F307055; F312755•Atlantic-Philadelphia Realty LLC & Bodwell Street Nominee Trust v. Board of Assessors of the Town of Avon (June 3, 2014)
Atlantic-Philadelphia Realty LLC & Bodwell Street Nominee Trust v. Board of Assessors of the Town of Avon (June 3, 2014)
F307055; F312755Masstaxbd
Testo completo
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
ATLANTIC-PHILADELPHIA REALTY LLC v. BOARD OF ASSESSORS OF
& BODWELL STREET NOMINEE TRUST THE TOWN OF AVON
Docket Nos. F307055 (FY 2010)
F312755 (FY 2011)
Promulgated:
June 3, 2014
These are appeals under the formal procedure, pursuant to G.L. 58A, § 7, G.L. c. 59, §§ 64 and 65, and 831 CMR 1.03 and 1.04, from the refusal of the Board of Assessors of the Town of Avon (the "assessors" or "appellee") to abate taxes on a parcel of real estate in the Town of Avon owned by and assessed to Atlantic-Philadelphia Realty LLC and Bodwell Street Nominee Trust (collectively, the "appellants") under G.L. c. 59, §§ 11 and 38 for fiscal years 2010 and 2011.
Commissioner Chmielinski heard these appeals. Chairman Hammond and Commissioners Scharaffa, Rose, and Mulhern joined him in the decisions for the appellants.
These findings of fact and report are made pursuant to requests by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
Robert E. Brooks, Esq. for the appellants.
Ellen M. Hutchinson, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2009, the valuation and assessment date for fiscal year 2010 and on January 1, 2010, the valuation and assessment date for fiscal year 2011, the assessors assessed the appellant Bodwell Street Nominee Trust as the owner of an approximately 11.42-acre parcel of land located at 275 Bodwell Street in Avon, which the assessors identified as account number OB7003001 or map B7, block 3, parcel 1 (the "subject property). After TD Bank foreclosed on the subject property in the fall of 2009, took it back at auction and assigned it to an affiliate company, Apex, Inc., appellant Atlantic-Philadelphia Realty LLC purchased the subject property from Apex, Inc. in January, 2010 for $4,200,000. The parties agreed and the Appellate Tax Board (the "Board") found that neither the foreclosure sale nor the subsequent one from Apex, Inc. to appellant Atlantic-Philadelphia Realty LLC were market transactions. Atlantic-Philadelphia Realty LLC joined in these appeals as a subsequent purchaser of the subject property under G.L. c. 59, § 59.
The subject parcel is improved with an approximately 210,000-square-foot, one- and two-story, warehouse-style building that was built in 1984 with an addition in 1989 (the "subject property"). The site also includes an asphalt parking lot with fifty parking spaces, as well as some landscaping and fencing.
The subject property is situated in the Avon Industrial Park which is located approximately 1.5 miles from State Route 24, a divided four-lane highway providing ready access to I-495 and I-95 (Route 128). The subject property is located in an established industrial zone which allows, among other uses, office, research and industrial uses. The subject property conforms to these uses. All necessary utilities are available including public sewer and water, natural gas, electricity, and telephone.
For fiscal year 2010, the assessors valued the subject property at $10,151,200 and assessed a tax, at a rate of $23.07 per $1,000, in the amount of $234,188.18. For fiscal year 2011, the assessors valued the property at $8,684,400 and assessed a tax, at a rate of $25.96 per $1,000, in the amount of $225,447.02. In accordance with G.L. c. 59, § 57C, the real estate taxes were timely paid in both fiscal years at issue in these appeals.
The appellants also seasonably filed their applications for abatement with the assessors and petitions to the Board, as summarized in the following table.
Fiscal Year Date Tax Bill Mailed Date Application for Abatement ("AA") Filed Date AA Denied or Deemed Denied Date Petition Filed at Board
2010 12/28/2009 01/28/2010 04/27/2010 06/07/2010
2011 12/31/2010 01/06/2011 04/05/2011 06/16/2011
On this basis, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The appellants presented their case-in-chief principally through the testimony of James McEvoy, a commercial real estate broker and the testimony and appraisal reports of Kevin T. Quinn, a general real estate appraiser with Joseph J. Blake and Associates, Inc. Based on his licensure and experience with commercial properties, and without objection from the assessors, the Board qualified Mr. Quinn as an expert witness in real estate appraising. In addition to these two witnesses and appraisal reports, the appellants also introduced copies of a site plan, a lease agreement, several offers to lease, and a standard form industrial lease, as well as the deed transferring the subject property to appellant Atlantic-Philadelphia Realty LLC on January 19, 2010 for $4,200,000.
The grantor, Apex, Inc., had acquired the subject property less than a week earlier from its affiliate, TD Bank, N.A., through a foreclosure deed.
In defense of their assessments, the assessors cross-examined Mr. McEvoy and Mr. Quinn and introduced into evidence copies of the requisite jurisdictional documents and the subject property's property record and income valuation cards for the fiscal years at issue, as well as the deed in foreclosure transferring the property from TD Bank, N.A. to Apex, Inc. for $4,500,000. This deed states that TD Bank, N.A. was the "holder of a mortgage from . . . [the] trustees of Bodwell Street Nominee Trust."
The Presiding Commissioner also took a view of the subject property, the industrial park in which it was situated, and the surrounding area. Both parties submitted post-hearing briefs.
Based on this evidence, as well as reasonable inferences drawn therefrom, the Board made the following findings of fact.
The subject property is located in what is sometimes referred to as the south industrial market outside of metropolitan Boston. The towns included in this submarket are Avon, Braintree, Bridgewater, Brockton, Canton, Dedham, Easton, Hanover, Hingham, Holbrook, Marshfield, Norwell, Norwood, Quincy, Randolph, Rockland, Sharon, Stoughton, Walpole, West Bridgewater, Westwood, and Weymouth. This submarket is just outside the I-95 (Route 128) corridor, but still has reasonable access, via Routes 3 and 24 in particular, to I-95, as well as to Boston, Worcester, I-90 and I-495.
The subject property is located on the east side of Avon in the Avon Industrial Park, within 1.5 miles of exit 19 off Route 24. The main and largest portion of the subject improvement was built in 1983 and 1984, with a 50,000-square-foot addition having been added in 1989. As a result, the subject 210,000-square-foot building is particularly well-suited for two tenants with two distinct loading areas, two distinct office areas, and an interior dividing wall. The subject improvement's overall space is allocated 90% for warehouse use and 10% for office use. The exterior of the building is concrete block and metal siding on a reinforced concrete foundation and concrete slab with a flat rubber membrane roof. There are several rooftop gas-fired HVAC units. The subject building also contains eight loading docks and one drive-in door.
The interior warehouse space features 28-foot clear ceiling height, concrete flooring, and exposed metal panel ceilings. The interior office space is located on both the first and second floors in two different areas. The office finish consists of carpeted flooring, painted drywall, and acoustic drop ceilings with recessed fluorescent lighting. According to Mr. Quinn, the subject building is in good overall condition while the subject property's property record card graded the construction quality as average.
The appellants' first witness, Mr. McEvoy, is a commercial real estate broker with extensive experience selling and leasing properties in the south industrial market where the subject property is situated. He was particularly familiar with the subject property, having represented its buyer in both the 2010 and an earlier 2004 sale, and was also knowledgeable about most of the other properties located in the Avon Industrial Park. Mr. McEvoy testified that the vacancy rate in the industrial park was in the 15% to 18% range by the end of 2008 and that rents had decreased by about 30% in 2009. Some of the rental data upon which he relied was based, however, on asking as opposed to consummated rents.
To develop a value for the subject property for the fiscal years at issue, Mr. Quinn, the appellants' real estate valuation expert, first examined the subject property's highest and best use and concluded that the subject property's existing use as a warehouse was its highest and best use. Mr. Quinn determined that this current use was legally permissible, physically possible, financially feasible, and maximally productive. The assessors' income valuation cards evidence the same industrial highest-and-best-use determination.
Mr. Quinn next considered which of the three usual methodologies to utilize to estimate the value of the subject property for the fiscal years at issue. While he considered using a cost approach, he did not develop one because of the highly subjective nature in estimating physical depreciation for the subject improvements. He did, however, derive values for the subject property using both sales-comparison and income-capitalization approaches.
In each of his sales-comparison analyses for fiscal years 2010 and 2011, Mr. Quinn analyzed four sales of properties in Avon or the surrounding area, which were used primarily for warehouse or industrial space. For fiscal year 2010, these sales occurred from March, 2007 to December, 2008 and ranged in price from $2,100,000 to $20,000,000, or from $34 to $68 per square foot. The size of the improvements varied from approximately 31,000 square feet to 425,000 square feet. For fiscal year 2011, these sales occurred from December, 2008 to May, 2010 and ranged in price from $2,125,000 to $6,100,000, or from $17 to $39 per square foot. The size of the improvements varied from 109,000 square feet to 161,563 square feet.
Mr. Quinn adjusted these properties' sale prices for market conditions, location, access, effective age and condition, clear height, office finish, occupancy, and size. Summaries of these properties' locations, sale dates, sale prices, gross and net adjustments, as well as their adjusted sales prices per square foot for the fiscal years at issue are contained in the following two tables.
Mr. Quinn's Sales-Comparison Analysis for Fiscal Year 2010
Location Sale Date Sale Price ($) Gross Adj.(%) Net
Adj.(%) Adj. $/SF
1205 Providence Hwy., Sharon
12/2008
4,300,000
20
0
29
305 Myles Standish Blvd., Taunton 10/2008 7,550,000 5 -5 33
175 Bodwell Ave., Avon 09/2008 2,100,000 55 -35 33
57 Littlefield St., Avon 03/2007 20,000,000 25 +25 41
Mr. Quinn's Sales-Comparison Analysis for Fiscal Year 2011
Location Sale Date Sale Price ($) Gross Adj.(%) Net
Adj.(%) Adj. $/SF
1 Enterprise Dr., Billerica
05/2010
6,100,000
35
-15
32
1 Kiddie Dr., Avon 10/2009 2,125,000 30 10 18
57-59 Armstrong Rd., Plymouth 09/2009 4,200,000 25 -25 28
1205 Providence Hwy., Sharon 12/2008 4,300,000 20 0 27
After applying his adjustments, Mr. Quinn's indicated values for fiscal year 2010 ranged from $29.00 to $41.00 per square foot, with an average value of $34.00 per square foot. Based on these adjusted sale prices, Mr. Quinn opined that $30.00 per square foot was a reasonable value for the subject property as of January 1, 2009. He then multiplied this value by the subject property's leasable area to estimate the value of the subject property at $6,300,000 for fiscal year 2010 using his sales-comparison approach.
After applying his adjustments, Mr. Quinn's indicated values for fiscal year 2011 ranged from $18.00 to $32.00 per square foot, with an average value of $26.25 per square foot. Based on these adjusted sale prices, Mr. Quinn opined that $27.50 per square foot was a reasonable value for the subject property as of January 1, 2010. He then multiplied this value by the subject property's leasable area to estimate the value of the subject property at $5,775,000 for fiscal year 2011 using his sales-comparison approach, which he then rounded to $5,800,000.
In his income-capitalization approach, Mr. Quinn first determined the rental income that the subject property could generate if vacant and ready to lease. To ascertain this rental income for fiscal year 2010, he studied what he considered to be four relatively comparable warehouse or industrial properties in the surrounding area -- Dedham, Brockton, Norwood, and Franklin. For fiscal year 2011, he selected four industrial or warehouse properties which he considered comparable to the subject from Avon, Canton, Franklin, and Taunton. Based on the leases associated with the first group of four properties, Mr. Quinn found that for fiscal year 2010, users of warehouse or industrial space with some related office area were effectively paying $4.00 to $6.50 per square foot over a three- to seven-year triple-net lease term. For fiscal year 2011, users were effectively paying $3.17 to $4.73 per square foot over a five-year lease term. After adjusting for various factors, including time or market conditions, location, size, visibility, utility, and physical aspects, he projected, for fiscal year 2010, a market rent of $4.25 per square foot on a triple-net basis, and, for fiscal year 2011, a market rent of $4.00 per square foot on a triple-net basis. Mr. Quinn did not provide the Board with any specific quantitative adjustments, instead stating simply that either an "upward modification" or a "downward modification" was required. His projected monthly rent produced a monthly gross income for the subject property, for fiscal year 2010, of $892,500 and, for fiscal year 2011, of $840,000.
In addition to this rental income, Mr. Quinn also included in his income-capitalization methodology a category for tenant reimbursements or, as he termed it, "expense recapture" to account for expenses paid by the tenants in the triple-net leasing scenario. For fiscal years 2010 and 2011, he estimated the expense recapture at $268,493 and $267,243, respectively, the same amounts as the actual expenses incurred for the subject property. The rental income coupled with this expense recapture resulted in potential gross incomes of $1,160,993 for fiscal year 2010 and $1,107,243 for fiscal year 2011.
Mr. Quinn reported that he relied on market data from the Greater Boston suburbs and from the subject property's submarket in selecting what he considered to be an appropriate vacancy rate of 22.50% for both fiscal years at issue. After applying this vacancy rate to his potential gross income figures, Mr. Quinn developed an effective gross income of $899,770 for fiscal year 2010 and $858,114 for fiscal year 2011.
For expenses, Mr. Quinn recognized that the subject property's leasable space would rent under a triple-net leasing arrangement. Because of this scenario and his inclusion of reimbursements in the subject property's income, Mr. Quinn surveyed various properties -- from Hingham, Franklin, Northborough, Westborough, and Westwood -- for what he considered to be comparable and appropriate expense data to include in his methodology. Based on this research, he included expense categories for insurance, common area maintenance and utilities, and management, and projected the expense amounts to be $0.15 per square foot, $1.00 per square foot, and 3.00% of effective gross income, respectively, for both fiscal years at issue. On a per-square-foot basis, these expenses equaled $1.28 for fiscal year 2010 and $1.27 for fiscal year 2011. After subtracting his total expense figures from his effective gross incomes, Mr. Quinn's methodology generated net-operating incomes of $631,277 for fiscal year 2010 and $590,870 for fiscal year 2011.
Mr. Quinn next developed his capitalization rates for both fiscal years at issue using a debt-coverage method, a market derived range, and industry data from PriceWaterhouseCoopers' Korpacz Reports. After reconciling these three data sources, Mr. Griffin determined that overall capitalization rates of 9.50% and 9.75% were appropriate ones to apply to his methodology for fiscal years 2010 and 2011, respectively. Because of the triple-net leasing scenario that he employed in his income-capitalization methodology, Mr. Quinn employed a prorated tax factor which reflected only the owner's share of tax payments in the derivation of his partially loaded capitalization rates of 10.02% for fiscal year 2010 and 10.33% for fiscal year 2011.
Lastly, by dividing his partially loaded capitalization rate into his net-operating income for each fiscal year at issue, Mr. Quinn estimated the values of the subject property for fiscal years 2010 and 2011 at $6,300,000 and $5,700,000, respectively.
Summaries of his income-capitalization methodologies for fiscal years 2010 and 2011 are contained in the following two tables.
Summary of Mr. Quinn's Income-Capitalization Methodology
for Fiscal Year 2010
INCOME Size(SF) Rate/SF
Rentable Space 210,000 $4.25 $ 892,500
Add: Expense Recapture $ 268,493
Potential Gross Income ("PGI"): $1,160,993
Less: Vacancy & Collection Allowance - 22.5% of PGI
($ 261,223)
Effective Gross Income ("EGI"): $ 899,770
EXPENSES
Insurance - $0.15/SF = $31,500
CAM/Utilities - $1.00/SF = $210,000
Management/Administration Fee - 3% of EGI or $0.13/SF = $26,993
Total Expenses: $1.28/SF = $268,493 ($ 268,493)
Net-Operating Income: $ 631,277
Divide by: Partially Loaded Capitalization Rate - 10.02%
Indicated Value for Fiscal Year 2010 $6,300,747
Rounded Value for Fiscal Year 2010 $6,300,000
Summary of Mr. Quinn's Income-Capitalization Methodology
for Fiscal Year 2011
INCOME Size(SF) Rate/SF
Rentable Space 210,000 $4.00 $ 840,000
Add: Expense Recapture $ 267,243
Potential Gross Income ("PGI"): $1,107,243
Less: Vacancy & Collection Allowance - 22.5% of PGI
($ 249,130)
Effective Gross Income ("EGI"): $ 858,114
EXPENSES
Insurance - $0.15/SF = $31,500
CAM/Utilities - $1.00/SF = $210,000
Management/Administration Fee - 3% of EGI or $0.12/SF = $25,743
Total Expenses: $1.27/SF = $267,243 ($ 267,243)
Net-Operating Income: $ 590,870
Divide by: Partially Loaded Capitalization Rate - 10.33%
Indicated Value for Fiscal Year 2011 $5,717,675
Rounded Value for Fiscal Year 2011 $5,700,000
Finally, Mr. Quinn reconciled the estimates of value that he developed using his income-capitalization and sales-comparison approaches. For fiscal year 2010, the methodologies produced the same estimate of value -- $6,300,000. Accordingly, his reconciled estimate of value for fiscal year 2010 was $6,300,000. For fiscal year 2011, Mr. Quinn applied the most weight to the value that he derived from his income-capitalization approach. Accordingly, his reconciled estimate of value for fiscal year 2011 was $5,700,000.
For their part, in support of the assessments, the assessors relied almost exclusively on the presumed validity of the assessments, their counsel's cross-examination of the appellants' witnesses, and their income valuation cards for the fiscal years at issue, the data on which having been purportedly obtained by the assessors from the local Avon market through 38D submissions. The following tables contain a summary of the assessors' income-capitalization methodology for each of the fiscal years at issue.
Summary of the Assessors' Economic Income-Capitalization Methodology for Fiscal Years 2010
INCOME Size(SF) Rate/SF
Warehouse Use Space 210,000 $4.75 $ 997,500
Potential Gross Income ("PGI"): $ 997,500
Less: Vacancy & Collection Allowance - 3.0% of PGI
($ 31,920)
Effective Gross Income ("EGI"): $ 965,580
EXPENSES
Total Expenses - 7% of PGI - $69,522
Total Expenses: $69,522 ($ 69,522)
Net-Operating Income: $ 896,058
Divide by: Total Capitalization Rate - 8.59%
Indicated Value $10,431,400
Summary of the Assessors' Economic Income-Capitalization Methodology for Fiscal Years 2011
INCOME Size(SF) Rate/SF
Warehouse Use Space 210,000 $4.75 $ 997,500
Potential Gross Income ("PGI"): $ 997,500
Less: Vacancy & Collection Allowance - 6.0% of PGI
($ 63,840)
Effective Gross Income ("EGI"): $ 933,660
EXPENSES
Total Expenses - 14% of PGI - $134,447
Total Expenses: $134,447 ($ 134,447)
Net-Operating Income: $ 799,213
Divide by: Total Capitalization Rate - 8.59%
Indicated Value $ 8,840,900
On the basis of all of the evidence, including testimony, exhibits, its view, and reasonable inferences drawn therefrom, the Board found that the highest and best use of the subject property during the fiscal years at issue in these appeals was, as suggested by the appellants' real estate valuation expert and the assessors' valuation methodology, its continued use as a warehouse facility. The Board found that this use comported with the area's zoning, and its economic and rental climate, as well as the subject building's features.
The Board also found that the income-capitalization approach was the most appropriate technique to use to estimate the value of the subject property for the fiscal years at issue. Consistent with Mr. Quinn's rationale, the Board found that the subject property did not lend itself to a cost analysis because of the subject building's age and the absence of any land sales in the record. The Board further found that there were not enough sales of truly comparable properties during the relevant time period to support the use of a sales-comparison approach. In addition, most of the sales in evidence were of leased-fee properties, and the record was essentially devoid of evidence to adjust the related sale prices to fee-simple values. Moreover, the extent of the adjustments to many of the purportedly comparable-sale properties suggested that either the sales were too remote in time or the properties were too dissimilar to the subject property to provide meaningful estimate values. Mr. Quinn primarily relied on the income-capitalization approach in estimating values for the subject property for the fiscal years at issue. The assessors also used an income-capitalization approach to estimate the value of the subject property for the fiscal years at issue on their income valuation cards. Accordingly, the Board likewise relied on an income-capitalization approach to estimate the value of the subject property for both fiscal years at issue.
In determining the subject property's gross income for the fiscal years at issue, the Board adopted the parties' undisputed leasable area of 210,000 square feet. The Board credited the appellants' witnesses' testimony and found that their suggested triple-net leasing scenario was well supported. As for rents, the Board found that $4.50 per square foot was appropriate for both fiscal years at issue. The rents contained in Mr. Quinn's comparable property data ranged from $4.00 to $6.50 per square foot. The most comparable properties' rents indicated a rent of $4.50 for the subject property for both fiscal years. Further, on their income valuation card, the assessors used a rent of $4.75 per square foot, which was purportedly based on submissions from other similar properties in Avon, suggesting that a rent toward the lower end of Mr. Quinn's range was appropriate. The Board, therefore, found that the gross income for both fiscal years at issue was $945,000, assuming that tenants rented their space under triple-net leases.
The Board further found that the most appropriate vacancy rates for the years at issue were 12% for fiscal year 2010 increasing to 15% for fiscal year 2011. While the Board considered the assessors' single-digit vacancy rates of 3% and 6% for fiscal years 2010 and 2011, respectively, it gave the most weight to Mr. McEvoy's range of 15% to 18%, coupled with other evidence that the rates increased from January 1, 2009 to January 1, 2010. The Board also observed that Mr. Quinn's recommended vacancy rate of 22.5% embraced too broad a category of properties and markets and was inflated by the inclusion of available space, which encompassed prospective availability, as opposed to only existing vacant space. On this basis, the Board found the subject property's effective gross income for fiscal years 2010 and 2011 was $831,600 and $803,250, respectively.
With respect to expenses, the Board found that, under a triple-net lease, the tenant is responsible for most expenses. The landlord, however, still incurs some costs, particularly relating to vacant space where there is no tenant to pay or reimburse for expenses sustained. The assessors used 7% and 14% of effective gross income as their expense deduction on their income valuation cards for fiscal years 2010 and 2011, respectively. The Board found that Mr. Quinn's recommended expenses of $1.28 per square foot for fiscal year 2010 and $1.27 per square foot for fiscal year 2011 were well-supported, while the assessors' expenses were not. The Board, therefore, adopted Mr. Quinn's recommended per-square-foot expense for each fiscal year at issue and applied it to the amount of vacant space in its income-capitalization methodology. Because the Board did not include tenant reimbursements in the income piece of its methodology, it did not otherwise include those related expenses in the expense part of its methodology. Accordingly, after subtracting $32,256 and $40,005 from the corresponding effective gross incomes for fiscal years 2010 and 2011, the Board calculated net-operating incomes of $799,344 for fiscal year 2010 and $763,245 for fiscal year 2011.
For his capitalization rates, Mr. Quinn used 9.50% for fiscal year 2010 and 9.75% for fiscal year 2011. In addition, he added a prorated tax factor to these rates to account for the amount of vacant space in the subject property for each fiscal year at issue. The assessors used rates of 8.59% for fiscal year 2010 and 9.04% for fiscal year 2011. Their income valuation cards did not reference tax factors. Based on the underlying data in the record and Mr. Quinn's suggestions and rationale, the Board adopted capitalization rates of 9.0% and 9.5% for fiscal years 2010 and 2011, respectively. Because the Board agreed with Mr. Quinn's recommendation that the subject property's triple-net leasing scenario still necessitated prorated tax factors in the capitalization rates to account for the vacant space, the Board added prorated tax factors to its capitalization rates thereby generating partially loaded rates of 9.27684% for fiscal year 2010 and 9.8894% for fiscal year 2011. By dividing its net incomes by the corresponding partially loaded capitalization rates, the Board computed the value of the subject property at $8,616,555 for fiscal year 2010, which it then rounded to $8,617,000 and at $7,717,809 for fiscal year 2011, which it then rounded to $7,718,000. Summaries of the Board's income-capitalization methodologies are contained in the following two tables.
Summary of the Board's Income-Capitalization Methodology for Fiscal Year 2010
INCOME Size(SF) Rate/SF
Warehouse Space 210,000 $4.50 $ 945,000
Potential Gross Income ("PGI"): $ 945,000
Less: Vacancy & Collection Allowance - 12.0% of PGI
($ 113,400)
Effective Gross Income ("EGI"): $ 831,600
EXPENSES
Expenses - $1.28/SF = $268,800
Total Expenses: $268,800 x 12% = $32,256 ($ 32,256)
Net-Operating Income: $ 799,344
Divide by: Overall Capitalization Rate plus Prorated Tax Factor - 9.27684%
Indicated Value $8,616,555
Rounded Value $8,617,000
Summary of the Board's Income-Capitalization Methodology for Fiscal Year 2011
INCOME Size(SF) Rate/SF
Warehouse Space 210,000 $4.50 $ 945,000
Potential Gross Income ("PGI"): $ 945,000
Less: Vacancy & Collection Allowance - 15.0% of PGI
($ 141,750)
Effective Gross Income ("EGI"): $ 803,250
EXPENSES
Expenses - $1.27/SF = $266,700
Total Expenses: $266,700 x 15% = $40,005 ($ 40,005)
Net-Operating Income: $ 763,245
Divide by: Overall Capitalization Rate plus Prorated Tax Factor - 9.8894%
Indicated Value $7,717,809
Rounded Value $7,718,000
Because the subject property's assessed values were $10,151,200 and $8,684,400 for fiscal years 2010 and 2011, respectively, the Board decided these appeals for the appellants and granted abatements in the amounts of $35,393.99 and $25,087.74, respectively. The bases of the Board's computations of abatements for fiscal years 2010 and 2011 are contained in the following table.
Docket Number Fiscal Year Tax Rate/
$1,000 Assessed Value Tax Assessed Fair Cash Value Over-
Valuation
F307055 2010 23.07 $10,151,200 $234,188.18 $8,617,000 $1,534,200
F312755 2011 25.96 $ 8,684,400 $225,447.02 $7,718,000 $ 966,400
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 market value, all uses to which the property was or could reasonably be adapted on the relevant assessment dates should be considered. Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authy., 335 Mass. 189, 193 (1956); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). The idea 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). On this basis, the Board ruled that the highest and best use of the subject property during the fiscal years at issue in these appeals was its continued use as a warehouse facility. Both the assessors and the appellants' real estate valuation expert also valued the subject property on this premise.
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. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). "The [B]oard is not required to adopt any particular method of valuation." Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).
In these appeals, the Board ruled that the sales-comparison approach was not appropriate under the circumstances. The Board found that there were not enough market sales of reasonably comparable properties or enough evidence on converting leased-fee sale prices to fee-simple ones to meaningfully estimate the value of the subject property using a sales-comparison technique.
The Board also found and ruled that the sale of the subject property in 2010 was not a market transaction. It was essentially a bank sale after foreclosure. Usually, the actual sale of the subject property itself is "ʽvery strong evidence of fair market value, for [it] represent[s] what a buyer has been willing to pay to a seller for [the property under appeal].'" New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981) (quoting First Nat'l Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971)). See also Kane v. Assessors of Topsfield, Mass. ATB Findings of Fact and Reports 2000-409, 411 (finding that a sale of the subject property three months before the relevant assessment date was the best evidence of the subject's fair cash value absent any evidence of compulsion). However, bank sales are "inherently suspect," because by their nature, there is a suggestion that they do not represent an agreement between a willing buyer and a willing seller in a free and open market without compulsion. Haynes v. Assessors of Middleton, Mass. ATB Findings of Fact and Reports 2011-143, 185 (citing DSM Realty, Inc. v. Assessors of Andover, 391 Mass. 1014 (1984) and G.F. Springfield Management v. Assessors of West Springfield, Mass. ATB Findings of Facts and Reports 2000-228, 242, 251). "A foreclosure sale inherently suggests a compulsion to sell; a proponent of evidence of such sale must show circumstances rebutting the suggestion of compulsion." DSM Realty, Inc., 391 Mass. at 1014. Similarly, a sale by a bank which acquired the property by foreclosure or a deed in lieu of foreclosure also carries indicia of compulsion. Haynes, Mass. ATB Findings of Fact and Reports at 2011-185; G.F. Springfield Management, Mass. ATB Findings of Facts and Reports at 2000-242, 251 and the cases cited therein.
In these appeals, the Board found and ruled that the bank sale to one of the appellants was inherently suspect and, in the absence of evidence showing that the sale price was arrived at in an arm's-length transaction without compulsion, the sale price was not a reliable indicator of the fair market value of the subject property. Accordingly, the Board afforded no weight to the recent sale of the subject property in its determinations of the fair market value of the subject property for fiscal years 2010 and 2011.
Furthermore, the Board ruled that "[t]he introduction 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, and, even if they did, there was not enough evidence in the record on which to base a value using a cost approach. Accordingly, the Board ruled that this method of valuation was not an appropriate technique to use for valuing the subject property during the fiscal years at issue in these appeals.
The assessors relied on an income-capitalization method to value the subject property for the fiscal years at issue. The appellants' real estate valuation expert primarily relied on income-capitalization methodologies, as well. He only used his sales-comparison analyses in a limited fashion.
The use of the income-capitalization approach is appropriate when reliable market 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 Consol. Gas Co., 309 Mass. 60, 67 (1941). It is also an appropriate technique to use for valuing income-producing property. Id. at 64-65. In these appeals, the Board relied exclusively on the value determined from its income-capitalization methodologies because the other approaches were not appropriate, and the method that the Board used was equivalent to what buyers and sellers in the marketplace would have used under the circumstances. See New Boston Garden Corp., 383 Mass. at 469; New England Oyster House, Inc., 362 Mass. at 701-702.
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); Avco Manufacturing Corp. v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142, 166. After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses. Pepsi-Cola Bottling Co., 397 Mass. at 452-53. Generally, the selection of expenses is for the Board. Id.
The Board's calculation of its gross-income figures here was based on the undisputed leasable area and the rents suggested by the underlying data, which were based on other warehouse or industrial properties in the subject property's submarket. The Board likewise adopted vacancy and credit loss rates based on local data, Mr. McEvoy's testimony, and the assessors' suggested rates. The Board adopted the recommended per-square-foot expense deductions presented by the appellants' real estate valuation expert because they were well-supported. The Board only applied them, however, to account for the vacant space and the likely costs that a landlord would incur in a triple-net leasing scenario. "The issue of what expenses may be considered in any particular piece of property is for the board." Alstores Realty Corp. v. Assessors of Peabody, 391 Mass. 60, 65 (1984). The Board found and ruled that the income and expense figures which it selected were reasonable and appropriate under the circumstances.
The capitalization rate chosen should consider the return necessary to attract investment capital. Taunton Redevelopment Assoc. v. Assessors of Taunton, 393 Mass. 293, 295 (1984). Use of the "tax factor" is unnecessary under the triple-net premise because the rental income reflects the assumption that the tenant pays the taxes. General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 610 (1984). However, where, as here, the landlord is obligated to pay a portion of the real estate taxes because of vacancy, a prorated tax factor should be applied. See, e.g., Market Forge Industries, Inc. v. Assessors of Everett, Mass. ATB Findings of Fact and Reports 2014-186, 209-10, and the cases cited therein. Relying on these principles, the underlying data, and the appellants' valuation experts' recommendations, the Board adopted partially loaded capitalization rates of 9.27684% and 9.8894% for both fiscal years 2010 and 2011, respectively.
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., 383 Mass. at 473; New England Oyster House, Inc., 362 Mass. at 702. In evaluating the evidence before it, 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). In considering whether, and to what extent, a property is overvalued, the Board may take its view of the premises and its view of comparable properties and the neighborhood into account. Westport v. Bristol County Commissioners, 246 Mass. 556, 563 (1923); Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports, 2007-321, 327, aff'd, 73 Mass. App. Ct. 1107 (2008); Avco Manufacturing Corp., Mass. ATB Findings of Fact and Reports at 1990-165-66; Arthur D. Little, Inc. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports, 1982-363, 374. 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 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 Associates, 385 Mass. at 691. The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise. Schlaiker, 365 Mass. at 245. The Board found and ruled here that the appellants met their burden of proving that the subject property was overvalued for both fiscal years at issue in these appeals.
On these bases, the Board found and ruled that the fair cash value of the subject property for fiscal years 2010 and 2011 was $8,617,000 and $7,718,000, respectively. Accordingly, the Board decided that the subject property was overvalued in the amount of $1,534,200 for fiscal year 2010 and $966,400 for fiscal year 2011.
The Board, therefore, granted the appellants abatements for fiscal years 2010 and 2011 in the respective amounts of $35,393.99 and $25,087.74.
THE APPELLATE TAX BOARD
By: ________________________________________
Thomas W. Hammond., Jr., Chairman
A true copy,
Attest: ________________________
Clerk of the Board
While Avon's Deputy Collector states in her affidavit that the town mailed the tax bills on December 28, 2010, it is clear from the context and other related evidence that the year is misstated and the bills were actually mailed on December 28, 2009. The gross and net adjustments do not include adjustments for market conditions, which were -15%, -25%, -25%, and -30%, respectively, for the four comparable sales for fiscal year 2010 and -20% for comparable sale 1 for fiscal year 2011. G.L. c. 59, § 38D, provides, in pertinent part, that: "[Assessors] may request the owner or lessee of any real estate property to make a written return under oath . . . containing such information as may be reasonably required by it to determine the actual fair cash valuation of such property."
ATB 2014-289
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