Wayne J. Griffin, Trustee of Wayne J. Griffin Realty Trust v. Board of Assessors of the Town of Holliston (March 20, 2015)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



WAYNE J. GRIFFIN, TRUSTEE OF 	   v.	  BOARD OF ASSESSORS OF 
WAYNE J. GRIFFIN REALTY TRUST			  THE TOWN OF HOLLISTON

Docket Nos.: F315420, F318962			  Promulgated: 
		   						  March 20, 2015		  	


	These are appeals filed under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Holliston ("appellee" or "assessors") to abate taxes on certain real estate in the Town of Holliston owned by and assessed to    Wayne J. Griffin, Trustee of the Wayne J. Griffin Realty Trust ("appellant") under G.L. c. 59, §§ 11 and 38, for fiscal years 2012 and 2013 ("fiscal years at issue").  
	Commissioner Chmielinski heard these appeals.  Chairman Hammond and Commissioners Scharaffa, Rose, and Good joined him in the decisions for the appellee.	 
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.

	Matthew A. Luz, Esq. for the appellant.
	James F. Sullivan, Esq. for the appellee.   
FINDINGS OF FACT AND REPORT
On the basis of the exhibits and testimony offered into evidence during the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.  
On January 1, 2011 and January 1, 2012, the appellant was the assessed owner of the property located at 116 Hopping Brook Road in the Town of Holliston ("subject property").  The subject property consists of approximately 2.86 acres of land improved with a two-story, owner-occupied, single-tenanted, industrial office building with approximately 84,540 square feet of rentable space ("subject building").  For assessment purposes, the subject property is identified as Lot 53 in Block 6 on    Map 4.   
The subject property is located within the Hopping Brook Park ("Park"), which is an industrial office park situated off of Washington Street (State Route 16), in the southwestern corner of Holliston near the Milford and Medway town lines.  Interstate 495 is located approximately two miles away in Milford and is accessible by State Routes 16 and 109.    
The Park is comprised of approximately eighteen buildings, including the subject building; the buildings' uses consist primarily of light manufacturing- and warehouse-type functions.  Most of the buildings in the Park were built in the 1980s and 1990s and range in size from about 3,000 square feet to about 96,000 square feet.  The majority of the buildings are owner-occupied, and there are undeveloped parcels of land in the Park for future development.  
	The subject parcel is somewhat triangular shaped with over 570 feet of frontage along Hopping Brook Road and slopes downward in an east-to-west and southeast-to-northwest direction with the subject building being constructed into the sloping topography.  The subject building occupies approximately 27.7% of the subject parcel's total land area.  There is an asphalt paved area situated in the front, along the right side and to the rear of the subject building that provides parking for about 200 vehicles, as well as access to an overhead door and loading dock located along the rear of the subject building.  The subject property also benefits from a parking easement which encompasses 1.35 acres of land that abuts the east side of subject property.  Access to the subject property is via curb cuts along Hopping Brook Road which is a lightly traveled, somewhat circular roadway that serves only the properties situated within the Park.  All utilities are available to the subject property including municipal water, gas, electric, and telephone.  The Park has a private on-site septic disposal system for the properties located there.  From a zoning perspective, the subject property is considered to be a non-conforming legal use.
	The subject building was constructed in three phases with a combined total of 39,606 square feet having been built in 1985 and in 2000, and an additional 44,934 square feet having been completed in 2008.  The subject building was constructed in harmony with the subject parcel's topography contours.  As a result, the basement level of the subject building is partially below grade with only its rear-facing portion at grade level.  Following completion of the subject addition in 2008, the subject building contained 34,781 square feet of gross floor area in the basement or lower level and 49,759 square feet of gross floor area in the above-grade or ground-floor and upper levels.  
	The main entrance to the subject building is situated in the front of the building on the ground-floor level.  There are eight interior staircases and a 4,500-pound capacity passenger elevator that provides access to all three levels.  The basement or lower level of the subject building contains warehouse space, shop space, training space, computer lab space, classroom space, office space, and an exercise room with a locker room.  Much of the lower level is open space with movable partition walls.  The ground-floor and upper-floor levels contain perimeter private offices with open areas for temporary cubicles, conference rooms, copy rooms, computer rooms, file rooms, small kitchenettes, a cafeteria area, and storage areas.  
	In general, the overall exterior and interior of the subject building are in average to good physical condition.    
For fiscal year 2012, the assessors originally valued the subject property at $6,311,000 and assessed a tax thereon, at the rate of $18.32 per thousand, in the total amount of $115,617.52.  On December 27, 2011, Holliston's Collector of Taxes ("Collector") sent out the town's actual real estate tax bills for fiscal year 2012.  In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest.  On January 19, 2012, the appellant timely filed an Application for Abatement with the assessors, which was deemed denied on April 19, 2012.  On May 3, 2012, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed an appeal with the Board.  
The appellant has appealed the assessments on the subject property over the past few years.  On June 27, 2012, after the appellant had filed its fiscal year 2012 appeal, the Board issued a decision for the appellant for its fiscal year 2011 petition pending before the Board and determined that the subject property's fair cash value for fiscal year 2011 was $6,000,000.  See Wayne J. Griffin, Trustee, Wayne J. Griffin Realty Trust v. Assessors of Holliston, Mass. ATB Findings of Fact and Reports 2012-842, 876 ("Griffin I").  Subsequent to the Board's decision in Griffin I, the assessors reduced the subject property's fiscal year 2012 assessed value to $6,000,000 and granted abatement in the total amount of $5,782.99, including a CPA surcharge.      
For fiscal year 2013, the assessors valued the subject property at $6,000,000 and assessed a tax thereon, at the rate of $18.62 per thousand, in the total amount of $111,720.00.  On December 26, 2012, the Collector sent out the town's actual real estate tax bills for fiscal year 2013.  In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest.  On January 8, 2013, the appellant timely filed an Application for Abatement with the assessors, which was deemed denied on April 8, 2013.  On April 22, 2013, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed an appeal with the Board. 
On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals. 
The appellant presented its case-in-chief through the testimony and appraisal report of Eric Wolff, a certified appraiser whom the Board qualified as an expert in the area of commercial real estate valuation.  In his analysis, Mr. Wolff included the subject property, the parking easement, and also an adjacent 0.32-acre parcel owned by the appellant, which, at all relevant times, was used as additional parking for the subject building.  Mr. Wolff determined that the parcels' highest and best use was their current use as an industrial office building and parking lot.  Mr. Wolff testified that the adjacent parcel was an integral part of the subject property's highest and best use.  
Mr. Wolff considered the three usual approaches to valuation but declined to use the cost approach because of the age and use of the subject property.  To estimate the subject property's fair cash value for the fiscal years at issue, Mr. Wolff developed both sales-comparison and income-capitalization analyses.  However, he did not rely on the values derived from his sales-comparison analyses because of the limited number of sales of industrial office buildings within the subject property's competitive market area and the difficulty of comparing those sale properties to the subject property.  Instead, Mr. Wolff considered his direct income-capitalization approach to be the most viable methodology to use to estimate the fair cash value of the subject property for the fiscal years at issue.
	To determine the most appropriate office rents to use in his income-capitalization methodology for the fiscal years at issue, Mr. Wolff testified that he investigated market rental rates by surveying what he regarded as similar industrial office properties in Holliston, Hopkinton, and Milford and by conversing with local real estate brokers.  His survey for industrial office space included thirteen properties with triple-net leases ranging from $5.00 to $12.50 per square foot.  Mr. Wolff also conducted a research of office rent in the Holliston area and included a survey of six properties in Milford.  Of these six, four properties rented under a gross-plus-utilities leasing scenario with rents ranging from $12.00 to $17.00 per square foot and two rented under triple-net leases charging $7.70 and $9.00 per square foot.  Applying a triple-net leasing scenario, Mr. Wolff selected $9.00 per square foot as a representative rent for the subject building's above-grade or ground- and upper-level industrial office space and $7.00 per square foot for its partially below-grade or basement and lower area.  
To determine a market rent for the subject building's industrial warehouse space, Mr. Wolff reviewed ten properties in Holliston, Hopkinton and Milford with triple-net leases ranging from $4.50 to $7.99 per square foot.  Because the subject building's industrial warehouse space is located in its partially below-grade area, which Mr. Wolff described as having less appeal in the marketplace, he chose $5.00 per square foot under a triple-net leasing scenario as a representative rent.
	Mr. Wolff then applied these rents to the corresponding areas in the subject building.  For the fiscal years at issue, Mr. Wolff determined that there were 49,299 square feet of ground- and upper-level industrial office space, 6,336 square feet of lower-level industrial office space, and 28,905 square feet of industrial warehouse space in the subject building.    These areas and rental rates yielded a potential gross income of $706,996 for both fiscal years at issue. 
Mr. Wolff's appraisal report states that his vacancy rates of 15% for office space and 10% for industrial space were based on conversations with local brokers and also market surveys prepared by the CoStar Group, Inc.  Application of Mr. Wolff's vacancy rates resulted in an effective gross income of $544,909 for each of the fiscal years at issue.     
For his operating expenses, Mr. Wolff observed that the then current leasing activity within the subject property's competitive market area indicated a triple-net leasing scenario in which the landlord is only responsible for expenses associated with the management and structural maintenance of the property.  Based on his conversations with the owners of the subject property and the owners of similar properties, as well as his experience, Mr. Wolff selected a management fee equal to 5% of effective gross income, a replacement reserve equal to 3% of potential gross income, and a miscellaneous expense equal to 1% of potential gross income.  Mr. Wolff subtracted these expenses from his effective gross income to derive a stabilized net operating income of $492,361 for the fiscal years at issue.
	The next step in Mr. Wolff's income-capitalization analysis was the selection of a capitalization rate for the fiscal years at issue.  Mr. Wolff developed his capitalization rates using a band-of-investment technique. This method produced capitalization rates of 9.03% and 8.96% for fiscal years 2012 and 2013, respectively, which he then rounded to 9.00%.  
Mr. Wolff determined that his 9.00% capitalization rate was consistent with rates published by national surveys, such as the Fourth Quarter Korpacz Real Estate Investor Survey Reports for 2010 and 2011 for non-institutional grade office and industrial properties in the Boston area.  Mr. Wolff also stated that he verified his band-of-investment results with capitalization rate ranges for Class B office and industrial properties in the Boston area published by CB Richard Ellis.  
Lastly, Mr. Wolff estimated the value of the subject property for the fiscal years at issue by dividing his stabilized net-operating income of $492,361 by his capitalization rate of 9%, yielding an indicated value of $5,470,678, which he rounded to $5,470,000.
Mr. Wolff's income-capitalization analysis is reproduced in the follow table:
Fiscal Years 2012 and 2013


INCOME                                 Size(SF)   Rate/SF

Industrial Office Space - Upper          49,299    $ 9.00       $  443,691                  
Industrial Office Space - Lower           6,336    $ 7.00       $   44,352
Warehouse Space                          28,905    $ 5.00       $  144,525
                                         84,540
Potential Gross Income ("PGI"):                                 $  632,568	

Less: Vacancy & Collection  - Office  
Less: Vacancy & Collection  - Warehouse         
  15.0%     ($   73,206)
  10.0%     ($   14,453)

		
	
Effective Gross Income ("EGI"):                                 $  544,909		
		
EXPENSES
		
  Management Fee         $27,245 - 5.00% of EGI
  Replacement Reserves   $18,977 - 3.00% of PGI
  Miscellaneous          $ 6,326 - 1.00% of PGI  

 Less: Total Expenses:   $52,548                               ($  52,548) 		
  		
Net Operating Income ("NOI"):                                   $  492,361		
		
 Divide by: Capitalization Rate              9.0%		
		
Estimated Value for Fiscal Years 2012 and 2013                  $5,470,678
	 	
Rounded Value for Fiscal Years 2012 and 2013                    $5,470,000		

In defense of their assessment, the assessors cross-examined Mr. Wolff and introduced into evidence the requisite jurisdictional documents and the subject property's property record cards for the fiscal years at issue, as well as a copy of the Board's Decision and Findings of Fact and Report in   Griffin I.
Based on all of the evidence, as well as reasonable inferences drawn therefrom, the Board agreed with Mr. Wolff and concluded that the subject property's highest-and-best use for the fiscal years at issue was its continued use as an industrial office building.  The Board also found that an income-capitalization methodology was the best approach to use to value the subject property for the fiscal years at issue.  The Board further found, however, that while Mr. Wolff's suggested rents for upper office space and warehouse space were reasonably well supported by market data, he did not provide similar support for his suggested rent for lower office space.  The Board, therefore, rejected his recommended rent for this space but did not have sufficient information in the record to otherwise determine a credible rent.   In addition, the Board found that Mr. Wolff's suggested capitalization rate of 9.00% was based primarily on data from industrial warehouses and not from mixed-use buildings, like the subject property.  Accordingly, the Board similarly rejected Mr. Wolff's recommended capitalization rate because of the lack of relevant, underlying supporting data, and, as a result of this void, the Board was unable to derive a credible capitalization rate from the record.  
Moreover, the Board found that Mr. Wolff's testimony during cross-examination contradicted the opinion of value that he advanced for the fiscal years at issue.  For example, he testified that market values for these types of buildings were stable from January 1, 2010 to January 1, 2012, but yet, in the current appeals, his opinion of market value dropped from over $6 million, as of January 1, 2010, to $5.47 million, as of January 1, 2011 and 2012.  The Board also noted that parts of the narrative contained in his appraisal report did not correspond to his testimony or the figures listed on his pro forma and at least one of the figures on his pro forma was an amount that he had used for an earlier fiscal year and did not relate to the fiscal years at issue.  The Board found that these contradictions and inconsistencies adversely affected his credibility and, ultimately, his recommended opinion of value for the fiscal years at issue.
On these bases, the Board found that the appellant failed to meet its burden of proving that the subject property was overvalued for the fiscal years at issue, and, therefore, decided these appeals for the appellee.        

OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).  
In determining fair cash value, all uses to which the property was or could reasonably be adapted on the relevant assessment dates should be considered.  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989).  The goal is to ascertain the maximum value of the property for any legitimate and reasonable use.  Id.  If the property is particularly well-suited for a certain use that is not prohibited, then that use may be reflected in an estimate of its fair market value.  Colonial Acres, Inc. v. Assessors of North Reading, 3 Mass. App. Ct. 384, 386 (1975).  "In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted."  Peterson v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2002-573, 617 (citing Appraisal Institute, The Appraisal of Real Estate 315-316 (12th ed., 2001)), aff'd, 62 Mass. App. Ct. 428 (2004).  The Board accepted the highest-and-best-use determination of the appellant's real estate valuation expert as consistent with the evidence and existing use of the subject property. 
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of reproduction.  Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  "The board is not required to adopt any particular method of valuation."  Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  In the present appeals, the Board ruled that neither the sales-comparison nor cost approaches were appropriate under the circumstances.  The Board agreed with the determination of the appellant's real estate valuation expert that there were not enough fee-simple market sales of reasonably  comparable properties to meaningfully estimate the value of the subject property using a sales-comparison technique.  See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 247 (1998)("The assessors must determine a fair cash value for the property as a fee simple estate, which is to say, they must value an ownership interest in the land and the building as if no leases were in effect.").  Furthermore, "[t]he introduction of evidence concerning the value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods."  Correia, 375 Mass. at 362.  The Board found here that no such "special situations" existed.  Accordingly, the Board ruled that a cost method of valuation was not an appropriate technique to use for valuing the subject property for the fiscal years at issue.    
The use of the income-capitalization approach is 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, 701-02 (1972); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941).  It is also recognized as an appropriate technique to use for valuing income-producing property.  Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  In the present appeals, the Board agreed with the appellant's real estate valuation expert that the income-capitalization approach was the most appropriate method to value the subject property.  
In the present appeals, the Board found numerous objective reasons for disregarding the value that the appellant's real estate valuation expert derived for the subject property for the fiscal years at issue using his income-capitalization approach. The Board found that the appellant's real estate valuation expert did not provide adequate market support for his suggested rent for lower office space or for his suggested capitalization rate of 9.00% which he based primarily on data from industrial warehouses and not from mixed-use buildings, like the subject property.  The Board further found that for both income-capitalization components, the lack of underlying credible data in the record left the Board with no information upon which to rely to develop its own market rents or appropriate capitalization rates.  
Moreover, the Board found that the testimony elicited from the appellant's real estate valuation expert during cross-examination contradicted the opinions of value that he advanced for the fiscal years at issue.  The Board also noted that parts of the narrative contained in his appraisal report did not correspond to his testimony or the figures listed on his pro forma and at least one of the figures on his pro forma was an amount that he had used for an earlier fiscal year and was not related to the fiscal years at issue.  The Board found that these discrepancies adversely impacted the credibility of the appellant's real estate valuation expert and, ultimately, his recommended opinion of value for the fiscal years at issue.
"'[E]vidence of a party having the burden of proof may not be disbelieved without an explicit and objectively adequate reason.'"  New Boston Garden v. Assessors of Boston, 383 Mass. 456, 473 (1981) (quoting L.L. Jaffe, Judicial Control of Administrative Action 607 (1968)).  However, 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.  
On these bases, the Board found that the appellant's real estate valuation expert was unable to provide the Board with a credible opinion of the subject property's value for the fiscal years at issue and the Board was unable to otherwise derive values from the record.        
 "'The burden of proof is upon the [appellant] to make out its right as a matter of law to abatement of the tax.'"  Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  The appellant must show that it has complied with the statutory prerequisites to its appeal, Cohen v. Assessors of Boston, 344 Mass. 268, 271 (1962), and that the assessed valuation of its property was improper.  See Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 691 (1982).  The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise.  Schlaiker, 365 Mass. at 245.  The Board found and ruled here that the appellant failed to meet his burden of proving that the subject property was overvalued for either of the fiscal years at issue in these appeals. Accordingly, the Board issued decisions for the appellee.
 				    	   THE APPELLATE TAX BOARD



    By: _______________________________
        Thomas W. Hammond, Jr. Chairman
A true copy,

Attest: _______________________
     Clerk of the Board

 In addition, there was a Community Preservation Act ("CPA") surcharge of $1,734.26.
 In addition, there was a CPA surcharge of $1,675.80.
 On his pro forma, Mr. Wolff's PGI was $706,996.  The Board found that he erroneously used the PGI amount from calculated in his fiscal year 2011 methodology.  See Griffin I. 
  While Mr. Wolff did perform a sales-comparison analysis, he relied solely on his income-capitalization analyses as his method of valuation.

ATB 2015-112