of Stop & Shop to the subject property is underscored by its proximity to the Holyoke Mall, a larger and more modern retail shopping center with major national retailers, such as Macy's and Sears.  Holyoke Mall, however, does not have a grocery store, and the subject property's Stop & Shop provides a major draw for area consumers.  
	The determination of the fair cash value of the subject property must take into account its highest and best use.  Because the Board found that the subject property's highest and best use was its continued use as a retail shopping center anchored by Stop & Shop, the Board found that the appropriate approach was to first value the subject property as a whole, and then deduct the amount attributable to the Stop & Shop property, as the appellant's expert did.   Accordingly, the Board determined the fair cash value of the subject property as a whole for each of the fiscal years at issue, and for fiscal years 2005 and 2006, deducted the assessed value of the Stop & Shop property.  
	The Board further found that because the subject property was income producing, the income-capitalization approach was a proper method for determining its fair cash value.  In determining the fair cash value of the subject property, the Board largely adopted the values used by the appellant's expert witness in his income-capitalization approach, which the Board found to be credible and supported by the evidence of record.  Specifically, the Board adopted the rents, vacancies and expenses utilized by the appellant's expert witness.  
However, the Board found the capitalization rates of 10% and 10.5% used by the appellant's expert were overstated given the evidence of record.  The Korpacz Survey average rate during the relevant time period was 8.71%, significantly lower than the rates used by the appellant's expert.  Market data used by Mr. Fitzgerald in his sales-comparison analysis indicated a range of 9% to 10%, with most of the rates near 9%.  Additionally, Mr. Fitzgerald's band-of-investment analysis quoted an equity yield rate of 12% to 15%.  Mr. Fitzgerald opted to use the high-end of that range, 15%, in arriving at his capitalization rates.  The Board opted to use the lower end of that range, 12%, and recalibrated the band-of-investment accordingly.  As a result, the Board found that a 9% capitalization rate was supported by the evidence of record, and applied that rate with the appropriate tax factors for each of the fiscal years at issue.  
Applying that capitalization rate to the relevant data, the Board found the fair cash value of the subject property to be $17,695,000 for fiscal year 2004, an amount which exceeded the assessed value of the subject property for that year.  Moreover, the appellant failed to expose errors in the assessors' methodology or otherwise sustain its burden of proving overvaluation of the subject property for fiscal year 2004.  Accordingly, the Board issued a decision in favor of the appellee for fiscal year 2004.  
For fiscal year 2005, the Board found the fair cash value of the subject property to be $13,983,100.  The Board found that the appellant sustained its burden of proving that the assessors overvalued the subject property for that year, and accordingly ordered an abatement of $90,195.12.  For fiscal year 2006, the Board found the fair cash value of the subject property to be $13,492,600.  The Board found that the appellant sustained its burden of proving that the assessors overvalued the subject property for that year, and accordingly ordered an abatement of $108,352.77.  


			    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 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) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). "[T]he board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 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)).  In reaching its opinion of fair cash value, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that a witness suggested.  Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight.  Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); Board of Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 701-702 (1972).  
The subject property was assessed for $17,555,300 for fiscal year 2004.  In fiscal year 2005, the assessors carved out and separately assessed the Stop & Shop property for $4,376,900.  Because the subject property no longer contained the Stop & Shop property for fiscal year 2005, a corresponding decrease in assessed value in the approximate amount of the assessed value of the Stop & Shop property would be expected.  However, for that fiscal year, the subject property was assessed for $16,494,100, a decrease of only $1,061,200.  Likewise, in fiscal year 2006, the Stop & Shop property was valued at $4,517,400, while the subject property was valued at $16,410,800, a decrease of only $1,144,500 from its fiscal year 2004 assessed value.  
In other words, for fiscal year 2005, the total assessed value of Holyoke Plaza was $20,871,000, an increase of $3,315,700 from its fiscal year 2004 assessed value.  In fiscal year 2006, the total assessed value of Holyoke Plaza was $20,928,200, an increase of $3,372,900 from its fiscal year 2004 assessed value.  There was no evidence in the record that supported such increases in value, and the Board found these unexplained and significant increases to be persuasive evidence of overvaluation for fiscal years 2005 and 2006.  
The Board found that the appellant offered substantial, credible evidence supporting its claim of overvaluation for fiscal years 2005 and 2006.  The Board found the valuation methodology used by the appellant to be credible and supported by the relevant market data, with the exception of the capitalization rate selected by the appellant's expert witness, which the Board found to be overstated, given the evidence of record.  In evaluating the evidence before it in these appeals, the Board selected from the various elements of value and formed its own independent judgment of fair cash value. See General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984). The Board therefore adopted the approach used by the appellant, but determined its own capitalization rate, in arriving at its own estimates of value.  
The Board made the following determinations of fair cash value for the subject property: $17,695,000 for fiscal year 2004; $13,983,100 for fiscal year 2005; and $13,492,600 for fiscal year 2006.  For fiscal year 2004, the fair cash value of the subject property determined by the Board exceeded its assessed value.  The Board therefore found and ruled that the appellant did not meet its burden of proving overvaluation for that fiscal year, and accordingly issued a decision for the appellee.  The Board found and ruled that the appellant met its burden of proving that the subject property was overvalued for fiscal years 2005 and 2006.  Accordingly, the Board ordered abatements in the amount of $90,195.12 and $108,352.77, respectively, for fiscal years 2005 and 2006.   

				      APELLATE TAX BOARD

				By:	________________________________
					Thomas W. Hammond Jr., Chairman


A true copy,

Attest:____________________________  
	       Clerk of the Board

 The appellant sold the subject property to HK New Plan Exchange IV, LLC, on January 24, 2003, in a non-arm's length transaction.  For reasons not explained in the record, the appellant continued to be assessed for the subject property for fiscal years 2005 and 2006, although it was not the legal owner.  Because it continued to be assessed for the subject property, the appellant had standing to bring these appeals.  See G.L. c. 59, § 59.   
 The Stop & Shop property was assessed for $4,376,900 for fiscal year 2005 and $4,517,400 for fiscal year 2006, although the value of the Stop & Shop property is not at issue in these appeals.  
 Because market data indicated an overall increase in rental rates between January of 2003 and January of 2005, Mr. Fitzgerald increased the rental rates by 3% between 2005 and 2006.  However, rental income from the Goodyear Tires property was not included in Mr. Fitzgerald's 2006 NOI because the interior of the building was destroyed by a fire on October 11, 2004 and was not suitable for rental as of the relevant assessment date for fiscal year 2006, resulting in a lower NOI for that year.  
 At the conclusion of the appellant's case, counsel for the appellee requested a continuance of the hearing on the basis that he had not been presented with or had an opportunity to review the appellant's expert's appraisal report prior to the day of the hearing.  The Board denied this request because it was untimely and would have resulted in an unfair advantage to the appellee, but did offer the appellee a recess to review the report, which the appellee declined.  Subsequent to the hearing of this appeal, the assessors filed a motion to re-open the hearing so that they could contest the appraisal report.  At no time prior to the hearing did the appellee issue discovery or file a motion to exchange appraisal reports, despite the fact that the parties had at one point jointly requested a continuance because the appellant's appraisal report was not yet complete.  The appellee therefore was fully aware that the appellant intended to introduce an appraisal report, but nevertheless failed to request a copy of it prior to the hearing date.  Moreover, while the appellee did not receive a copy of the appraisal report prior to the hearing, the appellant did provide to the appellee the appraiser's income and expense analysis.  Accordingly, the Board denied the appellee's motion.  The assessors' evidence therefore consisted of the property record cards for the subject property.  

ATB 2008-1185