Bolton Street Partners, LLC v. Board of Assessors of the City of Cambridge (August 26, 2013)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

BOLTON STREET PARTNERS, LLC 	v.		BOARD OF ASSESSORS OF
	      	 		THE CITY OF CAMBRIDGE			 		   
Docket Nos. F305185, F305186			Promulgated:
		  F310465					August 26, 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 appellee, the Board of Assessors of the City of Cambridge ("assessors" or "appellee"), to grant an abatement of taxes assessed on real estate owned or occupied by the appellant, Bolton Street Partners, LLC ("Bolton Street Partners" or "appellant") for the fiscal years 2010 and 2011 ("fiscal years at issue").
Former Commissioner Mulhern heard these appeals.  Chairman Hammond and Commissioners Scharaffa, Rose and Chmielinski joined him in the decisions for the appellee.   
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
  
Michael W. Ford, Esq. for the appellant.

Anthony M. Ambriano, Esq. for the appellee.

	
FINDINGS OF FACT AND REPORT
On the basis of testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
On January 1, 2009 and on January 1, 2010, the relevant assessment dates for the fiscal years at issue, Bolton Street Partners was the assessed owner of a 100,956-square-foot lot improved with a 43,540 square-foot vacant laboratory and office building located at 85-95 Bolton Street in Cambridge ("subject building") and a vacant 19,567-square-foot parking lot located at 61-69 Bolton Street in Cambridge ("subject lot") (the subject building and the subject lot are collectively referred to as the "subject property").  
For fiscal year 2010, the assessors valued the subject building at $10,907,200 and the subject lot at $527,900 and assessed a tax thereon, at the rate of $18.75 per thousand, in the total amounts of $204,510.00 for the subject building and $9,898.13 for the subject lot.  The tax was paid timely, and on November 5, 2009, the appellant timely applied in writing for an abatement with the appellee.  On January 14, 2010, the appellee denied the abatement request with respect to the subject lot and granted a partial abatement of $6,000,000 in value, a reduction of $112,500.00 in tax, with respect to the subject building, for an abated assessed value of $4,907,200.  On March 9, 2010, the appellant seasonably filed its appeals with the Board, one for the subject building and one for the subject lot.  On the basis of these facts, the Board found and ruled that it had jurisdiction over the appeals for fiscal year 2010.
For fiscal year 2011, the assessors valued the subject building at $5,000,600 and assessed a tax thereon, at the rate of $19.90 per thousand, in the total amount of $102,878.39, which included a Community Preservation Act surcharge of $2,985.36 and also sewer and water lien charges totaling $381.09.  The tax was paid timely, and on November 19, 2010, the appellant timely applied in writing for an abatement with the appellee.  On January 13, 2011, the appellee denied the abatement request.  On February 15, 2011, the appellant seasonably filed its appeal 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 located in the North Cambridge sector of Cambridge at the intersection of Sherman and Bolton Streets.  The MBTA's Alewife Station is located about a mile north of the subject property.

The subject building is a two-story, 43,587-square-foot, vacant, mixed-use office and laboratory building that formerly housed Wyeth Labs, a Pennsylvania entity.  The subject building, constructed in 1965, is a steel-and-masonry structure built upon a concrete-slab foundation, with an exterior comprised of brick and shingles.  It has a flat rubber-membrane roof that was replaced in about 1989 and has a large number of penetrations resulting from the building's roof-mounted HVAC equipment.  Interior finishes include suspended ceilings, sheetrock walls, and a mix of carpet and vinyl tile flooring throughout.  Mechanicals include a gas-fired central HVAC unit, a 3,000-amp main electric delivery service system with several sub-meter stations, backup generator power, a wet and dry sprinkler system and one passenger elevator.
The office and laboratory spaces are dispersed throughout the building.  The office component consists of approximately 70 offices, about 55 of which have outside light, as well as a 50-seat seminar room, an audio/video-equipped conference room, a renovated library, a renovated lobby, and a renovated kitchen.  The laboratory components consist of a RO/DI water system, a pH-neutralization system, an autoclave and two glass washers, nine climate-controlled rooms, a dark room, and 29 fume hoods.  The subject building also has a large number of in-place laboratory benches equipped with shelving, and gas and air supplies.  It also includes three greenhouses that were used as interior space: one served as the location of the pH-neutralization system; one served as gym space; and one served as storage space.  Overall, the subject building is in average condition, with the exception of the roof, which is in need of repair.  
The subject lot is a corner parcel with frontage on both Bolton and Sherman Streets.  The lot is zoned commercial.  The subject lot previously had paving to accommodate about 38 parking spots and was used as a parking lot for the subject building.  The sites, however, are not contiguous.
Chris Argyrople, a real estate investor with Triad Alpha Partners and a 40% owner of the appellant, testified on behalf of the appellant.  Triad Alpha Partners purchased the subject property on September 1, 2009, taking title as Bolton Street Partners, the appellant.  The seller was PREI Bolton Street Associates, LP ("PREI Bolton Street"), a Pennsylvania entity.  The selling price was $3,100,000.  The subject property had been vacant for about four years at the time that the purchase and sale was signed, ever since the tenant, Wyeth Labs, had left the Cambridge market and vacated the subject property.  Mr. Argyrople testified that, because it had been vacant for an extended period of time, the subject building was in a state of disrepair.  In particular, the roof was leaking, the floor tiles were coming apart, the HVAC had not been operating for years, and the exterior was not maintained.  Mr. Argyrople explained that the seller did not invest in repairs but merely hired a company to place buckets throughout the subject building to catch the water leaks.  Mr. Argyrople further testified that the subject lot was also not well maintained, with visible vegetation growth and abandoned cars.
On August 13, 2009, the buyer and seller signed a purchase and sale agreement for $3,150,000.  However, prior to the closing, a title issue was discovered: a prior owner of the property had deeded the subject property to the City of Cambridge pursuant to a release deed in September of 2005 in exchange for a release of liability for property taxes.  Mr. Argyrople testified that, after discovering the title issue, Triad Alpha Partners and PREI Bolton Street renegotiated the price down to $3,100,000.  Mr. Argyrople further explained that the seller's mortgage was in excess of the sale price, and therefore the seller had to pay the mortgage holder $1,238,000 at the closing. 
The appellant sold the subject lot on January 13, 2011 for $2,300,000.00.  Mr. Argyrople testified that a broker had approached the appellant with an offer from its client, a developer, to purchase the subject lot.  He explained that the developer had performed a due-diligence investigation and discovered that the subject lot was subject to special permitting allowing for 20 units of housing and 20 parking spaces to be developed.
The appellant ultimately found two tenants for the subject building, both biotech laboratory tenants.  Mr. Argyrople testified that both tenants leased their spaces in the Spring of 2011 at $22 per square foot on a triple-net basis.  He also testified that the appellant had substantially renovated the subject building in preparation for its lease, making about $1,200,000 to $1,300,000 worth of repairs that included repairing the HVAC system and the roof for the entire building and painting the portions of the subject building where the tenants were located.  Mr. Argyrople testified that the appellant experienced difficulty in renting the subject building to one large tenant, theorizing that the subject building's location and custom features specific to Wyeth Labs' use had hampered its ability to be leased to a large and profitable tenant.  According to Mr. Argyrople, about 30% of the subject building remained vacant, with about 20% of that space being so highly specialized - including greenhouses and water treatment rooms - that it would, in his opinion, require substantial renovation before a tenant could occupy it.  Mr. Argyrople further testified that the subject property was located more than 3 miles away from Kendall Square, where the majority of biotech facilities were located in Cambridge, and in his opinion, the subject property "would be worth a lot more if it was in Kendall Square."  
On the basis of the evidence before it, the Board made the following ultimate findings of fact.  First, the subsequent sale of the subject lot for $2,300,000 revealed that, as of the assessment date, an informed seller could have marketed the subject properties separately, with a highest and best use for the subject lot as residential development.  Although the sale of the subject lot occurred two years after the relevant valuation date, the lot was not improved in any way after the relevant assessment date, and the special permit allowing for multi-unit residential development was in place on the relevant assessment date.  Therefore, the January 13, 2011 arm's-length sale price of the subject lot revealed that the lot had a fair market value as of the relevant assessment date that was substantially more than its assessment.  Accordingly, the Board found that the appellant failed to meet its burden of proving that the assessed value of the subject lot exceeded its fair market value for fiscal year 2010.
With respect to the subject building, the prior tenant, Wyeth Labs, made a business decision to leave the Cambridge market, and the out-of-state seller did not actively manage or maintain the subject property.  Considering that the subject lot subsequently sold to a developer for residential development, the Board found that the Pennsylvania seller of the subject property to Triad Alpha Partners did not perform an adequate due-diligence investigation of the subject property, as an informed seller would have separately marketed the noncontiguous subject lot and subject building.  Moreover, the sale by PREI Bolton Street to Triad Alpha Partners was a "short sale," a transaction in which the proceeds of the sale are less than the balance owed to a mortgage holder by a property owner.  The Board thus found that the existence of a short sale suggested that the sale of the subject property by PREI Bolton Street to Triad Alpha Partners was made under duress by the out-of-state seller looking to reduce further losses, and the appellant failed to produce any evidence to rebut that suggestion.  Therefore, as will be discussed further in the following Opinion, the Board found that the original sale of the subject property to Triad Alpha Partners was not a reliable indicator of its fair market value.  
The Board further found that the testimony of Mr. Argyrople did not offer a persuasive indication of the fair market values of the subject property.  Mr. Argyrople did not offer evidence of sales or assessments of comparable properties; he merely offered his unsubstantiated opinion that the subject property was worth less than its assessed values.
On the basis of the evidence of record, and as will be explained in the following Opinion, the Board found that the appellant failed to meet its burden of proving values for the subject property that were lower than its assessed values.  Accordingly, the Board issued decisions for the appellee in the instant appeals.

OPINION
The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market 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 appellant has the burden of proving that the property has a lower value than that assessed.  "'The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] 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)).  "[T]he board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).  
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., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).  Further, actual sales of the subject property generally provide "very strong evidence of fair market value, for they represent what a buyer has been willing to pay to a seller for [the] particular property [under appeal]." New Boston Garden Corporation v. Assessors of Boston, 383 Mass. 456, 469 (1981) (quoting First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971)).  However, "the evidentiary value of such sales in less than arm's-length transactions is diminished."  New Boston Garden Corp., 383 Mass. at 469 (quoting Jordan Marsh Co. v. Assessors of Malden, 359 Mass. 106, 108 (1971)).  Evidence of sales may be considered "only if they are free and not under compulsion."  Congregation of the Mission of St. Vincent dePaul v. Commonwealth, 336 Mass. 357, 360 (1957) (other citation omitted).  Any sale which "inherently suggests a compulsion to sell" will require "a proponent of evidence of such sale [to] show circumstances rebutting the suggestion of compulsion."  DSM  Realty, Inc. v. Assessors of Andover, 391 Mass. 1014, 1014 (1984).    
In the instant appeals, the Board found evidence indicating that the original sale of the subject property to Triad Alpha Partners was not an arm's-length sale.  The prior tenant, Wyeth Labs, made a business decision to leave the Cambridge market, and the seller, an out-of-state entity operating remotely, did not tend to its deferred maintenance issues.  Further, the subsequent sale of the subject lot to a residential developer for $2,300,000 on January 13, 2011 -- without any improvement to the lot since its sale to Triad Alpha Partners -- indicated that PREI Bolton Street, the entity that sold the subject property to the appellant, did not perform an adequate due-diligence investigation, as an informed seller would have separately marketed the noncontiguous subject lot and subject building.  Finally, the sale to Triad Alpha Partners was a "short sale," one in which the sale proceeds were less than the amount required to pay the mortgage owed by the seller.  
The circumstances surrounding the sale of the subject property -- an out-of-state seller of a long-vacant property with deferred maintenance who sells it via a short sale, without exploring the highest and best use of the property -- suggests compulsion. See  DSM Realty, Inc., 391 Mass. at 1014.  The appellant did not offer any evidence to rebut that suggestion.  The Board thus found and ruled that the evidence indicated that the sale of the subject property by PREI Bolton Street to Triad Alpha Partners was made under duress.  Therefore, the Board found and ruled that the sale of the subject property by PREI Bolton Street was not a persuasive indication of the fair cash value of the subject lot or the subject building.
The Board further found that the testimony of the appellant's witness, Mr. Argyrople, who was not qualified as an expert witness nor an appraiser, amounted to mere unsubstantiated opinion, and thus did not provide a sufficient basis for proving a fair market value less than the assessed value.  See Ecker v. Assessors of Chatham, Mass. ATB Findings of Fact and Reports 2003-81, 90 (ruling that the taxpayer's "bare opinion" of value was insufficient to meet its burden of proving over-valuation).
On the basis of the evidence presented, the Board found and ruled that the appellant failed to meet its burden of proving fair cash values for the subject property -- both the subject lot and the subject building -- lower than their assessed values for both fiscal years 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

  The appellant did not file an appeal with respect to the assessment of the subject lot for fiscal year 2011.
  Reverse osmosis and deionization.

ATB 2013-797