Technology Park, LTD v. Board of Assessors of the Town of Billerica (December 18, 2014)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


TECHNOLOGY PARK, LTD		  v.		  BOARD OF ASSESSORS OF   
								  THE TOWN OF BILLERICA
					
	        
Docket Nos.: F314263, F317934			  Promulgated:
		 		               	  December 18, 2014


	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 Town of Billerica ("appellee" or "assessors") to abate taxes on certain real estate in Billerica, owned by and assessed to Technology Park, Ltd ("Technology Park" or "appellant") under G.L. c. 59, §§ 11 and 38, for fiscal years 2011 and 2012 ("fiscal years at issue").  
	Commissioner Rose heard these appeals. Chairman Hammond and Commissioners Scharaffa, Chmielinski and Good joined him in the decisions for the appellant.  
	These findings of fact and report are made pursuant to a request under G.L. c. 58A, § 13 and 831 CMR 1.32 of the appellee.  

	Kenneth W. Gurge, Esq. for the appellant.
	
Patrick J. Costello, Esq. for the appellee. 


Findings of Fact and Report


Introduction and Jurisdiction
On the basis of the evidence, including the testimony and documentary exhibits entered into the record, the Appellate Tax Board ("Board") finds the following facts.  
On January 1, 2010 and January 1, 2011, the relevant assessment dates for the fiscal years at issue, the appellant was the assessed owner of an approximately 20.41-acre parcel of land identified on the appellee's Map 95 as Block 129, Lot 10-6, located at 1 Wall Street in the Town of Billerica ("subject property").  
For fiscal year 2011, the assessors valued the subject property at $39,831,500 and assessed a tax thereon, at the rate of $30.75 per thousand, in the total amount of $1,224,819.  The Collector of Taxes for Billerica mailed the fiscal year 2011 actual tax bills on December 30, 2010, and the appellant paid the tax due without incurring interest.  On February 1, 2011, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors, which the assessors denied on April 29, 2011.  In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its petition with the Board on July 28, 2011.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2011.
For fiscal year 2012, the assessors valued the subject property at $39,209,300 and assessed a tax thereon, at the rate of $31.93 per thousand, in the total amount of $1,251,952.  The Collector of Taxes for Billerica mailed the fiscal year 2011 actual tax bills on December 30, 2011, and the appellant paid the tax due without incurring interest.  On February 1, 2012, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors.  Because the assessors did not act on the abatement application within three months of its filing, it was deemed denied on May 1, 2012 pursuant to G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65.  In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its petition with the Board on July 30, 2012.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2012.
The Subject Property 
The subject property is located in Billerica, situated along the US Route 3 North corridor and about 19 miles north of Boston.  Major expressways connecting Billerica to other parts of the region include US Route 3, MA Route 128/I-95 and I-495. Technology Park is a 70-acre master-planned Class A office and research-and-development ("R&D") park which, when completed, will total approximately 1.219 million square feet of space.  As of the period relevant to these appeals, about 975,000 square feet of space had been completed.   
The subject property consists of 20.41 acres, irregular in shape and with frontage along Technology Park Drive, Wall Street, and US Route 3.  The subject property is improved with a Class A office/R&D facility consisting of 400,000 square feet of finished area on four floors and an additional 46,000 square feet of basement area ("subject building").  It is occupied by a single tenant, Avaya, Inc. ("Avaya").  The subject building has a concrete foundation with steel framing, masonry exterior walls and a ballasted rubber membrane roof cover.  The central entrance lobby is an open two-story atrium area with office space on either side.  There is a central service core on the third and fourth floor.  Most of the floor plate is open and designed to house cubicles, with private offices in the center of the floor plate.  Certain areas of the building house electronics labs.  The first floor also houses a full-service cafeteria and fitness center.  The subject property's exterior has four loading docks.  There is also a detached 5-story parking garage with parking for 479 vehicles.  

The appellant's valuation evidence
The appellant presented its case-in-chief through the testimony and appraisal report of Susan R. Balogh, whom the Board qualified as an expert in the area of commercial real estate valuation.  
a. Fiscal year 2011
Ms. Balogh testified that the subject property was in good condition and fully occupied at all relevant times.  Therefore, she opined that its highest and best use was its continued use as a Class A office/R&D facility.  
Ms. Balogh next testified that she relied solely on the income-capitalization approach to value the subject property for both fiscal years at issue, because she found an insufficient number of sales of comparable Class A office properties in the subject property's market area, and because she found the cost approach was too unreliable under the circumstances present in these appeals. 
To determine the market rent for the subject property, Ms. Balogh first considered that as of the valuation date, the rent in place at the subject property was $10.70 per square foot on a triple-net basis and Avaya occupied the entire premises.  Ms. Balogh then relied upon three leases of purportedly comparable rental properties in the subject property's market area. These purportedly comparable rental properties are summarized in the table below:
Location
	Lessee	Area (sf)	Date/Term	Effective rent over term of lease	Expense Base/
Tenant improvements	
Concord Road Corporate Center
296 Concord Road, Building C, Billerica	L-1 Secure Credentialing Division	89,673	1/1/2009
7 yrs, 4 mo
	$18.67	Gross/
$40,000	
Burlington Office Park II
5 Wayside Dr, Building 3
Burlington	Nokia	135,000	11/1/2000
2 yrs	$22.00	Mod. Gross/
None
	
100 Crosby Dr, Bedford	Acme Packet, Inc.	123,788
	12/1/2009
6 yrs, 6 mo
	$18.00
(with 6 months free rent)	Gross/
$24.00 	
  
Ms. Balogh adjusted the above gross or modified-gross leases, where landlords cover most of the expenses, to compare with the subject property's triple-net lease.  Based on her analysis, Ms. Balogh testified that the subject property's rent of $10.70 per square foot on a triple-net basis as of the relevant valuation date was in line with the market rents as of the relevant valuation date for fiscal year 2011.  Ms. Balogh applied this $10.70-per-square-foot rental rate to the subject building's 400,000 square feet of office space as well as to the subject building's 46,000 square feet of basement space, for a total potential gross income of $4,773,826.
With respect to the vacancy and collection loss allowance, Ms. Balogh testified that, based on her analysis of the office market in the region, a stabilized vacancy rate of 19% reflected the market conditions as of the relevant valuation date.
For expenses, Ms. Balogh began with a review of the subject building's historical operating expenses and then performed surveys of expenses incurred by landlords in the market.  Ms. Balogh settled on the following expenses:  2.5% of effective gross income or $0.36 per square foot for management; non-reimbursable expenses of $0.02 per square foot; operating expenses at $0.86 per square foot of vacant space; leasing commissions at $0.85 per square foot of the 400,000 square feet of office space, but not the additional 46,000 square feet of basement space; tenant improvements at $1.68 per square foot; and replacement/capital reserves at $0.25 per square foot. 
Ms. Balogh then developed a capitalization rate. She consulted investor surveys, including the Price Waterhouse Coopers/Korpacz Real Estate Investor Survey ("PWC/Korpacz") and RealtyRates.com, which reported rates from 5.93% to 12.19%.  Ms. Balogh also performed a market extraction utilizing three sales of office space, in Stoughton, Braintree and Wakefield, which yielded rates from 7.70% to 8.20%.  Finally, Ms. Balogh also performed a mortgage-equity analysis, which yielded a rate of 7.8%.  Based on a resolution of these methods, Ms. Balogh concluded that a capitalization rate of 8.0% was appropriate, to which she added a pro-rated portion of the property tax rate to account for the landlord's responsibility for taxes for the portion of vacant space, for a total rate of 8.584% for the subject property.
Finally, Ms. Balogh added the cost of the subject property's detached parking garage, which she estimated to be $2,250,000 for fiscal year 2011.  
Ms. Balogh's analysis is reproduced in the table below:

Fiscal Year 2011
Market Rent
Class A office space:  400,000sf @ $10.70psf = $4,281,459
Basement space:         46,000sf @ $10.70psf = $  492,368 

Total Potential Rent Revenue		$ 4,773,826

Vacancy/Collection (@ 19%)   	     ($   907,027)
Effective Gross Income ("EGI")	$ 3,866,799 
Management fee (@ 2.5% EGI)	     ($    96,670)  
Non-reimbursable Exp. ($0.02 psf)  ($     8,920)
Vacancy Operating Exp.($0.86 psf)  ($   381,330)
Leasing Commissions ($0.85 psf)    ($   379,100)
Tenant Improvements ($1.68 psf     ($   672,000)
    of 400,000 sf office space)

Capital Reserves ($0.25 psf)	     ($   111,500)
Net operating income			$ 2,217,309
Capitalization rate			/8.584%
Capitalized value				$25,830,720
Plus value of parking garage		$ 2,250,000
Fair cash value				$28,080,720
Rounded					$28,100,000

Ms. Balogh thus concluded that the subject property was overvalued for fiscal year 2011.
b. Fiscal year 2012
For fiscal year 2012, Ms. Balogh followed a similar procedure to that for fiscal year 2011.  As of the valuation date, the rent in place at the subject property was $11.33 per square foot on a triple net basis and Avaya occupied the entire premises.  Ms. Balogh then relied upon five leases of purportedly comparable rental properties in the subject property's market area.  These purportedly comparable rental properties are summarized in the table below:
Location
	Lessee	Area (sf)	Date/Term	Effective rent over term of lease	Expense Base/
Tenant improvements	
65-75 Network Drive, Burlington	Avid Technology	186,000	6/1/2010
10 yrs 8 mo
	$26.29 (with 8 mo free rent)	Gross/
$30,000	
330 Billerica Road, Chelmsford	Comcast Corp.	108,000	7/1/2010
5 yrs, 7 mo	$8.73 (with 7 mo free rent)	Triple net/ none
	
8 Presidential Way, Woburn	Porter & Chester Institute	104,000
	8/10/2010
10 yrs
	$12.01	Triple net/ $7.00	
Quorum Office Park, 269-271 Mill Road, Chelmsford	Zoll Medical	220,738	12/1/2010
10 yrs	$9.35 (with 18 mo free rent)	Triple net/
$15.00	
250 Apollo Drive, Chelmsford	AE Com	90,375	10/1/2010	$19.25 (with 7 mo free rent)	Gross/$35.00	

Ms. Balogh adjusted the above leases that were under gross terms to compare them with the subject property's triple-net lease.  Based on her analysis, Ms. Balogh testified that the subject property's rent of $11.33 per square foot on a triple-net basis as of the relevant valuation date was in line with the market rents as of the relevant valuation date for fiscal year 2012.  Ms. Balogh applied this $11.33-per-square-foot rental rate to the subject building's 400,000 square feet of office space as well as to the subject building's 46,000 square feet of basement space, for a total potential gross income of $5,053,175.
For the vacancy and collection loss allowance, Ms. Balogh reviewed brokerage information and, based on her analysis, she again concluded that a stabilized vacancy rate of 19% reflected the market conditions as of the valuation date.  
For operating expenses, Ms. Balogh again reviewed the subject property's historical expenses and she noted a slight increase in some but not all of these expenses from 2009 to 2010.  Ms. Balogh settled on the following expenses:  2.5% of effective gross income or $0.37 per square foot for management; non-reimbursable expenses of $0.02 per square foot; operating expenses at $0.91 per square foot of vacant space; leasing commissions at $0.89 per square foot; tenant improvements at $1.72 per square foot of the 400,000 square feet of office space, but not the additional 46,000 square feet of basement space; and replacement/capital reserves at $0.25 per square foot.  
Ms. Balogh then developed a capitalization rate.  She again consulted investor surveys, including PWC/Korpacz, which reported rates from 5.75% to 11.5% with an average of 8.17%, lower than the previous fiscal year.  Ms. Balogh also performed a market extraction utilizing three sales of office space, in Stoughton, Braintree and Wakefield, which yielded rates from 6.8% to 9.6%.  Finally, Ms. Balogh also performed a mortgage-equity analysis, which yielded a rate of 8%.  Based on a resolution of these methods, Ms. Balogh concluded that a capitalization rate of 8.0% was appropriate, to which she added a pro-rated portion of the property tax rate to account for the landlord's responsibility for taxes for the portion of vacant space, for a total rate of 8.607% for the subject property.
Finally, Ms. Balogh added the cost of the subject property's detached parking garage, which she again estimated to be $2,250,000 for fiscal year 2012.  
Ms. Balogh's analysis is reproduced in the table below:









Fiscal Year 2012
Market Rent
Class A office space:  400,000sf @ $11.33psf = $4,531,996
Basement space:         46,000sf @ $11.33psf = $  521,179 

Total Potential Rent Revenue		$ 5,053,175

Vacancy/Collection (@ 19%)   	     ($   960,103)
Effective Gross Income ("EGI")	$ 4,093,072 
Management fee (@ 2.5% EGI)	     ($   102,327)  
Non-reimbursable Exp. ($0.02 psf)  ($     8,920)
Vacancy Operating Exp. ($0.91 psf) ($   405,860)
Leasing Commissions ($0.89 psf)    ($   396,940)
Tenant Improvements ($1.72 psf     ($   688,000)
  of the 400,000 sf office space)

Capital Reserves ($0.25 psf)	     ($   111,500)
Net operating income			$ 2,379,525
Capitalization rate			/8.607%
Capitalized value				$27,646,392
Plus value of parking garage		$ 2,250,000
Fair cash value				$29,896,392
Rounded					$29,900,000

Ms. Balogh thus concluded that the subject property was overvalued for fiscal year 2012.
The appellee's valuation evidence
The appellee presented its case-in-chief through the testimony and appraisal report of John Ryan, whom the Board qualified as an expert in the area of commercial real estate valuation.
Mr. Ryan testified that he, too, believed that the highest and best use of the subject property was its continued use as an office/R&D facility; however, he opined that it was best utilized as a multi-tenanted facility, whereas Ms. Balogh relied on the current use of the subject property as a single-tenanted facility.  
Like Ms. Balogh, Mr. Ryan also found that the income-capitalization approach was the best for determining the subject property's value, and he thus developed only that approach.
To determine a market rent for both fiscal years, Mr. Ryan utilized 8 purportedly comparable leases, one of which was a sublease, one of which was a renewal, and the remaining six were new leases.  His survey is summarized in the table below:
Location
	Lessee	Area (sf)	Date/Term	Tenant Improve-ments	Annual Rent (psf)/ Expense base	Description		6 Omni Way, Chelmsford	Arbor Networks	51,300	10/1/2008
4 yrs
	$0	$11.75 plus $0.30/yr
Net	Class B 1985 office
Sublease		330 Billerica Rd., Chelmsford	Comcast	98,048	7/1/2010
5 yrs 6 mo
	$5	$9.75 flat
Net	Class B 1984 office
New lease		150 Apollo Dr., Chelmsford	Harris Corp.	79,873
	4/1/2010
7 yrs
	$0	$12.17 plus $0.50/yr
Net	Class A 2000 office
New lease		310 Littleton Rd., Westford	NetScout Systems	175,000	9/1/2010
13 years	$0	$13.87 flat
net	3-story office constructed for tenant in 2001 		1 Federal St., Billerica	Soapstone	57,064	9/1/2008
6 yrs	$22	$11.64
net	Class A 1986 
R&D
New lease		85 Rangeway Rd, Bld 2,
Billerica	American Power Conv.	75,000	7/1/2010
5 yrs	$5.00	$10.50
net	Class B 2000 office
Renewal lease		129 Concord Rd., Billerica	Nuvera Fuel Cells	110,000
	1/1/2007
12 yrs	$22.00	$9.00
net	Class B 1963 Office/R&D/ warehouse
New lease		8 Federal St., Billerica	Vertica Systems	19,537	8/1/2008
5 yrs	$21.00	$10.35
net	Class A 1985 
R&D
New lease		
 Based on his data, Mr. Ryan estimated the market rent on both assessment dates at issue to be $11.50 per square foot on a net basis, where the tenant pays a base rent plus a pro-rata share of all operating expenses.  Mr. Ryan applied this rental rate to the subject building's 400,000 square feet of office space and to its 46,000 square feet of basement space.
With respect to vacancy, Mr. Ryan referred to the CBRE published surveys, which reported vacancy in the Route 3 North area to be from 16.4% to 19.7% over the two fiscal years at issue.  Mr. Ryan testified that some of the inventory in the Route 3 North area was in buildings less desirable than the subject property, which was in good condition, in an excellent location, and had ample parking.  Mr. Ryan thus selected a stabilized vacancy and collection loss of 11% for both fiscal years at issue.
For expenses, Mr. Ryan utilized the subject property's actual operating expenses as reported on unaudited annual profit and loss statements for calendar years 2009 through 2011 that were provided to Mr. Ryan by the appellant.  As they were consistent during this time, Mr. Ryan used these actual expenses for both fiscal years at issue.  Unlike Ms. Balogh, Mr. Ryan did not take tenant improvements and leasing commissions as a separate above-the-line deduction.  Instead, Mr. Ryan opined that these were subsumed in the capitalization rate.  
For his capitalization rate, Mr. Ryan used a debt-coverage formula, which yielded rates from 5.55% to 8.72% for fiscal year 2011 and from 5.06% to 8.69% for fiscal year 2012.  Mr. Ryan testified that the Korpacz Survey and the Real Estate Research Corporation's RERC Survey provided good support for rates developed through the debt-coverage formula.  Considering the subject property to be better than average, Mr. Ryan opined that a capitalization rate at the lower end of the average range was appropriate.  Mr. Ryan thus selected 8% as the base capitalization rate for both fiscal years at issue, to which he added a pro rata portion of the applicable property tax rate for both fiscal years at issue to arrive at the following overall capitalization rates:  8.34% for fiscal year 2011; and 8.35% for fiscal year 2012.  
Mr. Ryan's analysis is reproduced in the table below:







Fiscal Year 2011
Market Rent
Leasable Area, Fls 1-4:  400,000sf @ $11.50psf = $4,600,000
Leasable Basement:        46,000sf @ $11.50psf = $  529,000 

Total Potential Rent Revenue		$ 5,129,000

Vacancy/Collection (@ 11%)   	     ($   564,190)
Effective Gross Income ("EGI")	$ 4,564,810 
Management fee (@ 3.6% EGI)	     ($   162,724)  
Legal Fees (@ 0.1% EGI)            ($     6,675)
Accounting/Auditing (@ 0.1% EGI)   ($     5,000)
Architect/Engineering (@ 0.0$% EGI)($       927)
Reserves ($0.20 psf)	           ($    89,200)
Net operating income			$ 4,300,284
Capitalization rate			/8.347%
Fair market value				$51,570,000

Fiscal Year 2012
Market Rent
Leasable Area, Fls 1-4:  400,000sf @ $11.50psf = $4,600,000
Leasable Basement:        46,000sf @ $11.50psf = $  529,000 

Total Potential Rent Revenue		$ 5,129,000

Vacancy/Collection (@ 11%)   	     ($   564,190)
Effective Gross Income ("EGI")	$ 4,564,810 
Management fee (@ 3.6% EGI)	     ($   166,155)  
Legal Fees (@ 0.1% EGI)            ($     2,437)
Accounting/Auditing (@ 0.1% EGI)   ($     5,000)
Architect/Engineering (@ 0.0$% EGI)($     1,542)
Reserves ($0.20 psf)	           ($    89,200)
Net operating income			$ 4,300,476
Capitalization rate			/8.35%
Fair market value				$51,500,000


Because Mr. Ryan performed only an income-capitalization analysis, his final reconciliation of value was the value he obtained through that method.  Therefore, Mr. Ryan's opinion of value for the subject property was $51,570,000 for fiscal year 2011 and $51,500,000 for fiscal year 2012.  As these values exceeded the assessed values, Mr. Ryan concluded that no abatement was due for the fiscal years at issue.

The Board's valuation findings
The Board agreed with both parties' expert witnesses that the subject property's highest and best use was its current use as an office/R&D facility.  Further, the Board agreed with Ms. Balogh that the current single-tenant occupancy represents the subject property's highest and best use.  
With respect to fair market rent, the Board reviewed the comparable rents provided by both expert witnesses, as well as the terms of the leases -- including allowances for tenant improvements and leasing commissions -- and agreed with Ms. Balogh that the fair market rent for fiscal year 2012 was $11.33 but determined that the appropriate fair market rent for fiscal year 2011 was $11.00.  The Board did not separately value the parking garage but instead took that feature into account in considering the subject property's overall market rent based on its determination that it was an amenity included with the rent paid by the tenant of the subject property.
With respect to vacancy, the Board considered the evidence -- including the relevant publications, which reported an average vacancy of 16%, the subject property's historical record of vacancy, and the subject property's location and class-A quality -- and arrived at its own independent conclusion that a stabilized vacancy rate of 13% was appropriate for both fiscal years at issue.
For expenses, the Board found that Ms. Balogh's expenses were the best supported and most appropriate and therefore adopted most of them, with only minor adjustments.  
With respect to the capitalization rate, the Board noted that both expert witnesses arrived at a base capitalization rate of 8%, to which they both added the pro rata portion of the appropriate property tax factor to account for the landlord's responsibility for property taxes on vacant space.  The Board found that an 8% base capitalization rate was well supported and adopted this rate and then added a pro rata portion of the appropriate property tax factor reflecting the Board's finding of a 13% vacancy rate for both fiscal years at issue.  Further, the Board agreed with Ms. Balogh that the evidence supported a deduction for leasing commissions and tenant improvements rather than subsuming these expenses in the capitalization rate.
The Board's calculations are reproduced below:



Fiscal Year 2011
Market Rent
Class A office space:  400,000sf @ $11.00psf = $4,400,000
Basement storage space: 46,000sf @ $11.00psf = $  506,000 

Total Potential Gross Revenue		$ 4,906,000

Vacancy/Collection (@ 13%)   	     ($   637,780)
Effective Gross Income ("EGI")	$  4,268,220 
Management fee (@ 2.5% EGI)	     ($   106,705)  
Non-reimbursable Exp. ($0.02 psf)  ($     8,920)
Leasing Commissions ($0.85 psf)    ($   379,100)
Tenant Improvements ($1.68 psf     ($   672,000)
  of the 400,000 sf office space)

Capital Reserves ($0.25 psf)	     ($   111,500)
Net operating income			$ 2,989,995
Capitalization rate			/8.3998%
Capitalized value				$35,596,026
Fair cash value				$35,596,000
Assessed value				$39,831,500
Overvaluation				$ 4,235,500
Abatement (tax rate @ $0.03075)     $   130,241.63

Fiscal Year 2012
Market Rent
Class A office space:  400,000sf @ $11.33psf = $4,532,000
Basement storage space: 46,000sf @ $11.33psf = $  521,180 

Total Potential Gross Revenue		$ 5,053,180

Vacancy/Collection (@ 13%)   	     ($   656,913)
Effective Gross Income ("EGI")	$ 4,396,267 
Management fee (@ 2.5% EGI)	     ($   109,907)  
Non-reimbursable Exp. ($0.02 psf)  ($     8,920)
Leasing Commissions ($0.89 psf)    ($   396,940)
Tenant Improvements ($1.72 psf     ($   688,000)
  of the 400,000 sf office space)

Capital Reserves ($0.25 psf)	     ($   111,500)
Net operating income			$ 3,081,000
Capitalization rate			/8.4151%
Capitalized value				$36,612,756
Fair cash value				$36,612,800
Assessed value				$39,209,300
Overvaluation				$ 2,596,500
Abatement (tax rate @ $0.03193)     $    82,906.25

On the basis of its findings, the Board thus issued a decision and a revised decision for the appellant and ordered abatements as follows:  $130,241.63 for fiscal year 2011 and $82,906.25 for fiscal year 2012.

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 determining fair cash value, all uses to which the property was or could reasonably be adapted on the relevant assessment dates should be considered.  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989).  The goal is to ascertain the maximum value of the property for any legitimate and reasonable use. Id. If the property is particularly well-suited for a certain use that is not prohibited, then that use may be reflected in an estimate of its fair market value. Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386 (1975). "In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted."  Peterson v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2002-573, 617 (citing Appraisal Institute, The Appraisal of Real Estate 315-316 (12th ed., 2001)), aff'd, 62 Mass. App. Ct. 428 (2004).  In the instant appeals, the Board agreed with both parties' witnesses and ruled that the highest-and-best use of the subject property during the fiscal years at issue was its existing use as a class A office and R&D facility.            
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 reproduction.  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).  While arm's-length sales of comparable realty generally produce persuasive evidence of value (see Correia, 375 Mass. at 362), the use of the income-capitalization approach 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).  Furthermore, the income-capitalization method "is frequently applied with respect to income-producing property."  Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  
In the present appeals, each expert witness developed only an income-capitalization analysis, finding that there were not a sufficient number of sales of comparable realty to justify development of a sales-comparison approach.  The Board also agreed with both parties' witnesses that the cost approach was too speculative a valuation method under the circumstances present in these appeals.  The Board thus ruled that the income-capitalization approach provided the most accurate indication of the fair cash value of the subject property for the fiscal years at issue.     
"The direct capitalization of income method analyzes the property's capacity to generate income over a one-year period and converts the capacity 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).  "It is the net income that a property should be earning, not necessarily what it actually earns, that is the figure that should be capitalized."  Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 436 (2008) (emphasis in original).  Accordingly, the income stream used in the income-capitalization method must reflect the property's earning capacity or economic rental value.  Pepsi-Cola Bottling Co., 397 Mass. at 451.  Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, they are indicative of the subject property's earning capacity.  See Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 878 (1980)(rescript). 
The Board reviewed the comparable leases submitted by both expert witnesses, as well as the terms of those leases, and arrived at the following fair market rental rates, on a triple net basis:  $11.00 per square foot for fiscal year 2011; and $11.33 for fiscal year 2012. 
The Board also reviewed the evidence of record and arrived at its own independent conclusion regarding a vacancy rate, finding that a rate of 13% was appropriate for both fiscal years at issue.
After accounting for vacancy and credit losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co., 393 Mass. at 610.  The expenses should also reflect the market.  Id.; see Olympia & York State Street Co., 428 Mass. at 239, 245.  The Board found that Ms. Balogh's expenses were the best supported and most appropriate and thus adopted those expenses, with minor adjustments.
The capitalization rate should reflect the return on investment necessary to attract investment capital.  Taunton Redev. Assoc., 393 Mass. at 295.  The Board found Ms. Balogh's analysis to be well-supported and Mr. Ryan arrived at the same base capitalization rate for both fiscal years at issue.  Therefore, the Board adopted this 8% base capitalization rate for both fiscal years at issue.  To these base capitalization rates, the Board then added a pro rata portion of the property tax rate to account for the landlord's responsibility for taxes on the vacant portion of the subject building to arrive at its overall capitalization rates for both fiscal years at issue.  See, e.g., Market Forge Industries, Inc. v. Assessors of Everett, Mass. ATB Findings of Fact and Reports 2014-186, 209 (citing See, e.g., USAA Properties IV, Inc. v. Assessors of Chelmsford, Mass. ATB Findings of Fact and Reports 2012-1191, 1223; Genzyme Corporation, et al. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2011-280, 304; Vertex Pharmaceuticals, Inc. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2009-1090, 1104.    
The Board is not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggests.  Rather, the Board can accept those portions of the evidence that the Board determines have more convincing weight, and form its own independent judgment of fair market value.  Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 473 (1981); New England Oyster House, Inc., 362 Mass. at 701-702; General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).  In evaluating the evidence before it in the instant appeals, the Board selected among the various elements of value and appropriately formed its own independent judgment of fair cash value.  General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp., 392 Mass. at 300.  "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).  
On the basis of the Board's calculations, the Board found the following fair cash values for the subject property: $35,596,000 for fiscal year 2011; and $36,612,800 for fiscal year 2012.  The Board, therefore, issued a decision and a revised decision for the appellant granting abatements as follows: $130,241.63 for fiscal year 2011 and $82,906.25 for fiscal year 2012.

   THE APPELLATE TAX BOARD




	By:	_____	   __________________	       
   Thomas W. Hammond, Jr., Chairman 


A true copy,

Attest:				_____undefinedundefinedundefinedundefined______
	    Clerk of the Board

 While it noted several mathematical errors in Ms. Balogh's calculations, the Board is hereby simply reproducing her analysis.
 While it noted several mathematical errors in Ms. Balogh's calculations, the Board is hereby simply reproducing her analysis.
 While it noted several mathematical errors in Mr. Ryan's calculations, the Board is hereby simply reproducing his analysis.

ATB 2014-1223