540 Taunton, LLC v. Board of Assessors of the City of Taunton (October 12, 2012)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


540 TAUNTON, LLC   	   	v.	   BOARD OF ASSESSORS OF 
 			   	   THE CITY OF TAUNTON

Docket Nos. F309506, F310940 		   Promulgated:  
   							   October 12, 2012
			   				
 					
	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 Taunton ("assessors" or "appellee"), to abate taxes on certain real estate located in the City of Taunton owned by and assessed to 540 Taunton, LLC ("540 Taunton" or "appellant") under G.L. c. 59, §§ 11 and 38, for fiscal years 2010 and 2011.
	Commissioner Mulhern heard these appeals.  Chairman Hammond and Commissioners Scharaffa, Egan and Rose joined him in the revised decision for the appellant.
These findings of fact and report, promulgated simultaneously with the revised decision, are made pursuant to the appellant's request under G.L. c. 58A, § 13 and 831 CMR 1.32.  
	
Keith D. Vincola, Esq. for the appellant.
 
Barry Cooperstein and Katherine Grein, assessors,  
for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
On January 1, 2009 and January 1, 2010, the relevant assessment dates for fiscal years 2010 and 2011, respectively ("fiscal years at issue"), 540 Taunton was the assessed owner of a single lot of land located in the City of Taunton and identified on the assessors' map as Lot 13-3 ("subject property").  For fiscal year 2010, the appellee valued the subject property at $2,213,600 and assessed a tax thereon at the rate of $22.60 per $1,000 in the total amount of $50,027.36.  The appellant timely paid the taxes due.  On April 28, 2010, the appellant timely applied in writing for abatement to the appellee.  On April 29, 2010, the appellee granted a partial abatement in the amount of $231,400 of valuation, bringing the assessed value down to $1,982,200.  On July 28, 2010, the appellant seasonably filed a Petition Under Formal Procedure with the Board.  On the basis of these facts, the Board found and ruled that it had jurisdiction over the appeal for fiscal year 2010.
For fiscal year 2011, the appellee valued the subject property at $1,881,000 and assessed a tax thereon at the rate of $25.45 per $1,000 in the total amount of $47,871.45.  The appellant timely paid the taxes due.  On January 28, 2011, the appellant timely applied in writing for abatement to the appellee.  On January 31, 2011, the appellee granted a partial abatement of $112,300 of valuation, reducing the assessed value to $1,768,700.  On April 27, 2011, the appellant seasonably filed a Petition Under Formal Procedure with the Board.  On the basis of these facts, the Board found and ruled that it had jurisdiction over the appeal for fiscal year 2011.
The subject property is situated in the City of Taunton, which is located approximately 34 miles south of Boston and about 18 miles east of Providence, Rhode Island.  Taunton is served by Route 24, Interstate I-495, U.S. Route 44, Route 140, and Route 138.  The subject property is located in an industrial district, in the Myles Standish Industrial Park on Myles Standish Boulevard.  Constructed in the mid 1980s, Myles Standish Industrial Park consists of over 800 acres and houses over 100 companies in about 5,800,000 square feet of building space.  The commercial and industrial businesses range from high-tech companies to commercial warehouse space and large distribution centers.  
The subject property is approximately 4.17 acres in size and is nearly rectangular in shape.  It is generally level to street grade, and it is located on the westerly side of Myles Standish Boulevard with approximately 550 linear feet of frontage on Myles Standish Boulevard.  There is access to Myles Standish Boulevard at two separate entrances on the easterly (front) boundary line.  Public water, sewer, gas, telephone and cable are available at the site.  There is a 30-foot wide drain easement, which runs along the entire easterly boundary line of the subject property. 
At all relevant times, the subject property was improved with a two-story, single tenant office building that is about 20 feet high.  The nearly rectangular-shaped building consisted of 22,200 square feet of above-grade office space, with approximately 11,000 square feet of office space on each floor.  The foundation was poured concrete, and it had a flat roof covered with a rubber membrane.  The exterior walls of the subject building were concrete panels with an exposed aggregate finish and with standard multi-paneled glass windows on all four sides of the building.  A circular, paved driveway ran perpendicular to the subject building leading to the main entryway.  The main entrance consisted of double-entry glass doors that opened into a vaulted lobby area, which contained the stairway to the second level and an elevator for handicapped accessibility only.  The interior walls were painted sheetrock, the ceiling was constructed of suspended acoustic ceiling tiles, and lighting consisted of overhead recessed fluorescent lamps.  The men's and women's lavatories were ceramic tile.  There were exposed concrete floors on the first level and carpeted floors on the second level.  The wall-to-wall carpeting and some of the gypsum wallboard were pulled out after flooding and subsequent interior water damage during the winter of 2008-2009.  The subject building was heated with forced hot air fired by gas and was equipped with air conditioning through a roof-top HVAC system that was also fired by gas.
The subject's yard improvements included about 31,500 square feet of asphalt paving that provided parking for approximately 90 automobiles.  The parking lot was equipped with lighting provided by 3 high metal light poles with attached flood lamps.  To the front of the subject building was a 4-foot metal and masonry, two-sided business sign.
The appellant's first witness was Mark H. Donahue, President of M. Donahue Associates, Inc., a commercial real estate firm.  Mr. Donahue explained that he had been hired by 540 Taunton on three separate occasions to broker the sale or lease of the subject property starting in 2005.  The subject property had been vacant since 2007.  While he did not have documentation of exact asking prices, he recalled asking-sale prices in the general range of $90 to $100 per square foot, which would have yielded values between $1,998,000 to $2,220,000, and asking-rent amounts in the general range of $10 to $12 per square foot on a triple-net basis with what Mr. Donahue called some "modest build-up" for updating the carpet and paint.  He testified that the original asking price "dropped over time as the market declined and the property remained on the market."  In his opinion, "[t]he office market is very, very bad in the Taunton area," and he has observed persistent vacancies in the industrial market, because commercial buyers and lessees prefer the Mansfield area or areas along Route 128.  He further testified that the subject property was difficult to subdivide to multiple tenants because it had only one set of utilities and one parking area.  Therefore, a tenant would have to occupy the entire 22,000 square feet, and, according to Mr. Donahue, not many 22,000-square-foot office tenants wanted to lease in Taunton. 
Mr. Donahue testified that he had recently brokered a sale of the subject property and it had been placed under agreement in June, 2011 for $1,150,000.  In Mr. Donahue's opinion, the sale was essentially for the land value, because the subject building had been vacant and the utilities had not been operated in about 5 years, "[s]o it's pretty much a shell. . . .  I wouldn't be surprised to see that building torn down someday."  He explained that the HVAC system in particular would likely be in poor condition because of its non-use, and over time, a vacant building's air quality becomes "more stagnant and stale and the weather takes its toll."  He also testified that the seller became motivated to sell the subject property, as the subject property had been marketed since 2005 by Mr. Donahue and by "two other very well-known Boston commercial real estate companies."  The subject property was even put up for auction, at which no one submitted an acceptable bid.  As Mr. Donahue explained, "I think over time paying taxes, insurance, landscaping, you know, it finally catches up even with a guy with deep pockets."  He claimed that the buyer had made the same offer in 2010, at which time the seller rejected it, but a year later, the seller had become more motivated to accept the $1,150,000 price.  
On cross-examination, Mr. Donahue explained that the condition of the subject building as of January 1, 2009 was substantially the same as its condition in the spring of 2011 when it sold, because even though the subject building had only been vacant for two years as of the fiscal year 2010 assessment date, that was sufficient time for the air quality to become stagnant.  He also testified that the subject building's condition one year later, the relevant assessment date for fiscal year 2011, would have been the same.  When asked whether he was involved with the advertising of the subject property for $2,100,000 on January 1, 2010, Mr. Donahue responded that he could not recall exactly, but that he might have advertised this listing at that price.
The appellant next called Shaun Fitzgerald, a real estate appraiser, whom the Board qualified as an expert in the area of real estate valuation.  Mr. Fitzgerald conducted an appraisal of the subject property "as is" during the tax years at issue, that is, as a vacant, single-tenant office building.  He testified that the subject property was located in a good area for warehousing and distribution, but in his opinion, vacancy for industrial users in Myles Standish Park, at the time of the hearing of these appeals, was about 20 percent, while the vacancy for office space at that time was about 30 percent.  
Mr. Fitzgerald then testified concerning some of the particular defects at the subject property.  First, a water main break in the subject building sometime between late 2008 and early 2009 caused flooding and subsequent damage, resulting in the removal of all of the carpeting in the first floor and the replacement or need for replacement of about 4 to 6 inches of drywall.  Mr. Fitzgerald noted other items of disrepair or damage, including cracks and stains in the subject building's entryway walls, which he surmised was caused by damage to the seals on the insulated glass windows.  He also noted that the outdoor landscaping was not well maintained, including trees that brushed against the building.  Like Mr. Donahue, he believed that the subject property was not well suited to a multi-tenant application because there was only one set of utilities, including one integrated HVAC system.  
Mr. Fitzgerald conducted and presented an appraisal report for purposes of the hearing of these appeals.  His appraisal developed two approaches to value -- the sales-comparison approach and the income approach.  For the sales-comparison approach for fiscal year 2010, Mr. Fitzgerald utilized four purportedly comparable commercial office properties: (1) 34 Welby Road in New Bedford; (2) 35 Resnik Road in Plymouth; (3) 100 Laurel Street in East Bridgewater; and (4) 38 Mechanic Street in Foxboro.  These properties sold between June, 2007 and October, 2008.  The lot sizes of these purportedly comparable properties ranged from 0.99 acres to 6.57 acres, and their gross building areas ranged from 15,540 square feet to 46,542 square feet.  
Mr. Fitzgerald deemed building size to be a "weighted consideration" for all four of the comparable sales.  His appraisal report explains that "the market suggests that the larger building square footage drives down the price per square foot.  Conversely, smaller square footage drives up the price per square foot for the comparable."  He also noted that building tenancy type -- single or multi-occupancy -- was another "weighted consideration" for Comparable Sale Four (a multi-tenant building), claiming that, with the "current trends of higher vacancy rates and tenant turnovers, larger single-tenant buildings are having more difficulty securing full occupancy."  He applied further adjustments for lot size, condition, building quality, location, basement condition and quality of on-site parking.  After adjustments, Mr. Fitzgerald determined an adjusted effective sale price per square foot in the range of $47.83 to $73.62, with an effective average sale price of $60.95 per square foot, which he rounded up to $61.00 per square foot.  Applying this effective sale price to the subject property's gross building area of 22,200 square feet yielded a value of $1,354,200, which Mr. Fitzgerald rounded down to $1,354,000 for fiscal year 2010. 
For fiscal year 2011, Mr. Fitzgerald utilized four purportedly comparable commercial office properties: (1) 46 North Street in Hyannis; (2) 755 Dedham Street in Canton; (3) 375 West Street in West Bridgewater; and (4) 247 N. Main Street/Route 28 in Randolph.  These properties sold between May, 2009 and January, 2010.  The lot sizes of these purportedly comparable properties ranged from 2.00 acres to 6.57 acres, and their gross building areas ranged from 26,118 square feet to 38,552 square feet.  
As with the prior fiscal year's analysis, Mr. Fitzgerald deemed building size and tenancy type to be "weighted consideration[s]" for the comparable sales, with building size considered in all four comparables and tenancy type a consideration for Comparable Sales One and Three.  He then applied further adjustments for date of sale, lot size, condition, building quality, location, basement condition and building utility.  After adjustments, Mr. Fitzgerald determined an adjusted effective sale price per square foot in the range of $48.70 to $63.76, with an effective average sale price of $56.33 per square foot, which he rounded up to $56.50 per square foot.  Applying this effective sale price to the subject property's gross building area of 22,200 square feet yielded a value of $1,254,300, which Mr. Fitzgerald rounded down to $1,254,000 for fiscal year 2011.   
Mr. Fitzgerald next developed a capitalization-of-income approach to valuing the subject property.  He performed two analyses, the first one using the direct capitalization technique.  To calculate income, Mr. Fitzgerald performed a market rental analysis.  His report explains that the subject property had been vacant since the single tenant vacated in 2007 and that recent leases in Taunton and the surrounding vicinity of single-tenant spaces in excess of 20,000 square feet were non-existent.  He thus acknowledged that the leases he used "had been negotiated prior to the significant downturn in the real estate market."  Mr. Fitzgerald conducted a market rental analysis using five purportedly comparable rental properties.  A summary of Mr. Fitzgerald's market rental analysis is reproduced below:






Lease #/location	Lessee	Leased sfa	Lease date	Lease term	Annual rent psf	
#1: 460 Belmont Street, Brockton	City of Brockton School Dept.	45,872	06/2006	3 years triple net	$9.58	
#2: 500 Belmont Street, Brockton	Brockton Visiting Nurses	26,550	03/2008 Renewal	5 years Gross
Renewal
	$10.58 
adj. to yield triple net
(less act exp.)	
#3: 1215 Broadway, Raynham	Bridgewater Goddard Park Med. Associates	31,610	05/2004	5 years triple net	$15.96	
#4: 75 Commercial Street, Brockton	Dept. of Transitional Assistance	21,000	07/2006
Renewal
	5 years Gross
	$7.92 
adj. to yield triple net 
(less act. exp.)	
#5: 28 Pleasant Street, 
W. Bridgewater	Pleasant Hill Pediatrics	4,000	03/2006 Add. Ten.	5 years
	$14.75
(less B/Out psf and est. expenses)	

These purportedly comparable rental properties yielded an adjusted triple-net rental rate from a low of $7.92 to a high of $15.96 with an average rental rate of $11.76 per square foot on a triple-net basis.  The higher rental rates were from Comparables Three and Five, which were medical office space leases in newer buildings.  For these two reasons, Mr. Fitzgerald deemed them "clearly superior" to the subject property.  Thus, after reviewing relevant data and conferring with local brokers, Mr. Fitzgerald concluded that space similar to the subject property's size and use would command a rent of approximately $9.50 per square foot on a triple-net basis for both fiscal years at issue.  Mr. Fitzgerald based his figure on the subject property's condition resulting from its vacancy since 2007 and the declining market conditions.  Mr. Fitzgerald acknowledged that this rate was below the average of his purportedly comparable properties, but it was nevertheless higher than Comparable Four, which Mr. Fitzgerald deemed the best available comparable.  At the subject building's 22,200 square feet, the economic rent of $9.50 per square foot yielded an annual rent of $210,900.  
Next, Mr. Fitzgerald determined a vacancy allowance to apply against his annual rental figure.  He explained that he examined the market vacancy rates for purportedly similar properties, but that the subject property's 100% vacancy since 2007 also factored into his choice of a vacancy rate   Mr. Fitzgerald chose 30% as his vacancy rate.  Applying this to the projected gross income yielded an effective gross income of $147,630.
Mr. Fitzgerald next deducted owner-incurred operating expenses from the effective gross income.  He explained that in a triple-net lease, the lessee is responsible for all operating expenses, building maintenance and taxes including real estate taxes, and that the lessor would be responsible for management, accounting and legal fees, and exterior maintenance.  Mr. Fitzgerald also claimed that lessors in triple-net leases were typically responsible for insuring the realty.  Mr. Fitzgerald thus deducted the following expenses: (1) management: 5% of effective gross income; (2) accounting/legal fees: 1% of effective gross income; (3) insurance: $0.40 per square foot ($8,800); (4) exterior maintenance: 2% of effective gross income; (5) miscellaneous expenses: 2% of effective gross income; and (5) reserves: 2.5% of effective gross income.  Mr. Fitzgerald's total operating expenses were thus estimated to be $27,333.75.  Subtracting this amount from effective gross income yielded a net operating income of $120,296.25. 
The next step in Mr. Fitzgerald's capitalization-of-income analysis was the selection of an appropriate capitalization rate.  To aid in the selection of a capitalization rate, Mr. Fitzgerald used the Akerson Method, which takes into consideration mortgage terms and equity yield factors, which influence the overall rate of return.  In considering mortgage terms, Mr. Fitzgerald assumed a 7.00% interest rate with a 30-year mortgage period and 70% loan-to-value ratio.  He further assumed a 30-year holding period, a 15% equity yield rate -- which he testified was based on his opinion that the market was declining and would not favor investment in a vacant single-tenant office building, and on conversations with bankers and property owners -- and no appreciation on the subject property over the projection period.  Applying these factors, Mr. Fitzgerald calculated a rounded capitalization rate of 9.93% for both fiscal years at issue.  Mr. Fitzgerald testified that this figure included a tax factor and that he considered this capitalization rate to be "pretty low."  Applying his capitalization rate to his net operating income yielded an indicated value of $1,211,442.60.  
Mr. Fitzgerald testified further that a cost-to-cure direct expense of $44,200 was warranted to compensate for the extensive flooding damage to the subject building's first floor.  Mr. Fitzgerald explained that he derived this figure with information provided from a report by the engineering firm, Veitas & Veitas.  However, the appellant did not produce this report at the hearing of this appeal, nor did the author(s) of this report testify before the Board.  After applying his cost-to-cure direct expense, Mr. Fitzgerald's final rounded value for the subject property was $1,170,000 for both fiscal years at issue.
Mr. Fitzgerald also performed a capitalization-of-income analysis using the discounted-cash-flow technique, which calculates net operating income from the present date forward, for a period of 7 to 10 years, to identify a net present value.  See generally, Appraisal institute, the appraisal of real estate 539-41 (13th ed. 2008) (discounted cash flow method relies on "forecasting income, vacancy, operating and capital expenses, and equity dividend (if appropriate) over ownership periods of 5 to 15 years").  According to Mr. Fitzgerald, the discounted-cash-flow technique is preferred for properties that have variable occupancy, income and expenses.  He asserted that the subject property had differing cash flows as a consequence of its 100% vacancy for the past few years, as well as the extraordinary expenses associated with a vacant building and the falling rental rates in a generally uncertain real estate market.  The fair market values that Mr. Fitzgerald derived from this method were $773,400 for fiscal year 2010 and $1,023,800 for fiscal year 2011.  However, the Board found that Mr. Fitzgerald's discounted-cash-flow technique was unsupported, highly speculative and not appropriate for valuing the subject property for purposes of these appeals.  Therefore, the Board rejected Mr. Fitzgerald's capitalization-of-income analysis using the discounted-cash-flow technique.
Mr. Fitzgerald reconciled the values obtained by his various methods to determine a final fair market value for the subject property.  Mr. Fitzgerald explained that he gave greater weight to the values obtained by the capitalization-of-income approach, which were lower than the value obtained by the sales-comparison approach.  He believed that market conditions supported the lower values.  Mr. Fitzgerald ultimately selected a fair market value of $1,200,000 for fiscal year 2010 and $1,150,000 for fiscal year 2011.
The appellee did not call any witnesses.  However, Assessor Barry Cooperstein offered a brief criticism of Mr. Fitzgerald's appraisal report, contending that the comparables selected were inferior to the subject property because they were located farther away from a highway.  He also claimed that the 30%-vacancy figure was high.  He further questioned the expert's 15% equity-yield rate, but did not offer specifics as to why he disagreed with that figure or offer another figure instead. Finally, Mr. Cooperstein claimed that the property was not in as poor a condition as the appellant claimed during the tax years at issue.  He stated that he was at the subject property during September of 2008 and did not notice any "major problems" at that time, but he also acknowledged that he was not a property inspector. After Mr. Cooperstein's critiques, the appellee rested.
On the basis of the evidence, the Board found that the appellant met its burden of proving a value lower than that assessed by the appellee.  For both fiscal years at issue, the Board found that the income approach using the direct capitalization technique was the most reliable valuation method for determining the fair market value of the subject property for both fiscal years at issue.  The Board adopted Mr. Fitzgerald's $9.50 per square foot comparable rental figure, finding that it was sufficiently supported by comparable rental properties, and the appellee did not offer a well-supported challenge to this figure.  The Board thus adopted Mr. Fitzgerald's gross income figure of $210,900.  
However, the Board rejected Mr. Fitzgerald's 30% vacancy figure, finding that Mr. Fitzgerald's explanations of his vacancy cited market conditions contemporaneous with the hearing of these appeals, as opposed to the relevant assessment dates.  Therefore, the Board found that Mr. Fitzgerald failed to establish that his 30% figure was based on sufficiently comparable market data from the relevant assessment dates.  The Board additionally found that the fact that the subject property remained 100% vacant for an extended period reflected the owner's desire to sell the subject property in an "as is" condition without incurring the expense to make it suitable for leasing -- which it ultimately did -- as opposed to an inability to lease and manage the property because of market conditions.  The Board therefore agreed with the appellee that the 30% vacancy rate was too high and found that a 15% vacancy rate was appropriate for the fiscal years at issue.  Applying this vacancy rate yielded an effective gross income of $179,265.  
The Board next adopted Mr. Fitzgerald's percentage deductions from effective gross income for management (5%), accounting and legal (1%), and miscellaneous expenses (2%).  However, the Board rejected Mr. Fitzgerald's deduction for insurance, finding that in a triple net lease, insurance is typically the tenant's responsibility.  Appraisal institute, the appraisal of real estate  451 (13th ed. 2008) (defining a "triple net lease" as one "in which the tenant pays utilities, taxes, insurance, and maintenance and the landlord pays for structural repairs only").
The Board also rejected Mr. Fitzgerald's cost-to-cure deduction of $44,200. The Board found that Mr. Fitzgerald's cost-to-cure estimate lacked sufficient support from a contractor, engineer or architect to support a deduction for these construction costs. He did not produce the engineering report by Veitas & Veitas that he supposedly relied upon, nor did the appellant produce as a witness the author(s) of the report.  As will be explained more fully in the Opinion, the Board found that construction costs are more appropriately developed in detail by those professionals, and thus Mr. Fitzgerald's vague predictions of these costs were without adequate foundation.  However, in recognition of the water damage to the subject building, and also to account for the fact that the subject building had been vacant for a few years and would require substantial repairs to its mechanical systems, particularly the HVAC system, the Board increased Mr. Fitzgerald's deductions for exterior maintenance and for reserves, from 2% and 2.5%, respectively, to 3.5% each. 
The Board next adopted Mr. Fitzgerald's capitalization rate of 9.93%, finding it to be reasonable and well-supported.  Applying this capitalization rate to the net income thus determined, the Board found a fair market value for both fiscal years at issue of $1,535,000.
On this basis, the Board determined that the subject property had been overvalued by $447,200 for fiscal year 2010 and by $233,700 for fiscal year 2011.  Accordingly, the Board promulgated a revised decision for the appellant and granted abatements of $10,225.65 for fiscal year 2010 and $5,947.66 for fiscal year 2011.

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).
The assessment is presumed valid unless the taxpayer sustains the burden of proving otherwise.  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974). Accordingly, the burden of proof is upon the appellant to make out his right as a matter of law to an abatement of the tax.  Id.  The appellant must show that the assessed value of the property exceeded its fair cash value. See Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 691 (1982).  
Generally, real estate valuation experts and the Massachusetts courts rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction. Correia v. New Bedford Redevelopment, 375 Mass. 360, 362 (1978).  When the subject is income-producing property, the use of the income-capitalization method is appropriate.  Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 807, 881 (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).  The income-capitalization method has long-standing application for valuing income-producing property.  Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  Under this approach, a valuation figure is determined by dividing net operating income by a capitalization rate.  Board of Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986).  
In applying the income-capitalization method, the income stream used must reflect the property's earning capacity or market rental value.  Pepsi-Cola Bottling v. Assessors of Boston, 397 Mass. 447, 451 (1986).  Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, the rents are indicative of the subject property's earning capacity.  See Correia v. New Bedford Redevelopment Authority, 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Authority, 9 Mass. App. Ct. 877, 878 (1980) (rescript); AVCO Manufacturing Corporation v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142.  It is the earning capacity of real estate, rather than its actual income, which is probative of fair market value.  Boston Consolidated Gas Co., 309 Mass. at 64.  Vacancy rates must also be market based when determining fair cash value.  Donovan v. City of Haverhill, 247 Mass. 69, 71 (1923).  
In the instant appeals, the Board found that Mr. Fitzgerald's $9.50-per-square-foot comparable rental figure was supported by sufficiently comparable rental properties, to which Mr. Fitzgerald applied sufficiently supported adjustments.  The Board adopted this $9.50 figure to find a gross income figure of $210,900.  Mr. Fitzgerald, however, failed to support his 30%-vacancy figure with sufficiently comparable market data from the relevant assessment dates.  Moreover, the Board found that the subject property's extended vacancy reflected the owner's desire to sell it "as is" without incurring the expense to make it suitable for leasing, not an inability to lease it because of market conditions.  The Board thus found that the 30% vacancy rate was overstated and not supported by the evidence and reduced it to 15%, which it found to be the appropriate vacancy rate in the circumstances of these appeals.  Applying this vacancy rate yielded an effective gross income of $179,265.  
Net operating income is then obtained by deducting the landlord's appropriate expenses.  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 609 (1984).  The expenses should reflect the market.  Id.  The Board found that Mr. Fitzgerald's deductions from effective gross income for management (5%), accounting and legal (1%), and miscellaneous expenses (2%) were appropriate.  However, as explained in the Findings, the Board rejected Mr. Fitzgerald's deduction for insurance, because this expense is the tenant's responsibility in a triple net lease.  the appraisal of real estate at 451.  
The Board also rejected Mr. Fitzgerald's cost-to-cure deduction of $44,200.  "The Courts and this Board have found and ruled consistently that only qualified engineers, architects, or contractors should present cost estimates in most circumstances."  Cnossen v. Assessors of Uxbridge, Mass. ATB Findings of Fact and Reports 2002-675, 690 (citing Tiger v. Mystic River Bridge Authority, 329 Mass. 514, 519 (1952) and Maryland Cup Corp. v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1988-169).  Mr. Fitzgerald was not a licensed engineer, architect, or contractor.  The Board found that his hard costs -- purportedly based on consultations with a contractor who did not testify and whose report was not offered -- lacked concrete, underlying support.  The opinion of an expert must be based on a proper foundation.  State Tax Commission v. Assessors of Springfield, 331 Mass. 677, 684 (1954).  Without the expertise or underlying support for his construction cost estimates, the Board found that Mr. Fitzgerald's cost-to-cure deduction lacked the proper foundation, and thus the Board rejected this deduction.  However, the Board recognized the water damage to the subject building and the effect of the complete vacancy on the building's HVAC and other electrical systems, and accordingly increased Mr. Fitzgerald's deductions for exterior maintenance and for reserves to 3.5% each. 
The Board next adopted Mr. Fitzgerald's capitalization rate of 9.93% and applied that to its net operating income to arrive at an indicated fair cash value for both fiscal years at issue of $1,535,000. Therefore, the Board  found and ruled that $1,535,000 -- the value derived from  Mr. Fitzgerald's income-capitalization approach, with the  Board's adjustments for vacancy, exterior maintenance and reserves, and without a deduction for insurance  --  reflected the fair cash value for the subject property for both fiscal years at issue.  
In reaching its opinion of fair cash value in these appeals, the Board was guided by the principle that "'evidence of a party having the burden of proof may not be disbelieved without an explicit and objectively adequate reason.'" New Boston Garden v. Assessors of Boston, 383 Mass. 456, 473 (1981) (quoting L.L. Jaffe, Judicial Control of Administrative Action 607 (1968)).  However, 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 suggested.  Rather, the Board can accept those portions of the evidence that the Board determines to have more convincing weight.  Foxboro Associates, 385 Mass. at 683; New Boston Garden Corp., 383 Mass. at 473; New England Oyster House, Inc., 362 Mass. at 702.  "The credibility of witnesses, the weight of 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).  
Furthermore, the Board need not specify the exact manner in which it arrived at its valuation.  Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971).  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 Consolidated Gas Co., 309 Mass. at 72.  In evaluating the evidence before it here, the Board selected among the various elements of value and 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). 
On the basis of its findings and rulings, the Board thus determined that the subject property had been overvalued by $447,200 for fiscal year 2010 and by $233,700 for fiscal year 2011.  Accordingly, the Board promulgated the revised decision for the appellant simultaneously with the issuance of these Findings of Fact and Report. 

       APPELLATE TAX BOARD

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



A true copy,

Attest: ___________________________
        Clerk of the Board

  Square foot area.
  Per square foot.

ATB 2012-1058