John & Adele Molinari, Trustees of the GP-Milford Realty Trust v. Board of Assessors of the Town of Milford (October 28, 2013)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD

JOHN & ADELE MOLINARI,    	 v.	     BOARD OF ASSESSORS 	
TRUSTEES OF THE GP-MILFORD              OF THE TOWN OF MILFORD
REALTY TRUST

Docket Nos. F299430, F305550      	     Promulgated:
								October 28, 2013

 
	These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Milford ("assessors" or "appellee"), to abate taxes on certain real estate located in the Town of Milford owned by and assessed to John and Adele Molinari as Trustees of the GP-Milford Realty Trust ("GP-Milford Realty" or "appellant") under G.L. c. 59, §§ 11 and 38 for fiscal years 2009 and 2010 ("fiscal years at issue").
	Commissioner Mulhern heard these appeals and was joined by Commissioners Scharaffa, Rose and Egan 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.

Matthew A. Luz, Esq. for the appellant.
Kenneth W. Gurge, Esq. for the appellee.  
FINDINGS OF FACT AND REPORT
On the basis of testimony and evidence offered into evidence at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact. 
At all relevant times, the appellant was the assessed owner of a 14.75-acre parcel of land improved with a shopping center located at 91 Medway Road/Route 109 in Milford ("subject property").  
For fiscal year 2009, the assessors valued the subject property at $9,243,400 and assessed a tax thereon, at the commercial real estate rate of $21.72 per thousand, in the total amount of $200,766.65.  The appellant timely paid the tax due without interest.  On January 30, 2009, the appellant timely filed an Application for Abatement with the assessors, which they denied on March 10, 2009.  On April 15, 2009, 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 the appeal for fiscal year 2009.
For fiscal year 2010, the assessors valued the subject property at $8,554,000 and assessed a tax thereon, at the commercial real estate rate of $24.40 per thousand, in the total amount of $208,717.60.  The appellant timely paid the tax due without interest.  On January 15, 2010, the appellant timely filed an Application for Abatement with the assessors, which they denied on January 26, 2010.  On April 26, 2010, 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 the appeal for fiscal year 2010.
The subject property is a community shopping center known as the Milford Plaza, a one-story structure originally built in 1968, which is comprised of four buildings.  There are also two free-standing pad sites, one built in 1971 and the other in 1991.  The primary "anchor tenant" at the subject property is Kohl's, a retail department store.  Other tenants include various smaller retail establishments and a bank.  The pad sites house a Shell Gas Station and an Applebee's restaurant.  The subject property is irregular in shape and has approximately 927 feet of frontage along Medway Road/Route 109 with two curb cuts providing entry into the subject property.  Route 109 provides easy access to the subject property and to Interstate 495.  The surrounding area includes other shopping establishments as well.
The appellant presented its case-in-chief through the testimony of Harris E. Collins, whom the Board qualified as an expert in the area of real estate valuation, and the submission of Mr. Collins' appraisal report and the deeds for the comparable-sales properties cited in his appraisal report.  Mr. Collins described the individual buildings and pad sites as follows.
The subject property's anchor building occupied by Kohl's is a one-story, steel-framed structure with masonry side walls over concrete slab with a storefront façade.  The Kohl's building has full-view glass windows and full-view front doors, and loading docks in the rear.  The structure was expanded in 2001 by about 9,574 square feet and Mr. Collins determined that it contained 83,732 square feet with an 860 square foot protective canopy.  The interior finish and open layout are typical for a large department store. 
There are two multi-tenant retail buildings, both constructed in 1968 and both are one-story, steel-framed structures with masonry side walls over concrete slab with storefront façades.  These buildings also have large full-view glass windows and full-view front doors.  One building contains 46,450 square feet with a 4,740 square foot protective canopy, and the other building contains 10,710 square feet with a 1,441 square foot protective canopy.
The bank building is a one-story, steel-framed structure with masonry side walls over concrete slab that was built in 1968 and contains 1,920 square feet and has two drive-through tellers beneath a protective canopy.
The restaurant pad site is a one-story, steel-framed structure constructed in 1991 with masonry side walls over concrete slab with a façade and interior layout that are typical of an Applebee's Restaurant.  The building contains 4,758 square feet.  
The service station pad site is a three-bay repair garage constructed in about 1971 and containing about 2,619 square feet.  The pad site also includes a multiple gasoline-dispenser island protected by an overhead illuminated canopy.
Parking at the subject property is considered adequate, but Mr. Collins testified that it may be undersized for present zoning, with an estimated 673 parking spots for customers.  Mr. Collins acknowledged that he did not actually count the number of parking spaces.  The subject property is thus considered legally nonconforming because of the adequate but undersized parking space.
Mr. Collins testified that, in his opinion, the highest and best use of the subject property, as improved, was its current use as an anchor-tenant shopping center.  He explained that the subject property was in a good neighborhood, with good access provided by routes 109, 495 and 16 and with fairly good demographics to support a shopping center.  The subject property was 100% occupied as of the relevant dates of assessment.   
Mr. Collins developed both a sales-comparison and an income-capitalization analysis for the subject property for both fiscal years at issue.  He relied most heavily upon the income-capitalization approach, finding it to be most meaningful when evaluating an income-producing property and used the sales-comparison as a check on his income-capitalization approach.
For his sales-comparison approach, Mr. Collins selected five purportedly comparable properties that had sold between May 2006 and May 2008.  He explained that sales of similarly sized shopping centers in the immediate area were scarce, so he included sales within the greater Boston area.  Mr. Collins also testified that, in his opinion, there was a downward trend in the relevant market caused by the national recession during the tax years at issue.  He thus adjusted the sale prices of his purportedly comparable properties downward for what he deemed their superior market conditions.  A summary of Mr. Collins' sales-comparison approach is as follows:







Comparable	1	2	3	4	5	

Address	
217 S Main Street, Attleboro	
Cape Road Plaza, Raynham	
799 S. Main St., Bellingham	
Hannaford Plaza, Norwood	
King's Plaza, New Bedford	
Sale Date	May-06	Feb-07	May-08	Sept-06	Oct-07	
Year built	1969	1975	1989	1965	1975	
GLA (sq ft)	102,000	164,924	75,000	105,387	168,134	
Sale price	$5,465,000	$17,475,000	$3,825,000	$9,300,000	$12,000,000	
Price psf	$53.58	$105.96	$51.00	$88.25	$71.37	
Occupancy	100%	62%	100%	100%	100%	
NOI psf	N/A	$6.62	N/A	$7.06	$5.67	
Capitalization rate	N/A	6.25%	N/A	8.00%	7.94%	
Property rights conveyed	Similar	Similar	Similar	Similar	Similar	
Financing terms	Similar	Similar	Similar	Similar	Similar	
Conditions of sale	Similar	Similar	Similar	Similar	Similar	
Market conditions (date of sale)	Superior	Superior	Superior	Superior	Superior	
Age/condition	Similar	Similar	Superior	Similar	Similar	
Quality of construction	Similar	Similar	Similar	Similar	Similar	
Location	Inferior	Similar	Similar	Superior	Inferior	
Size	Similar	Similar	Similar	Similar	Similar	
Indicated value psf	
$53.58	
$105.96	
$51.00	
$88.25	
$71.37	

Mr. Collins considered Comparables One and Three to be the most comparable because of their proximity to the subject property.  Major tenants within Comparable One at the time of the sale were Family Dollar and Big Value Outlet, while Comparable Three had no major anchor tenants.  Mr. Collins then considered the age and condition of the subject property, particularly as compared with Comparable Three, and he arrived at an indicated value per square foot that was lower than any of his comparables -- $47.00 per square foot.  Applying this figure to his figure for the subject property's gross area -- 158,072 square feet -- produced a value of $7,429,384, which Mr. Collins rounded down to $7,400,000 for both fiscal years at issue. 
For his income-capitalization approach, Mr. Collins reviewed several purportedly comparable market leases for anchor tenants, junior anchor tenants, inline and bank tenants, and smaller pad-site ground leases.  His data are reproduced below.  
Comp.	Name	Location	Year built	GLA psf	Tenant name	Date	Leased area psf	Avg rent 	Expns base	Term		Anchor 	leases	(non grocer)										1	Confidential 	Shopping center, Route 24	1972	139,255	Price Rite	9/2006	39,943	$9.89	NNN	10		2	Hannaford Plaza	Walpole Street, Norwood	1965	102,459	Confidential	1/2006	42,598	$9.50	NNN	9		3	Walpole Mall	Providence Hwy, Walpole	1974/2006	365,000	Kohl's (renewal)	1/2009	102,445	$9.50	NNN	20		4	Fall River Shopping Center	Marino Bishop Blvd, Fall River	1963/1995	283,304	Available	Current listing	73,000	$5.50	NNN	Neg.		Junior  	anchor 	leases										5	Fall River Shopping Center	Marino Bishop Blvd, Fall River	1963/1995	283,304	Big Top Kiddie Playland	5/2007	14,851	$4.28	Gross	1		6	N/A	Washington Street, Taunton	1972	160,020	Confidential	1/2009	15,900	$8.50	NNN	10		7	Hannaford Plaza	Walpole Street, Norwood	1965	102,459	Confidential	8/2006	16,798	$5.50	NNN	5		8	N/A	E. Main Street, Milford	1960	36,080	Available	Current listing	22,000	$8.00	NNN	Neg.		Inline 	and  	bank leases										9	N/A	Washington Street, Taunton	1972	160,000	Confidential	11/2007	7,000	$9.99	NNN	5		10	N/A	New State Hwy, Raynham	1986	20,794	Confidential	4/2008	3,400	$11.04	NNN	5		11	Milford Square	S. Main Street, Milford	1988	47,700	Milford Floor	10/2007	4,300	$11.73	NNN	3		12	Carver Crossing	N. Main Street, Carver	2006	90,399	Sovereign Bank	10/2006	5,200	$44.50	NNN	10		13	Raynham Center	New State Hwy, Raynham	1985	34,600	Rockland Trust	10/2004	4,300	$25.00	NNN	10		Smaller	ground	rent	comparables									14	Myles Standish Plaza	Samoset St., Plymouth	1972/2006	144,671	Applebee's	9/2005	5,500	$25.00	NNN	10		15	Dedham Mall	Providence Hwy, Dedham	1964	500,000	Applebee's	7/2004	6,500	$30.00	NNN	15		
Based on his rent comparables, Mr. Collins determined that his anchor-retail comparables ranged from $5.50 to $9.89 per square foot, but he believed that the three higher-end comparables were in superior locations with greater market appeal.  He further testified that anchor space is typically leased at the lowest rent in a center, because the anchor tenant is crucial to the success of the entire complex.  He noted that the subject property's current lease to Kohl's, which began in August, 2004, was $2.09 per square foot.  However, Mr. Collins did not produce the lease to support this rent.  Mr. Collins arrived at $3.50 per square foot for the anchor space occupied by Kohl's at the subject property.  On cross-examination, Mr. Collins admitted that he had "paced off" the measurement for Kohl's.  He also conceded that he had only considered the retail space and not the storage space.
Mr. Collins' junior-anchor-retail comparables ranged from $4.28 to $8.50 per square foot.  He noted that the subject property's current lease to Jo-Ann Fabrics was $3.85 per square foot, which began in January, 2003.  Mr. Collins testified that he applied adjustments to his comparable leases to account for location and date of transaction, and he arrived at $6.00 per square foot for the junior anchor space occupied by Jo-Ann Fabrics at the subject property.
Mr. Collins' inline-retail and bank comparables were categorized as follows: $9.99 per square foot for the larger (5,000 square feet and larger) space; from $11.04 to $11.73 per square foot for the smaller space (less than 5,000 square feet); and from $25.00 to $44.50 per square foot for his bank comparables.  He noted that the higher rental amount for the bank was typical, given the free-standing features of many banks, including automated teller machines ("ATM"s) and drive-throughs.  With respect to the subject property's actual rentals, the larger inline rentals ranged from $8 to $12 per square foot, the smaller rental ranged from $10 to $16 per square foot, and the one bank tenant lease was for $23.93 per square foot.  Giving consideration to his comparables -- after adjustments for factors including location and age -- as well as to the actual rents at the subject property and to what he deemed to be the declining market in calendar year 2008, Mr. Collins determined fair market rentals as follows:  $8 per square foot for the larger inline rentals; $14 per square foot in 2007 and $13 per square foot in 2008 for the smaller inline rentals; and $21 per square foot in 2007 and $20 per square foot in 2008 for the bank space.
Finally, Mr. Collins' two ground-lease comparables ranged from $25 to $30 per square foot.  The actual rental of the subject property at the space occupied by Applebee's was for $15.45 per square foot, and the gas station had a rental of $31.25 per square foot.  After consideration of adjustments for his comparables' locations, as well as the subject's actual rentals, Mr. Collins selected a fair market rental of $15 per square foot for the pad site occupied by Applebee's and $30 per square foot for the pad site occupied by Shell.
Using the above figures, Mr. Collins calculated potential rental income as follows:
Potential Rental Income
January 1, 2007 to December 31, 2007

Space type	   GLA (sq ft)		$/sq ft		$/year	
Anchor			 83,732		$ 3.50		$  293,062
Jr. Anchor		 26,250		$ 6.00		$  157,500
Inline large		 13,000		$ 8.00		$  104,000
Inline small		 25,090		$14.00		$  351,262
Bank				  2,100		$21.00		$   44,100
Pad site (Applebee's) 5,500		$15.00		$   82,500
Pad Site (Shell)	  2,400		$30.00		$   72,000

Total									$1,104,422

Potential Rental Income
January 1, 2008 to December 31, 2008

Space type	   GLA (sq ft)		$/sq ft		$/year	
Anchor			 83,732		$ 3.50		$  293,062
Jr. Anchor		 26,250		$ 6.00		$  157,500
Inline large		 13,000		$ 8.00		$  104,000
Inline small		 25,090		$13.00		$  326,170
Bank				  2,100		$20.00		$   42,000
Pad site (Applebee's) 5,500		$15.00		$   82,500
Pad Site (Shell)	  2,400		$30.00		$   72,000

Total									$1,077,232

Mr. Collins noted that his projected rental income figures were higher than the subject property's actual rental income figures of $959,732 for 2007 and $919,048 for 2008. 
	Next, Mr. Collins considered the vacancy and collection loss factor.  He determined 5% to be an appropriate vacancy and loss factor for the subject property for both fiscal years at issue, based on the subject property's location and condition.  Mr. Collins next considered expense reimbursements, which he estimated at $1.04 for fiscal year 2009 and $0.98 for fiscal year 2010, which he derived from the market.  Mr. Collins thus developed effective gross income figures as follows:  $1,205,951 for fiscal year 2009 and $1,170,620 for fiscal year 2010. 
Mr. Collins next considered operating expenses for the subject property.  In estimating these expenses, Mr. Collins analyzed the subject property's actual operating history, as well as expense data from four comparable retail properties and from publications from the Institute of Real Estate Management ("IREM") and Dollars and Cents of Shopping Centers.  His estimated expenses were as follows:
Expense				   FY 2009 psf	   FY 2010 psf

Property insurance:			$0.22 		$0.22
Common area maintenance:		$0.82 		$0.76
Administrative expenses		$0.13		$0.16
Management fee				$0.31		$0.30
Reserves for replacement		$0.25		$0.25	

Mr. Collins also determined that it was appropriate to consider future turnover and he thus included landlord-contributed tenant improvements for new tenants, which he estimated at $0.55 per square foot per year, and leasing commissions, which he estimated at $0.35 per square foot per year.  Mr. Collins explained that he "straight-lined" these expenses over ten years.  With consideration of all of these expenses, Mr. Collins derived a net operating income of $791,665 for fiscal year 2009 and $762,748 for fiscal year 2010.
After calculating net operating income for both fiscal years, Mr. Collins selected capitalization rates.  He cited overall rates extracted from comparable sales, which were between 6.25% and 8%.  He then studied Korpacz rates for the fourth quarter of 2007 and the fourth quarter of 2008, which were between 7% and 11% for comparable properties with averages of 8.66% for fiscal year 2009 and 9.36% for fiscal year 2010.  He then employed a band-of-investment analysis, which yielded a rate of 9.5%.  He reconciled these values and arrived at an overall rate of 10% for both fiscal years at issue.  Mr. Collins explained that he adopted a rate that was higher than his average rates because, in his opinion, the banks were facing financial difficulty, which made obtaining financing during the relevant time period "extremely difficult if not impossible."
To this base rate, Mr. Collins next applied a tax factor to arrive at capitalization rates of 12.172% for fiscal year 2009 and 12.44% for fiscal year 2010.  Applying his capitalization rates to his net operating income yielded an indicated value of $6,503,987, which he rounded to $6,500,000, for fiscal year 2009, and an indicated value of $6,131,415, which he rounded to $6,100,000 for fiscal year 2010.
Mr. Collins' income-capitalization analysis for each fiscal year at issue is summarized below:


Fiscal year 2009

Income							per sq.		Total
   Potential rental income (market rent)		$6.99			$1,104,422
Net Rental Income
   Expense reimbursement				$1.04			$  165,000
   Vacancy/collection loss	5%		     ($0.40)	     ($   63,471)
Effective Gross Income					$7.63			$1,205,951

Expenses
  Property Insurance					$0.22			$   35,000
  Common area maintenance				$0.82			$  130,000
  Administrative expenses				$0.13			$   20,000
  Management fee			4%			$0.31			$   48,238
  Reserves for replacement				$0.25			$   39,518
Operating Expenses					$1.73			$  272,756
  Tenant improvement/leasing commission reserve $0.90             $  141,530
Net Operating Income					$5.01			$  791,665	

Capitalization Rate (incl. tax factor)					/12.172%

Indicated Stabilized Value							$6,503,987
Rounded										$6,500,000


Fiscal year 2010

Income							per sq.		Total
   Potential rental income (market rent)		$6.81			$1,077,232
Net Rental Income
   Expense reimbursement				$0.98			$  155,000
   Vacancy/collection loss	5%		     ($0.39)	     ($   61,612)
Effective Gross Income					$7.41			$1,170,620

Expenses
  Property Insurance					$0.22			$   35,000
  Common area maintenance				$0.76			$  120,000
  Administrative expenses				$0.16			$   25,000
  Management fee			4%			$0.30			$   46,825
  Reserves for replacement				$0.25			$   39,518
Operating Expenses					$1.68			$  266,343
  Tenant improvement/leasing commission reserve $0.90             $  141,530
Net Operating Income					$4.83			$  762,748	

Capitalization Rate (incl. tax factor)					/12.440%

Indicated Stabilized Value							$6,131,415
Rounded										$6,100,000	  
In reconciling the values obtained by his sales-comparison and income-capitalization approaches to value, Mr. Collins determined that, because that there were an insufficient number of fee-simple market sales of reasonably comparable properties to make a meaningful comparable-sales analysis, all of the weight should be given to the income-capitalization approach; he thus valued the subject property at $6,500,000 for fiscal year 2009 and at $6,100,000 for fiscal year 2010.
On cross-examination, Mr. Collins conceded that he determined $3.50 per square foot as the market rental for the anchor space occupied by Kohl's, even though three of his four rental comparables were over $9.00 per square foot; in fact, the lease for one of the comparables -- a Kohl's in Walpole -- was signed during the relevant time period for $9.50 per square foot.  Further, when asked why he selected 10% for his capitalization rate, a figure above the top of his rate scale of 6.25% to 9.36%, even when the subject property was located in a premier retail area in Massachusetts with 100% occupancy during the tax years at issue, Mr. Collins' only justification was the "downturn in the economy."   
The assessors presented their case-in-chief through the testimony of their witness, Priscilla Hogan, Assessor for Milford.  Ms. Hogan presented a building plan from the Milford building department.  The plan was prepared on behalf of the appellant for a past expansion.  The plan indicated that the square footage for the Kohl's anchor store, which Mr. Collins had reported to be 83,732 square feet, was actually 99,000 square feet.  Ms. Hogan also presented the income and expense statement supplied to the town by the appellant's representative, which also indicated that the Kohl's space contained 99,000 square feet.  Finally, the assessors submitted the lease agreement for the anchor space occupied by Kohl's.  The rental amount was "whited out" on the copy that the appellant had submitted to the assessors in response to their request for lease information.  Ms. Hogan testified that when she contacted the appellant's representative for more information on the lease amount, she did not receive any response. 
On the basis of the evidence of record, the Board made the following ultimate findings of fact.  The Board agreed with Mr. Collins' determination 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.  Therefore, the Board did not rely on this method for determining the subject property's fair cash value.
With respect to Mr. Collins' income-capitalization analysis, the Board found that his projection of $3.50 per square foot for the anchor tenant's rent was not justified.  The Board noted that three of Mr. Collins' comparable anchor tenant rentals were substantially higher.  In fact, one of Mr. Collins' comparables -- an anchor space occupied by Kohl's in Walpole, which was signed during the relevant time period -- was $9.50 per square foot, significantly higher than his projection of $3.50 per square foot.  The only rental comparable near the $3.50 per-square-foot range was the Fall River Shopping Center comparable, which was approximately 50 miles away from the subject property, in a less desirable location.  Moreover, the $5.00 per-square-foot figure was not even an actual rent but an asking rent.  The Board also found that the appellant's claim that Kohl's had been paying $2.09 per square foot was unsubstantiated.  
Furthermore, the Board found that the more persuasive evidence -- the building plan and the appellant's own income-and-expense statement -- indicated that the square footage for Kohl's was 99,000, not 83,732, a difference of over 15,000 square feet of leasable space. 
Finally, the Board was not persuaded by Mr. Collins' analysis of his selection of 10% as the capitalization rate.  Mr. Collins' reason for selecting the higher capitalization rate was the downturn in the local economy, but given the favorable demographics of Milford, as outlined in Mr. Collins' own report, the Board found that this rationale for the higher capitalization rate was not supported by the evidence.  
Given the flaws in Mr. Collins' income approach, the Board concluded that there was insufficient credible evidence on which to base a fair cash value determination.  Therefore, the Board ultimately found and ruled that the appellant failed to meet its burden of proving a fair market value for the subject property that was less than its assessed value for either fiscal year at issue.  Accordingly, the Board issued decisions for the appellee for both fiscal years at issue.

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. North Reading, 3 Mass. App. Ct. 384, 386 (1975).  The Board found and ruled that the highest-and-best use of the subject property during the fiscal years at issue was, as the appellant's real estate valuation witness recommended and the assessors agreed, its existing use as a shopping center with a national-retail anchor tenant.   
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction.  Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  "The board is not required to adopt any particular method of valuation."  Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  In these appeals, the Board agreed with the appellant's real estate valuation expert's determination 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.  See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 247 (1998)("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.").  With respect to the cost-reproduction method, 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, because Mr. Collins was able to find suitable data to support an income-capitalization approach.  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, 701-02 (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.  Id. at 64-65.  In these appeals, the Board determined that the income-capitalization approach was the 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, incomes, 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, 5 Mass. App. Ct. at 293-94; Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 878 (1980).  After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co. v. Assessors of Lynn, 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 Mr. Collins' figure for the leasable area of Kohl's was not supported by the evidence.  Mr. Collins' calculations left 15,269 square feet of rental space unaccounted for.  The Board further found that Mr. Collins' $3.50 per square foot rental projection for Kohl's was not supported by his own evidence, namely the three actual rental comparables, particularly the Walpole Kohl's lease signed during the relevant time period that was for $9.50 per square foot.  Further, Mr. Collins offered no support for his assertion that the Kohl's lease was $2.09 during the relevant time period.  The only rental comparable that was close to Mr. Collins' $3.50 figure was the $5.00 asking-rental amount from the Fall River Shopping Center, in a location and market that were not comparable to the subject's "premier" retail location.  "Choosing an appropriate gross income figure for establishing an income stream was within the board's discretion and expertise."  Fox Ridge Assoc. v. Assessors of Marshfield, 393 Mass. 652, 654 (1984).    
Furthermore, the capitalization rate selected should consider the return necessary to attract investment capital.  Taunton Redevelopment Assoc. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  The Board found that Mr. Collins' 10% base capitalization rate, which reflected his consideration of the downturn in the economy -- a consideration that was not adequately supported, particularly in light of the favorable demographics for a shopping center in the subject property's location -- was too high under the circumstances of the instant appeals.  
The Board found and ruled that defects in these key components of Mr. Collins' income-capitalization analyses compromised the overall values that he obtained for the subject property through this method.  See, e.g., Northshore Mall Limited Partnership, et al. v. Assessors of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 245, aff'd, 63 Mass. App. Ct. 1116 (2005) (ruling that the appellant failed to meet its burden of proof because flaws in its expert's valuation methodology left the Board unable to "discern if the subject property's fair cash value . . . should be lower than the assessed value").  The Board was therefore not persuaded by Mr. Collins' opinion of the subject property's fair market value for either fiscal year at issue.


Conclusion
On the basis of its findings, the Board found and ruled that the appellant failed to meet its burden of proving a fair market value that was lower than the assessed value for the subject property for either fiscal year at issue.  Accordingly, the Board issued decisions for the appellee in the instant appeals.

   						 THE APPELLATE TAX BOARD


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




A true copy,

Attest: ___________________________
       Clerk of the Board

  As will be discussed infra, the Board found that Mr. Collins used an incorrect figure for the square footage of Kohl's.

ATB 2013-1042