Pasciuto Real Estate TR. v. Board of Assessors of the Town of Wakefield (January 14, 2004)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


PASCIUTO REAL ESTATE TR.		V.	BOARD OF ASSESSORS OF
THE TOWN OF WAKEFIELD


Docket Nos. F266028, F260030		Promulgated:
		  F266029, F260029		January 14, 2004
		  F266097, F260027


	These are appeals filed 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, §§ 11 and 38, for fiscal years 2001 and 2002.
	Former-Chairman Burns heard the appeals in docket numbers F260029, F260030, F266028 and F266029 and was joined in a decision for the appellee by Commissioners Gorton, Egan and Rose.  Commissioner Egan heard the appeals in docket numbers F260027 and F266097 and was joined in a decision for the appellee by former-Chairman Burns and Commissioners Gorton and Rose.
	These findings of fact and report are issued pursuant to requests by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32. 
	
	Alan Altman, Esq., for the appellant.
	Thomas A. Mullen, Esq., for the appellee.
FINDINGS OF FACT AND REPORT
	On January 1, 2000 and January 1, 2001, The Pasciuto Real Estate Trust ("the appellant") was the assessed owner of three contiguous parcels of real estate located at 27, 37 and 57 Water Street in the Town of Wakefield.  
	For fiscal year 2001, the Board of Assessors of Wakefield ("Assessors") valued the properties, and assessed taxes thereon, as follows:
Docket No.	Location	Assessed Value	Tax     Rate	Tax Assessed	
F260027	27 Water Street	$3,929,700	$25.72	$101,071.88	
F260030	37 Water Street	$  617,200	$25.72	$ 15,874.38	
F260029	57 Water Street	$  140,600	$25.72	$  3,616.23	

The taxes were timely paid without incurring interest
	On January 17, 2001, within thirty days of the December 31, 2000 mailing of the tax bills, the appellant filed three applications for abatement with the Assessors.  On March 2, 2001, the Assessors denied the abatement requests and, on May 24, 2001, the appellants seasonably filed appeals with the Appellate Tax Board ("Board").
For fiscal year 2002, the Assessors valued the properties, and assessed taxes thereon, as follows:
Docket No.	Location	Assessed Value	Tax     Rate	Tax Assessed	
F266097	27 Water Street	$4,529,100	$22.42	$101,542.42	
F266028	37 Water Street	$  707,800	$22.42	$ 15,868.88	
F266029	57 Water Street	$  250,500	$22.42	$  5,616.21	

All taxes were timely paid without incurring interest.  On April 19, 2002, the appellant filed three applications for abatement with the Assessors.  The abatement requests were deemed denied on July 19, 2002, and on August 21, 2002, the appellant seasonably filed appeals with the Board.     
	Based on these facts, the Board found and ruled that it had jurisdiction over these appeals.
	The town of Wakefield is approximately 10 miles north of Boston and is bordered by Melrose, Lynnfield and North Reading.  The town has good access to major highways, including Routes 1, 93 and 128, and is accessible to downtown Boston via commuter rail and bus service provided by the M.B.T.A.  
The subject properties are contiguously located on the southern end of Wakefield Center, nearest to the intersection of Main Street, and occupy, in total, 81,522 square feet.  Located at this end of Wakefield are town offices, the post office, the public library, and the Y.M.C.A.  Located in the general Water Street area are office buildings, banks, retail establishments, restaurants, and fast-food establishments.  Directly across from the subject properties is a Texaco gas station and a two-story Fleet Bank.  Both on- and off-street public parking is available for these businesses.  
In support of its contention that the subject properties were over-valued for fiscal years 2001 and 2002, the appellant offered into evidence the testimony and appraisal reports prepared by Mr. Edward Brown.  Mr. Brown is a member of the Appraisal Institute and an associate member of the Massachusetts Board of Real Estate Appraisers.  He has conducted appraisals for various types of properties since 1945 and has appeared before this Board on many occasions.  Based on his qualifications, the Board found Mr. Brown to be qualified as an expert.

I.	Docket Nos. F260027 and F266097 - 27 Water Street 
This property is a 57,258 square-foot parcel of real estate improved with a four-story, wood-frame, office building with 77,858 square feet of gross floor area.  The property has 75 feet of frontage on Water Street and the topography of the lot descends from Water Street to an abutting, non-functional railroad spur.  Located in the rear of the building is an asphalt parking lot that accommodates 60 cars, and also a two-story concrete garage with parking for 70 cars.
	Constructed circa 1880, the building was originally used as a shoe factory.  Around 1986, the building was converted to its current use as office space.  The exterior of the building is composed of "Exterior Insulating and Finishing," or "Dryvitt," described as fiberglass mesh covered with a base coat and then a finish coat with the appearance of stucco.  Mr. Brown suggested that water accumulation and mold growth cause properties sided with Dryvitt to decrease in value over time.
	The interior of the building is finished with dry wall, acoustical ceilings and commercial carpeting.  The building has three modern elevators and also front, rear and center staircases.  Exterior doors are glass and metal framed, and interior doors are wood flush.  The building is equipped with an HVAC system, corridor emergency lights and hard-wired fire alarms.  The basement is partially finished and rented.
Mr. Brown described the building as being in average condition and functional for its present use as office space.  He further suggested, however, that given the building's original use and its Dryvitt siding, the building is not to be classified as "good quality office space."  Mr. Brown also suggested that the limited parking, notably that the rear lots also provide parking for the adjacent building at 37 Water Street, negatively impacts the value of the property.
To arrive at his estimate of fair market value, Mr. Brown used both the sales comparison and the income-capitalization approaches.  He then used a compilation of the two methods to calculate a fair cash value of $2,700,000 as of January 1, 2000.  
For the income capitalization approach, Mr. Brown based most of his calculations on the income and expense figures generated by the subject property for calendar year 1999, as provided to him by the appellant.  He suggested that these figures were "at economic levels."  He offered no income data from comparable properties or other evidence to support his contention. 
Using an annual income of $890,241, calculated as $11.15 per square foot, less a 10% vacancy, Mr. Brown calculated the property's "gross annual income" of $801,217.  Although Mr. Brown did review some of the existing leases, he did not review all existing leases for the subject property.  One lease which Mr. Brown did review was for space rented by the Commonwealth of Massachusetts for $11.15 per square foot.  Mr. Brown conceded that this amount was less than the rent paid by other tenants.  Yet, Mr. Brown chose to use the $11.15 figure to calculate his annual gross income.  Mr. Brown did not review comparable rental leases to arrive at his suggested fair market rent.  
Next, he deducted the following expenses:  management; water, sewer and electric; insurance; security; and, maintenance.  Mr. Brown's management expense was calculated at 9% of gross income.  He indicated that the typical range was 7-9% and that due to the large size of the building, he thought that 9% was appropriate.  He offered no other evidence to show that his operating expenses were at market levels.  In total, the expenses amounted to $439,320.  He then subtracted the expenses from the building's gross annual income to arrive at a "net annual income" of $361,897.  Mr. Brown offered no evidence of comparable properties to support his expense allowances.
According to Mr. Brown, he determined his capitalization rate of .1100 by using a mortgage equity method.  He reported that commercial bank rates were in the 9-10% range, with a 25-year-amortization period, and that the equity return for this type of investment would, in his opinion, be 12%.  Mr. Brown offered no supporting evidence.  After adding the relevant tax factor, Mr. Brown arrived at an overall capitalization rate of .1357 for fiscal year 2001.
	Using the income-capitalization methodology, Mr. Brown estimated the value of the subject property at $2,700,000 for fiscal year 2001.  
Mr. Brown's calculations are summarized in the following table.

Potential Gross Income ($11.15 psf of GLA)		$890,241	
Vacancy		<89,024>	
Effective Gross Income		$801,217	
Expenses:			
   Management (9%)	$   72,110		
   Water, Sewer and Electric	216,000		
   Insurance	 30,210		
   Security	 31,000		
   Maintenance	 90,000		
Total Expenses		$439,320	
Net Operating Income		$361,897	
  Overall Rate	.110		
  Tax Factor	.0257		
Capitalization Rate		.1357	
Indicated Fair Cash Value`		$2,666,890	
Rounded Fair Cash Value		$2,700,000	

Mr. Brown noted that the age and size of the subject property made it difficult to find truly "likened" properties.  Therefore, he selected properties of similar size and made what he considered to be appropriate adjustments.  For his analysis, Mr. Brown relied on four sales of properties that sold between May of 1998 and April of 1999.  These properties had a gross building area that ranged from 40,847, slightly less than the subject property, to 158,528 square feet, nearly twice the size of the subject property.  All of the properties had more land than the subject property.  
The per-square-foot sale values for the properties ranged from $26.93 to $41.43.  To account for differences between the comparables and the subject property, Mr. Brown made adjustments for the following:  time of sale (adjusted 6% yearly to 1/1/00), location, structure and condition, parking and basement. 	He did not make adjustments for the differences in lot and building size.  Mr. Brown did not explain how he derived the percentages used in his adjustments, but simply stated that "I usually just do a ten percent adjustment."  After his adjustments, the indicated sales price for these so-called comparable properties ranged from $31.55 to $43.10 per square foot.
The following table is a reproduction of Mr. Browns' adjustments.
	Comp. #1	Comp. #2	Comp. #3	Comp. #4	
Location	Wakefield	 Woburn	Burlington	Winchester	
Date of Sale	6/02/98	2/22/98	11/10/98	4/29/99	
Sale Price	$4,830,000	$4,150,000	$2,500,000	$1,100,000	
GBA	158,528	100,163	61,074	40,847	
Price psf	$30.47	$41.43	$40.93	$26.93	
Time Adjusted Price psf	$33.21	$45.37	$43.80	$28.01	
Location	+5%	+5%	-5%	+5%	
Structure & Condition	-10%	-10%	-10%	0	
Parking	-5%	-5%	-5%	+10%	
Basement	+5%	+5%	+5%	0	
Net Adjustment	-5%	-5%	-15%	+15%	
Adjusted value psf	$31.55	$43.10	$37.23	$32.21	

From his calculated adjusted per-square-foot sales values, Mr. Brown selected a value of $35.00 per square foot as the most probable selling price for the subject property.  In selecting this value, Mr. Brown indicated that he excluded comparable #2 "due to its structure."  He offered no further explanation.  Multiplying the $35.00 figure by the subject property's 77,858 square feet of gross building area, Mr. Brown estimated a fair market value, using the sales comparison approach, of $2,725,000 for fiscal year 2001.
In reconciling the estimates of value produced by his two valuation methodologies, Mr. Brown noted in his report that since the building was constructed to "produce income," primary reliance was placed on the income-capitalization approach and the estimate of value derived therefrom.  He then concluded that the property's fair market value for fiscal year 2001 was $2,700,000.  Mr. Brown suggested that, based on a review of all sales in the town of Wakefield, both residential and commercial, an annual increase in value of 4% would be appropriate.  
The appellant also offered the testimony of Frank Pasciuto, owner and manager of the subject property.  Mr. Pasciuto confirmed the lease with the Commonwealth and that it was for a rent less than that paid by other tenants.  He noted that this lease was for a period of five years set to expire in November 2002.  He did not indicate when the remaining tenants' leases began or ended.  Mr. Pasciuto further testified that during the years at issue, there were antennas located on the rooftop of the subject property.  He further testified that during 1999 and 2000, he received a minimum of $5,000 in annual rents from the antennas.  He noted that Mr. Brown was not aware of these leases. 
The Assessors presented no affirmative evidence, choosing to rely on the presumed validity of their assessments.
Based on the testimony and exhibits offered into evidence, the Board found and ruled that the appellant's valuation analyses were flawed and, accordingly, the appellant failed to meet his burden of proving that the subject property was overvalued for the fiscal years at issue.  
The Board found that Mr. Brown failed to establish that the gross income, as reported by the owner of the subject property, reflected fair market rent.  Mr. Brown acknowledged that he had not reviewed all of the leases for the subject property.  The one lease he did have specific knowledge of was for a rent less than that paid by other tenants.  Yet, Mr. Brown opted to use this lesser rent to calculate the subject property's annual gross income.  He did not, however, review comparable leases to support a finding that this lower rent was at market level.
Further, taking his suggested rent of $11.15 per square foot, and multiplying it by the property's 77,858 square feet of gross building area, results in a gross income of $868,117, not the $890,241 figure used by Mr. Brown.  As a result, the Board found that the appellant failed to show that the gross potential income figure that its expert derived from his income capitalization methodology reflected the subject's market rental value.  Accordingly, the Board found that Mr. Brown's potential gross income figure was unsubstantiated and therefore unreliable.
The Board also found that Mr. Brown failed to establish that the vacancy rate and the expense figures used in his calculations were reflective of market levels.  Further, by using a percentage of what the Board found to be an unreliable gross income figure, Mr. Brown carried this lack of reliability to his calculated vacancy loss and management expense.  Mr. Brown also failed to offer any evidence to support his remaining expense figures and to show that they were reflective of the market.    Accordingly, the Board found that Mr. Brown's estimate of the subject property's net operating income was unreliable.  Finally, the Board found that Mr. Brown failed to provide any evidence to substantiate his recommended capitalization rate. 
With regard to Mr. Brown's sales-comparison approach, the Board found that Mr. Brown failed to prove that the sales he relied upon were arms-length, or that the information he recited was the actual sale information.  He offered no copies of deeds for the sales he cited.  Furthermore, in his testimony concerning his comparable sales approach, Mr. Brown acknowledged that larger properties generally sell for a lesser per-square-foot value.  Yet, despite the vast differences in both land size and gross building area between the subject property and the so-called comparables, Mr. Brown failed to make any adjustments for size.  Mr. Brown also failed to offer any evidence as to the use of his so-called comparables and how that compared to the subject property.  Accordingly, the Board found and ruled that Mr. Brown failed to prove that the sales he relied upon were sufficiently comparable to the subject property.  On this basis, the Board found that the fiscal year 2001 opinion of value for the subject property obtained by Mr. Brown's use of both the income-capitalization and the sales-comparison approaches was without adequate foundation and, therefore, without merit.  Further, to the extent Mr. Brown's opinion of value for fiscal year 2002 was based upon his flawed estimate of value for fiscal year 2001, the Board found that the fiscal year 2002 estimate of value was also without adequate foundation and merit. 

II.	Docket Nos. F260030 and F266028 - 37 Water Street
	This is a 6,282 square-foot parcel of land improved with an office building.  The parcel is rectangular in shape, level to street grade, and has sixty-six feet of frontage on Water Street.  On the east side of the property is a dead end, which leads to the rear parking lot provided by the appellant's property located at 27 Water Street.  Public parking is available across the street.
The building is a two-story office building with 13,388 square feet of gross floor area, including a full finished basement.  The basement is accessible from the rear parking lot via a ground-level entrance.  The front of the building is brick, and the windows and exterior doors are modern, metal-framed.  There is one elevator.  The corridors and stairs are wide and well maintained.  The offices have carpeted floors, acoustical ceilings and plaster walls.  The building has central air conditioning.
Mr. Brown also derived his opinion of value for this property using a combination of the income-capitalization and the sales-comparison approaches.
Primarily, Mr. Brown relied upon the income-capitalization methodology to value the subject property.  He based most of his calculations on the income and expense figures generated by the subject property for calendar year 1999, as provided to him by the appellant.  He concluded, however, that the appellant's statement of income of $7.00 per square foot appeared to be below the market level.  He noted that although the adjacent property had at least one reported rent of $11.15 per square foot, in his opinion this value was too high for the property located at 37 Water Street.  Instead, he opted to use $9.00 per square foot, a value he determined more closely reflected the market.  However, he offered no income data from comparable properties or other evidence to support his opinion.  He then estimated the property's potential gross income, including basement floor space, to be $120,492 ($9.00 psf X 13,388 square feet).  
Mr. Brown then deducted 10% for vacancy to arrive at an effective gross income of $108,442.  Mr. Brown next deducted the following expenses:  management; water and sewer; heat; insurance; maintenance; and, reserves for replacement.  The management expense for this building was calculated at 7% of gross income, at the lower end of the range, due to the small size of the building.  In total, the expenses amounted to $50,546.  He subtracted this from the building's gross income to arrive at a net operating income of $57,986.
Mr. Brown derived his capitalization rate in the same manner as he used for the property located at 27 Water Street.  He then applied the percentage to his calculated net annual income to estimate the subject property's fair cash value of $430,000 for fiscal year 2001.  The following table summarizes Mr. Brown's calculations.
Potential Gross Income
$9.00 p.s.f. X 13,388 (including rental basement)		$120,492	
Vacancy		<12,049>	
Effective Gross Income		$108,442	
Expenses:			
   Management (7%)	 $7,591		
   Water and Sewer	 $1,700		
   Heat	$12,100		
   Maintenance	$21,046		
   Reserve for Replacement	 $4,000		
Total Expenses		$50,456	
Net Operating Income		$57,986	
  Overall Rate	.110		
  Tax Factor	.0257		
Capitalization Rate		.1357	
Indicated Fair Cash Value`		$430,000	
	
Using the sales-comparison approach, Mr. Brown calculated a value of $460,000 for fiscal year 2001.  Specifically, he relied on four sales of properties that he considered comparable to the subject parcel. 
The first sale, located at 359 Salem Street, Wakefield, is a 16,988 square foot parcel of land located just off Route 128.  The property is improved with a two-story, wood-frame building with a partially finished basement and 5,083 square feet of gross building area.  This property sold on April 9, 1998, for $250,000, or $49.18 per-square-foot of gross building area.
The second sale, located at 30 Pento Road, Woburn, is a 30,423 square-foot parcel of land improved with a one-story brick building, no basement, and with a gross floor area of 6,000 square feet.  The property is located in a residential zoned district on the Stoneham town line.  The property sold on January 1, 2001, for $270,000, or $45.00 per-square-foot of gross building area.
The third sale, located at 3 Central Square, Stoneham, is a 4,792 square-foot parcel of real estate improved with a four-story brick building with a basement, with 13,615 square feet of gross building area.  The property is located in Stoneham Square with ample public parking.  The property sold on May 29, 2001, for $775,000, or $56.92 per-square-foot of gross building area.
The last property, located at 26 Ray Street, Burlington, is a 27,443 square foot parcel with easy access to Route 95.  Located on the property is a one-story modern office building with 7,500 square feet of gross building area and ample parking.  The property sold on September 30, 1999, for $285,000, or $38.00 per-square-foot of gross building area.
Mr. Brown made adjustments for differences between the subject property and the purported comparables, including the following: time of sale; location; structure and condition; parking; and, finished state of the basement.  He made no adjustments for lot size or gross building area.  Using the per-square-foot sales values, coupled with his adjustments, Mr. Brown determined an "adjusted" per-square-foot value for each of the comparable properties.  The following table summarizes Mr. Brown's adjustments.
	Comp. #1	Comp. #2	Comp. #3	Comp. #4	
Location	Wakefield	 Woburn	Stoneham	Burlington	
Date of Sale	4/09/98	1/01/01	5/29/01	9/30/99	
Sale Price	$250,000	$270,000	$775,000	$285,000	
GBA	5,083 sf	6,000 sf	13,615 sf	7,500 sf	
Price psf	$49.18	$45.00	$56.92	$38.00	
Time Adjusted Price psf	$54.10	$42.30	$52.08	$38.57	
Location	-5%	=20%	0	-5%	
Structure & Condition	0	0	-10%	-5%	
Parking	-5%	-5%	0	-5%	
Basement	+5%	+10%	0	+10%	
Net Adjustment	-5%	+25%	+10%	-5%	
Adjusted value psf	$51.40	$52.88	$57.28	$36.64	
					

Based on his adjusted per-square-foot values, excluding comparable #4 due to its distance from the subject property, Mr. Brown applied a per-square-foot value of $54.50 to estimate the subject property's fair market value to be $460,000 as of January 1, 2000.
Mr. Brown then reconciled his two methods of valuation, placing more weight on the income-capitalization approach, and estimated the subject  property's fair market
value for fiscal year 2001 to be $450,000.  He opined that for fiscal year 2002, an increase of 4% would be appropriate to arrive at a fair market value of $468,000.
The assessors presented no affirmative evidence, choosing to rely on the presumed validity of their assessments.
Based on the testimony and exhibits offered into evidence, the Board found and ruled that the appellant's valuation analyses were flawed and that the appellant failed to meet his burden of proving that the subject property was overvalued for the fiscal years at issue.  First, the Board found that Mr. Brown failed to establish that the $9.00 per-square-foot rent which he attributed to the subject property was reflective of market rentals.  Mr. Brown failed to provide evidence of either the existing leases for the subject property or leases of space in comparable buildings.    Also, although Mr. Brown's report indicates that there is a rentable basement, he failed to include this space in calculating his gross annual income.  As a result, the Board found that Mr. Brown's gross potential income figure was unreliable.
With respect to deductions taken, the Board found that by using a percentage of what the Board had already found to be an unreliable gross income figure, Mr. Brown carried forward the lack of reliability.  Further, Mr. Brown offered no evidence to substantiate that his suggested vacancy rate of 10% or his operating expenses were at market levels.  Accordingly, the Board found that Mr. Brown's estimate of the subject property's net operating income was unreliable.  Finally, the Board found that Mr. Brown did not offer evidence to support his recommended capitalization rate. 
With respect to the sales-comparison approach used by Mr. Brown, the Board found, first and foremost, that Mr. Brown failed to prove that the sales he relied upon were arms-length or that the information he recited was the actual sale information.  Also, three of the four comparables referenced had significantly more land area and also more gross building area than the subject property.  The fourth had a gross building area that was nearly three times the size of the subject property.  Despite these vast differences, Mr. Brown failed to make adjustments for differences in land and building size.  Accordingly, the Board found that Mr. Brown failed to prove that the sales he relied upon were comparable to the subject property.  
On this basis, the Board found that the fiscal year 2001 estimate of value for the subject property obtained by Mr. Brown's use of both the income-capitalization and the sales-comparison approaches was without adequate foundation and, therefore, without merit.  Further, to the extent Mr. Brown's estimate of value for fiscal year 2002 was based upon his flawed estimate of value for fiscal year 2001, the Board found that the fiscal year 2002 estimate of value was also without adequate foundation and merit.

III.	Docket Nos. F260029 and F266029 - 57 Water Street
This property is an irregularly shaped parcel of land with a total area of 17,982 square feet and ninety-four feet of frontage on Water Street.  The property abuts a defunct railroad and another property also owned by the appellant.  The building located on the property is an antique train station remodeled into a breakfast and lunch restaurant.  The building has 1,287 square feet of gross floor area.
The building was built circa 1880 and has a clapboard exterior, a hip roof made of slate materials and a ten-foot overhang canopy along the length of both sides.  The interior of the building is divided equally into two sections:  customer seating and the kitchen.  The seating area has a carpeted floor, plastered walls and double-hung wood windows.  The kitchen has a tile floor, stainless steel sinks, and a commercial oven and freezer.  There is also a rear, wood-door exit.
As with the prior two properties, Mr. Brown derived his opinion of value using a combination of the income-capitalization and the sales-comparison methodologies.  He estimated the subject property's fair market value as of January 1, 2001, to be $115,000.  
For his income-capitalization approach, Mr. Brown relied upon the Income and Expense Statement submitted by the owner of the property.  In this statement, the owner reported revenue of $27,600 or $21.45 per-square-foot of gross building area.  Taking into consideration the size of the building, Mr. Brown concluded that this was reflective of the market.  However, he offered no income data from comparable properties or other supporting evidence. 
Mr. Brown then deducted 10% for vacancy to arrive at an effective gross annual income of $24,840.  Next, Mr. Brown deducted the following expenses:  management (calculated at 8% of gross income); snow removal, cleaning and security;  insurance;  and structural maintenance.   In
total, the expenses amounted to $11,087.  He subtracted this from the building's gross income to arrive at a net operating income of $13,753.  He calculated his capitalization rate in the same manner as for the properties located at 27 and 37 Water Street.  
Mr. Brown applied his capitalization rate to his net operating income to estimate the subject property's fair cash value of $100,000 for fiscal year 2002.  Mr. Brown's calculations are summarized in the following table.

Potential Gross Income
$21.45 p.s.f. X 1,287 		$27,600	
Vacancy		<2,760>	
Effective Gross Income		$108,442	
Expenses:			
   Management (8%)	$   1,987		
   Snow Removal, Cleaning, Security	3,800		
   Insurance	4,300		
   Structural Maintenance	1,000		
Total Expenses		$11,087	
Net Operating Income		$13,753	
  Overall Rate	.110		
  Tax Factor	.0257		
Capitalization Rate		.1357	
Indicated Fair Cash Value`		$101,348	
Rounded Fair Cash Value		$100,000	
	
Mr. Brown also employed a sales-comparison approach, in which he estimated the subject property's fiscal year 2002 fair market value to be $130,000.  Specifically, Mr. Brown relied on three sales of properties that he considered comparable to the subject property. 
The first sale is a 26,950 square-foot parcel of land improved with a wood-frame building with 4,592 square feet of gross building area.  Mr. Brown indicated in his report that this property was zoned for "highway business."  Mr. Brown reported the property as having sold on February 9, 1999, for $331,208, or $72.13 per-square-foot of gross building area.  The second sale is an 11,609 square-foot parcel of land improved with a two-story, wood-frame building with a gross building area of 2,466 square feet.  Mr. Brown noted that this property is on a "busy street."  He reported the property as having sold on January 31, 2000, for $250,000, or $101.38 per square foot.  The last sale relied upon by Mr. Brown is a 8,276 square-foot parcel of land improved with a wood-frame building with 1,880 square feet of gross building area.  This property is zoned for neighborhood business.  Mr. Brown reported that this property sold on March 16, 2001 for $210,000, or $111.70 per square foot.  No evidence was presented as to the use of these properties.
Mr. Brown then made adjustments to the per-square-foot sale prices for factors such as:  date of sale (6% yearly to 1/1/01); location; structure and condition; and parking.  He also adjusted for gross building area, noting that smaller buildings typically sell for more per square foot.  After making the adjustments, the average indicated sale price for the three sales was $107.81.  The following table is a reproduction of Mr. Brown's adjustments.
	Comp. #1	Comp. #2	Comp. #3	
Location	N.Reading	Tewksbury	 Saugus	
Date of Sale	2/19/99	1/31/00	3/16/01	
Sale Price	$331,208	250,000	$210,000	
GBA	4,592 sf	2,466 sf	1,880 sf	
Price psf	$72.213	$101.38	$111.70	
Time Adjusted Price psf	$80.06	$106.96	$109.47	
Location	0	0	0	
Structure & Condition	0	0	0	
Parking	0	-10%	+10%	
GBA (subject 1,287 sf)	+20%	+10%	0	
Net Adjustment	+20%	0	+10%	
Adjusted value psf	$96.07	$106.96	$120.41	
				

In his appraisal report Mr. Brown gave the least weight to comparable #3, which is a two-story building, compared to the one-story building located on the subject property.  Relying on the two remaining comparables which had adjusted per-square-foot values of $96.07 and $106.96, Mr. Brown concluded that a per-square-foot value of $100 would be appropriate to apply to the subject property's 1,287 square feet.  He then estimated the subject property's fair cash value for fiscal year 2002 to be $130,000.
Reconciling the values that he derived for the subject property using both the income-capitalization and the sales-comparison approaches, Mr. Brown concluded that the fair market value of the subject property for fiscal year 2002 was $115,000.  Mr. Brown failed to present evidence of the subject property's fair cash value for fiscal year 2002.
Based on the facts presented, the Board found and ruled that the appellant failed to meet his burden of proving that the subject property was over-valued for fiscal years 2001 and 2002.  
With regard to the sales-comparison approach, the Board found that Mr. Brown failed to establish comparability between the sales on which he relied and the subject property.  First, Mr. Brown failed to offer copies of deeds or other evidence to prove that the sales he relied on were arms-length or that the sale information was accurate.  Second, two of the three properties cited by Mr. Brown had more gross building area than the subject property and the third, most similar in size, he excluded when computing the per-square-foot selling price.  Mr. Brown also failed to identify the use of each of these properties and none was located in the town of Wakefield.  Accordingly, the Board found that Mr. Brown failed to establish comparability between the sales he relied upon and the subject property.  In addition, the Board also found that Mr. Brown failed to take into consideration, and adjust for, differences in land size.  
With respect to his income capitalization approach, the Board again found that Mr. Brown failed to sufficiently analyze and establish that the gross income reported by the owner was reflective of the market.  Although he stated in his report that rental data was ample and available, he failed to produce any such evidence.  Accordingly, the Board found that Mr. Brown's potential gross income figures were unsubstantiated and therefore unreliable.
Mr. Brown then applied a ten-percent vacancy rate to calculate the subject's gross annual income. The Board, however, found that Mr. Brown failed to verify this rate with proper market data.  Next, Mr. Brown deducted various operating expenses, including a management fee calculated at 7% of gross income.  As in the other properties at issue in these appeals, Mr. Brown once again failed to demonstrate that the figures he used were reflective of the market.  The Board further found that by using percentages of what it had already found to be an unreliable gross income figure, Mr. Brown carried forward this lack of credibility in computing the vacancy loss and management expense.  Moreover, Mr. Brown offered no data to substantiate his suggested vacancy rate and operating expenses.  Accordingly, the Board found that Mr. Brown's estimates of the subject property's net operating income was unreliable and without merit.
	Finally, the Board found that Mr. Brown did not adequately support his recommended capitalization rate. Again, the Board found that Mr. Brown failed to provide any support for his suggested rate.
	On this basis, the Board found that Mr. Brown's opinion of value for fiscal year 2002, using a combination of the income-capitalization and sales-comparison approaches, was flawed, without adequate foundation and, therefore, without merit.  The Board further found that Mr. Brown offered no opinion of value for fiscal year 2001. 
	On the basis of the foregoing, the Board issued decisions for the appellee in these appeals.

OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer 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).  Accordingly, fair cash value means fair market value.  Id.  
"Prior to valuing the subject property, its highest and best use must be ascertained, which has been defined as the use for which the property would bring the most."  Tennessee Gas Pipeline Co. v. Assessors of Agawam, 26 Mass. App. Tax Bd. Rep. 226, 234 (2000)(citing Conness v. Commonwealth, 184 Mass. 541, 542-43 (1903); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989) and the cases cited therein).  A property's highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.  Appraisal Institute, The Appraisal of Real Estate at 305-308 (12th ed., 2001).  See also Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972).  In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted.  Appraisal Institute, The Appraisal of Real Estate at 315-16 (12th ed., 2001); Tennessee Gas Pipeline Co., 26 Mass. App. Tax Bd. Rep. at 235.  In the present appeals, the Board ruled that the highest and best use of each of the propertis was its continued existing use.  
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 the cost to reproduce or replace the property.  See 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), but the income capitalization method "is frequently applied with respect to income-producing property."  Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  Use of the income capitalization method is also appropriate when reliable market sales 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).  
In the present appeals, the appellant's valuation expert first considered a sales comparison approach to value each of the subject properties.  The Board, however, found that this approach lacked reliability.  First, the Board found and ruled that Mr. Brown failed to prove that the sales he relied upon were arms-length, or that the information he recited was the actual sale information.  Mr. Brown did not offer into evidence copies of deeds for the sales he cited.  Second, the Board found that Mr. Brown failed to establish comparability between his purported comparable sales and the subject properties.  Many of the sales on which Mr. Brown relied varied greatly in building and lot size in comparison to the subject property, most of the properties were located outside of the town of Wakefield and many of the sales occurred more than a year prior to the date of assessment.  See Northwest Associates v. Assessors of Burlington, 5 Mass. App. Tax Bd. Rep. 107, 112 (1984)(Board found that, where an appraiser has to make adjustments for the rising prices of real estate and for the location of the subject premises, it tends to lessen the degree of comparability between the sold properties and the subject property for purposes of effectively establishing the fair cash value of the subject property.) 
"When comparable sales are used, [] allowances must be made for various factors which would otherwise cause disparities in the comparable prices." General Cable Industries, Inc. v. Assessors of Williamstown, 25 Mass. App. Tax Bd. Rep. 533, 537 (1999).  Appraisers generally employ both qualitative and quantitative techniques to estimate the relative significance of these factors.  Appraisal Institute, The Appraisal of Real Estate 425 (12th ed. 2001).  In the present appeal, the Board found that Mr. Brown failed to adequately analyze and explain the adjustments he made for differences in the purportedly comparable properties and the subject properties, and that in many instances he failed to make adjustments for such significant factors as differences in land size and gross building area.  Under the circumstances, the Board found and ruled that Mr. Brown's sales comparison approach was flawed and not an appropriate technique to use to value the subject properties for the fiscal years at issue.  
The income capitalization method is appropriate for valuing a commercial income-producing property.  Taunton Redev. Assocs., 393 Mass. at 295.  Under the income-capitalization approach, valuation is determined by dividing net operating income by a capitalization rate.  See Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986).  Net operating income is obtained by subtracting expenses from gross income.  Id. at 523.
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.  After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the appropriate expenses.  Id. at 452-453.  The capitalization rate should reflect the return on investment necessary to attract investment capital.  Taunton Redev. Assocs., 393 Mass. at 295.
In the present appeals, Mr. Brown did not obtain copies of the existing leases for the subject properties or compile market income data for rent, vacancy or operating expenses.  Accordingly, the Board found that Mr. Brown did not confirm that the rents he used, purportedly reported to him by the owners, were representative of market rents.  "The use of actual rents is an acceptable method of valuation as long as they adequately reflect earning capacity . . . [and relate] to market rental value."  Pepsi-Cola Bottling Co., 397 Mass. at 451 (citations omitted). 
With respect to the vacancy rate, the Board found that Mr. Brown failed to sufficiently explain how he derived the rate used, or that this rate was representative of the market.  As to the operating expenses, Mr. Brown again suggested that these were the figures as reported to him by the property owner.  He did not, however, corroborate these expenses with market data.  Lastly, the Board also found that Mr. Brown failed to prove that his computation of a capitalization rate represented the market conditions.  
The mere qualification of a person as an expert does not endow his testimony with any magic qualities.  Boston Gas Co., 334 Mass. at 579.  "The board [is] not required to believe the testimony of any particular witness but it [can] accept such portions of the evidence as appear[] to have the more convincing weight. The market value of the property [can] not be proved with mathematical certainty and must ultimately rest in the realm of opinion, estimate, and judgment . . . (citations omitted)."  Boston Consolidated Gas Co., 309 Mass. at 72.  See also North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984); New Boston Garden Corp., 383 Mass. at 473; Jordan Marsh Co., 359 Mass. at 110.  
The burden of proof is upon the appellant to make out its right as a matter of law to an abatement of the tax. Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  "By holding that the assessment is entitled to a presumption of validity, we are only restating that the taxpayer bears the burden of persuasion of every material fact necessary to prove that its property has been overvalued."  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 599 (1984).  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."        Id. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). 
The Board found and ruled here that, upon consideration of all of the evidence, the appellant did not meet its burden of proving that the subject properties were overvalued for fiscal years 2001 and 2002.  Accordingly, the Board decided all six appeals for the appellee.  

						APPELLATE TAX BOARD

 By:	___________________________
						Nancy T. Egan, Member

A true copy,


Attest:_________________________
       Asst. Clerk of the Board

   Mr. Brown added 6% yearly to arrive at sales values for the comparable properties, as of January 1, 2000.
    Mr. Brown added 6% yearly to value as of January 1, 2001.
 For reasons which he did not explain, Mr. Brown's calculations of value for this property were done for fiscal year 2002, with no data or other adjustments to arrive at an opinion of value for fiscal year 2001.  For the other properties at issue, Mr. Brown calculated values for fiscal year 2001 and then adjusted the values to arrive at an opinion of value for fiscal year 2002.  
 Mr. Brown added 6% yearly to value as of January 1, 2001.
   Although for the other two properties, Mr. Brown calculated value for fiscal year 2001.

ATB 2004-25