F254207; F256231•Textron Systems v. Board of Assessors of the Town of Wilmington (November 27, 2001)
Textron Systems v. Board of Assessors of the Town of Wilmington (November 27, 2001)
F254207; F256231Masstaxbd
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COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
TEXTRON SYSTEMS v. BOARD OF ASSESSORS OF
THE TOWN OF WILMINGTON
Docket Nos.: F254207 (1999)
F256231 (2000) Promulgated:
November 27, 2001
These are appeals under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65 from the refusal of the appellee to abate real estate taxes assessed under G.L. c. 59, § 38 for fiscal years 1999 and 2000.
Commissioner Egan heard these appeals. Chairman Burns and Commissioners Scharaffa, Gorton, and Rose joined her in the decisions for the appellant.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 8.31 CMR 1.32.
John M. Lynch, Esq. and Stephen W. DeCourcey, Esq. for the appellant.
Alan Altman, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 1998 and January 1, 1999, the appellant, Textron Systems ("Textron"), was the assessed owner of a parcel of land in Wilmington that the Board of Assessors ("Assessors") described as parcel 73A on map 48 ("subject property," "subject," or "property"). The subject property is located less than a mile from the junction of Route 129 and Interstate 93. It is approximately sixteen miles from Boston, and about seven miles from I-495 to the north and three miles from Route 128 to the south. At all relevant times, the parcel contained approximately 52.80 acres of land improved with five interconnected buildings and two other freestanding buildings. The total building area is 728,758 square feet. The subject property is in an area that is zoned for industrial use.
Textron, a defense contractor, built most of this campus-style complex in 1957 for its research, development, testing, manufacturing, and fabrication operations. The subject property has always been owner-occupied. During the fiscal years at issue, approximately fifty-five percent of the property was used for industrial purposes while forty-five percent was used for office or research and development functions. There are 1,366 parking spaces for fewer than 900 employees. Prior to the 1997 sale of 18.2 acres of the site along with three buildings, with a total building area of approximately 126,093 square feet, to Howland Development for $2,100,000, the subject property consisted of ten buildings and seventy-one acres, and, at one time, employed as many as 3,600 workers. Parts of the property are now underutilized.
For fiscal year 1999, the Assessors valued the property at $19,729,500 and assessed a tax thereon, at the rate of $30.08 per thousand, in the amount of $593,463.36. Textron paid the tax without incurring interest. Textron timely filed its request for abatement with the Assessors on January 25, 1999 and then, on July 9, 1999, seasonably appealed the Assessors' April 13, 1999 denial of its abatement request to the Appellate Tax Board ("Board"). On this basis, the Board found that it had jurisdiction over the fiscal year 1999 appeal.
For fiscal year 2000, the Assessors valued the property at $19,915,900 and assessed a tax thereon, at the rate of $31.77 per thousand, in the amount of $632,728.14. Textron paid the tax without incurring interest. Textron timely filed its request for abatement with the Assessors on January 26, 2000 and, on May 8, 2000, seasonably appealed the Assessors' March 15, 2000 denial of its abatement request to this Board. On this basis, the Board found that it had jurisdiction over the fiscal year 2000 appeal.
During the relevant fiscal years, there were seven buildings located on the property. All of them relied on a centralized system for air conditioning, heat, and electricity. Buildings 1, 2, and 3 are all three level structures that were built in 1957. Building 1 contains 69,990 square feet, building 2 contains 62,602 square feet, and building 3 contains 194,124 square feet. Building 2 is connected to buildings 1 and 3 by elevated walkways. Building 1 contains a single freight elevator and one truck dock. It primarily supports office and research and development uses. Building 2 contains one narrow loading dock and one oversized hydraulic passenger elevator that provides service to all three buildings' three levels. Uses in building 2 include the main lobby for the complex, reception area, guard headquarters, kitchen, employee cafeteria, auditorium, and offices. Building 3 contains one loading dock on the second floor and one oversized passenger elevator, which only serves the top two floors. Its uses include office and research and development.
Building 4 is a 166,284 square foot, one-story structure with a 30,129 square foot mezzanine. The majority of the building is used for manufacturing. Most of the mezzanine is office space. There is one loading dock and one elevator, which services the mezzanine area. The ground floor contains high bay areas up to thirty-five feet in height.
Building 6 is a 10,688 square foot, one-story structure. At one time, it served as a ballistic range for the firing of various types of weapon systems and projectiles. Building 8 is a 676 square foot, one-story structure, which, in the past, was used for loading and handling munitions. Both parties' expert real estate appraisers agreed that these buildings are now obsolete.
Building 9 is a 224,394 square foot, U-shaped structure that was built in 1982 in connection with a Department of Defense contract for the M/X missile program. It is primarily one story with a mezzanine area and a three-story tower. It contains two single-passenger and one freight elevator as well as four loading docks. This building is used for manufacturing, shipping, receiving, warehousing, laboratory and office space.
Textron presented its case in chief through the testimony of seven witnesses. Daniel Sullivan, who had worked at Textron as early as 1980 and at the time of the hearing, was the facilities project manager, described the subject property and its deteriorating conditions and reduced operations. Brian McKenzie and Samuel Oddo, both commercial real estate brokers, testified to the conditions in the commercial real estate market during the fiscal years at issue and the concomitant difficulties marketing older, primarily manufacturing properties like the subject. They both testified that there would be little demand for the subject property as a single-user facility and that renting the property to multiple tenants would necessitate extensive, costly renovations.
Richard W. Reynolds, a principal with an international commercial real estate firm in Boston, who had extensive experience in commercial real estate development and finance, also testified for Textron. Mr. Reynolds analyzed the property's development potential considering the market and the property's physical limitations that included restrictions relating to Wilmington's Groundwater Protection District ("GWPD"), zoning, environmental concerns, and certain parking requirements. He relied on a study conducted by Dr. Robert Ingram, who also testified for Textron in these appeals. Mr. Reynolds determined that market and governmental restrictions limited new construction on the subject site, if vacant, to a total of 381,000 square feet. He further indicated that parking requirements alone might necessitate this limit. He considered the highest and best use of the property on the relevant assessment dates to be the demolition of the existing physical plant and redevelopment of the site into four new three-story office/R&D buildings, each containing approximately 95,000 square feet of rentable space. Mr. Reynolds estimated that the value of the underlying land of the subject property, if vacant and available for new development on the relevant assessment dates, was in the range of $6,045,000 to $6,220,000. To reach this estimate, he relied on sales of comparable sites and improved properties and then, as appropriate, factored in demolition costs.
Robert Ingram, manager of ecological services with the Daylor Consulting Group, described a recent study that he conducted on the environmental and zoning restrictions affecting the property. Dr. Ingram identified Wilmington's GWPD as one such restriction, which limited to fifteen percent the impervious area that may be created at new constructions, reconstructions, expansions of existing buildings or other new or expanded uses. According to Dr. Ingram, approximately 45.2 acres of the subject property are located within Wilmington's GWRD. On this basis, he estimated that the total allowable impervious area at the subject property was 14.4 acres. Special permits would be required for any uses exceeding the allowable impervious area within the GWPD. Dr. Ingram testified that other environmental and zoning limitations, including buffer zones under the Rivers and Wetlands Protection Acts and set-backs under Wilmington's zoning ordinances, further constrained development at the property.
Donald P. Bouchard testified for Textron as its expert real estate appraiser. His appraisal report was entered into evidence. Mr. Bouchard considered two alternative approaches for valuing the subject property. In one of these approaches, he estimated the land value of the subject property as if vacant, which required the complete demolition of the existing improvements. In the other approach, he valued the subject property as currently improved on the relevant assessment dates. In his opinion, the complex exhibited physical deterioration and functional obsolescence and was further adversely affected by external obsolescence. He observed the physical deterioration in the building's roofs, canopies, electrical, heating and cooling systems, and other structural components. He identified some of the complex's functional inadequacies in its buildings' layouts, the inconvenience of the available parking, the limited "vertical transportation," various energy inefficiencies, obsolete and inadequate electrical, heating and cooling systems, and many outmoded design features. Mr. Bouchard believed that the complex was affected by external obsolescence because he considered the demand for this type of property to be virtually non-existent. He also believed that the complex, as it existed on the relevant assessment dates, was not conducive to multi-tenanted occupancy because of its convoluted layout and many inadequacies.
Under the circumstances, Mr. Bouchard considered the highest and best use of the subject property was to renovate it for reuse as a multi-tenanted complex. He ruled out using income-capitalization approaches for valuing the subject property because of that method's inability to account accurately for either renovation or demolition costs in a multi-tenant scenario and the scarcity of single-tenant market rental data under a single-tenant assumption. He considered a cost approach unreliable because of the property's age and condition, and the speculative or highly subjective nature of depreciation estimates. Consequently, Mr. Bouchard settled on the sales-comparison approach as the most reliable indicator of the fair market value of the subject property for the fiscal years at issue in these appeals.
In developing his estimate of the fair market value of the subject property, Mr. Bouchard considered eight sales of large complexes that he considered to be reasonably comparable to the subject property. He ultimately relied, in varying degrees, upon seven of these sales, but only five to any significant extent. Of these five, he relied most prominently on the 1997 sale of a portion of the subject property. According to Mr. Bouchard, all five of these comparable-sale properties shared some important characteristics with the subject property. These characteristics included that they: were formerly owner-occupied or single-user facilities; were built and used for varying manufacturing processes; were purchased on a fee simple basis; were purchased by real estate developers; shared a highest and best use for renovation and conversion into a multi-tenanted facility; required a substantial capital investment for conversion; and, with one exception, required demolition of obsolete portions of the existing facility.
To estimate the fair cash value of the subject property using his sales-comparison methodology, Mr. Bouchard first calculated the price per-square-foot paid for each of the comparable-sale properties. He then made positive adjustments for changing market conditions since time of sale and mostly negative adjustments for location, physical factors, economic factors, and, in the case of his comparable sale numbers 7 and 8, what he termed "the leased fee bundle of rights." Summaries of his actual adjustments for each of the fiscal years at issue are contained in the following tables.
Fiscal Year 1999
Subject
Sale 1
Sale 2
Sale 3
City/Town Wilmington Lexington Concord Bedford
Sale Price N/A $7,200,000 $6,250,000 $4,850,000
Sq. Footage 728,758 336,405 437,442 372,000
Price Per SF N/A $21.40 $14.29 $13.04
Date of Sale N/A 4/7/97 12/12/96 4/1/97
Property Rights Fee Simple Fee Simple Fee Simple Fee Simple
Adjustment N/A 0.00% 0.00% 0.00%
Adjusted Price N/A $21.40 $14.29 $13.04
Market Conditions 01/01/98 Inferior Inferior Inferior
Adjustment N/A 4.00% 6.00% 4.00%
Adjusted Price N/A $22.26 $15.14 $13.56
Location Average Superior Superior Superior
Adjustment N/A -30.00% -10.00% -15.00%
Physical Factors Average Superior Superior Superior
Adjustment N/A -20.00% -20.00% -10.00%
Economic Factors N/A Superior Superior Superior
Adjustment N/A -5.00% -2.50% -5.00%
Sum of Adjustments N/A -55.00% -33.00% -30.00%
Adjusted Prices N/A $10.02 $10.22 $9.49
$7,299,603 $7,449,935 $6,916,932
Sale 4
Sale 6
Sale 7
Sale 8
City/Town Wilmington Billerica Lowell Lowell
Sale Price $2,100,000 $6,500,000 $14,500,000 $6,500,000
Sq. Footage 126,093 617,440 876,900 363,457
Price Per SF $16.65 $10.53 $16.54 $17.88
Date of Sale 4/97 12/19/96 6/18/96 7/24/96
Property Rights Fee Simple Fee Simple Leaseback Leased Fee
Adjustment 0.00% 0.00% -25.00% -25.00%
Adjusted Price $16.65 $10.53 $12.40 $13.41
Market Conditions Inferior Inferior Inferior Inferior
Adjustment 4.00% 6.00% 9.00% 9.00%
Adjusted Price $17.32 $11.16 $13.52 $14.62
Location Equal Inferior Inferior Similar
Adjustment 0.00% 10.00% 15.00% 0.00%
Physical Factors Superior Superior Superior Superior
Adjustment -15.00% -20.00% -25.00% -20.00%
Economic Factors Superior Similar Similar Similar
Adjustment -25.00% 0.00% 0.00% 0.00%
Sum of Adjustments -40.00% -10.00% -10.00% -20.00%
Adjusted Prices7 $10.39 $10.04 $12.17 $11.70
$7,573,493 $7,318,976 $8,866,078 $8,523,567
Fiscal Year 2000
Subject
Sale 1
Sale 2
Sale 3
City/Town Wilmington Lexington Concord Bedford
Sale Price N/A $7,200,000 $6,250,000 $4,850,000
Sq. Footage 728,758 336,405 437,442 372,000
Price Per SF N/A $21.40 $14.29 $13.04
Date of Sale N/A 4/7/97 12/12/96 4/1/97
Property Rights Fee Simple Fee Simple Fee Simple Fee Simple
Adjustment N/A 0.00% 0.00% 0.00%
Adjusted Price N/A $21.40 $14.29 $13.04
Market Conditions 01/01/99 Inferior Inferior Inferior
Adjustment N/A 12.00% 14.00% 12.00%
Adjusted Price N/A $23.97 $16.29 $14.60
Location Average Superior Superior Superior
Adjustment N/A -30.00% -10.00% -15.00%
Physical Factors Average Superior Superior Superior
Adjustment N/A -20.00% -20.00% -10.00%
Economic Factors N/A Superior Superior Superior
Adjustment N/A -5.00% -2.50% -5.00%
Sum of Adjustments N/A -55.00% -33.00% -30.00%
Adjusted Prices N/A $10.79/SF $10.99/SF $10.22/SF
$7,861,111 $8,012,195 $7,449,004
Sale 4
Sale 6
Sale 7
Sale 8
City/Town Wilmington Billerica Lowell Lowell
Sale Price $2,100,000 $6,500,000 $14,500,000 $6,500,000
Sq. Footage 126,093 617,440 876,900 363,457
Price Per SF $16.65 $10.53 $16.54 $17.88
Date of Sale 4/97 12/19/96 6/18/96 7/24/96
Property Rights Fee Simple Fee Simple Leaseback Leased Fee
Adjustment 0.00% 0.00% -25.00% -25.00%
Adjusted Price $16.65 $10.53 $12.40 $13.41
Market Conditions Inferior Inferior Inferior Inferior
Adjustment 12.00% 14.00% 17.00% 17.00%
Adjusted Price $18.65 $12.00 $14.51 $15.69
Location Equal Inferior Inferior Similar
Adjustment 0.00% 10.00% 15.00% 0.00%
Physical Factors Superior Superior Superior Superior
Adjustment -15.00% -20.00% -25.00% -20.00%
Economic Factors Superior Similar Similar Similar
Adjustment -25.00% 0.00% 0.00% 0.00%
Sum of Adjustments -40.00% -10.00% -10.00% -20.00%
Adjusted Prices8 $11.19/SF $10.80/SF $13.06/SF $12.55/SF
$8,156,070 $7,871,351 $9,516,799 $9,149,150
After estimating a final per-square-foot value for each of the fiscal years at issue, he applied these values to the gross building area of the subject property. In this way, he determined that the value of the subject property on January 1, 1998 and January 1, 1999 was $7,500,000 and $8,000,000, respectively. His comparable-sales approach is summarized in the following table.
Sale
No.
Location Extent of Reliance In
Analysis
Sale
Price
Price
PSF Adjusted Price PSF
FY 1999 Adjusted
Price PSF
FY 2000
1 Lexington Major $ 7,200,000 $21.40 $10.02 $10.79
2 Concord Major $ 6,250,000 $14.29 $10.22 $10.99
3 Bedford Major $ 4,850,000 $13.04 $ 9.49 $10.22
4 Wilmington Most $ 2,100,000 $16.65 $10.39 $11.19
5 Wilmington None $ 5,600,000 $12.22 N/A N/A
6 Billerica Major $ 6,500,000 $10.53 $10.04 $10.80
7 Lowell Minor $14,500,000 $16.54 $12.17 $13.06
8 Lowell Minor $ 6,500,000 $17.88 $11.70 $12.55
Mr. Bouchard also estimated the underlying land value of the subject property as vacant and available for development. In developing this estimate, he relied on eight land sales. After applying various adjustments to the land sales and subtracting his approximation of the likely demolition costs of the existing buildings on the subject property, he estimated that the land value of the subject property as of January 1, 1998 and January 1, 1999, using this methodology, was $5,250,000 and $6,000,000, respectively. Mr. Bouchard did not rely on this latter technique, however, but chose instead to rely solely on what he considered to be the more conservative and appropriate approach of valuing the property as improved.
Textron also called the Assessors' expert real estate appraiser, Alan G. Dana, to testify in its case in chief. In his direct testimony under questioning by Textron's counsel, Mr. Dana acknowledged that, in his original appraisal report, which was provided to Textron's counsel several days earlier, he committed glaring mathematical errors in certain calculations contained in his income-capitalization methodology for estimating the value of the subject property as a multi-tenanted facility. In the course of his direct testimony in Textron's case in chief, he recalculated his erroneous effective gross income and net income figures at the behest of Textron's counsel. Using these mathematically corrected figures, along with his projected rehabilitation costs for buildings 1, 2 and 3, his indicated values for the subject property were reduced from $19,460,647 to $3,949,838 as of January 1, 1998 and from $24,094,993 to $6,848,976 as of January 1, 1999. His corrected values were well below the opinions of value offered by Textron's real estate valuation expert for the fiscal years at issue. Summaries of his original but erroneous methodology for fiscal year 1999 and his figures that he corrected during his direct testimony in Textron's case in chief are contained in the following table.
Original
Figures Corrected
Figures
Potential Gross Income:
R&D/Office (323,735 @ $8.50) $ 2,751,748 $ 2,751,748
Industrial (404,476 @ $4.50) 1,820,142 1,820,142
Total Potential Gross Income: 4,571,890 4,571,890
Less: Vacancy (10%) (457,189) (457,189)
Estimated Effective Gross Income: $ 5,934,843 $ 4,114,701
Estimated Annual Expenses:
Management (3%) 237,394 123,441
Insurance 5,000 5,000
Structural Repairs & Maint. ($0.10/SF) 72,876 72,876
Amortized Leasing Commissions 116,583 116,583
Amortized Tenant Improvements 663,618 663,618
Professional Fees 10,000 10,000
Reserve @ 0.25/SF 182,053 182,053
Total Estimated Expenses: $ 1,287,524 $ 1,173,571
Estimated Net Operating Income: $ 4,647,319 $ 2,941,130
Capitalization Rate 11.00% 11.00%
Indicated Value $42,248,354 $26,737,545
Less: Rehab of R&D Buildings @ $70.39/SF (22,787,707) (22,787,707)
Indicated Value As-Is: $19,460,647 $ 3,949,838
Two witnesses testified for the Assessors in their case in chief. Their first witness was Daniel W. Paret, Wilmington's Building Inspector since 1995. Mr. Paret first described building activity in Wilmington during the relevant time period. He characterized the period as a "very busy time." Mr. Paret also testified that Wilmington's parking requirements for office and industrial uses on the relevant assessment dates were one space for 300 square feet and one space for 800 square feet, respectively. He suggested that if the subject property were vacant on the relevant assessment dates, he would issue a building permit for the same floor plate as then existing. He also suggested that a variance issued in 1982 that authorized an additional 475,000 square feet of floor area on the subject property might well have been approved on the relevant assessment dates.
As elicited by Textron's counsel's questioning during cross-examination, however, since 1982, additional groundwater, wetland, environmental, parking, zoning and other use restrictions would no doubt impact the possible granting of any such variances on the relevant assessment dates. Moreover, at the time the variance was granted in 1982, the subject property contained additional acreage that has since been sold off. Consequently, when the variance was granted, a different regulatory climate existed, and the property was significantly larger. Finally, it appeared during Mr. Paret's examination that the fifteen percent limitation on the impervious area in Wilmington's GWRD was not added to the town's zoning bylaws until April 1999, several months after the last relevant assessment date in these appeals. The Board found that the imposition of this limitation was foreseeable as of at least the latter assessment date. At any rate, it did not affect the Board's methodology in determining the fair cash value of the subject property for the fiscal years at issue because of its finding, infra, that the highest and best use of the subject property was for rehabilitation to accommodate multi-tenanted occupancy.
The Assessors called Alan Dana as their expert real estate appraiser. He relied equally on three approaches to estimate the value of the subject property for fiscal years 1999 and 2000, including a sales-comparison method and two income-capitalization techniques in which he used a multi-tenant scenario in one and a single-tenant model in the other. During the Assessors' counsel's cross-examination of Mr. Dana in Textron's case in chief, Mr. Dana attempted to correct and change his multi-tenant income approach that had been the subject of Textron's counsel's damaging direct examination. The Board, however, found that Mr. Dana's credibility had been so severely undermined during the direct portion of his testimony, that his attempts to change and correct his methodology, during this cross-examination phase and later during his direct testimony in the Assessors' case in chief, were self-serving and fundamentally unreliable.
His testimony in the Assessors' case in chief also revealed that his multi-tenant income-capitalization approach contained additional shortcomings that seriously undermined its efficacy, including his unsubstantiated conclusion that the subject property contained 350,000 square feet of excess land with a value of ten dollars per buildable square foot, his failure to review the leases upon which he relied in estimating an appropriate market rent for each fiscal year at issue, certain discrepancies regarding appropriate and intended management fees, and his inability to establish the comparability of most of his purportedly comparable rental properties to the subject property. On motion by Textron's counsel, the Board struck his unsupported opinion regarding the amount and value of the purported excess land. Accordingly, the Board found that Mr. Dana's multi-tenant income-capitalization approach was too unreliable and flawed to merit serious consideration.
With respect to his income-capitalization methodology based on single-tenant occupancy, Mr. Dana admitted that there was not one comparable single-tenant rent among the twenty-nine leases to which he referred in his report. He alleged that he was not able to locate any and, therefore, instead relied on multiple-tenant rent properties that were purportedly comparable. Moreover, his estimate of the fair market rent for each of the fiscal years at issue was only for an industrial use and ignored office or research and development uses. There is no dispute that the subject property supported a fifty-five/forty-five percent mixed use. Under the circumstances, the Board found that Mr. Dana's single-tenant rental analysis was not sufficiently supported by suitable data or information. Therefore, the Board allowed Textron's motion to strike his single-tenant rental analysis along with his estimates of the subject property's values based on this approach for the fiscal years at issue.
Finally, in his sales-comparison approach, Mr. Dana analyzed eight sales of properties that he believed were sufficiently similar to the subject property to warrant inclusion in his methodology. Three of these properties were located in Wilmington while the other five were in Lowell, Waltham, Wayland, Everett, and Woburn. All of the properties were, in his opinion, Class B or below and were improved with older buildings. These properties were, with one exception, either entirely industrial in character or mixed-use facilities combining office/R&D with manufacturing. All of the sales occurred between July 1997 and December 1999. Their unadjusted sale prices ranged from $10.53 to $64.82 per square foot of building area. Mr. Dana adjusted these per-square-foot prices for such factors as time of sale, location, building type, building size, condition of improvements, land area, and environmental or soil conditions. His adjusted per-square-foot sale prices ranged from $14.02 to $41.72 for fiscal year 1999 and from $15.68 to $45.74 for fiscal year 2000. Based on an indicated market value of $30.00 per square foot for fiscal year 1999 and $31.81 per square foot for fiscal year 2000, Mr. Dana estimated the value of the subject property at $21,870,000 and $23,325,000, respectively.
As in his other methodologies, Mr. Dana's sales-comparison approach also contained significant flaws. First, the adjustments that he made for excess land were inherently unreliable because, as the Board found, he had failed to show that the subject contained 350,000 square feet of excess land that should be valued at ten dollars per square foot. Secondly, on Textron's motion, the Board struck Mr. Dana's environmental adjustments on the ground that they were completely unfounded because he had not conducted any soil analyses at either the subject property or any of his comparable sale properties. Thirdly, on motion by Textron, the Board struck two of Mr. Dana's comparable sales because the sales included consideration not stated on the deed and not otherwise accounted for. The Board also found that at the time of their sale, three of his comparable sale properties were actually under leases that Mr. Dana had never examined. Accordingly, the Board found that any adjustments that he may have rendered or not rendered in this regard were without proper foundation and, therefore, without merit. Because of these errors and deficiencies, the Board considered, but placed minimal weight on, Mr. Dana's opinions of value premised on this approach.
The Assessors also argued that the Board's prior decisions in Avco v. Assessors of Wilmington, 12 Mass. App. Tax Bd. Rep. 132, 142 (1990), valuing the subject property (with some admitted differences) at $28,464,700, $31,345,650, and $33,400,650, for fiscal years 1986, 1987, and 1988, respectively, should be virtually dispositive of the present fiscal year 1999 and 2000 appeals. The Board, however, found that these earlier decisions were not only too remote in time to reasonably reflect the fair cash value of the subject property well over ten years later, but that they also valued a somewhat different property and were based upon a completely different record. As discussed in more detail in its Opinion below, the Board appropriately decided these appeals on the record before it.
On the basis of all of the evidence, including the view taken by the hearing officer, the Board found that Textron met its burden of proving that the subject property was overvalued in fiscal years 1999 and 2000. Under the circumstances present in these appeals, the Board adopted Textron's expert real estate appraiser's opinion that the subject property's highest and best use was for rehabilitation of the existing buildings for multi-tenanted use. The Board adopted this highest and best use not simply because of its reasonableness, but also because of the lack of meaningful alternatives and the evidentiary and analytical problems associated with the Assessors' expert's determinations and methodologies. The Board also adopted, under the circumstances, the parties' real estate experts' recommendations that the sales-comparison approach was a viable methodology for valuing the subject property during the fiscal years at issue. It was the only methodology upon which Textron's expert real estate appraiser relied and was, essentially, all that remained, even though flawed, of the Assessors' expert real estate appraiser's approaches. The Board found that there was substantial evidence in the record to support both this valuation methodology and Mr. Bouchard's opinion of the subject property's highest and best use.
The Board is required to decide appeals on the record before it. In these appeals, the only viable methodology and substantial evidence supporting a determination of fair cash values of the subject property for the fiscal years at issue were those based on a sales-comparison approach. Mr. Bouchard chose not to perform an income-capitalization approach or develop the underlying data for one despite identifying and using leased-fee properties in his comparable-sales analysis. Mr. Dana's income-capitalization approaches were simply too flawed to salvage.
The record did contain some credible evidence supporting the subject property's existing use, as presently improved, as its highest and best use, and the record also contained credible evidence supporting the application of an income-capitalization approach as a valuation methodology. In his appraisal report, Mr. Bouchard acknowledged that "[f]rom a feasibility standpoint an important question is whether the highest and best use of the property is for continued occupancy by Textron or for redevelopment." Unfortunately, neither in his report nor his testimony did he satisfactorily resolve this question or introduce the type of evidence necessary to conduct such an analysis. The Board noted that at all relevant times, the subject property was an owner-occupied, single-tenanted, custom-built facility that had been continuously occupied by Textron since the 1950s, and, in the Board's opinion, was likely to continue to be occupied by Textron for the foreseeable future. However, the value of the property as actually and viably occupied during the relevant time period was not extensively tested by the parties or their valuation experts in these appeals.
The Appraisal Institute's The Appraisal of Real Estate 25-26 (12th ed. 2001) recognizes the concept of limited-market properties. These properties are often large manufacturing or research and development facilities, which have relatively few potential buyers or renters at a particular time. Id. Changing market conditions or the properties' unique features that limit their utility to the original use for which they were designed usually cause this limited market. Id. In the Board's opinion, the subject property may be a limited-market property. In light of that opinion, the Board recognized that, on any assessing date, when a limited-market property is viably used and that use is likely to continue, and the property conforms to competitive standards, that is, remains functionally and financially feasible, then the owner-occupant may represent a typical potential purchaser or renter in that presumptive market.
Under these circumstances, an income-capitalization approach using a single-tenant assumption could have been properly used to estimate the property's fair market value. The Board noted that even Mr. Bouchard, who eschewed this approach, included several leased-fee properties in his selection of comparable-sale properties. However, in the present appeals, the parties did not effectively develop this concept. The Board found that even though Textron did not develop a value based on this approach, it still offered substantial evidence of overvaluation. Consequently, the Board adopted Mr. Bouchard's highest and best use for the property to be redeveloped to accommodate multi-tenanted occupancy and used a sales-comparison approach to decide these appeals.
In applying a comparable-sales technique, the Board found that four of Mr. Bouchard's suggested comparable-sales properties were the most comparable to the subject property. These four properties were the ones numbered 1, 2, 3, and 4 in Mr. Bouchard's comparable sales analysis. Mr. Bouchard, himself, relied heavily on these four properties and, in particular, comparable sale number 4, the sale of a portion of the subject property. Mr. Dana also relied on the sale of the portion of the subject property in his sales-comparison analysis. The Board adjusted the per-square-foot sale prices of these four properties as summarized in the following table.
Sale
No.
Location
Sale
Price
Price
PSF Adjusted Price PSF
FY 1999 Adjusted
Price PSF
FY 2000
1 Lexington $ 7,200,000 $21.40 $17.81 $19.18
2 Concord $ 6,250,000 $14.29 $13.63 $14.66
3 Bedford $ 4,850,000 $13.04 $12.88 $13.87
4 Wilmington $ 2,100,000 $16.65 $15.58 $16.79
In adjusting the per-square-foot sales prices of the comparable properties, the Board first considered market conditions present at the time of the sales as compared to the relevant assessment dates of January 1, 1998 and January 1, 1999. The Board based its adjustments for time primarily on Mr. Bouchard's data and testimony, which indicated an eight-percent positive adjustment from January 1, 1998 to January 1, 1999, and a six-percent adjustment for the prior annual period. The Board also considered Mr. Dana's report of a ten-percent positive change annually during the relevant time period and the testimony of several of Textron's other witnesses.
After upwardly adjusting for time, the Board then adjusted for physical and/or locational differences between the comparable-sale properties and the subject property. The Board based its adjustments on the descriptions, photographs, and other evidence in the record relating to the comparable-sale and subject properties, including the hearing officer's view. A summary of the Board's adjustments for fiscal years 1999 and 2000 are contained in the following two tables.
Fiscal Year 1999
Sale
No.
Sale Date
Price
PSF Time Adjust-ment Time Adjusted PSF Physical & Locational Adjustment Total
Adjusted Price PSF
1 04/97 $21.40 +04% $22.26 -20% $17.81
2 12/96 $14.29 +06% $15.14 -10% $13.63
3 04/97 $13.04 +04% $13.56 -05% $12.88
4 07/97 $16.65 +04% $17.32 -10% $15.58
Fiscal Year 2000
Sale
No.
Sale Date
Price
PSF Time Adjust-ment Time Adjusted PSF Physical & Locational Adjustment Total
Adjusted Price PSF
1 04/97 $21.40 +12% $23.97 -20% $19.18
2 12/96 $14.29 +14% $16.29 -10% $14.66
3 04/97 $13.04 +12% $14.60 -05% $13.87
4 07/97 $16.65 +12% $18.65 -10% $16.79
Relying on these adjusted per-square-foot sale-price figures, and, like Mr. Bouchard, placing a particular emphasis on the value indicator derived from sale 4 above, a portion of the subject property, the Board determined that, under the circumstances, the most appropriate rounded per-square-foot values for the subject property as of January 1, 1998 and January 1, 1999 were $16.00 and $17.00, respectively. Multiplying these values by the gross building area of the subject property's improvements, that is 728,758 square feet, the Board found that the property's rounded fair cash values were $11,700,000 for fiscal year 1999 and $12,400,000 for fiscal year 2000. Because the assessments for fiscal years 1999 and 2000 were $19,729,500 and $19,915,900, respectively, the Board decided these appeals for Textron and ordered abatements in the amounts of $241,527.36 for fiscal year 1999 and $238,780.14 for fiscal year 2000.
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)("Boston Gas"). 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).
"[S]ales of property usually furnish strong evidence of market value, provided they are arm's-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller." Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 682 (1982)("Foxboro Associates"). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment dates contain credible data and information for determining the value of the property at issue. McCabe v. Chelsea, 265 Mass. 494, 496 (1929). Actual sales of the subject "are very strong evidence of fair market value, for they represent what a buyer has been willing to pay to a seller for [the] particular property [under appeal]." New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 469 (1981)("New Boston Garden"), quoting First Nat'l Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971).
In these appeals, the Board found and ruled that four of Textron's expert appraiser's comparable-sale properties were indeed comparable to the subject property. Like the parties' expert appraisers, the Board found that the sale of a portion of the subject property was the most comparable property of all. After appropriately adjusting these sales for time as well as physical and locational differences, see New Boston Garden, 383 Mass. at 470 ("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."), the Board reached its estimate of the property's fair cash value for the fiscal years at issue by using per-square-foot units of analysis within a comparable-sales approach. In making its adjustments, the Board abided by the principle that:
Not all properties are perfect, and to create a theoretically perfect property by making every conceivable adjustment may go as far beyond the applicable market as failing to consider the important adjustments may fall short of the market. Thus, adjustments must be defensible not only individually but collectively as well.
The Appraisal Institute, The Appraisal of Real Estate 458 (12th ed. 2001).
The income-capitalization approach is useful for determining the value of income-producing property when the comparable-sales method is less probative. See Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 698-701 (1972)("New England Oyster House"); Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810 (1975) (rescript). With respect to these appeals, Textron's expert real estate appraiser did not use an income-capitalization approach. The Assessors' expert real estate appraiser used defective income-capitalization methodologies. Neither expert adequately addressed or considered the concept of limited-market properties as discussed in the Board's findings, above, and The Appraisal Institute's The Appraisal of Real Estate 25-26 (12th ed. 2001). See also Boston Gas, 334 Mass. at 574-86 (finding that the hypothetical sale and lease-back of utility property to the present owner or others in that class was evidence of value); and Public Service Co. of New Hampshire v. New Hampton, 101 N.H. 142 (1957)(allowing the owner of utility property to be considered a hypothetical buyer of its own property).
The record did not contain substantial underlying data and information supporting the income-capitalization method or the limited-market concept. Consequently, the Board, constrained by the record, did not use this methodology. See Analogic Corporation v. Assessors of Peabody, 45 Mass. App. Ct. 605, 614 (1998)("Analogic")("While the board has great latitude in its fact finding power, the findings must be anchored in the record."); cf. Analogic Corporation v. Assessors of Peabody, 1999 App. Tax Bd. Adv. Sh. 267, 285, footnote 7 (Docket No. 166292, etc., June 22, 1999)("Because of the paucity of other reliable evidence in the record . . . the Board relies on these two somewhat less-than-satisfying compilations for its vacancy rates."). In this appeal, the Board still found and ruled, however, that Textron presented substantial evidence of overvaluation. "The Board must base its findings and conclusions on the substantial evidence as supported by the record." New Boston Garden, 383 Mass. at 467. "[T]he board's 'expertise' and judgment [cannot] provide a basis for finding facts outside the evidence." Analogic, 45 Mass. App. Ct. at 615.
The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise. Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974). Accordingly, the burden of proof is upon the taxpayer to make out its right as a matter of law to an abatement of the tax. Id. The taxpayer must show that the assessed valuation of its property was improper. See Foxboro Associates, 385 Mass. at 691. Based on all of the evidence, the Board found and ruled in these appeals that the taxpayer met its burden of persuading the Board that its property was overvalued. The Board adopted a valuation methodology that both parties' expert appraisers used and, after analyzing the available data, made its own adjustments and determinations. See New Boston Garden, 383 Mass. at 473.
In reaching its opinion of fair cash value in this appeal, 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. at 683; New Boston Garden, 383 Mass. at 473; New England Oyster House, 363 Mass. at 701-702. The Board may disbelieve a witness or reject evidence as long as it has an "'explicit and objectively adequate reason.'" New Boston Garden, 383 Mass. at 470-471, quoting L.L. Jaffe, Judicial Control of Administrative Action 607 (1965). In evaluating 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. v. Assessors of Lynn, 393 Mass. 591, 605 (1984)("General Electric"); North American Phillips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984). The hearing officer's view also contributed to the basis for some of the Board's findings of fact. See Westport v. County Commissioners of Bristol, 246 Mass. 556, 563 (1923).
The Board need not specify the exact manner in which it arrived at its valuation. Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971). The fair cash value of property cannot be proven with "mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment." Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941). "The credibility of witnesses, the weight of 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).
In appeals before this Board, a "taxpayer may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation." General Electric, 393 Mass. at 600, quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983). In the present appeals, the Board found and ruled that the taxpayer presented persuasive evidence establishing overvaluation.
On this basis, the Board decided these appeals for the
appellant.
APPELLATE TAX BOARD
By: ___________________________
Abigail A. Burns, Chairman
A true copy,
Attest: ________________________
Clerk of the Board
During the hearing, the Assessors asserted that the land area was actually 57.45 acres, not 52.80 acres. Relying on the tax bills, the petition, the answer, both parties' real estate experts' appraisal reports, as well as other evidence, the Board found that, for purposes of these appeals, the land area was 52.80 acres.
Textron's expert real estate appraiser quantified the square footage of the improvements at 728,758, while the Assessors' expert placed it at 728,887. For reasons that are evident in the findings that follow, regarding the Assessors' expert's flawed research and methodology, the Board adopted Textron's expert's total figure, as well as his individual figures for the areas of each of the buildings. The Board regarded Textron's expert appraiser's figures as the more credible and reliable measurements for purposes of these appeals. At any rate, even the Assessors' expert appraiser acknowledged that the difference between their figures for valuation purposes was de minimis.
Textron's expert real estate appraiser measured the square footage of the improvements that were sold at 126,093, while the Assessors' expert calculated it at 113,650. For reasons that are evident in the findings that follow, regarding the Assessors' expert's flawed research and methodology, the Board adopted Textron's expert's figure as the more credible and reliable one for purposes of these appeals.
Textron's counsel also called as a rebuttal witness William J. Pastuszek, Jr., a commercial real estate appraiser, member of the American Society of Appraisers ("ASA"), and member of the Board of Registration. Mr. Pastuszek testified about the requirements for membership in the ASA and its hierarchy of designations. He identified the Assessors' appraiser's designation of "candidate" as being on the lower end of the ASA's scale.
An impervious area is a section where rain cannot penetrate into the ground. With respect to the subject property, these impenetrable areas are under the improvements, that is, under their footprints or roofs, and include the ground below parking areas located within the GWPD.
See G.L. c. 131, §§ 40 and 40A, and the regulations promulgated thereunder.
The Board considered Mr. Bouchard's "Adjusted Prices" as equivalent to indicators of the subject property's value.
See footnote 7, supra.
"Price PSF" denotes "price per square foot."
In his report, Mr. Dana calculated his potential gross incomes for fiscal years 1999 and 2000, using rents of $8.50 and $9.00 per square foot, respectively, for office/R&D space and $4.50 and $5.00 per square foot, respectively, for industrial space. He subsequently subtracted his ten-percent vacancy rate from his potential gross incomes but then erred in his methodology by mistakenly re-adding his rent figures for industrial space to these amounts before reaching his effective gross income figures. Consequently his effective gross income figures were over twenty percent higher than they should have been. After subtracting expenses and then applying his capitalization rates, Mr. Dana valued the subject property on a multi-tenant basis (after deducting costs for rehabilitation) at $19,460,000 for fiscal year 1999 and $24,100,000 for fiscal year 2000.
Mr. Dana's original and corrected income-capitalization figures for fiscal year 2000 are comparable to the ones for fiscal year 1999.
The Board noted that Mr. Dana's calculation of the estimated management expenses was actually based on 4%, not 3%, as stated in the narrative of his report and as depicted in his chart.
ATB 2001-877
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