John W. Cnossen & Paul A. Cnossen, TRS. v. Board of Assessors of the Town of Uxbridge (December 5, 2002)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


JOHN W. CNOSSEN & 				THE BOARD OF ASSESSORS
PAUL A. CNOSSEN, TRS.		v.	OF THE TOWN OF UXBRIDGE

Docket Nos.: F239512 & F239513
		   F239515 - F239531
		   F239532 & F239533
		   F239535 - F239551	Promulgated: 
							December 5, 2002

	These are appeals under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes on certain real estate in the Town of Uxbridge owned by and assessed to the appellants under G.L. c. 59, § 38, for the fiscal years 1995 and 1996.
	Former Commissioner Lomans heard these appeals.  Former Chairman Gurge, present Chairman Burns and Commissioner Gorton all joined her in the decisions for the appellee.  
	These findings of fact and report are made pursuant to a request by the appellants pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.    

	Joseph C. Cove, Esq. for the appellants.
	James Zurowick, Assistant Assessor, for the appellee.  
FINDINGS OF FACT AND REPORT
	On January 1, 1994 and January 1, 1995, John W. Cnossen and Paul A. Cnossen, Trustees of Cnossen Realty Trust, were the assessed owners of a vacant industrial parcel of real estate located at the Quaker Industrial Park in the Town of Uxbridge (the "Park").  The parcel contains a subdivision of nineteen industrial lots that was approved by the Uxbridge Planning Board in 1988.  The fiscal year 1996 appeals contain a lot that was not one of the nineteen lots appealed in fiscal year 1995.  In addition, one of the lots that was appealed in fiscal year 1995 was not appealed in fiscal year 1996.  The combined area of the nineteen lots appealed in fiscal year 1995 totals 59.48 acres while the combined area of the nineteen lots appealed in fiscal year 1996 totals 66.42 acres.  All of the lots are unimproved and are owned by the appellants, although one of the lots was split and part of it was sold to          Peter F. Stone in 1993.  Shortly thereafter, Mr. Stone built an industrial building on his lot and later purchased additional adjacent land to augment the size of his property.  None of this property is part of these appeals.  
The Board of Assessors of the Town of Uxbridge ("assessors") valued the lots at issue at $957,000 for fiscal year 1995 and assessed a tax, at the rate of $15.86 per thousand, in the amount of $15,178.02.  For fiscal year 1996, the assessors valued the lots at issue at $972,100 and assessed a tax, at the rate of $16.21 per thousand, in the amount of $15,757.74. 
	The appellants paid the real estate taxes for both of the fiscal years at issue without incurring any interest.  For fiscal year 1995, they filed their applications for abatement on January 26, 1995, within thirty days of the sending of the actual tax bills.  On April 10, 1995, the assessors denied the applications, and the appellants seasonably filed their appeals with the Appellate Tax Board ("Board") on May 31, 1995.  For fiscal year 1996, the appellants timely filed their applications for abatement with the assessors on January 23, 1996.  On March 5, 1996, the assessors denied their applications, and the appellants seasonably filed their appeals with this Board on May 15, 1996.  On the basis of these facts, the Board found that it had jurisdiction over these appeals.  
	At the hearing of these appeals, two witnesses,     Tim Cnossen, the supervisor and foreman of the Park, and Howard S. Dono, a real estate valuation expert, testified for the appellants.  The appellants also introduced numerous exhibits including a package of jurisdictional information for each of the fiscal years at issue, an Uxbridge Planning Board certificate of approval relating to the nineteen-lot subdivision plan on the subject property, a land sales analysis, and the appraisal report prepared by the appellants' valuation expert.  The assessors' sole witness was James Zurowick, the assistant assessor of Uxbridge.  The assessors did not offer any exhibits at the hearing.  Neither party submitted any post-hearing briefs.  Six months after the close of evidence in the hearing, the assessors moved for the admittance of some additional evidence and argument, which the Board denied.  Based on the testimony and exhibits, the Board made the following findings of fact.  
The subject property is located in the southeastern part of Uxbridge off River Road Avenue, which extends off of the Quaker Highway (Route 146A).  The area is zoned industrial and parts of it have already been developed for industrial uses.  The Park is a former gravel pit that was cleared and leveled prior to the fiscal years at issue.  It is located within and around both existing and proposed roads known as Road A, Road B, and Road C.  For the fiscal years at issue, only Road A was actually in existence and completed; construction on Roads B and C had not yet begun.  The access roads to the Park and Road A are paved with all-weather asphalt surfaces.  
	The Park is composed of nineteen irregularly shaped lots, which range in size from 1.00 to 5.24 acres along existing Road A and proposed Roads B and C.  Another lot, which is part of the appellants' fiscal year 1996 appeals, is located on Road C and is 9.77 acres in size.  Telephone and electrical services are available as is sewer service, which had been installed along Road A as of the relevant assessment dates.  On June 4, 1993, approximately 1.75 acres of lot number one, which previously had been split, were sold to Peter F. Stone.  Therefore, as of January 1, 1994, lot number one consisted of only the remaining one acre.  
	The size and location of the individual lots that are contained in the parcel, which comprises the Park, are summarized in the following table.
Lot Number	Location in Park	Lot Size in Acres
	
1	Road A	1.00	
2	Road A	3.09	
3	Road A	2.91	
4	Road A	4.22	
5	Roads A & C	3.78	
6	Road C	3.57	
7	Road C	5.24	
8	Roads B & C	4.06	
9	Road B	3.28	
10	Road B	2.83	
11	Road B	3.02	
12	Road B	3.20	
13	Roads A & B	2.56	
14	Roads A & B	2.40	
15	Roads A & C	2.92	
16	Road C	2.83	
17	Road C	2.66	
18	Roads B & C	2.97	
19	Road B	2.94	
Total Acreage		59.48	

In addition, another lot, which contains 9.77 acres, is located on Road C and is part of the fiscal year 1996 appeals only. 	The topography of the Park is at street grade along existing and proposed roads with a cleared and level interior.  There was no evidence pertaining to the soil or sub-soil.  There were no adverse easements.  
	According to the appellants' valuation expert, the general improvement in the area's economic conditions before the relevant assessment dates reflects a favorable climate for residential and commercial real estate for the foreseeable future.  In addition, the proposed Route 146-Massachusetts Turnpike interchange promised to enhance the area's infrastructure and anchor commerce and development.  The appellants' valuation expert predicted further economic expansion for the area.
	The crux of these appeals was the efficacy of the value for the subject property determined by the appellants' valuation expert using a development approach.  The appellants' valuation expert determined that the highest and best use of the subject property for the fiscal years at issue was an interim use, which was to be held in reserve for future development.  Ultimately, he considered the highest and best use of the subject parcel was for its development into nineteen industrial lots to be sold over time.  
The appellants' valuation expert considered but did not use a cost or income approach because in his view, they were not appropriate methodologies for valuing undeveloped lots that were not producing income.  He also considered but did not use a sales comparison approach because of a lack of contemporaneous sales of similar tracts of industrial land in the area.  Consequently, the appellants' valuation expert determined that a subdivision development approach would produce the best indication of the subject property's value for the fiscal years at issue.  
	The appellants' valuation expert's development approach contained seven steps.  In his first step, he estimated the retail value of each potential lot using a direct sales comparison technique.  In step two, he predicted the absorption rate of the lots, and in step three, he calculated a gross sales figure.  In steps four and five, the appellants' valuation expert predicted the respective hard and soft costs associated with the development of the subject parcel.  Then, in step six, he developed a cash flow model by deducting expenses from income over the time period that he determined was appropriate for the development and sale of all nineteen lots.  This step produced the net income from the development of the subject property, which, in his final step, the appellants' valuation expert multiplied by a discount rate that he computed to reach a value for the subject property of $580,960.  Lastly, in step seven, he subtracted what he considered to be an appropriate developer's profit and then rounded to arrive at his final opinion of value of $295,000.
	The Board found that the value for the subject property that the appellants' valuation expert estimated using the development approach was unreliable because many aspects of his development approach were speculative and unsubstantiated.  First, in step one, the appellants' valuation expert used an expansive time-range of sales of purportedly comparable industrial lots and then compared these properties to the subject property's lots on a price-per-lot basis.  The Board found that his comparisons did not adequately explain or support his adjustments for size and utility, or explain or support his failure to adjust for time and locational differences.  The appellants' valuation expert estimated the value of each of the lots in the Park, regardless of their size and character, at $100,000.  The Board found that his single-value estimate for a lot in the Park regardless of its size strained credulity, particularly where his purportedly comparable sales, and the 1993 split and sale of one of the lots in the Park itself, suggested a different result.       
In step two, the appellants' valuation expert forecast the absorption rate of the subject property's lots using what even he acknowledged was "weak" data.  He "conservatively estimated" that it would take fifteen years for all nineteen lots to sell.  The Board found that this conclusion was at best speculative and at the least not adequately supported with meaningful information.  The economic forecast presented by the appellants' valuation expert suggested a much shorter absorption period.  Because the Board found that the appellants' valuation expert's value of $100,000 for each lot was unsound, it also found that the $1,900,000 value that he assigned to all of the lots combined in step three was equally without merit.  In addition, in step three, the appellants' valuation expert's methodology assumed no change in the sale price of the lots over the fifteen-year absorption period.  The Board found that this assumption was unrealistic, particularly in light of his optimistic economic forecast for the region and his description in his report relating how he purportedly computed gross sales in his development approach.    
In steps four and five, the appellants' valuation expert predicted the respective hard and soft costs associated with the development of the subject property into nineteen salable lots.  He offered no underlying support for his estimates in this regard except to say that they were based on conversations with area developers and the appellants' property supervisor.  The Board found that the appellants' valuation expert's predictions of these costs were without adequate foundation, and he was not qualified himself to estimate at least the hard costs.  He was not an engineer, architect, or contractor, and he did not offer any underlying support for the hard costs that he purportedly based on consultations.  Even the appellants' valuation expert admitted that these types of costs are more appropriately developed in detail by one of these types of professionals.
The Board also found that the appellants' valuation expert's cash flow model in step six was flawed because it was based on results from previous steps that the Board already found were faulty.  The Board found similar problems in step seven.  Finally, the Board observed that the appellants' valuation expert's discount rate was not well supported.  Accordingly, the Board found that the appellants' valuation expert's development approach for valuing the subject property during the fiscal years at issue was irreparably flawed and the estimate of the subject property's value that was derived from it was unreliable and without merit.
Moreover, the Board found that eight of the lots contained in the Park were adjacent to Road A, which was in existence and finished as of the relevant assessment dates.  Accordingly, these eight lots were essentially salable and ready for improvements without any further development of the Park's infrastructure.  Because of this, the Board found that a sales comparison approach might have been the most appropriate technique to use to value these eight lots.  Using the ready-for-sale value for the lots that the appellants' valuation expert developed for use in step one of his development approach, the Board found that the total value of these eight lots alone may have been $800,000.   While the Board recognized that additional adjustments were probably necessary to account for marketing costs and time and holding costs, this analysis still indicated that the value recommended by the appellants' valuation expert for all of the lots that were contained within the subject property for the two fiscal years at issue was significantly understated.                  
On this basis, the Board decided these appeals for the appellee.                   

OPINION
The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion.  Boston Gas 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 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).  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 for industrial lots developed over time.  This finding comports with the assessors' analysis and is substantially the same as the highest and best use suggested by the appellants' valuation expert.         
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).  For unimproved lots within an existing subdivision, a comparable sales approach is an appropriate method for estimating their value.  See The Appraisal Institute, The Appraisal of real Estate 419 (12th ed., 2001) ("The sales comparison approach is applicable to all types of real property interests when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market.").  Indeed, the appellants' valuation expert used the sales comparison approach here to establish the value for finished lots within his development approach because he believed that there was sufficient data for these lots even though there was a lack of data for undeveloped and vacant tracts.   Alternative methods may be appropriate when the value of the property cannot be reliably determined by, or there is insufficient information to support, the application of one, or a combination of, these three traditional methods.  See, e.g., Boston Edison Co. v. Assessors of Boston, 402 Mass. 1, 17 (1988) (a "unit cost per kilowatt hour method[] of valuation" was used as a check on the value ascribed to electric utility property); Tennessee Gas Pipeline Co. v. Assessors of Agawam, 26 Mass. App. Tax Bd. Rep. 226, 237 (2000) ("The unit approach may be an appropriate technique for valuing the interstate operations of a utility.").    
Subdivision development analysis is a method of estimating land value when subdivision and development are the highest and best use of the parcel of land being appraised.  The Appraisal Institute, The Appraisal of Real Estate 343 (12th ed., 2001). "Direct and indirect costs and entrepreneurial profit are deducted from an estimate of the anticipated gross sales price of the finished lots and, the resultant net sales proceeds are then discounted to present value at a market-derived rate over the development and absorption period to indicate the value of the raw land."  Id.   
In the present appeals, the appellants' valuation expert used a development approach for valuing the subject property for the fiscal years at issue.  The Board, however, found that while his use of a development approach may have been appropriate to value at least those lots adjacent only to undeveloped roads in the Park, the methodology that the appellants' valuation expert applied was replete with dubious assumptions and conjectures that did not have adequate foundations.  For example, he estimated hard costs associated with the development of the subject property without sufficient assistance from an engineer, architect, or contractor.  The Courts and this Board have found and ruled consistently that only qualified engineers, architects, or contractors should present cost estimates in most circumstances.  See Tiger v. Mystic River Bridge Authority, 329 Mass. 514, 519 (1952); Maryland Cup Corp. v. Assessors of Wilmington, 10 Mass. App. Tax Bd. Rep. 45, 40 (1988).  In addition, the appellants' valuation expert failed to adjust adequately the purportedly comparable sales that he used in his methodology to establish the retail value of the lots contained in the Park.  See The Appraisal Institute, The Appraisal of Real Estate  441-45 (12th ed., 2001).  Moreover, his absorption rate was admittedly based on "weak" data, and his discount rate had virtually no underlying support.  Accordingly, the Board found and ruled that the value derived from his development approach was unreliable and without merit.  The appellants did not present any other methodology for valuing the subject property.  
"'[E]vidence of a party having the burden of proof may not be disbelieved without an explicit and objectively adequate reason.'"  New Boston Garden v. Assessors of Boston, 383 Mass. 456, 473 (1981) (quoting L.L. Jaffe, Judicial Control of Administrative Action 607 (1968)).  But, the mere qualification of a person as an expert does not endow his testimony with any magic qualities.  Boston Gas Co. v. Assessors of Boston, 334 Mass. at 579.  The Board found numerous objective reasons for disregarding the value that the appellants' valuation expert derived for the subject property for the fiscal years at issue using his development approach.  Accordingly, the Board ruled that his value was without adequate foundation and, therefore, was unreliable and without merit.       
"'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. Board of 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 v. Board of Assessors of Foxborough, 385 Mass. at 691.  The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise.  Schlaiker v. Board of Assessors of Great Barrington,     365 Mass. at 245.  The Board ruled here that the appellants failed to meet their burden of proving that the subject property was overvalued for either of the fiscal years at issue in these appeals.
The Board applied these principles in deciding these appeals for the appellee.

   						   THE APPELLATE TAX BOARD



By: ____________________________
	   Abigail A. Burns, Chairman
A true copy,



Attest: ________________________
Clerk of the Board

 At all times relevant to these appeals, appellants John W. Cnossen and Paul A. Cnossen were the trustees of the Cnossen Realty Trust. 
 According to the appellants' valuation expert, the lots that comprise the subject parcel contain 59.28 acres.  However, he apparently committed a computational error in his addition, and the actual combined area of the lots contained in the table describing the lots in his appraisal report is 59.48 acres.  According to other evidence, the nineteen lots at issue in fiscal year 1995 contain 59.48 acres; the nineteen lots at issue in fiscal year 1996 contain 66.42 acres.  The 6.94-acre difference in area between the two fiscal years is explained by the added appeal of a 9.77-acre lot in fiscal year 1996 and the appellants' failure to appeal in fiscal year 1996 a previously appealed 2.83-acre lot.  Because of the Board's later finding and ruling that the value derived from the development methodology used by the appellants' valuation expert was unreliable and, as a result, the appellants failed to meet their burden of proof in these appeals, the exact combined area of the subject parcel's nineteen lots is not determinative of these appeals.  
 Mr. Stone apparently purchased this property through the Grace Realty Trust.  
 The assessors refer to these roads as Industrial Drive, Road T, and Road S, respectively.  
 This table, with the total acreage corrected to 59.48, was in the appellants' valuation expert's appraisal report.  It does not contain the 9.77-acre lot on Road C that is part of the appellants' fiscal year 1996 appeals.    
 The subdivision development approach is a valuation methodology whereby: "[d]irect and indirect costs and entrepreneurial profit are deducted from an estimate of the anticipated gross sales price of the finished lots and, the resultant net sales proceeds are then discounted to present value at a market-derived rate over the development and absorption period to indicate the value of the raw land."  The Appraisal Institute, The Appraisal of Real Estate 343 (12th ed., 2001).  
 Even the values that the appellants themselves ascribed to the lots in their petitions reveal a direct relationship between the size of the lots and their values.
 In his appraisal report, the appellants' valuation expert stated that gross sales in step three of his development methodology "is computed by adding the value of all the lots, as if finished in the project.  It takes into account any price increases/decreases which would be expected to occur over the probable absorption period."  This statement, however, is at odds with the appellants' valuation expert's use of the same sale price per lot over the entire fifteen-year absorption period.    

ATB 2002-675