W. A. Wilde Co. & Wilde Acres Realty Corp. v. Board of Assessors of the Town of Holliston (February 8, 2008)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD




W. A. WILDE CO. &             v.      BOARD OF ASSESSORS OF                                  
WILDE ACRES REALTY CORP.              THE TOWN OF HOLLISTON
 

Docket Nos. F277951, F283756		   Promulgated:
		  F277952, F283757		   February 8, 2008


	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 Board of Assessors of the Town of Holliston ("appellee" or "assessors") to abate taxes on real estate located in the Town of Holliston, owned by and assessed to Summer Street Equities LLC, Clinton Hill Holliston LLC, TC Equities Holliston LLC, Cooperative Equities IV Holliston LLC, 132 West Holliston Equities LLC, and Lapin Holliston LLC under G.L. c. 59, §§ 11 and 38, for fiscal years 2005 and 2006. This appeal is being prosecuted by W.A. Wilde Co. and Wilde Acres Realty Corp. ("appellants") under G.L. c. 59, § 59 as tenants paying rent and under an obligation to pay more than one-half of the taxes assessed.
	Commissioner Gorton heard these appeals. With Commissioner Gorton materially participating in the deliberations of these appeals, Chairman Hammond and Commissioners Scharaffa, Egan and Rose joined in the decisions for the appellee. Commissioner Mulhern took no part in the deliberations or decision of this matter.
	These findings of fact and report are made on the Appellate Tax Board's ("Board's") own motion under G.L. c. 58A, § 13 and 831 CMR 1.32 and are promulgated simultaneously with its decisions.
		
	Matthew A. Luz, Esq. for the appellants.
	James F. Sullivan, Esq. for the appellee.

FINDINGS OF FACT AND REPORT
	Based on the testimony and exhibits offered at the consolidated hearing of these appeals, and relying on the hearing officer's observations as to matters of witness credibility, the Board made the following findings of fact.
On January 1, 2004 and January 1, 2005, appellants were lessees in possession of two parcels of real estate located at 200 and 201 Summer Street (collectively "subject properties") in Holliston. Situated across the street from one another, the subject properties are improved with buildings used for industrial and office purposes.
	The property at 200 Summer Street consists of a 16.63 acre parcel of land with an irregular rectangular shape and 617.24 feet of frontage on the east side of Summer Street. The building was constructed in 1982 and has a gross building area of 80,152 square feet. The structure consists of wood and masonry over a steel frame, and the exterior walls are clapboard, concrete block, and corrugated metal. There are two stories over a concrete slab foundation. Roughly 15,000 square feet of the building area are office space; the remaining 65,000 square feet are dedicated to industrial use and subdivided into a production area and a warehouse area.
	The property at 201 Summer Street is a 36.7 acre parcel of land in an irregular pentagonal shape, with 895.15 feet of frontage on the west side of Summer Street. The building was constructed in the mid-1990's and has a building area of 91,233 square feet. The steel frame structure consists of two stories over a concrete slab foundation. The exterior walls are vinyl siding and corrugated metal. The second level does not span the entire length of the building's footprint. Roughly 40% of the building area is situated on the second level. About 65% of the building area is devoted to office space, with the balance used as warehouse space. Appellants' corporate headquarters are located at 201 Summer Street.
	Both sites feature landscaping and adequate parking capacity-approximately 125 spaces at 200 Summer Street and 265 parking spaces at 201 Summer Street. Both buildings are air-conditioned and accessible through asphalt-paved driveways. The building at 201 Summer Street has an elevator. Both buildings are laid out for the use of a single tenant.
The front of both sites is roughly grade level with Summer Street. The parcel at 200 Summer Street slopes towards the right and the rear, while 201 Summer Street slopes gradually from the area in front of the building towards the rear. There is an unquantified area of wetlands on the parcel at 201 Summer Street. The properties are located near the intersection of Summer Street (State Route 126) and Washington Street (State Route 16) in South Central Holliston, about 1 mile from downtown Holliston and a few miles from Exit 20 off I-495. The subject properties are located in an area which includes other industrial properties and are zoned for industrial use. 
The appellants owned the subject properties until September of 2003, when they were both sold to the present owners for a combined price of $11,100,000. Mr. Samuel Thomas of Sperry Van Ness/Tenant Solutions represented the sellers in marketing the properties, and indicated that there had been eight legitimate offers on the property. The original offer on the property was $10,100,000. The sale followed on appellants' need for cash after a business acquisition proved unsuccessful. The buyers were interested in acquiring a long-term investment. Subsequent to the sale the new owners leased both subject properties back to the appellants. The rental price for both properties was approximately $6.42 per square foot of the combined building areas.
At Section 5 of the "Triple Net Lease" for both subject properties, dated September 24, 2003, the tenants/appellants accept responsibility for the payment of real estate taxes. Mr. Russell Montal, who was Vice President of Finance and Assistant Treasurer of W.A. Wilde Co. at the time of the sale, testified that the tenants bore responsibility for paying the real estate taxes. That the tenants paid the taxes is undisputed. On the basis of this evidence, the Board found and ruled that appellants qualified as "tenant[s] of real estate paying rent therefor and under obligation to pay more than one-half of the taxes thereon" under G.L. c. 59, § 59. Accordingly, appellants had standing to pursue the instant abatement claims concerning the subject properties. 
For both subject properties and both fiscal years at issue, taxes due were timely paid without incurring interest. The appellants timely filed applications for abatement with the assessors. Appellants also timely filed Petitions Under Formal Procedure with the Board. Jurisdictional information for the subject properties is summarized in the following tables: 

200 Summer Street
	Abatement Apps. 
Filed  	Dates of
Denials	Petitions Filed
With Board	
FY 2005	1/26/05	4/04/05	5/03/05	
FY 2006	1/11/06	4/11/06	5/17/06	

    201 Summer Street
	Abatement Apps. 
Filed  	Dates of
Denials	Petitions Filed
With Board	
FY 2005	1/26/05	4/04/05	5/03/05	
FY 2006	1/11/06	4/11/06	5/17/06	

	The foregoing facts establish the Board's jurisdiction over these appeals for both subject properties and fiscal years at issue. The following table sets forth assessment information for the subject properties for the fiscal years at issue. 
Valuation Date	200 Summer St.	201 Summer St.  	Total Assessed
Values	
1/1/04	$3,162,000	$4,877,500	$8,039,500	
1/1/05	$3,162,000	$4,877,500	$8,039,500	

In addition to Mr. Montal, two valuation experts testified at the hearing of these appeals. Appraiser Eric Wolff testified for the appellants, while appraiser Thomas Mulhern appeared for the appellee. Both Messrs. Wolff and Mulhern prepared summary appraisal reports for each subject property, covering both fiscal years at issue, and the Board qualified both as expert witnesses in the area of real estate valuation. 
Excluding the cost approach to value, both appraisers utilized the sales comparison and income approaches to value. In his comparable sales analysis, Mr. Wolff utilized the same set of comparison properties for both subject properties. The sales comparison grids appear at pages 38 of his appraisal reports for 200 Summer Street and for 201 Summer Street, Exhibits 2 and 3 respectively. He selected four comparable properties, all dedicated to industrial uses:  the property at 350 Hopping Brook Road, Holliston, with a gross building area of 106,384 square feet, which sold on May 4, 2004 for $5,400,000 (or $50.76 per square foot); the property at 330 East Main Street in Milford, with a gross building area of 85,424 square feet, which sold on April 30, 2004 for $4,175,000 (or $48.66 per square foot); the property at 75 Fortune Boulevard, Milford, with a gross building area of 64,950 square feet, which sold on June 24, 2003 for $2,500,000 (or $38.49 per square foot); and the property at 29 Everett Road in Holliston, with a gross building area of 51,509 square feet, which sold on March 7, 2002 for $2,200,000 (or $42.71 per square foot.) 
Mr. Wolff treated the comparison properties as superior to the subject properties at 200 Summer Street and 201 Summer Street, and made negative adjustments to sales prices ranging from 5% to 25%. He adjusted the sales price per square foot of 350 Hopping Brook Rd., the most proximate comparable property, down by a total of 25% for purposes of comparison to 200 Summer Street, and 15% to compare to 201 Summer Street. He made 10% negative adjustments to account for the supposedly superior location of 350 Hopping Brook Rd., which was slightly closer to I-495 than the subject properties. Comparing to 200 Summer Street, Mr. Wolff adjusted the sales price per square foot of 350 Hopping Brook Rd. down by 20% to account for supposed differences in physical condition. He also adjusted the sales price per square foot of 350 Hopping Brook Rd. and 330 East Main St. in Milford downward by 10% for comparison to 201 Summer Street, given the additional land these sites have. After these substantial adjustments, his range of sales prices per square foot was $30.79 through $38.07 for purposes of valuing 200 Summer Street; and $34.64 through $43.15 for purposes of valuing 201 Summer Street. 
In his valuation conclusions, Mr. Wolff selected a price of $34 per square foot for 200 Summer Street, and an indicated value as rounded of $2,725,000 for both fiscal years. He selected a price of $39 per square foot for 201 Summer Street. Based on his measurement of 89,202 square feet for the gross building area, his indicated value for 201 Summer Street was $3,480,000 for both fiscal years. 
Mr. Wolff also utilized an income approach methodology to value both buildings. He deemed the current use as industrial/office properties to be the highest and best use. He rejected the contract rents, which he said were $6.46 per square foot at 200 Summer Street and $6.53 per square foot at 201 Summer Street, as being above-market. He deemed that the sale of the subject properties was not an arms-length transaction because of the leaseback provision. He looked to a selection of industrial properties in Holliston and Millis (all of which were substantially smaller than the subjects) and found a rental range of $4.75 per square foot to $5.50 per square foot. He projected a market rent of $4.50 per square foot for 200 Summer Street and $5.00 per square foot for 201 Summer Street. 
While observing that the subject properties were 100% occupied by a single tenant, Mr. Wolff estimated that the vacancy rate for industrial space in Holliston was 10%-15%. However, he gave no market data source for this assertion. He adopted a 15% vacancy and credit loss rate for both subject properties. For expenses, he used a management fee of 3% of effective gross income, and a replacement reserve allowance of 3% of potential gross income for both properties. He used the "Band of Investment" technique to derive a capitalization rate of 10% for both properties for both fiscal years. His indicated values using the income approach came to $2,800,000 for 200 Summer Street and $3,470,000 for 201 Summer Street. 
Reconciling values yielded by the sales comparison and income approaches, Mr. Wolff opined that "the typical buyer is an owner-occupant that tends to place greater emphasis on the Sales Comparison Approach in making its buying decision." Exhibits 2 and 3 at pages 55. His final opinions of value, following the sales comparison methodology, were $2,725,000 for 200 Summer Street and $3,480,000 for 201 Summer Street.
For his comparable sales analysis, Mr. Mulhern used five industrial/office buildings for both subject properties. His sales comparison grids appear at pages 34 of his reports for the 200 Summer and 201 Summer Street properties, Exhibits F and G. He used a research and development building at 100 Jeffrey Avenue in Holliston, with 30,000 square feet of gross building area, which sold on January 30, 2002 for $1,575,000 or $52.50 per square foot; a warehouse and distribution building (with 6% office space) at 350 Hopping Brook Road in Holliston, with 106,250 square feet of gross building area, which sold on April 29, 2004 for $5,400,000 or $50.82 per square foot; a research and development building at 171 Locke Drive, Marlborough, with 97,870 square feet of building area, which sold on October 1, 2003 for $5,700,000 or $58.24 per square foot; a multi-tenant industrial building at 50 D'Angelo Drive, Marlborough, with a building area of 80,654 square feet, which sold on December 1, 2003 for $5,611,761 or $69.58 per square foot; and a single tenant industrial building at 428 Main Street in Hudson, with 81,388 square feet of building area, which sold on March 1, 2004 for $4,120,000 or $50.62 per square foot.
Mr. Mulhern selected sales comparison properties closer in size to the subject buildings than the properties utilized by Mr. Wolff. The three comparison properties Mr. Mulhern utilized outside Holliston came from the MetroWest area in the I-495 belt. To reflect differences in such variables as building size, location, design, and condition, he adjusted the sales prices downward by factors of 5% to 25% for purposes of comparison to 200 Summer Street. He made adjustments ranging from -5% to +10% to bring sales prices into line with the building at 201 Summer Street. His adjusted sales prices per square foot ranged from $43.68 to $55.66 for valuing 200 Summer Street, while the adjusted prices used for comparison to 201 Summer Street ranged between $55.33 to $66.10. 
Both appraisers agreed that the building at 350 Hopping Brook Road in Holliston was comparable to the subject properties. Mr. Mulhern testified that the property was "right behind the subject in the Hopping Brook Industrial Park" and made no location adjustments. Nevertheless, Mr. Wolff adjusted the sales price on the 350 Hopping Brook Road property downward 10% for supposed differences in location: slightly closer to I-495 and situated in an industrial park as opposed to a neighborhood with mixed property uses. 
Mr. Mulhern selected an adjusted sales price at the low end of his range of comparable prices or $45 per square foot in arriving at a value for 200 Summer Street. His rounded opinion of value for 200 Summer Street, for both fiscal years at issue, came to $3,605,000 using the sales comparison approach. Mr. Mulhern selected an adjusted sales price of $57 per square foot for 201 Summer Street to yield a rounded opinion of value of $5,200,000.
Mr. Mulhern also employed the income approach to value. He gave consideration to the rental price of the subject properties, though he used five office/industrial rental properties in Holliston to derive comparable rental rates. His indicated range of comparable rental rates per square foot went from $5.00 to $9.00. He selected an estimated market rent of $5.00 per square foot for 200 Summer Street, and a market rent of $7.00 per square foot for 201 Summer Street, in view of its superior build-out. He noted that vacancy rates in the immediate competitive area varied widely, and the rate he identified using the Co-Star online service was 10%. He also noted that many of the properties in the vicinity were designed for the use of a single owner or tenant. Giving some weight to the 100% occupancy of the subject properties throughout the periods at issue, he selected a vacancy and credit loss estimate of 7%.
Expense estimates were derived based on the experiences of similarly operated properties. Mr. Mulhern allowed 3% of effective gross income for management expenses, 3% for exterior maintenance costs, 2% for replacement reserves, and an additional $5000 per annum for year-end legal and accounting services. Mr. Mulhern used a Mortgage Equity Analysis supported by market evidence to derive his indicated capitalization rates. He selected a capitalization rate of 9.8% to arrive at value estimates for both subject properties. Using the income capitalization methodology, Mr. Mulhern gave his opinion of value as $3,450,000 for 200 Summer Street and $5,010,000 for 201 Summer Street. Mr. Mulhern placed greater emphasis on the income capitalization approach in reconciling his values, and arrived at final value estimates of $3,450,000 for 200 Summer Street and $5,010,000 for 201 Summer Street.
Neither appraiser placed significant reliance on the sales price of the subject properties agreed upon in the September, 2003 transaction. Mr. Wolff rejected the sale as non-arms-length and irrelevant, despite the fact the parties to the transaction were unrelated and none appeared to be under compulsion. Mr. Wolff concluded that it was a non-arms-length sale because of the sale-leaseback nature of the transaction. His answers to questions on cross-examination revealed that he had not investigated the circumstances of the sale. He did not speak to any brokers or ascertain the number of offers the seller received for the properties, relying solely on the taxpayer for his information. Mr. Wolff assumed that there would be little buyer interest in the subject properties, and admitted that his view of the sale-leaseback transaction would have changed had he known that eight offers were received, as Mr. Mulhern reported. 
Mr. Mulhern investigated and considered the sale but arrived at his opinions of value using different comparable sales and comparable rentals. The sales price, agreed-to approximately three months before the first valuation date at issue, was $11,100,000. Mr. Wolff's combined final valuation estimates for the subject properties totaled $6,205,000, or 44% below the sales price. Mr. Mulhern's combined estimates of value for both subject properties came to $8,460,000, or 24% under the sales price. While the opinions of both appraisers suggest that the sales price was above-market, Mr. Wolff should have more thoroughly investigated the sale before concluding that unrelated buyers would pay 79% more than the fair market value for the subject properties, even with the inducement of a 20 year lease. 
Several circumstances led the Board to question the probative force of Mr. Wolff's opinions of value. First, of four comparable sales he relied upon, only two approximated the square footage of the subject buildings, in the range of 80,000 to 100,000 square feet. For the other two sales, involving properties with less building area than the subjects, at 75 Fortune Blvd. in Milford, and 29 Everett Road in Holliston, Mr. Wolff adjusted sales prices downward by factors of 5 and 10% respectively for the size differences, even though these sales were on the low end of his range in terms of prices per square foot already. Mr. Mulhern was able to locate two timely sales of properties with gross building areas between 80,000 to 106,000 square feet in the MetroWest, I-495 beltway area. By using the 75 Fortune Blvd., Milford, and 29 Everett Road properties, Mr. Wolff chose properties less comparable to the subject properties than other properties which sold in the relevant time period, limiting the probative weight of his comparable sales analysis. 
Second, Mr. Wolff did not adequately explain why he discounted the sales price of the nearby property at 350 Hopping Brook Road in Holliston by 10% for reasons of location. Mr. Wolff testified that this property was approximately one-and-one-half miles away from the subject properties; Mr. Mulhern indicated that 350 Hopping Brook Road was just behind the subject properties. Both 350 Hopping Brook Road and the subject properties are within three-and-one-half miles of I-495, to which they have access by Route 16, although the 350 Hopping Brook Road property is slightly closer to the I-495 intersection. Mr. Wolff noted that there were residential and institutional properties in the vicinity of the subject properties while 350 Hopping Brook Road is situated within an industrial park, but he did not explain how such differences affected fair market value. A 10% negative adjustment seems excessive given the proximity of the properties and similar accessibility to I-495. 
	Third, Mr. Wolff's selection of comparable sales did not make allowances for the space at the subject properties devoted to office use. Both subject properties have considerable office space; the building at 201 Summer Street consists primarily of office space. According to his Reports, Mr. Wolff chose "industrial use properties" for purposes of sales comparisons, while Mr. Mulhern chose sales of properties with both industrial and office uses. There is no indication in Mr. Wolff's Reports that any of the space in the buildings he relied on for comparable sales was used for office purposes. Mr. Wolff's selected comparables were accordingly less probative in valuing the portions of the subject buildings designed for office use. 
	Fourth, it appears that Mr. Wolff's investigations of the sales he selected for comparison were cursory and limited. He conducted no interior inspections of the comparison properties, although he made adjustments for differences in the physical condition of the buildings. He was unaware of whether the comparison properties were vacant or occupied at the time of sale.
Fifth, with respect to Mr. Wolff's income capitalization analysis, questions arose with respect to the comparability of the five rental properties he selected to derive his estimates of market rents for both subject buildings. While he did select industrial properties with some office space for comparable rentals, the largest building he looked to for comparable rental information was 33,000 square feet; one building was only 5400 square feet, while another was 12,000 square feet. Yet rents taken from units in much smaller buildings were extrapolated to single-tenant spaces of greater than 80,000 square feet at 200 Summer Street and 90,000 square feet at 201 Summer Street. While Mr. Mulhern's five comparable rentals included buildings with less square footage than the subjects, he considered the rental of the subject premises and the premises at 350 Hopping Brook Road in Holliston, which are also leased to a single large tenant. Mr. Wolff's failure to consider larger properties leased to a single tenant meant that properties most similar to the subject properties were not included in his valuation analysis, limiting the probative weight of his selection of market rents.
	Sixth, it appears that Mr. Wolff's investigation of rental transactions involving comparable industrial/office properties was very limited. His Reports make the conclusory assertion that "rents of comparable industrial use space in the subject's marketplace were researched." Reports at page 51. Under cross-examination he was able to identify only one source for his rental information, a broker named Craig Johnson. He did not utilize online services or other sources available to appraisers to gain an overview of rental transactions during the relevant time period. This cursory investigation undermines confidence that he chose a representative selection of comparable rental properties in arriving at his estimated rents.
Seventh, the vacancy and credit loss information Mr. Wolff relied upon was left vague in the Reports and the testimony. He testified that "[b]ased upon information from Spaulding and Sly[e] at this time, the general vacancy rate for industrial space was somewhere around ten to fifteen percent given its location, its size, its use." In his Reports, he asserted that "[t]he vacancy rate for industrial space similar to the subject in the Holliston area at the time of valuation was estimated to range between 10% and 15%." Reports at p. 52. No market data source for this statement was given. Mr. Wolff selected an estimated vacancy rate at the high-end of that range, using 15% in his income capitalization analysis. Moreover, Mr. Wolff appears not to have considered the 100% occupancy of the subject properties and the nearby industrial building at 350 Hopping Brook Road in Holliston, in deriving his market vacancy rate. Mr. Wolff's selection of a 15% market vacancy rate was not adequately justified on the record in this appeal.
	Eighth, Mr. Wolff relied upon one Rocco Beatrice to retrieve the property record cards for the subject properties. For 201 Summer Street, Mr. Wolff appears to have used the property record card for fiscal year 2004, on which the amount of building area was overstated by approximately 16,000 square feet. Mr. Wolff called attention to this error in the assessors' data set for a previous fiscal year in his Report at page 31 and in his direct examination. However, he admitted on cross examination that the square footage reflected on the relevant property record card for fiscal year 2005 "is closer to my number." It does not appear he took the relevant property records into account in arriving at his figures for the building area of 201 Summer Street. Nor does he explain how he determined that building area was 89,202 square feet, when the assessors' records give the square footage as 91,233. Because the Report and the testimony were unpersuasive in showing that the property record cards for the relevant fiscal years erroneously represented the building area of 201 Summer Street, the Board relied on the building area as reported by the assessors and Mr. Mulhern. Moreover, the fact that Mr. Wolff relied on the property record card supplied by Mr. Beatrice, without verifying that it applied to the relevant fiscal years, calls into question the thoroughness of his investigation of information highly relevant to the subject properties' values.
	In sum, Mr. Wolff failed to use sufficiently comparable properties for purposes of making sales comparisons or deriving estimated market rents. His adjustments to his selected comparable sales were excessive. Moreover, his investigation was cursory in several key particulars. In the case of his vacancy and credit loss estimates, he did not supply an adequate basis for his selection of a 15% rate in either the Reports or his testimony. Taken together, these shortcomings in his appraisal analysis significantly diminished the weight to which Mr. Wolff's opinions of value were entitled. Mr. Wolff's expert opinions, considered in light of the totality of the evidence, were insufficient to support findings of value contrary to the assessed values.
	Mr. Mulhern's appraisal analysis, by contrast, was thoroughly researched and well-founded in market data. The comparable properties he selected bore fundamental similarities to the subject properties, i.e. mixed office and industrial uses, and his adjustments were modest and reasonable. The Board found Mr. Mulhern's valuation conclusions to be persuasive. 
In view of all the evidence, relying on the hearing officer in matters of witness credibility, the Board found and ruled that the appellants did not meet their burden of proof in demonstrating that the subject properties were worth less than the assessed values as of January 1, 2004 and January 1, 2005. Moreover, the Board found and ruled that the assessors produced credible evidence indicating that the subject properties were not overvalued. The Board accordingly upheld the disputed assessments, and issued a decision in favor of the appellee assessors. 
OPINION
The assessors are required to assess real estate at its "fair cash value." G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).  
The 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 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, 363 Mass. at 245).
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of 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).  Regardless of which method is employed to determine fair cash value, the Board "must determine 'the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market.'"  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). (Citation omitted.) "The validity of a final estimate of market value depends to a great extent on how well it can be supported by market data." Chatham Investment Trust of Newton v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2007-298, 2007-308, citing Appraisal Institute, THE APPRAISAL OF REAL ESTATE 134 (12th Ed. 2001). See also 45 Rice Street Realty Trust v. Assessors of Cambridge, Mass. ATB Findings of Fact and Report 2007-1269, 2007-1325.  
	The Supreme Judicial Court has "observed … that '[a]ctual sales are … very strong evidence of fair market value, for they represent what a buyer has been willing to pay to a seller of a particular property.'" New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981)(Citation omitted.) However, "the evidentiary value of such sales in less than arm's-length transactions is diminished." Id. The burden of showing "that the price was fixed by fair bargaining or bidding, and not by some form of compulsion preventing the normal operation of the self interest of buyer and seller, is on the party offering the price as evidence of value …." Epstein v. Boston Housing Authority, 317 Mass. 297, 300 (1944). At the same time "[f]ree bargaining or bidding is normal and customary in business transactions, and compulsion is both abnormal and unusual." Id. at 300-301. Accordingly, it may be inferred from the evidence that "the conduct of [parties to a transaction] is normal and customary…." Id. at 301. 
"Evidence of the sale prices of 'reasonably comparable property' is the next best evidence to the sale of the property in question." Lattuca v. Robsham, 442 Mass. 205, 216 (2004). Required are "'fundamental similarities'" between the subject property and the comparison properties. See Lattuca, 442 Mass. at 216. Thorough investigation of transactions reflective of relevant market conditions is important. See James Millar Co. v. Commonwealth, 251 Mass. 457, 458, 463-64 (1925). See also 45 Rice Street Realty Trust, Mass. ATB Findings of Fact and Reports at 2007-1325-1326. 
"[B]asic comparability is established upon considering the general character of the properties." New Boston Garden Corp., 383 Mass. at 470. Considerations relevant to choosing appropriately comparable sales for valuing the subject property are catalogued in THE APPRAISAL OF REAL ESTATE, supra, at 157-59. "Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value." New Boston Garden Corp., 383 Mass. at 470. However, "[t]he greater the amount of … adjustment[s], the more the appraiser may reduce the weight placed on a given comparable, or the appraiser may determine that it is not sufficiently comparable to be used at all." See THE APPRAISAL OF REAL ESTATE, supra, at 458-59. The Board has ruled that adjustments which are "excessive" in amount "compromise[] the indicated values derived from [the] comparable sales methodology" and "raise[] serious questions regarding the initial comparability of" properties utilized. Trustees of the Charles Cotesworth Pinckney Trust v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-621, 2007-630-31. 
The income capitalization method "is frequently applied with respect to income producing property."  Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  In applying this method, the income stream used must reflect the property's earning capacity or market rental value.  Pepsi-Cola Bottling, 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 Authority, 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Authority, 9 Mass. App. Ct. 877, 878 (1980) (rescript); AVCO Manufacturing Corporation v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142.  It is the earning capacity of real estate, rather than the actual income, which is probative of fair market value.  See Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64 (1941).  Vacancy rates must also be market based when determining fair cash value. See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 239, 241-42 (1998). See also 45 Rice Street Realty Trust, Mass. ATB Findings of Fact and Reports at 2007-1326.
After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric, 393 Mass. at 610. Expenses should also reflect the market. See Olympia & York State Street Co., 428 Mass. at 239, 243.  A capitalization rate based on the return necessary to attract investment capital is then applied to the net operating income to determine the property's fair market value.  Taunton Redevelopment, 393 Mass. at 295. 
The opinion of an expert witness must be based on a proper foundation. See State Tax Commission v. Assessors of Springfield, 331 Mass. 677, 684 (1954). "That a person qualifies as an expert does not endow his testimony with magic qualities." Boston Gas Co., 334 Mass. at 579. "'The Board was not required to believe the testimony of any particular witness ….'" Medical Malpractice Underwriting Ass'n of Massachusetts v. Commissioner of Insurance, 395 Mass. 43, 56 (1985)(Citation omitted.) As was emphasized in Foxboro Associates v. Bd. of Assessors of Foxborough, 385 Mass. 679, 683 (1982), "'[t]he board was not required to accept the opinion expressed, or the valuation principles used by [the taxpayer's expert witness.]'" (Citation omitted.) Rather, "[t]he essential requirement is that the Board exercise judgment." New Boston Garden, 383 Mass. at 473.
The Board found that Mr. Wolff's testimony and opinions of value, considered in light of the totality of the evidence, lacked the probative weight needed to support findings of value contrary to the assessed values. Mr. Wolff failed to adequately investigate the circumstances of the contemporaneous sale of the subject properties.
Furthermore, differences between the subject properties and properties selected by Mr. Wolff for purposes of sales comparisons and estimates of comparable rental rates raised questions about the soundness of estimates of value derived from these data. The size of Mr. Wolff's adjustments for the location of the similar property at 350 Hopping Brook Road in Holliston were excessive given that property's proximity to the subject properties. Finally, Mr. Wolff's investigations of properties used as comparables and his research of sources of market information were limited in several respects. His reliance on Mr. Beatrice to retrieve the property record card for 201 Summer Street, and his apparent failure to detect that the card he considered pertained to a fiscal year not at issue, raised doubts about the thoroughness of his valuation analysis. Taken together, the shortcomings in Mr. Wolff's appraisal investigations and analyses undercut the probative value of his estimates of fair market value. Appellant's evidence did not surmount the burden of proof recognized by law.
Mr. Mulhern's evidence of value, by contrast, was credible and persuasive. Accordingly, where the appellants failed to present persuasive evidence that the assessors overvalued the subject property and the assessors provided probative evidence in defense of the disputed assessments, the Board issued decisions for the appellee in these appeals. 

						THE APPELLATE TAX BOARD


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



A true copy,

Attest: ________________________________
	          Clerk of the Board
	 

 On September 11, 2006, Commissioner Gorton was sworn as a temporary member of the Appellate Tax Board pursuant to G.L. c. 58A, § 1, his status as a member of the Board having terminated on that date with the appointment and qualification of his successor. See G.L. c. 30, § 8. This appointment was renewed for an additional year commencing September 11, 2007. Commissioner Gorton's material participation in the deliberation of these appeals included, inter alia, drafting and distributing proposed Findings and giving a detailed report on the evidence and his observations as to witness credibility. He also made oral presentations of his recommendations to the Board members. 
 The site also includes 3 acres at the rear of the property which is located in Medway. The improvement is situated entirely in Holliston. 
 The Board adopted the square footage given in the Report of Mr. Thomas Mulhern, the appellee's appraiser, based on the assessors' records. The appellant's appraiser, Mr. Eric Wolff, used a slightly lower figure for the gross building area, but did not explain how he arrived at that number. Mr. Mulhern indicated that there were 8460 square feet on the second level that were not yet built out, and were not counted in the gross building area.
 Mr. Wolff opined that these sites "appeared to provide additional land area for future expansion of existing improvements." Report (Exhibit 2) at 39. No similar adjustment was made to these sales prices for purposes of comparison to 200 Summer Street, although that lot is smaller than the lot at 201 Summer Street.
 While the difference between rents at 200 Summer Street and 201 Summer Street Mr. Wolff described is slight, the lease does not differentiate the rental prices of the subject properties. A combined rent of $91,666.67 per month was payable for the possession and use of both properties as of the valuation dates at issue.
 In his testimony Mr. Wolff alluded to information from Spaulding and Slye, but gave no indication that these data were specific to the immediate competitive area of the subject properties.
 Mr. Wolff also used this property as a comparable sale.
 The sale at 29 Everett Road occurred in March of 2002, more than eighteen months before the first valuation date at issue.
 Mr. Mulhern's Reports state that 6% of the building area in the 350 Hopping Brook Road property was devoted to office use.

ATB 2008-86