Liberty Norfolk Development II, LLC v. Board of Assessors of the Town of Norfolk (June 4, 2015)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



LIBERTY NORFOLK DEVELOPMENT      v.      BOARD OF ASSESSORS OF
II, LLC.						      THE TOWN OF NORFOLK

Docket Nos. F311620, F314940		      Promulgated:
								 June 4, 2015


	These are appeals originally filed under the informal procedure pursuant to G.L. c. 58A, § 7A and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Norfolk ("appellee" or "assessors") to abate taxes on certain real estate in Norfolk owned by and assessed to Liberty Norfolk Development II, LLC ("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 appellee. 
	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.

	Bruce J. Savitsky, Esq. for the appellant.
	Jeffrey T. Blake, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact. 
Introduction and Jurisdiction
On January 1, 2010 and January 1, 2011, the relevant valuation and assessment dates for the fiscal years at issue, the appellant was the assessed owner of a 1.37-acre parcel of real estate improved with a retail pharmacy building located at 3 Liberty Lane in Norfolk ("subject property").  For assessment purposes, the subject property is identified as Map 14, Block 41, Lot 57.  The subject property is located in downtown Norfolk near the intersection of Main Street and North Street, also known as state route 115.  More specifically, the subject property is located in the Norfolk Town Commons, a mixed-use, "smart-growth" development.  
  The subject building, which was constructed in 2009, is a one-story, single-tenanted, retail building with approximately 14,406 feet of leasable area.  The subject building has a steel-frame structure with a concrete slab foundation, a flat roof with a tar and gravel covering, and a masonry exterior.  The interior has a large open selling area, a cashier area, a pharmacy, a small office/employee area, and restrooms.  The building is equipped with a drive-through for pharmacy customers. As of the relevant assessment dates, the subject property was occupied by Walgreens Eastern Co., Inc. ("Walgreens"), which opened a pharmacy at the subject building.  
For fiscal year 2011, the assessors valued the subject property at $3,584,600 and assessed a tax thereon, at the rate of $15.10 per thousand, in the total amount of $54,127.46.  Although the appellant's fourth quarter tax payment was late, the appellant had paid an amount in excess of the average of its assessed property taxes for the preceding three years by the May 1, 2011 due date; therefore, late payment of the fourth quarter tax was not an impediment to the Board's jurisdiction in this appeal.  G. L. c. 59, §§ 64 and 65.  On January 26, 2011, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors, which they denied on February 9, 2011.  On April 19, 2011, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed an appeal with the Board.    
For fiscal year 2012, the assessors valued the subject property at $3,584,600 and assessed a tax thereon, at the rate of $16.47 per thousand, in the total amount of $59,038.36.  In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest.  On January 24, 2012, in accordance with G. L. c. 59, § 59, the appellant timely filed an abatement application with the assessors, which they denied on February 15, 2012.  On March 6, 2012, in accordance with       G. L. c. 59, §§ 64 and 65, the appellant seasonably filed an appeal with the Board.  
On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals. 
Appellant's Case-in-Chief
The appellant presented its case-in-chief primarily through the testimony of two witnesses:  Jonathon Shumrak, Senior Real Estate Manager for Walgreens; and Charles L. Clark, a general real estate appraiser, whom the Board qualified as an expert witness in the area of commercial real estate valuation.  Mr. Clark prepared an appraisal report, which the appellant offered as an exhibit.  In addition, the appellant introduced a copy of the subject property's existing lease between the appellant and Walgreens, a typical rent-analysis pro forma used by Walgreens, and a space-plan diagram of the subject building.
The appellant's first witness, Mr. Shumrak, testified that Walgreens leases approximately 75% of its stores under long-term leases in a "build-to-suit" arrangement.  He explained that the typical arrangement is for Walgreens to contact a developer, who then acquires the real property of the site of Walgreens' desired location and builds the pharmacy according to Walgreens' specifications.  The developer and Walgreens then enter into a long-term lease, which allows the developer to recoup its construction costs as well as generate a reasonable profit from a stable tenant.  
Mr. Shumrak further testified that the subject property was a build-to-suit property and that no broker was involved in the transaction.  On December 23, 2008, the appellant entered into a 77-year lease with Walgreens that began on January 1, 2010 and runs through December 31, 2086.  Pursuant to the terms of the lease, the rent is broken down into two components:  a fixed rent, designed to recapture the building costs including financing; and a base rent, which is based on Walgreens business operation and is subject to escalation clauses.  During the fiscal years at issue, the total rent payable to the appellant was $45,250 per month, or $29.44 per square foot.
Mr. Shumrak also testified that, currently, within a 30-mile radius of the subject property, Walgreens has approximately 100 pharmacies and that, with the exception of those located in the city of Boston, a majority have a drive-through.
The appellant's next witness was Charles Clark, a real estate valuation expert.  After determining that the subject property's highest and best use was its continued use as a retail building, Mr. Clark considered the three usual methods for estimating the value of the subject property for the fiscal years at issue.  Mr. Clark rejected the cost approach because of the difficulty in estimating functional obsolescence in a build-to-suit building such as the subject property.  Although Mr. Clark did prepare a sales-comparison analysis for each of the fiscal years at issue, he acknowledged that a majority of his cited sales were retail buildings that involved leased-fee rights and, therefore, this method of valuation had limited merit.  Consequently, Mr. Clark considered his direct income-capitalization approach to be the most viable methodology to use to estimate the fair cash value of the subject property for the fiscal years at issue. 
The first step in Mr. Clark's income-capitalization analysis was to determine the subject property's potential gross revenue for each of the fiscal years at issue.  Because of the structure of the subject property's existing lease, which was designed to recoup construction costs, the length of the lease, and the lack of exposure to the market, Mr. Clark determined that the subject property's actual rent for the fiscal years at issue was not representative of the market.  Instead, he theorized that build-to-suit properties such as the subject property should be valued as second-generation retail space; that is, space repurposed and rented to other retailers or businesses after the large, national chain drug store vacates it.  He then relied on seven purportedly comparable retail leases to assist in estimating market rents for the subject property.  Relevant information regarding Mr. Clark's purportedly comparable leases appears in the following table.

No.	Address	Tenant	Square Feet	Date	Term	Rent PSF	Terms		1	285 Washington St., North Easton	Listing	 3,689	2010 Listing	 5 Years	$15.00	NNN		2	150 Highland Ave.,
Seekonk	Advanced Auto	 4,000	 2/1/2011	10 Years	$15.75	NNN		3	1 Green St.,
Medfield	Takara	 2,606	 1/1/2010	 5 Years	$16.35	Gross + Util		4	15 Highland Ave.,
Attleboro	Various Tenants	 8,346	 1/1/2010	 5 Years	$17.01	NNN		5	115 Washington St.,
Attleboro	Goodwill	15,950	 5/1/2009	10 Years	$15.50	NNN		6	45 Pulaski Blvd.,
Bellingham	Advanced Auto	 6,831	12/1/2008	15 Years	$23.92	NN		7	390 Pleasant St.,
Brockton	Wash N Go	 4,400	 7/1/2008	 7 Years	$13.94	NNN		
Mr. Clark determined that the best indication of the subject property's market rent was lease No. 5.  He testified that the improvement was a build-to-suit building originally built by Lumber Liquidators and now leased to Goodwill.  He further testified that this property, located on busy Route 1, has a superior location, but further noted that the subject property was of superior quality.  Considering what he reported as all of the relevant factors, Mr. Clark determined that a fair market rent of $16.00 per square foot on a triple net basis was appropriate for fiscal year 2011. Assuming some minor appreciation during 2010, he estimated the market rent at $17.00 on a triple net basis per square foot for fiscal year 2012.  Applying these rates to the subject property's 14,406 square feet, Mr. Clark obtained gross rental revenues of $230,496 for fiscal year 2011 and $244,902 for fiscal year 2012.
The next step in Mr. Clark's analysis was the determination of vacancy and collection loss allowances.  Mr. Clark noted in his appraisal that according to industry data, vacancy rates in the subject property's Southwest market was 9.3% and CoStar reported a vacancy for Norfolk at the same period of 10.3%.  After considering the market data as well as an inspection of the neighborhood, Mr. Clark selected a vacancy rate of 9.25% for fiscal year 2011.  With respect to fiscal year 2012, Mr. Clark noted that according to the 2011 Keypoint Report, a firm which focuses on retail real estate trends, vacancy in the subject property's Southwest market was 7.6% and CoStar reported a vacancy rate of 9.9% for Norfolk in the same period.  Mr. Clark selected a vacancy rate of 8.0% for fiscal year 2012.
In addition, Mr. Clark noted that collection losses range from 1% to 5% depending upon management practices, the location of the property, the number of tenants, and the quality of tenants.  He estimated a collection loss of 2% for both fiscal years at issue.  His combined vacancy and collection loss was 11.25% for fiscal year 2011 and 10.0% for fiscal year 2012.
	For expenses, Mr. Clark reviewed 2010 and 2011 averages reported by the Institute of Real Estate Management ("IREM") for shopping centers, operating expense data from similar use retail properties in the subject property's market and RealtyRates.com National Surveys.  He then accounted for the landlord's share of expenses for the vacant space, by multiplying his operating expenses by the combined vacancy and collection loss rate.  He also allowed the following expenses:  3.0% of effective gross income for management; replacement reserves calculated at $0.20 per square foot; and general and administrative costs calculated at $0.25 per square foot.  
Next, Mr. Clark analyzed capitalization rates for the fiscal years at issue.  He consulted the 1st Quarter 2010 and 2011 Price Waterhouse Coopers/Korpacz Real Estate Investor Survey ("PWC/Korpacz") for Strip Shopping Centers.  According to these surveys, rates generally ranged from 7.25% to 11.0%, with an average of 8.49% in 2010, and ranged from 5.50% to 9.50%, with an average of 7.40% in 2011.  Mr. Clark also considered capitalization rates derived from retail property sales and the opinions of local market participants.  Given the subject property's location, age and condition, Mr. Clark selected a capitalization rate of 9.0% for fiscal year 2011 and 8.0% for fiscal year 2012.  Mr. Clark's analysis is reproduced in the following tables.



Fiscal Year 2011
			Fiscal Year 2011	
INCOME				
Building area		14,406 sf		
Market Rent (psf)		$16.00	
Potential Gross Income			$230,496	
  Less Vacancy		9.25%	($21,321)	
  Less Credit Loss		2.00%	($4,610)	
				
Effective Gross Income			$204,565	
				
OPERATING EXPENSE		
				
  Insurance	$0.23/sf	$3,313 * 11.25%	$373	
  Common Area Maintenance	$1.41/sf	$20,312 * 11.25%	$2,285	
  Utilities	$0.57/sf	$8,211 * 11.25%	$924	
  General & Administrative		$0.25 / SF	$3,602	
  Management Fees		3% EGI	$6,137	
  Replacement Reserves		$0.20 / SF	$2,881	
 Total Operating Expense			$16,201	
				
Net-Operating Income:		$188,364	
			
Base Rate
Tax Factor (owner's share)
Overall Capitalization Rate	
1.51% * 11.25%	9.00%
0.17%
9.17%	
Capitalized Value		$2,054,159	
			
Rounded Fair Cash Value		$2,050,000	


Fiscal Year 2012
			Fiscal Year 2012	
INCOME				
Building area			14,406 sf		
Market Rent (psf)		$17.00	
Potential Gross Income			244,902	
  Less Vacancy		8.00%	($19,592)	
  Less Credit Loss		2.00%	($4,898)	
				
Effective Gross Income			$220,412	
				
OPERATING EXPENSE		
				
  Insurance	$0.23/sf	$3,313 * 10.00%	$331	
  Common Area Maintenance	$1.41/sf	$19,592 * 10.00%	$1,959	
  Utilities	$0.57/sf	$8,932 * 10.00%	$893	
  General & Administrative		$0.25 / SF	$3,602	
  Management Fees		3% EGI	$6,612	
  Replacement Reserves		$0.20 / SF	$2,881	
 Total Operating Expense			$16,279	
				
Net-Operating Income:		$204,133	
			
Base Rate
Tax Factor (owner's share)
Overall Capitalization Rate	
1.51% * 11.25%	8.00%
0.16%
8.16%	
Capitalized Value		$2,500,190	
			
Rounded Fair Cash Value		$2,500,000	

Appellee's Case-in-Chief
In support of their assessments, the assessors relied on the testimony of William J. Pastuszek, a licensed real estate appraiser whom the Board qualified as a real estate valuation expert without objection.  The assessors also submitted into evidence the requisite jurisdictional documents and           Mr. Pastuszek's summary appraisal reports for the fiscal years at issue.
In preparation for his assignment to estimate the value of the subject property for the fiscal years at issue,           Mr. Pastuszek testified that he completed an interior and exterior inspection of the subject property and the immediate neighborhood.  He also researched:  the general conditions of the economy; retail activity in the market; and, more specifically, he focused on drug store sales and rental activity.  Based on his research, Mr. Pastuszek determined that the subject property's highest-and-best use was in the general category of retail and more specifically as a drug store.  
Mr. Pastuszek agreed with the appellant's real estate valuation expert that the income-capitalization approach was the preferred valuation method to use under the circumstances.   Mr. Pastuszek began his analysis by reviewing leases of properties with similar sizes, configurations and locations to those of the subject property.  Based on these factors, Mr. Pastuszek selected seven comparable leases which are reproduced in the following table.

Rental 	Location/Tenant	Rent/SF	SF Area	Date/Term	
A	Millis     - CVS	$33.50	13,013	2/11  25 years	
B	Bellingham - Walgreens	$34.00	14,550	9/09    N/A	
C	Dartmouth  - Walgreens	$28.95	15,040	7/09  25 years
 5-10 year options	
D	Taunton    - Walgreens	$39.32	13,357	9/09  25 years
 5-10 year options	
E	Foxboro    - Walgreens	$28.05	14,828		
F	Allston    - Walgreens	$45.90	14,847	5/08  25 years	
G	Braintree  - RiteAid	$25.00	12,044	7/08  25 years	
 
Taking into account the differences in lease structures, location, and physical qualities, Mr. Pastuszek determined a fair market rent of $27.50 per square foot, which yielded a potential gross income of $396,165 for both fiscal years at issue.  Relying on market surveys published in Keypoint Partners and CoStar, Mr. Pastuszek determined that a vacancy and collection loss rate of 10% was appropriate for both fiscal years at issue.  This allowance resulted in an effective gross income of $356,549 for the fiscal years at issue.  
With respect to operating expenses, Mr. Pastuszek allowed deductions for insurance, miscellaneous, accounting and legal, management, and reserves.  Mr. Pastuszek testified that with the exception of the management fee, which decreased in fiscal year 2012, the remaining expenses were the same for both fiscal years at issue.  However, in his actual methodology, his allowance for reserves increased from $0.30 per square foot in fiscal year 2011 to $0.50 per square foot in fiscal year 2012.  Ultimately, he determined that the total operating expenses for the fiscal years at issue, which indicate expense ratios of 12.13% for fiscal year 2011 and 11.94% for fiscal year 2012, were reflective of market expectations for the subject property. 
For his capitalization rates, Mr. Pastuszek reviewed rates derived from sales of several single-tenanted retail properties, rates for Strip Shopping Centers published in the 1st Quarter 2010 and 2011 RealtyRates.com, and also performed band-of-investment analyses.  Relying on this information, he selected base capitalization rates of 8.82% for fiscal year 2011 and 8.87% for fiscal year 2012.  He then added the applicable pro-rated tax factor for the fiscal years at issue to derive an overall capitalization rate of 9.00% for both fiscal years at issue.
  Finally, applying the corresponding overall capitalization rate to the net-operating income for each of the fiscal years at issue, Pastuszek derived an indicated value of $3,552,947, rounded to $3,500,000 for fiscal year 2011, and $3,560,551, rounded to $3,600,000 for fiscal year 2012.  
	Mr. Pastuszek's income-capitalization analyses are reproduced in the following table.


		Fiscal Year 2011		Fiscal Year 2012	
INCOME					
Building area  14,406					
 Market Rent (PSF)		$27.50		$27.50	
Potential Gross Income		$396,165		$396,165	
  Less Vacancy	10%	($39,617)	10%	($39,617	
					
Effective Gross Income		$356,549		$356,549	
					
OPERATING EXPENSE			
					
  Insurance	$0.50/psf	($7,203)	$0.50/psf	($7,203)	
  Misc.		($5,000)		($5,000)	
  Mgmt.	5% EGI	($17,827)	4% EGI	($14,262)	
  Acct., Legal, 
   Admin., Etc	
2.5% EGI	
($8,914)	
2.5% EGI	
($8,914)	
  Reserves	$0.30	(4,322)	$0.50/psf	($7,203)	
 Total Operating Expense		($43,266)		($42,582)	
 Expense Ratio		12.13%		11.94%	
					
Net-Operating Income:	$319,765		$320,450	
				
Base Rate                        
Tax Factor (owner's share)
Overall Capitalization Rate (rounded)	8.82%
  0.1510%
9.00%		8.87%
  0.1647%
9.00%	
Capitalized Value	$3,552,947		$3,560,551	
				
Rounded Fair Cash Value	$3,500,000		$3,600,000	

Board's Findings
Based on all of the evidence, as well as reasonable inferences drawn therefrom, the Board found that the appellant failed to meet its burden of proving that the subject property was overvalued for the fiscal years at issue.  The Board determined that the subject property's high-and-best use was its existing use as a drug store and that the preferred method for ascertaining the fair cash value of the subject property for both fiscal years at issue was through an income-capitalization methodology.
	The Board further found that the appellant's purportedly comparable rentals, which consisted of several smaller-sized, lower-level general retail space and one similarly sized second-generation retail space, were not reflective of the subject property's market of large investment-quality chain retail properties, like national name-brand drug stores such as Walgreens.  The Board found that Mr. Pastuszek's market rental of $27.50 per square foot, which was based on the market rents of other comparable drug store properties, was the appropriate fair market rent.
	The appellant's real estate valuation expert suggested a vacancy and collection loss rate of 11.25% for fiscal year 2011 and 10% for fiscal year 2012, while the assessors' real estate valuation expert recommended a rate of 10% for both fiscal years at issue. Based on the evidence presented, the Board adopted a stabilized vacancy and collection loss rate of 10% for both fiscal years at issue.  With respect to operating expenses, the Board found that the amounts recommended by the appellant's real estate valuation expert were well supported and reflective of the market, and, therefore, adopted these amounts in its income-capitalization analysis.
	The appellant's real estate valuation expert recommended capitalization rates of 9.17% and 8.16%, including the applicable pro-rated tax factors for fiscal years 2011 and 2012, respectively. The assessors' real estate valuation expert recommended a capitalization rate of 9.00%, including the applicable pro-rated tax factors, for both fiscal years at issue.  Based on the evidence presented, the Board adopted a stabilized overall capitalization rate of 9.00% for both fiscal years at issue.
	The Board's income-capitalization analysis for each fiscal year at issue is presented below: 
		Fiscal Year 2011		Fiscal Year 2012	
INCOME					
Building area  14,406 sf				
 @ market rent of $27.50/sf					
Potential Gross Income		$396,165		$396,165	
  Less Vacancy/Credit Loss 10%		($39,617)		($39,617)	
					
Effective Gross Income		$356,549		$356,549	
					
OPERATING EXPENSE			
					
  Insurance		$373		$331	
  Common Area Maintenance		$2,285		$1,959	
  Utilities		$924		$893	
  General & Administrative		$3,602		$3,602	
  Management Fees		$6,137		$6,612	
  Replacement Reserves		$2,881		$2,881	
 Total Operating Expense		$16,201		$16,279	
					
Net-Operating Income:	$340,348		$340,270	
				
Overall Capitalization Rate	9.00%		9.00%	
Capitalized Value	$3,781,644		$3,780,778	
	On this basis, the Board found and ruled that the appellant failed to meet its burden of proving that the subject property was overvalued for the fiscal years at issue.  Accordingly, the Board issued decisions for the appellee in these appeals.

OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
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. Assessors of 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). On this basis, the Board found that the subject property's highest-and-best-use was its continued use as a retail drug store. 
Generally, real estate valuation experts, 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).  In the instant appeals, the real estate valuation experts determined that there were insufficient fee-simple market sales of reasonably comparable properties to meaningfully estimate the value of the subject property using a sales-comparison technique. The Board agreed. See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 247 (1988) ("The assessors must determine a fair cash value for the property as a fee simple estate, which is to say, they must value an ownership interest in the land and the building as if no leases were in effect.").  Furthermore, the "[i]ntroduction of evidence concerning the value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods." Correia,      375 Mass. at 362. The Board found here that no such "special situations" existed.  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).  It is also recognized as an appropriate technique to use for valuing income-producing property.  Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  In these appeals, the Board agreed with both parties' real estate valuation experts that the income-capitalization approach was the most appropriate method to value the subject property.  
 "Direct capitalization is widely used when properties are already operating on a stabilized basis and there is an ample supply of comparable [rentals] with similar risk levels, income, expenses, physical and locational characteristics, and future expectations."  APPRAISAL INSTITUTE, THE APPRAISAL OF REAL ESTATE 499 (13th ed., 2008).  The Board found that there were an adequate number of comparable rentals to support the use of a direct income-capitalization methodology to estimate the 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., 428 Mass. at 239.  "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).  Vacancy rates must also be market based when determining fair cash value.  Donovan v. City of Haverhill, 247 Mass. 69, 71 (1923).  After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co., 393 Mass. 591, 610 (1984).  The expenses should also reflect the market.  Id.; see Olympia & York State Street Co., 428 Mass. at 239, 245.
In the instant appeals, the Board found that the appellee's projected rental income, which was based on data from similarly sized drug stores, was more comparable to the subject property than the appellant's rental data which consisted of smaller-sized, lower-level general retail properties.  The Board thus adopted Mr. Pastuszek's rental rate of $27.50 per square foot for both fiscal years at issue.  See Fox Ridge Assoc. v. Assessors of Marshfield, 393 Mass. 652, 654 (1984) ("Choosing an appropriate gross income figure for establishing an income stream was within the board's discretion and expertise.").  The Board also found Mr. Pastuszek's stabilized vacancy and collection loss rate of 10% to be more credible and therefore adopted that figure as well.  This calculation yielded an effective gross income of $356,549 for both fiscal years at issue.
With respect to operating expenses, the Board found that Mr. Clark's expenses, which were based on IREM averages for shopping centers as well as data obtained from similar use retail properties in the subject property's market, were more credible.  See Olympia & York State Street Co., 428 Mass. at 242 (acknowledging that it is appropriate for the Board to "exercise . . . independent decision-making based on the evidence").  Finally, the Board adopted Mr. Pastuszek's capitalization rate of 9.00% for both fiscal years at issue.  Id.
The Board's analysis yielded value estimates of $3,781,644 and $3,780,788, respectively, which it rounded to $3,780,000 for both fiscal years at issue.
In reaching its opinion of fair cash value in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested.  Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight, Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); New England Oyster House, Inc., 362 Mass. at 702, even if its determinations fall outside ranges suggested by the parties or their experts.  New Boston Garden Corp., 383 Mass. at 466 (quoting Cohen v. Board of Registration in Pharmacy, 350 Mass. 246, 253 (1966)) (finding that the Board's determination "must be made 'upon consideration of the entire record'"). In evaluating the evidence before it, 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. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).
The fair cash value of property cannot be proven with "mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment."  Boston Consol. Gas Co.,     309 Mass. at 72.  "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 burden of proof is upon the [appellant] 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)).  The appellant must show that it has complied with the statutory prerequisites to its appeal, Cohen v. Assessors of Boston, 344 Mass. 268, 271 (1962), and that the assessed valuation of its property was improper.  See Foxboro Assoc., 385 Mass. at 691.  The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise.  Schlaiker, 365 Mass. at 245.  
Based on the evidence presented in this appeal, and the reasonable inferences drawn therefrom, the Board found and ruled that the appellant failed to meet its burden of proving that the subject property was overvalued. 
Accordingly, the Board issued decisions for the appellee in these appeals. 
 
   					    THE APPELLATE TAX BOARD


By: _______________________________
    Thomas W. Hammond, Jr. Chairman


A true copy,


Attest: ________________________
   Clerk of the Board

 The appellee, in accordance with G.L. c. 58A, § 7A and 831 CMR 1.09, elected to transfer these appeals to the formal procedure.
 Under G.L. c. 59, §§ 64 and 65, the accrual of interest for the fiscal year at issue is not a jurisdictional impediment where a taxpayer has timely paid an amount equal to or greater than the average of the taxes assessed for the three years preceding the fiscal year at issue.  
  Although Mr. Clark testified that he used the same expenses for both fiscal years, the figure reported in his income-capitalization analysis was different.
 Although Mr. Clark testified that he used the same expenses for both fiscal years, the figure used in his income-capitalization analysis was different. 
 While Mr. Pastuszek developed values using a sales-comparison approach, he only relied on those values as a check.

  All rents were on a triple-net basis.
 The Board noted that there were multiple mathematical errors in Mr. Pastuszek's analyses but reproduced them, as presented to the Board, in the following table.

ATB 2015-207