Alan & Marguerite Hankowski, Trustees, Crafts Avenue Realty Trust v. Board of Assessors of the City of Northampton (September 29, 2014)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

ALAN & MARGUERITE HANKOWSKI,	v.	 BOARD OF ASSESSORS OF 
TRUSTEES, CRAFTS AVENUE			 THE CITY OF NORTHAMPTON
REALTY TRUST
	  
Docket No. F320374		 		 Promulgated:
							 September 29, 2014

This is an appeal 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 Northampton ("assessors" or "appellee"), to abate taxes on certain real estate located in the City of Northampton owned by and assessed to Alan & Marguerite Hankowski, Trustees, Crafts Avenue Realty Trust ("appellants") under G.L. c. 59, §§ 11 and 38 for fiscal year 2013 ("fiscal year at issue").  
Commissioner Rose ("Presiding Commissioner") heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20, and issued a single-member decision for the appellee.
 These findings of fact and report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32. 

Alan Hankowski, pro se, for the appellants.
Kenneth W. Gurge, Esq. for the appellee.	
FINDINGS OF FACT AND REPORT
On the basis of testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2012, the appellants were the assessed owners of a 1,750-square-foot parcel of land improved with an attached, two-story, brick, mixed-use building located at 24 Crafts Avenue in the City of Northampton ("subject property").  The ground level of the subject property is used as office space and the second level has three one-bedroom apartments.  The subject property was built circa 1900.  The subject property has not undergone any significant renovations, other than the installation of replacement windows in 2006.  The assessors listed the subject property's quality as "C+."
For fiscal year 2013, the assessors valued the subject property at $493,300 and assessed a tax thereon, at the rate of $14.26 per thousand, in the total amount of $7,245.49.   In accordance with G.L. c. 59, § 57C, the appellants paid the tax due without incurring interest.  On January 29, 2013, in accordance with G.L. c. 59, § 59, the appellants timely filed their Application for Abatement, 
which the assessors denied on March 20, 2013.  On June 18, 2013, in accordance with G.L. c. 59, §§ 64 and 65, the appellants seasonably filed an appeal with the Appellate Tax Board ("Board").  On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
At the hearing of this appeal, the appellants argued that the subject property was overvalued primarily because the assessors' per-square-foot rental value attributable to the subject property's first-floor office space was excessive; they apparently had no qualms with the value assigned to the second-floor residential space.  The appellants' case-in-chief consisted predominantly of the testimony of Mr. Hankowski, a trustee of the subject realty trust.  The appellants also offered into evidence the subject property's income valuation card and photographs of seven purportedly comparable mixed-use properties located in Northampton.  Each photograph included Mr. Hankowski's hand-written notations about the specific property's overall condition rating, the per-square-foot office or retail rent, and the occupancy rate.  Mr. Hankowski maintained that this information was obtained from the assessors' income valuation cards.  
According to the appellants, the office or retail rental rates for their chosen properties ranged from $12.00 to $16.00 per square foot, with an average of $13.47 per square foot.  In comparison, the subject property's office space was assigned a rental rate of $20.90 per square foot.  Thus, the appellants argued, the subject property was overvalued because of the excessive office rental rate that the assessors had assigned to that space for the fiscal year at issue.    
For their part, the assessors offered into evidence the requisite jurisdictional information and also the property record cards for eight purportedly comparable properties, which they maintained supported the subject property's fiscal year 2013 assessment.  The assessors did not, however, offer any testimony establishing comparability between these properties and the subject property nor did they make any adjustments to account for differences with the subject property.  For these reasons, the Presiding Commissioner did not rely on this evidence.
	The Presiding Commissioner found that the appellants failed to prove that the subject property was overvalued for the fiscal year at issue.  First, the appellants did not provide the property record or income valuation cards for their purportedly comparable properties and, therefore, the Presiding Commissioner was unable to verify or validate the appellants' cited data and assertions.  The Board further found that the appellants did not establish comparability between their purportedly comparable properties and the subject property and failed to make any adjustments for differences that existed.  Finally, the appellants did not introduce or analyze any comparable-sales information or produce any additional market information relating to an income-capitalization methodology.  These failings, coupled with the lack of relevant evidence in the record as a whole, resulted in the Presiding Commissioner finding that the appellants failed to meet their burden of proving that the subject property's assessment exceeded its fair cash value for fiscal year 2013.   
Accordingly, the Presiding Commissioner decided this appeal for the appellee.

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 taxpayers sustain their burden of proving otherwise.  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  Accordingly, the burden of proof is upon the appellants to make out their right as a matter of law to an abatement of the tax.  Id.  The appellants must show that the assessed valuation of the property was improper.  See Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 691 (1982).  In appeals before this Board, a taxpayer "‛may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation.'"  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984) (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). 
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).  Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue.  Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff'd, Graham v. Assessors of West Tisbury, 73 Mass. App. Ct. 1107 (2008).  The appellants did not introduce any evidence of comparable sales.
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 an appropriate technique to use for valuing income-producing property.  Id. at 64-65.  
"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. 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, 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).
In the present appeal, the appellants argued that the rental rate assigned to the subject property's office space was excessive in comparison to other purportedly comparable properties located in Northampton.  The appellants, however, failed to establish comparability between their purportedly comparable properties and the subject property and they failed to make any adjustments for differences between the subject property and their purportedly comparable properties.  Moreover, the appellants did not provide property record or income valuation cards for their purportedly comparable properties and as a result, the Presiding Commissioner was unable to verify or validate, the appellants' cited data and assertions.  Therefore, the Presiding Commissioner found that the appellants failed to prove that their suggested office rental rate was reflective of the market.  Given these facts, the Presiding Commissioner found and ruled that the appellants did not provide a reliable basis for determining the subject property's fair cash value for the fiscal year at issue and, therefore, he relied upon the presumed validity of the assessment.

On the basis of the foregoing, the Presiding Commissioner found and ruled that the appellants failed to establish that the subject property was overvalued for the fiscal year at issue.  Accordingly, the Presiding Commissioner issued a single-member decision for the appellee in this appeal.

				        THE APPELLATE TAX BOARD			
   By: ______________________________
       James D. Rose, Commissioner


A true copy,
Attest: _______________________
	       Clerk of the Board

 This amount includes a Community Preservation Act surcharge of $211.03.

ATB 2014-721