F308320; F312351; F308321; F308322; F312353; F312352; F312354

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COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

SUN LIFE ASSURANCE v. BOARD OF ASSESSORS OF
THE TOWN OF WELLESLEY

Docket Nos. F308320-22 (FY 2010)
F312351-54 (FY 2011) Promulgated:
December 8, 2014

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 Wellesley (the "assessors" or "appellee") to abate taxes on certain real estate located in the Town of Wellesley, owned by and assessed to Sun Life Assurance (the "appellant" or "Sun Life") under G.L. c. 59, §§ 11 and 38, for fiscal years 2010 and 2011.
Commissioner Rose heard these appeals. Commissioners Scharaffa, Chmielinski, and Good joined him in the decisions for the appellee in Docket Nos. F308321, F308322, and F312353; the revised decision for the appellee in Docket No. F308320; and the revised decisions for the appellant in Docket Nos. F312351, F312352, and F312354. The revised decisions are promulgated simultaneously herewith. Chairman Hammond did not participate in the deliberations or decision of these appeals.
These findings of fact and report are made pursuant to the appellant's request under G.L. c. 58A, § 13 and 831 CMR 1.32.

Mark J. Witkin, P.C., for the appellant.
Anthony M. Ambriano, Esq. and James A. Goodhue, Esq. for the appellee.

FINDINGS OF FACT AND REPORT
Introduction and Jurisdiction
On January 1, 2009 and January 1, 2010, the appellant was the assessed owner of four parcels of real estate located at 96 Worcester Road, 100 Worcester Road, 112 Worcester Road, and 85 McLean Street in the Town of Wellesley (collectively, the "subject properties"). At all relevant times, the subject properties consisted of three improved parcels of land and one parcel of unimproved land. One of the improved parcels, 96 Worcester Road, contains two buildings, Building One and Building Three. A summary of each property's parcel size, improvements, if any, and building numbers is contained in the table below.

Parcel Sizes
Improvements Descriptions

96 Worcester Road 373,171 SF Building One 124,500 SF
Building Three 116,200 SF
100 Worcester Road 98,617 SF Building Two 44,250 SF
112 Worcester Road 263,597 SF Building Four 94,000 SF
85 McLean Street 87,419 SF Unimproved
TOTAL 822,804 SF Buildings 378,950 SF

The subject properties comprise a complex known as the Sun Life Executive Park (sometimes hereinafter referred to as the "Park"). The appellant appealed the assessed values associated with three of the parcels for fiscal year 2010 and with all four parcels for fiscal year 2011.
For fiscal years 2010 and 2011, the Board of Assessors of Wellesley (the "assessors") valued the subject properties' individual parcels as enumerated in the table below.
Fiscal Year 2010 Fiscal Year 2011

96 Worcester Road $ 55,505,000 $ 48,361,000
100 Worcester Road $ 10,672,000 $ 8,894,000
112 Worcester Road $ 22,076,000 $ 18,894,000
85 McLean Street $ 394,000 $ 357,000
TOTAL $ 88,647,000 $ 76,506,000

The assessors assessed taxes on the subject properties, at the rates of $10.48 per thousand for fiscal year 2010 and $11.43 per thousand for fiscal year 2011, resulting in tax assessments of $929,020.56 for fiscal year 2010 and $874,463.58 for fiscal year 2011. On December 28, 2009 and December 27, 2010, the Treasurer/Collector for Wellesley mailed the town's actual tax bills for fiscal years 2010 and 2011, respectively. In accordance with G.L. c. 59, § 57C, the appellant timely paid each fiscal year's taxes without incurring interest.
On January 22, 2010 and January 18, 2011, in accordance with G.L. c. 59, § 59, the appellant timely filed Applications for Abatement with the assessors for fiscal years 2010 and 2011, respectively. The assessors denied the appellant's applications for fiscal year 2010 on April 20, 2010 and also denied the appellant's applications for fiscal year 2011 on March 30, 2011. In accordance with G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, the appellant seasonably appealed these denials by filing Petitions Under Formal Procedure with the Appellate Tax Board (the "Board") on June 30, 2010 for fiscal year 2010 and June 8, 2011 for fiscal year 2011. On the basis of these facts, the Board found and ruled that it had jurisdiction over these appeals.
In support of its claims for abatement, the appellant presented its case-in-chief through the testimony of four witnesses: Donna McCabe, chief assessor for Wellesley; Thomas Haven, senior facilities consultant for Sun Life; Robert Walles, real estate broker and partner in CB Richard Ellis; and Robert L. Coleman, real estate appraiser and consultant, whom the Board qualified as a commercial real estate valuation expert. The appellant also introduced into evidence forty-four exhibits, including aerial photographs of and property record cards for the subject properties, photographs of other developments and properties, zoning and development documents, and excerpts from certain industry publications, as well as Mr. Coleman's summary appraisal report.
In defense of the assessments, the assessors called Steven R. Foster, a real estate appraiser and consultant to testify, whom the Board qualified as a commercial real estate valuation expert. The assessors also introduced into evidence numerous exhibits, including the requisite jurisdictional documents, several 38D reports relating to the subject properties, lease summaries, portions of certain published industry reports and surveys, and Mr. Foster's self-contained appraisal report. Following ten days of hearings for these appeals, both parties submitted post-hearing briefs and the appellee also submitted a reply brief. In addition, the Board conducted a view of the subject properties. A summary of the total assessed values for all four of the subject properties for fiscal years 2010 and 2011, as well as the values recommended by Mr. Coleman and Mr. Foster, are contained in the following table.
Fiscal Year 2010
Fiscal Year 2011

Total Assessments $88,647,000 $76,506,000
Mr. Coleman's Total Values $66,690,000 $55,540,000
Mr. Foster's Total Values $98,000,000 $82,400,000

The subject properties are situated in Wellesley, an affluent suburban community located approximately eleven miles west of Boston's central business district. Wellesley is bordered by Newton to its east, Needham to its south, Natick to its west, and Weston to its north. Interstate 95 (Route 128) runs along Wellesley's eastern border, while Routes 9 and 16 traverse the town from east to west. Originally settled as an agricultural community, Wellesley is now predominantly residential with some scattered retail and office development, primarily along Routes 9 and 16 at their Route 128 interchanges.
The subject properties are located on Route 9, also known as Worcester Road, at the Route 128 interchange. Wellesley Office Park with seven office buildings and 623,332 square feet of rentable office space is located proximate to the subject properties, as is an approximately 250,000-square-foot office development, called Wellesley Gateway, which is occupied by Harvard Pilgrim Healthcare. According to the Wellesley zoning ordinance, the subject properties are located in three different zoning districts - limited business district, administrative/professional district, and single residence 15 district - and, to the extent that the subject properties are non-conforming, they are either grandfathered or have all the necessary approvals and permits. In addition, Sun Life Executive Park is subject to a development agreement with Wellesley which, among other limitations or requirements, permits approximately 385,000 square feet of building area devoted to office use coupled with structures dedicated to vehicular parking on its property.
Entrance to Sun Life Executive Park is from Route 9. There is a center courtyard that contains parking in addition to parking located in the front, sides, and rear of the buildings. A brook flows through the Park into a retention pond and then off the Park. A portion of the Park contains wetlands and borders a wooded conservation area.
Building One is the original building in the Park, and it opened in 1973. It has four floors with a total rentable area of 124,500 square feet. It is constructed of precast concrete panels with solar bronze windows. It connects to Building Three at each level through an enclosed atrium. It functions primarily as an office building which has a data center. Two-thirds of the ground floor or terrace level is below grade with restricted visibility outside. Building One contains typical back office space for clerical use, except for the investment division located on the third floor which has more traditional private offices. The second and terrace level floors contain cubicles and a more open furniture plan. There are two passenger elevators and no lobby.
Building Two which opened in 1975 has three floors totaling 44,500 square feet of rentable space. It is constructed of precast, exposed aggregate concrete panels with solar bronze windows. It is used as office space with the first and second floors consisting of general back-office use and the third floor housing the legal and compliance departments. It was opened in 1975. It also has two Otis passenger elevators. There is no lobby in this building either.
Building Three has four floors with 116,200 square feet of rentable space. It is constructed of precast, concrete panels with solar bronze windows. It opened in October, 1983, and is connected to Building One. It is also connected to the six-story main garage by a pedestrian walkway leading from the second floor of Building Three to the fourth floor of the parking garage. Building Three contains the Wellness Center and a cafeteria. Entry is on the ground or terrace level that is at grade. The top floor contains executive offices and the financial division. The second floor is mostly cubicles used for the clerical staff. The first floor is predominantly cafeteria space. The terrace level contains human resources and corporate real estate areas. This building also has two passenger elevators and one freight elevator, as well as a small lobby, a security desk, and a shipping and receiving area.
Building Four is located at 112 Worcester Road and contains three floors with 94,000 square feet of rentable space. Building Four was opened in October 2001. It is constructed of precast concrete panels with brick veneer and solar bronze panels. The first floor has an entrance lobby and 105 parking spaces. The second and third floors are used for office space mainly with cubicles for clerical staff. It has two elevators and also a shipping and receiving area.
An extension to the garage was also constructed in 2001 and has four levels of parking. The main parking garage has a single passenger elevator and two stairways at opposite ends of the building. It contains 372,040 square feet and has a total of 1,083 spaces.
The rentable square footage for each floor of the four office buildings are as follows.

Address Building Floor Rentable
Square Feet ("SF") Total SF
96 Worcester Road One Terrace 29,110
First 30,286
Second 32,593
Third 32,511
124,500
100 Worcester Road Two First 13,531
Second 15,295
Third 15,424
44,250
110 Worcester Road Three Terrace 21,916
(also described as First 30,530
part of Second 32,244
96 Worcester Road) Third 31,510
116,200
112 Worcester Road Four First 5,235
Second 46,610
Third 42,155
94,000
Total SF 378,950

The Appellant's Case-In-Chief
The first witness to testify for the appellant was Donna McCabe, the chief assessor of Wellesley. She appeared under subpoena and brought with her the subject properties' property record cards for the fiscal years at issue. They indicated that the assessors had not officially inspected the subject properties for eighteen years, and she suggested that certain information on the property record cards had not been updated for fifteen years. In addition, Ms. McCabe testified that John Regan, a member of the Appraisal Institute and vendor with whom the town contracts to value most of the commercial property, estimated the value of the subject properties for the fiscal years at issue relying on § 38D responses from owners of commercial properties in town, as well as local sales information and data gleaned from Korpacz Real Estate Surveys. She also testified that in valuing the commercial properties in Wellesley using an income-capitalization methodology, the same capitalization rate, vacancy rate, and expense ratio was used as was the same economic rent within each class of commercial properties.
The second witness to testify for the appellant was Thomas Haven, the senior facilities consultant for Sun Life Financial. He provided a general description of the office complex, the buildings, and their uses, as well as their interior layouts. He also described necessary repairs or maintenance, costing $25,000 or more, performed or scheduled to be performed on the subject properties during the relevant time period. The repairs which had been performed include the replacement of a water main for approximately $300,000, the replacement of rubber seals, gaskets, and glass in the atrium for approximately $100,000, the replacement of cooling towers and a central system for the HVAC associated with Building One for approximately $150,000, and the replacement of revolving doors for approximately $50,000. Scheduled future repairs included a glass and seal replacement project, arcone glazing with seal, flashing, and weatherproofing replacement on the roof of Building One, replacement of air conditioning units, elevator replacement, and roof replacements.
Mr. Haven also described some other difficulties or problems relating to the operation of the Park created by Wellesley's by-laws which restrict extensive construction work on Sundays and storing of plowed snow in wetland areas. Mr. Haven identified some added operational difficulties relating to a requirement for Sun Life to purchase electricity only from the Wellesley municipal light plant thereby negating Sun Life's participation in rebate, grant or upgrade programs offered by major utilities. In addition, he explained the adverse impact associated with certain restrictions in Sun Life's development agreement with Wellesley, which involve transportation limitations, occupancy constraints, and tax-payment guarantees. Mr. Haven also identified certain design flaws, particularly with respect to Building Four, which created certain inefficiencies and the design and appearance advantages of two other office complexes in the area.
The third witness to testify for the appellant was Robert Walles, a licensed real estate agent and employee of CB Richard Ellis. The Board qualified him as an expert in leasing office property located in the Western Suburban or 128 West market, of which Wellesley is a part. According to Mr. Walles, this market is the largest and healthiest commercial submarket in the state with the highest rents and absorption rates. With respect to the Park, he described its location as first rate, but its buildings and design as mundane and utilitarian with numerous inefficiencies and fewer amenities than its competitors. Mr. Walles testified that the market peaked in 2007 and bottomed out in 2010 with vacancy and absorption rates at 10.6% and 17%, respectively, in 2009, increasing to 14% and 22%, respectively, in 2010. To compete in the declining market, landlords lowered rents and increased concessions, such as tenant-improvement packages or free rent for a period of time. He also quantified leasing commissions at $1.80 per square foot per year. Lastly, Mr. Walles testified that he provided Mr. Coleman with a large sample of leases from which Mr. Coleman chose the ones that he believed were most comparable to the subject properties for his analysis.
The appellant's fourth and final witness was its real estate valuation expert, Robert Coleman, who was hired on behalf of the appellant to estimate the fair cash value of the subject properties for the fiscal years at issue. To complete his assignment, Mr. Coleman stated that he inspected the subject properties and the area, investigated relevant geographic, demographic, economic, and market conditions, as well as applicable zoning regulations. He specified that he reviewed municipal and other related public records and also those furnished by the appellant, and, in addition, he reviewed pertinent information in his data base and those compiled and published by certain industry sources. Mr. Coleman indicated that he also had discussions with representatives of the subject properties' ownership, management, and marketing on matters germane to the valuation of the subject properties, and with other property owners and real estate brokers to verify sales.
After considering all the relevant facts, as well as the benefits and detriments associated with the subject properties, Mr. Coleman concluded that their highest-and-best use was their existing use as a single-tenanted suburban office park, with supporting parking and infrastructure, operated as a single economic unit.
In developing his estimates of value for the subject properties for the fiscal years at issue, Mr. Coleman relied on an income-capitalization methodology because of its popularity with market investors, the Massachusetts courts, and this Board for determining the fair cash values of income-producing properties. He eschewed both the sales-comparison and cost approaches because, with respect to the former method, market investors do not typically rely on it and the sales are usually of leased fee, as opposed to fee simple properties, and, with respect to the latter approach, it is ordinarily only appropriate for special purpose properties when values cannot be reliably developed using one of the other two methods.
To develop a stabilized income and expense statement for the subject properties, Mr. Coleman stated that he did not rely on the existing lease for the subject properties because the owner and tenant of Sun Life Executive Park are related entities. Rather, he depended predominantly on data gleaned from the marketplace using industry publications and information obtained from market participants and brokers. This research led Mr. Coleman to conclude that the subject properties would rent to a single tenant on a gross, net of electricity, leasing scenario for up to a ten-year term with the tenant also paying escalations in operating expenses and real estate taxes after the first year. In addition, because of the relevant time period involved here, Mr. Coleman observed that tenant incentives, such as free rent, cash bonuses, and other concessions affected the effective rents and thus had to be factored into any analysis. After analyzing eighteen rentals in the Route 128 West Marketplace, he determined a rental range of $15.95 to $34.00 per square foot, which he then adjusted for certain factors such as the leasing scenario, market conditions or time, location, physical characteristics, and any unusual lease terms. Based on his analysis, he concluded that the average gross effective rent for the subject properties was $31.00 per square foot as of January 1, 2009 and $30.00 per square foot as of January 1, 2010.
Mr. Coleman recognized that even in a single-tenant leasing scenario, it is nonetheless appropriate to include a vacancy and credit loss allowance in an income-capitalization methodology because collections do not always equal potential gross income and a turnover of occupancy is a reasonable assumption. In researching an appropriate vacancy and collection loss allowance, Mr. Coleman reviewed market conditions, the history of the subject properties, and industry publications. The industry publications revealed vacancy ranges of 7.8% to 17.1% as of January 1, 2009 and 9.8% to 19.3% as of January 1, 2010. Mr. Coleman stated that collection losses ordinarily run from 0.5% to 1.0%. Based on all of this information, Mr. Coleman selected a vacancy and collection loss allowance of 10% of gross potential income ("GPI") for each of the fiscal year at issue.
To arrive at a net-operating income stream, Mr. Coleman recognized that it is necessary to account for expenses typically borne by an owner under the existing leasing situation and deduct those costs from the effective gross income. To do that, he investigated the relevant actual expenses incurred by the owner of the subject properties and the levels and categories of expenses commonly incurred by market participants in similar buildings. He estimated the costs associated with certain specific expenses included in three general categories of expenses - fixed expenses, variable expenses, and reserves and allowances. In the fixed expense category, he considered costs associated with insurance, but not real estate taxes which he included as a tax factor in his methodology; in the variable expense category, he considered costs associated with cleaning, repairs and maintenance, utilities, roads and grounds, security service, administrative, management, and miscellaneous; and in the reserves and allowances category, he considered costs associated with a replacement allowance for short-lived realty, leasing commissions, and tenant improvements. Mr. Coleman adopted the subject properties' actual expenses for many of the specific categories after comparing most of them with the market. For certain other expenses, such as management and miscellaneous costs, as well as reserves and allowances, he relied more extensively on market data. His expenses, including reserves and allowances, totaled approximately 46% and 50% of effective gross income ("EGI") for fiscal years 2010 and 2011, respectively.
The final step in Mr. Coleman's income-capitalization methodology was his determination of appropriate capitalization rates. To accomplish this task, he relied primarily on his evaluation of the relevant characteristics of the subject properties, coupled with historical and prospective industry surveys for capitalization rates for national, as well as more local office properties, including those for suburban office properties in the Boston area, plus his mortgage-equity analysis using a band-of-investment technique and his debt-coverage-ratio inquiry.
The published industry surveys indicated capitalization rates ranging from 5.5% to 12.0% during the relevant time period. Mr. Coleman observed that the lowest capitalization rates related to investments in newer stabilized properties, with significant credit-worthy tenants in place, low occupancy costs in established locations, excellent growth potential, and little competition. In contrast, the highest capitalization rates related to investments in older properties, in problem markets with significant competition, and with limited or no growth potential. Accordingly, he placed Sun Life Executive Park "in the middle of the spectrum."
Mr. Coleman also derived band-of-investment rates of 8.00% and 8.30% for fiscal years 2010 and 2011, respectively, and debt-coverage ratio rates of 8.00% and 8.70% for fiscal years 2010 and 2011, respectively. Relying on these synthesized rates, as well as industry survey rates, and after unloading these rates by 0.5% to account for the reserves and allowances that he included as expense items in his income-capitalization methodology, Mr. Coleman selected capitalization rates of 7.50% for fiscal year 2010 and 8.00% for fiscal year 2011.
The following tables summarize Mr. Coleman's income-capitalization methodologies which resulted in his estimates of the Sun Life Executive Office Park's fair cash values of $66,690,000 for fiscal year 2010 and $55,540,000 for fiscal year 2011.

Mr. Coleman's Income-Capitalization Methodology
for Fiscal Year 2010

Gross Potential Income ("GPI")
Building One 124,500 SF x $31.00/SF = $ 3,859,500
Building Two 44,250 SF x $31.00/SF = $ 1,371,750
Building Three 116,200 SF x $31.00/SF = $ 3,602,200
Building Four 94,000 SF x $31.00/SF = $ 2,914,000
Total 378,950 SF $ 11,747,450

Vacancy and Credit Loss @ 10% of GPI ($ 1,174,745)

Effective Gross Income ("EGI") $ 10,572,705

Fixed Expenses
Real Estate Taxes (taken as capitalization rate factor)
Insurance $ 99,771
Total ($ 99,771)

Variable Expenses
Janitorial/Cleaning $ 639,938
Repairs & Maintenance $ 745,170
Utilities $ 672,427
Roads/Grounds/Landscaping $ 571,462
Security $ 435,480
Administrative Expense $ 211,500
Management (2% of EGI) $ 211,454
Miscellaneous (0.5% of EGI) $ 52,864
Total ($ 3,540,295)

Reserves and Allowances
Reserve for Replacement ($0.50/SF) $ 189,475
Leasing Commissions ($1.00/SF) $ 378,950
Tenant Improvements ($1.75/SF) $ 663,162
Total ($ 1,231,587)

Total Operating Expenses ($ 4,871,653)

Net Operating Income $ 5,701,052

Capitalization Rate 8.000%
Adjustment to unload Rate (0.500%)
Adjusted Capitalization Rate 7.500%
Add Tax Factor 1.048%
Overall Capitalization Rate 8.548%

Value Indicated $ 66,694,578

Rounded Fair Cash Value $ 66,690,000

Mr. Coleman's Income-Capitalization Methodology
for Fiscal Year 2011

Gross Potential Income ("GPI")
Building One 124,500 SF x $30.00/SF = $ 3,735,000
Building Two 44,250 SF x $30.00/SF = $ 1,327,500
Building Three 116,200 SF x $30.00/SF = $ 3,486,000
Building Four 94,000 SF x $30.00/SF = $ 2,820,000
Total 378,950 SF $ 11,368,500

Vacancy and Credit Loss @ 10% of GPI ($ 1,136,850)

Effective Gross Income ("EGI") $ 10,231,650

Fixed Expenses
Real Estate Taxes (taken as capitalization rate factor)
Insurance $ 105,927
Total ($ 105,927)

Variable Expenses
Janitorial/Cleaning $ 653,011
Repairs & Maintenance $ 752,699
Utilities $ 846,661
Roads/Grounds/Landscaping $ 656,425
Security $ 413,950
Administrative Expense $ 237,525
Management (2% of EGI) $ 204,633
Miscellaneous (0.5% of EGI) $ 51,158
Total ($ 3,816,062)

Reserves and Allowances
Reserve for Replacement ($0.50/SF) $ 189,475
Leasing Commissions ($1.00/SF) $ 378,950
Tenant Improvements ($1.75/SF) $ 663,163
Total ($ 1,231,588)

Total Operating Expenses ($ 5,153,577)

Net Operating Income $ 5,078,073

Capitalization Rate 8.500%
Adjustment to unload Rate (0.500%)
Adjusted Capitalization Rate 8.000%
Add Tax Factor 1.143%
Overall Capitalization Rate 9.143%

Value Indicated $ 55,540,560

Rounded Fair Cash Value $ 55,540,000

The Assessors' Case-In-Chief
The assessors' only witness was their real estate valuation expert, Steven R. Foster. Mr. Foster was retained by the assessors to estimate the value of Sun Life Executive Office Park for the fiscal years at issue. To complete his assignment, he inspected the subject properties and the surrounding area, performed market research, met with and reviewed materials provided by representatives of the subject properties' owner, reviewed relevant data in his files, discussed relevant matters with market participants, and obtained pertinent information from governmental sources.
Similar to Mr. Coleman's highest-and-best-use determination, Mr. Foster concluded that the subject properties' highest-and-best use was a continuation of their existing use as a single-tenanted corporate headquarters facility. Going beyond Mr. Coleman's determination, Mr. Foster was also of the opinion that the Park could be converted into a multi-tenanted office park, but he did not develop a value for that use.
To develop estimates of value for the subject properties for the fiscal years at issue, Mr. Foster considered cost, sales-comparison, and income-capitalization approaches. He did not develop a cost approach and developed a sales-comparison approach only on a limited basis and for a limited purpose. He relied predominantly on an income approach "based on market rents and market returns."
In his sales-comparison approach, Mr. Foster analyzed eleven sales of both leased and vacant office buildings ranging in size from approximately 100,000 to 1,000,000 square feet located primarily along Route 128. The sales occurred from April, 2007 to June, 2010 and ranged in price from $75 to $412 per square foot. The following table includes a summary of those sales organized from lowest to highest per-square-foot sale price.
Comparable Sale
Address Sale
Date Price
per SF
Comparison
4 300 Crown Colony Dr., Quincy 01/10 $ 75 Inferior
6 301 & 401 Edgewater Dr., Wakefield 10/09 $112 Inferior
3 1 & 3 Burlington Woods, Burlington 05/10 $122 Inferior
7 2 Newton Pl., Newton 08/09 $157 Inferior
9 Granite Woods, Braintree 06/08 $161 Inferior
5 594 Worcester St., Natick 12/09 $182 Inferior
1 Bay Colony, Waltham 06/10 $188 Inferior
10 5 Burlington Woods, Burlington 01/08 $206 Inferior
2 One Wayside Rd., Burlington 06/10 $277 Superior
11 Waltham Corporate Ctr., Waltham 04/07 $362 Superior
8 21 Hickey Dr., Waltham 06/09 $412 Superior

Based on these comparable sales and his evaluation of their similarity to the subject properties, Mr. Foster concluded that $250 per square foot for fiscal year 2010 and $225 per square foot for fiscal year 2011 were appropriate values for the subject properties. These values, multiplied by the subject properties' total rental area, produced rounded estimates of the subject properties' fair cash values of $94,700,000 for fiscal year 2010 and $85,250,000 for fiscal year 2011.
In his income-capitalization methodology, Mr. Foster reviewed the actual lease in conjunction with comparable leases and asking rents in estimating market rents and gross potential income for the subject properties. According to the subject properties' lease, the actual rent was $28 per square foot as of January 1, 2009 and $32.00 per square foot as of January 1, 2010. Mr. Foster also examined leases for 10 rental spaces in area properties that he deemed most comparable to the Park. A summary of that leasing information is contained in the following table.
Comp.
#
Location Lease Date Leased Area (SF) Tenant Improvements Avg. Rent per SF
Comparison
1 Waltham 02/08 28,849 $47.00 $37.70 Inferior 2 Wellesley 02/08 52,220 $31.50 $37.50 Similar 3 Waltham 01/09 84,413 $43.00 $35.60 Similar 4 Burlington 11/08 65,941 $35.00 $33.25 Inferior 5 Waltham 12/08 149,919 $50.00 $39.50 Superior 6 Waltham 05/09 27,478 $ 7.50 $34.80 Similar 7 Burlington 06/09 47,426 $30.00 $30.38 Inferior 8 Waltham 05/09 85,583 $12.50 $32.00 Inferior 9 Newton 01/10 87,875 $58.00 $31.80 Similar 10 Wellesley 08/10 22,478 $40.00 $32.00 Similar
Mr. Foster also considered the June, 2011 lease of a new 335,000-square-foot corporate headquarters at 175-185 Wyman Street in Waltham to Dassault Systems, which was announced in September, 2010. That lease spanned 12 years, with a rent starting at $39.00 per square foot, increasing each year by $1.00 per square foot, and with tenant improvements of $55.00 per square foot. According to Mr. Foster, the terms of this lease indicate that larger tenants, even in softer markets, will pay premium rents for quality space given the limited number of options available to these tenants.
Based on this data, and recognizing the existence of certain market constraints compelling landlords to provide tenant concessions and tenant improvement allowances during the relevant time period, Mr. Foster estimated effective market rents for the subject properties at $34.25 per square foot, as of January 1, 2009, and $32.00 per square foot, as of January 1, 2010, on a gross plus electric basis with tenants also paying a pro-rata share of operating costs over the base year. He also estimated tenant improvement allowances at $5.00 to $10.00 per square foot for renewals and $25.00 to $40.00 per square foot for new leases.
For his vacancy and credit loss, Mr. Foster chose 7.5% of gross potential income for both fiscal years at issue. He based this percentage on industry surveys for the subject property's submarket and neighborhood, which revealed vacancy rates ranging from 7.4% to 12.1%, and on his observation that the subject properties have had no vacancy or collection loss for over 15 years.
Mr. Foster stated that, in his experience, typical operating expenses during the relevant time period for office buildings along Route 128 were in range of $6.00 to $10.00 per square foot, with another $2.00 to $5.00 per square foot being paid in real estate taxes. According to several published industry surveys upon which he relied, total operating costs (not including fixed insurance or real estate costs) during the relevant time period for 100,000-to-299,999-square-foot Boston suburban properties ranged from $6.27 to $10.09 per square foot with an average of $8.46 per square foot. According to Mr. Foster's data, the subject properties' actual expenses for calendar years 2008, 2009, and 2010, excluding real estate taxes, were $11.55, $12.33, and $12.00 per square foot, respectively, which he considered high in comparison to industry statistics. Mr. Foster reported that the assessors' expense information, based on § 38D submissions from all office buildings located in town, revealed expenses, excluding real estate taxes, of $9.00 and $8.63 per square foot, for fiscal years 2010 and 2011, respectively, while the expenses associated with the largest office building in town averaged $9.13 per square foot for fiscal year 2010 and $9.49 per square foot for fiscal year 2011. Several other office buildings for which Mr. Foster had data, ranged in size from 105,000 to 982,000 square feet, were located along Route 128 near the subject properties, and averaged from $6.36 to $9.66 per square foot in expenses, not including real estate taxes. Based on this information, Mr. Foster adopted operating expenses of $9.50 per square foot for fiscal year 2010 and $9.75 per square foot for fiscal year 2011.
Mr. Foster estimated his reserve for replacement at $0.25 per square foot, his tenant improvements at $2.00 per square foot, and his leasing commissions at $0.75 per square foot. He stated that he based his capital reserve estimate on discussions with investors and published industry surveys. He reported that he based his tenant improvements estimate on a blending of $7.50 per square foot for renewals and $30.00 per square foot for new leases assuming a 67% renewal probability and an average 7.5-year lease term. Similarly, he indicated that he based his leasing commissions on a 67% to 33% blending of $0.50 per square foot for renewals and $1.50 per square foot for new leases.
Mr. Foster's capitalization-rate analysis included rates from published industry sources, which ranged on average from 7.41% to 8.98% over the relevant time period, rates from discussions with market participants, rates extracted from his comparable-sales information, which ranged from 4.3% to 8.7%, and rates of 7.409% and 7.9695% for fiscal years 2010 and 2011, respectively, developed using a band-of-investment method. Based on this capitalization data and his analysis of the subject properties, Mr. Foster selected capitalization rates of 7.5% for fiscal year 2010 and 8.00% for fiscal year 2011. According to Mr. Foster, these rates were loaded because the corresponding net-operating incomes had not been adjusted with deductions for reserves for replacement, leasing commissions, or tenant-improvement allowances. To unload these capitalization rates, he calculated the percentage change that would be made to net-operating incomes by deducting reserves for replacement, leasing commissions, and tenant improvements. In this way, he determined unloaded capitalization rates, before the addition of tax factors, of 6.37% for fiscal year 2010 and 6.60% for fiscal year 2011. After the addition of appropriate tax factors, those rates became 7.42% and 7.74%, respectively.
Mr. Foster presented the Board with two stabilized operating statements for each fiscal year at issue - one including deductions for reserves for replacement, tenant improvements, and leasing commissions and the other excluding those deductions but including a higher capitalization rate which purportedly subsumed those costs. The following two tables summarize Mr. Foster's methodologies for fiscal years 2010 and 2011.

Mr. Foster's Income-Capitalization Methodologies
For Fiscal Year 2010
Without Capital Deductions With Capital
Deductions
Gross Potential Income
Base Rent (378,850 SF @ $34.25/SF) $ 12,975,613 $ 12,975,613
Recoveries $ 0 $ 0
Other Income $ 0 $ 0
Total Gross Income $ 12,975,613 $ 12,975,613

Vacancy & Collection Loss (@ 7.5%) ($ 973,171) ($ 973,171)

Effective Gross Income $ 12,002,442 $ 12,002,442

Expenses
Operating ($9.50/SF x 378,850 SF) ($ 3,599,075) ($ 3,599,075)
Real Estate Taxes ($ 0) ($ 0)
Reserves for Replacement ($0.25/SF x 378,850 SF) ($ 0) ($ 94,713)
Tenant Improvements ($2.00/SF x 378,850 SF) ($ 0) ($ 757,700)
Leasing Commissions ($0.75/SF x 378,850 SF) ($ 0) ($ 284,138)
Total Expenses ($ 3,599,075) ($ 4,735,626)

Net Operating Income $ 8,403,367 $ 7,266,816

Capitalization Rate
Without Capital Deducts: 0.0750 + 0.0105 = 0.0855
With Capital Deducts: 0.0637 + 0.0105 = 0.0742
8.55%

7.42%

Indicated Value $ 98,284,994 $ 97,935,526

Rounded Value $ 98,300,000 $ 97,950,000

Mr. Foster's Income-Capitalization Methodologies
For Fiscal Year 2011
Without Capital Deductions With Capital
Deductions
Gross Potential Income
Base Rent (378,850 SF @ $32.00/SF) $ 12,123,200 $ 12,123,200
Recoveries $ 0 $ 0
Other Income $ 0 $ 0
Total Gross Income $ 12,123,200 $ 12,123,200

Vacancy & Collection Loss (@ 7.5%) ($ 909,240) ($ 909,240)

Effective Gross Income $ 11,213,960 $ 11,213,960

Expenses
Operating ($9.75/SF x 378,850 SF) ($ 3,693,788) ($ 3,693,788)
Real Estate Taxes ($ 0) ($ 0)
Reserves for Replacement ($0.25/SF x 378,850 SF) ($ 0) ($ 94,713)
Tenant Improvements ($2.00/SF x 378,850 SF) ($ 0) ($ 757,700)
Leasing Commissions ($0.75/SF x 378,850 SF) ($ 0) ($ 284,138)
Total Expenses ($ 3,693,788) ($ 4,830,339)

Net Operating Income $ 7,520,172 $ 6,383,621

Capitalization Rate
Without Capital Deducts: 0.0800 + 0.0114 = 0.0914
With Capital Deducts: 0.0660 + 0.0114 = 0.0774
9.14%

7.74%

Indicated Value $ 82,277,593 $ 82,475,724

Rounded Value $ 82,300,000 $ 82,500,000

Based on these methodologies, Mr. Foster estimated the value of the subject properties at $98,000,000 for fiscal year 2010 and $82,400,000 for fiscal year 2011. He then allocated values to each of the individual subject properties using building square footage and, in the case of 85 McLean Street, which was the unimproved parcel, its assessed value. The following table summarizes these values for the fiscal years at issue.

Mr. Foster's Allocated Values for Each of the Subject Properties for Fiscal Years 2010 and 2011

Address of Each of
the Subject Properties
Fiscal Year 2010 Fiscal Year 2012
85 McLean Street $ 394,000 $ 357,000
96 Worcester Road $ 61,979,800 $ 52,097,300
100 Worcester Road $ 11,224,700 $ 9,434,900
112 Worcester Road $ 24,401,500 $ 20,510,800
Total $ 98,000,000 $ 82,400,000

Based on all of the evidence and reasonable inferences drawn therefrom, the Board made the following valuation findings of fact.
The Board's Valuation Findings
The Board found that the highest-and-best use of the subject properties was their continued use as a single-tenanted, campus-style, corporate headquarters. This finding comports with the highest-and-best-use determinations of the parties' real estate valuation experts. The Board also found that the income-capitalization approach was the best valuation methodology to use to value the subject properties for the fiscal years at issue. Neither cost nor sales-comparison approaches were appropriate valuation methodologies here because of the age and use of the subject properties in the former case, and the difficulty in locating truly comparable properties and sales on fee simple bases in the latter. Additionally, the parties' real estate valuation experts relied on income-capitalization methodologies in estimating the values of the subject properties for the fiscal years at issue.
In applying its methodology, the Board first found that rents of $33.00 per square foot and $31.00 per square foot under a gross, plus electric, leasing scenario were appropriate for fiscal years 2010 and 2011, respectively. The Board relied primarily on rents from properties that overlapped in the real estate valuation experts' reports and on rents from properties located in Wellesley - all of which the Board found to be most comparable to the subject properties. The appellant's and assessors' real estate valuation experts recommended rents of $34.25 and $31.00 for fiscal year 2010 and $32.00 and $30.00 for fiscal year 2011, respectively. The Board's rents, therefore, fall within the ranges established by the recommendations of both parties' real estate valuation experts.
The appellant's real estate valuation expert suggested a vacancy and collection loss rate of 10% for both fiscal years at issue, while the assessors' real estate valuation expert recommended a rate of 7.5% for both fiscal years at issue. The subject properties had not experienced any vacancy or collection loss for many years prior to the relevant valuation and assessment dates. Industry surveys for the Wellesley Route 9 Interchange suggest rates of 8.8% and 7.4% for fiscal years 2010 and 2011, respectively. Founded principally on this information, the Board adopted a stabilized vacancy and collection loss rate of 8% for both fiscal years at issue.
For fixed and variable expenses, as well as reserves and allowances, the Board adopted the amounts, percentages, and allowances recommended by the appellant's real estate valuation expert. The Board found that his suggestions best reflected the expenses and costs that should be assigned as market to the subject properties, given their age, condition, and associated obsolescence and physical needs, as well as their place in the market. The assessors' real estate valuation expert also used very similar market-based expense, allowance, and cost totals, which, therefore, closely approximate those proposed by the appellant's real estate valuation expert.
With respect to capitalization rates for the fiscal years at issue, the appellant's real estate valuation expert recommended rates of 7.50% and 8.00% plus applicable tax factors for fiscal years 2010 and 2011, respectively. He based his recommendations on his synthesized rates and published industry survey rates, after unloading them by 0.5% to account for the reserves and allowances that he included as expense items in his income-capitalization methodology. The assessors' real estate valuation expert suggested loaded rates of 7.50% and 8.00%, plus applicable tax factors for fiscal years 2010 and 2011, respectively. He also based his recommendations on published industry survey rates and his synthesized rates. In addition, he derived a range of capitalization rates from sales of what he considered to be reasonably comparable properties. The assessors' real estate valuation expert, however, unloaded his recommended capitalization rates to account for reserves and allowances that he included as costs in his income-capitalization methodology by more than twice the percentage used by the appellant's real estate valuation expert. The assessors' real estate valuation expert calculated the percentage changes that would be made to net-operating incomes by deducting reserves for replacement, leasing commissions, and tenant improvements and unloaded his capitalization rates accordingly. The Board found that this method for determining appropriate percentages to unload recommended capitalization rates was reasonable under the circumstances and the percentages so derived by the assessors' real estate valuation expert were amply supported with empirical data. In contrast, the appellant's real estate valuation expert simply applied a percentage without any empirical justification. For these reasons the Board adopted the capitalization rates, loaded only for a tax factor, proffered by the assessors' real estate valuation expert; those rates are 7.42% for fiscal year 2010 and 7.74% for fiscal year 2011.
These valuation findings resulted in fair cash values for the subject properties of $89,100,000 for fiscal year 2010 and $72,850,000 for fiscal year 2011. Summaries of the Board's income-capitalization methodologies for fiscal years 2010 and 2011 are contained in the following two tables.

The Board's Income-Capitalization Methodology
for Fiscal Year 2010
Gross Potential Income ("GPI")
Building One 124,500 SF x $33.00/SF = $ 4,108,500
Building Two 44,250 SF x $33.00/SF = $ 1,460,250
Building Three 116,200 SF x $33.00/SF = $ 3,834,600
Building Four 94,000 SF x $33.00/SF = $ 3,102,000
Total 378,950 SF $ 12,505,350

Vacancy and Credit Loss @ 8.0% of GPI ($ 1,000,428)

Effective Gross Income ("EGI") $ 11,504,922

Fixed Expenses
Real Estate Taxes (taken as capitalization rate factor)
Insurance $ 99,771
Total ($ 99,771)

Variable Expenses
Janitorial/Cleaning $ 639,938
Repairs & Maintenance $ 745,170
Utilities $ 672,427
Roads/Grounds/Landscaping $ 571,462
Security $ 435,480
Administrative Expense $ 211,500
Management (2% of EGI) $ 230,098
Miscellaneous (0.5% of EGI $ 57,525
Total ($ 3,563,600)

Reserves and Allowances
Reserve for Replacement ($0.50/SF) $ 189,475
Leasing Commissions ($1.00/SF) $ 378,950
Tenant Improvements ($1.75/SF) $ 663,163
Total ($ 1,231,588)

Total Operating Expenses ($ 4,894,959)

Net Operating Income $ 6,609,963

Capitalization Rate
Unloaded Capitalization Rate 6.37%
Add Tax Factor 1.05%
Overall Capitalization Rate 7.42% 7.42%

Value Indicated $ 89,083,059

Rounded Fair Cash Value $ 89,100,000

The Board's Income-Capitalization Methodology
for Fiscal Year 2011
Gross Potential Income ("GPI")
Building One 124,500 SF x $31.00/SF = $ 3,859,500
Building Two 44,250 SF x $31.00/SF = $ 1,371,750
Building Three 116,200 SF x $31.00/SF = $ 3,602,200
Building Four 94,000 SF x $31.00/SF = $ 2,914,000
Total 378,950 SF $ 11,747,450

Vacancy and Credit Loss @ 8.0% of GPI ($ 939,796)

Effective Gross Income ("EGI") $ 10,807,654

Fixed Expenses
Real Estate Taxes (taken as capitalization rate factor)
Insurance $ 105,927
Total ($ 105,927)

Variable Expenses
Janitorial/Cleaning $ 653,011
Repairs & Maintenance $ 752,699
Utilities $ 846,661
Roads/Grounds/Landscaping $ 656,425
Security $ 413,950
Administrative Expense $ 237,525
Management (2% of EGI) $ 216,153
Miscellaneous (0.5% of EGI) $ 54,038
Total ($ 3,830,462)

Reserves and Allowances
Reserve for Replacement ($0.50/SF) $ 189,475
Leasing Commissions ($1.00/SF) $ 378,950
Tenant Improvements ($1.75/SF) $ 663,163
Total ($ 1,231,588)

Total Operating Expenses ($ 5,167,977)

Net Operating Income $ 5,639,677

Capitalization Rate
Unloaded Capitalization Rate 6.60%
Add Tax Factor 1.14%
Overall Capitalization Rate 7.74% 7.74%

Value Indicated $ 72,864,044

Rounded Fair Cash Value $ 72,850,000

For fiscal year 2010, the Board did not grant abatements for any of the subject properties because its finding of the subject properties' or the Park's overall fair cash value of $89,100,000 exceeded the subject properties' or the Park's overall assessed value of $88,647,000. For fiscal year 2011, the Board granted abatements for three of the subject properties because the subject properties' or the Park's overall assessed value of $76,506,000 exceeded the Board's finding of the subject properties' or the Park's overall fair cash value of $72,850,000. The Board allocated fair cash values to each of the subject properties for fiscal year 2011 by using the buildings' rentable area and assessments and, in the case of 85 McLean Street, the unimproved parcel, its assessed value which although appealed, was not contested. The following table summarizes the Board's findings for each of the subject properties' fair cash value for fiscal year 2011, as well as their assessed value and concomitant tax abatement based on a rate of $11.43 per thousand.
Board's
Fair Cash Value Assessed Value
Over-
Valuation Tax Abatement
96 Worcester Road $ 45,670,590 $ 48,361,000 $2,690,410 $31,058.90
100 Worcester Road $ 8,699,160 $ 8,894,000 $ 194,840 $ 2,249.29
112 Worcester Road $ 18,123,250 $ 18,894,000 $ 770,750 $ 8,897.77
85 McLean Street $ 357,000 $ 357,000 0 0
TOTAL $ 72,850,000 $ 76,506,000

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). "In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted." Peterson v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2002-573, 617 (citing Appraisal Institute, The Appraisal of Real Estate 315-316 (12th ed., 2001)), aff'd, 62 Mass. App. Ct. 428 (2004). On this basis, the Board ruled that the highest-and-best use of the subject properties for the fiscal years at issue in these appeals was their existing use as a single-tenanted, campus-style, corporate headquarters. In making this ruling, the Board considered, among other factors, the subject properties' rental history and historical use, their location and layout, as well as the predominant uses in the area. The parties' real estate valuation experts found the same highest-and-best use for the subject properties as the Board did.
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 ruled that neither sales-comparison nor cost approaches were appropriate valuation methodologies to use under the circumstances. The parties' real estate valuation experts also relied on income-capitalization methods, even though the assessors' real estate valuation expert performed a sales-comparison approach as a check and to obtain local sales-based capitalization rates. The Board found that there were not enough market sales of reasonably comparable properties to meaningfully estimate the value of the subject property using a sales-comparison technique and the available sales were primarily leased fee, not fee simple, transactions. There was essentially no evidence regarding leased-fee to fee-simple adjustments. Furthermore, the Board ruled that "[t]he introduction of evidence concerning the value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods." Correia, 375 Mass. at 362. The Board found here that no such "special situations" existed, and, even if they did, there was no evidence on which to base a value using a cost approach. In addition, the Board found that the extent and degree of depreciation and obsolescence in the subject properties' buildings would be difficult to determine. Accordingly, the Board ruled that this method of valuation also was not a suitable technique to use for valuing the subject properties for the fiscal years at issue in these appeals.
The use of the income-capitalization approach is appropriate when reliable market data are not available. Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810, 811 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941). It is also an appropriate technique to use for valuing income-producing property. Id. at 64-65. In these appeals, the Board relied exclusively on the value determined from the income-capitalization approach because the other methods were not appropriate, and the approach that the Board used was equivalent to the ones that the parties' real estate valuation experts employed.
The income stream used in the income-capitalization method must reflect the property's earning capacity or economic rental value. Pepsi-Cola Bottling Co., 397 Mass. at 451. Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, they are indicative of the subject property's earning capacity. See Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 879 (1980)(rescript). Actual rents from the subject property are also probative in this regard if they reflect the subject's true earning capacity. Pepsi Cola Bottling Co., 397 Mass. at 451; Irving Saunders Trust, 26 Mass. App. Ct. at 842. After accounting for vacancy and rent losses, which also must be market based, see Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 239, 241-42 (1998), 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, 243.
The Board adopted the rentable areas used by the appellant's real estate valuation expert because he had access to the best information in that regard, and the assessors' real estate valuation expert's measurement was within 10 square feet. The rents selected by the Board were developed from the adjusted rents of comparable properties relied on by both real estate valuation experts and on properties located nearby in Wellesley. The Board's rents fall between those recommended by the parties' real estate valuation experts. The Board's vacancy and credit loss rates were founded primarily on the rates recommended and the data underpinning the parties' real estate valuation experts' selections, as well as a published industry survey revealing rates for the subject properties' immediate market area and location.
For fixed and variable expenses, as well as reserves and allowances, the Board adopted the amounts, percentages, and allowances recommended by the appellant's real estate valuation expert. The Board found that his suggestions best reflected market expenses and costs associated with the subject properties, given their age, condition, and associated obsolescence and physical needs, as well as their place in the market. The assessors' real estate valuation expert also used very similar market-based expense, allowance, and cost totals. The Board's adoption and inclusion in its income-capitalization methodology of the costs for tenant improvements, leasing commissions, and reserves for replacement of short-lived capital items that the appellant's real estate valuation expert's recommended are proper items to consider and deduct from effective gross income. See, e.g., Olympia & York State Street Co., 428 Mass. at 243; OCP Limited Partnership v. Assessors of Framingham, Mass. ATB Findings of Fact and Reports 2005-115, 129; Peterson, Mass. ATB Findings of Fact and Reports at 2002-623.
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 "tax factor" is a percentage added to the capitalization rate "to reflect the tax which will be payable on the assessed valuation produced by the [capitalization] formula." Assessors of Lynn v. Shop-Lease Co., 364 Mass. 569, 573 (1974). It is appropriate to add a tax factor to the capitalization rate in gross, plus electric, leasing scenarios because the landlord is assumed to be responsible for paying the real estate taxes. See Appraisal Institute, The Appraisal of Real Estate 451 (13th ed. 2008). In addition, capitalization rates must be unloaded when costs associated with reserves for replacement, leasing commissions, and tenant improvements have not been deducted from the net incomes used to derive those rates but the costs associated with reserves for replacement, leasing commissions, and tenant improvements are being deducted in the methodology in which the capitalization rates are being applied. The Appraisal of Real Estate at 503-504 (13th ed. 2008)(cautioning that capitalization rates which are not derived from the same income and expense components may not be validly compared unless they are appropriately adjusted to reflect those differences). See also Cambridge Park 125 Realty Corp. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2008-746, 780.
With respect to capitalization rates for the fiscal years at issue, the appellant's real estate valuation expert recommended rates of 7.50% and 8.00% plus applicable tax factors for fiscal years 2010 and 2011, respectively. He based his recommendations on his synthesized rates and published industry survey rates, after unloading them by 0.5% to account for the reserves and allowances that he included as expense items in his income-capitalization methodology. The assessors' real estate valuation expert suggested loaded capitalization rates of 7.50% and 8.00%, plus applicable tax factors for fiscal years 2010 and 2011, respectively. He also based his recommendations on published industry survey rates and his synthesized rates. In addition, he derived a range of capitalization rates from sales of what he considered to be reasonably comparable properties. The assessors' real estate valuation expert, however, unloaded his recommended capitalization rates to account for reserves and allowances that he included as costs in his income-capitalization methodology by more than twice the percentage used by the appellant's real estate valuation expert. The assessors' real estate valuation expert calculated the percentage changes that would be made to his net-operating incomes by deducting reserves for replacement, leasing commissions, and tenant improvements and unloaded his capitalization rates accordingly. The Board found that this method for determining appropriate percentages to unload recommended capitalization rates was reasonable under the circumstances and the percentages derived by the assessors' real estate valuation expert were amply supported with empirical data. In contrast, the appellant's real estate valuation expert simply applied a percentage without any empirical justification. For these reasons the Board adopted the capitalization rates, loaded only for appropriate tax factors, proffered by the assessors' real estate valuation expert, to use in its income-capitalization methodology - the net income of which includes deductions for reserves for replacement, leasing commissions, and tenant improvements.
In reaching its opinion of fair cash value in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); New England Oyster House, Inc., 362 Mass. 696, 702 (1972). In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value. General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984). In considering whether, and to what extent, the subject properties were overvalued, the Board took its view of the subject properties and the neighborhood into account. Westport v. Bristol County Commissioners, 246 Mass. 556, 563 (1923); Avco Manufacturing Corp. v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142, 165-66; Arthur D. Little, Inc. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports, 1982-363, 374.
The Board need not specify the exact manner in which it arrived at its valuations. Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971). The fair cash value of properties cannot be proven with "mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment." Boston Consol. Gas Co., 309 Mass. at 72. "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the board." Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
"'The burden of proof is upon the [appellant] to make out [its] right as a matter of law to abatement of the tax.'" Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974)(quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). The appellant must show that it has complied with the statutory prerequisites to their appeal, Cohen v. Assessors of Boston, 344 Mass. 268, 271 (1962), and that the assessed valuations placed on their properties were improper. See Foxboro Associates, 385 Mass. at 691. The assessments are presumed valid until the taxpayer sustains its burden of proving otherwise. Schlaiker, 365 Mass. at 245. The Board ruled here that appellant met its burden of proving that the subject properties were overvalued for fiscal year 2011 but not for fiscal year 2010.
The Board applied these principles in reaching its opinion of the fair cash values of the subject properties for the fiscal years at issue in these appeals. On this basis, the Board decided that three of the subject properties were overvalued for fiscal year 2011, but none of the subject properties were overvalued for fiscal year 2010.

The Board, therefore, decided the fiscal year 2010 appeals for the appellee and three of the fiscal year 2011 appeals for the appellant and granted appropriate tax abatements.

THE APPELLATE TAX BOARD

By: _______________________________
James D. Rose, Commissioner

A true copy,

Attest: _________________________
Clerk of the Board

The parties refer to the appellant in their briefs as "Sun Life Assurance Company of Canada (US)."
The town refers to the subject properties for assessment purposes as: Map 4, Parcel 2; Map 7, Parcel 27; Map 7, Parcel 11; and Map 8, Parcel 10, respectively. For purposes of these appeals Worcester Road and Worcester Street are synonymous.
Despite its location on the parcel with an address of 96 Worcester Road, Building Three is sometimes referred to as 110 Worcester Road.
Sun Life Executive Park consists of a total of 18.9 acres of land, of which 120,367 square feet are located in Needham. The parties and their real estate valuation experts agreed that the portion of the Park situated in Needham does not impact the valuation of the Park for purposes of these appeals.
The appellant did not appeal the fiscal year 2010 assessment for the unimproved parcel located at 85 McLean Street.
These amounts do not include additions or surcharges under the Community Preservation Act ("CPA").
These values include the $394,000 and $357,000 assessed values for 85 McLean Street for fiscal years 2010 and 2011, respectively, even though this parcel's assessed value was not appealed for fiscal year 2010.
General Laws c. 59, § 38D provides, in pertinent part, that: "[The] assessors may request the owner . . . of any real property to make a written return . . . containing such information as may reasonably be required by [the assessors] to determine the actual fair cash valuation of such property."
Mr. Foster used a total rentable area of 378,850 square feet for the subject properties, while Mr. Coleman used 378,950 square feet. The Board adopted the area used by Mr. Coleman because he had obtained his measurements from the appellant's management, marketing and leasing personnel. At any rate, the Board found that the 10-square-foot difference was negligible.
Mr. Foster collectively refers to these three deductions or costs - reserves for replacement, leasing commissions, and tenant improvements - as "capital deductions."
The tax abatements in this table include abatements for CPA surcharges.

ATB 2014-1078

Sun Life Assurance v. Board of Assessors of The Town of Wellesley (December 8, 2014)

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