Beach Street Realty LLC v. Board of Assessors of the City of Quincy (December 15, 2014)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



BEACH STREET REALTY LLC     v.	BOARD OF ASSESSORS OF THE 
CITY OF QUINCY

Docket No. F318318		Promulgated:
                				December 15, 2014



	This is an appeal 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 City of Quincy (the "assessors" or "appellee"), to abate taxes on certain real estate in the City of Quincy, owned by and assessed to Beach Street Realty LLC (the "appellant") under G.L. c. 59, §§ 11 and 38, for fiscal year 2012.
	Commissioner Mulhern (the "Presiding Commissioner") heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20, and issued a single-member decision for the appellant.  
This findings of fact and report is made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
	
Christine A. Lindsay, Esq. for the appellant.
Peter E. Moran, chair of the assessors, and Marion A. Fantucchio, member of the assessors, for the appellee.

  
FINDINGS OF FACT AND REPORT

	On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
	On January 1, 2011, the appellant was the assessed owner of a 4,545-square-foot parcel of real estate, improved with a single-story, four-store, commercial building that is located at 133 Beach Street in Quincy (the "subject property").  For assessment purposes, the subject property is identified as "Map ID: 5033/ 7/ B//."  For fiscal year 2012, the assessors valued the subject property at $467,400 and assessed a tax thereon, at the commercial rate of $28.66 per $1,000, in the amount of $13,395.68.  In accordance with G.L. c. 59, § 57C, the appellant paid the tax due without incurring interest.  On January 26, 2012, in accordance with G.L. c. 59, § 59, the appellant timely filed an abatement application with the assessors seeking a $167,400 reduction in the subject property's assessed value to $300,000.  Along with its abatement application, the appellant also timely filed its consent to an additional three months for the assessors to act on its abatement application as authorized by G.L. c. 59, § 64.  The appellant's abatement application was deemed denied on July 26, 2012, and on October 25, 2012, the appellant seasonably filed a Petition Under Formal Procedure with the Appellate Tax Board (the "Board").  On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The subject property's one-story commercial building contains four side-by-side storefronts of approximately equal size, for a total rentable area of about 2,724 square feet.  The building is wood-framed and was built circa 1900.  It has a brick and stucco exterior along with a separate entrance and three adjacent double-hung windows with a transom above for each storefront.  The slightly pitched flat roof has a rubber covering.  The full basement is unfinished as is the 330-square-foot garage attached to the rear of the building.  The 4,545-square-foot parcel does not have any on-site customer parking; there is, however, on-street parking adjacent to and nearby the subject property.    
The interior of the building has plaster walls and a mix of hardwood flooring and carpeting.  Each of the four units has its own bathroom.  The building is heated by a forced-hot-air system fueled by natural gas.  The building is in average overall condition.    
At the hearing of this appeal, the appellant maintained that the subject property was overvalued.  To prove overvaluation, the appellant primarily relied on the testimony of Jay Nuss, a commercial real estate broker who had also been a certified appraiser before his license lapsed.  Prior to the hearing, he had inspected, measured, and familiarized himself with the subject property.  Mr. Nuss described the subject property and discussed an income-capitalization approach for valuing the subject property that he had prepared for abatement negotiations with the assessors.  His presentation is summarized in the following table.


Potential Income:		
		
        3,054 SF x $16.50 =	     $  50,391	
   (includes unheated garage space)		
		
 Less Vacancy and Credit Loss (12%)	    ($   6,047)	
		
 Effective Gross Income ("EGI") =	    $  44,344	
		
Expenses:		
		
  Real Estate Taxes:            $10,500		
  Insurance:                    $ 1,500		
  Management (4% of EGI):       $ 1,774		
  Leasing Fees (5% of EGI):     $ 2,217		
  Common Utilities:             $ 1,500		
  Maintenance/Repairs:          $ 1,600		
  Snow Removal:                 $   400		
  Legal/Accounting:             $   300		
  Reserves (2% of EGI):         $   887		
  Projected Total Expenses:	    ($  20,678)	
		
Net-Operating Income:	     $  23,666	
		
Capitalization Rate:	    7.5%	
		
Estimated Market Value:	     $ 315,000	

	Mr. Nuss also provided the Board with limited information regarding leases for four purportedly comparable rental properties.  He represented that two of the leases commenced in 2010, while the other two began in 2012.  The two 2010 leases ranged in rent from $15.00 per square foot plus utilities to $18.95 per square foot plus utilities.  Mr. Nuss did not provide the Board with any substantiation for the leases, and he failed to adjust, or explain why he did not adjust, the rents to account for differences between the purportedly comparable rental properties and their leases compared to the subject property and its leases. 
	In support of their value and in response to the appellant's claim of overvaluation, the assessors called Peter Moran, the chair of the assessors, as their only witness.  He testified that the assessors inspected the subject property after the appellant's abatement application had been filed and determined that they had overrated the condition of the subject property.  The assessors adjusted the subject property's property record card to reflect this revelation, and consequently revised their opinion of the subject property's fair cash value - from $467,400 to $431,800 - for the fiscal year at issue.  
Mr. Moran also submitted into evidence property record cards for several purportedly comparable properties in the subject property's neighborhood.  The sales associated with these properties indicated a value of approximately $166 per square foot for the subject property, which produced an indicated value of $452,184.  The sales were of leased-fee as opposed to fee-simple properties.  Mr. Moran testified that the revised value that the assessors now placed on the subject property for the fiscal year at issue resulted in an approximately $148-per-square-foot value.   
After considering the testimony and presentation by Mr. Nuss, the Presiding Commissioner found that the appellant's case-in-chief did not contain or provide credible evidence to support its claim that the subject property was overvalued for the fiscal year at issue.  The Presiding Commissioner found that the recommendations contained in Mr. Nuss' income-capitalization approach were inadequately supported and his methodology was flawed.  As for his recommendations, the Presiding Commissioner found that his suggested rent, vacancy and collection loss percentage, and capitalization rate were not supported with appropriate market data.
  With respect to his rent, Mr. Nuss failed to provide any substantiation for his purportedly comparable properties' leases, and he failed to adjust, or explain why he did not adjust, their rents to account for differences between the rental properties and their leases compared to the subject property and its leases.  Furthermore, he never even established basic comparability between his purportedly comparable properties and the subject property.         With respect to his vacancy and collection loss recommendation, Mr. Nuss admittedly did not review any market data and relied solely on the subject property's then-current vacancy. 
 With respect to his capitalization rate, Mr. Nuss did not explain to the Presiding Commissioner how he developed his suggested rate or upon what sources or market data he relied.  Moreover, Mr. Nuss improperly included real estate taxes as an expense instead of a tax factor added to the capitalization rate thereby rendering his methodology further flawed.  For these reasons, the Presiding Commissioner found that the recommendations contained in Mr. Nuss' income-capitalization approach were inadequately supported with market data and his methodology was fatally flawed.   
With respect to the assessors' comparable-sales analysis, the Presiding Commissioner found that while the per-square-foot values tended to support the assessment, the assessors failed to adjust those values to account for differences with the subject property.  Furthermore, the evidence indicated that the sales were leased-fee as opposed to fee-simple transactions, and the assessors offered no adjustments or any support for why there should not be any in that regard either.  The assessors acknowledged, however, that they had overrated the condition of the subject property and that its fair cash value for fiscal year 2012 was $431,800.  
Based on all of the evidence and his subsidiary findings, the Presiding Commissioner found that the most persuasive evidence of value was the revised value proposed by the assessors - $431,800 - after they had inspected the subject property and adjusted its assessed value for condition.  Accordingly, the Presiding Commissioner ultimately found that the fair cash value of the subject property for fiscal year 2012 was $431,800.  The Presiding Commissioner, therefore, decided this appeal for the appellant and reduced the fiscal year 2012 assessment from $467,400 to $431,800, and abated $1,030.51 in real estate tax. 

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 in a free and open market will agree if both of them are fully informed and under no compulsion.   Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
	The appellant has the burden of proving that the property has a lower value than that assessed. "'The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.'"  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). "[T]he board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
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 Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).  The appellant in this appeal attempted to prove that the subject property was overvalued by submitting a value lower than the assessment that had been developed using an income-capitalization approach.  
The income-capitalization method is an appropriate technique to use for valuing income-producing property.  Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64-65 (1941).  The income stream used in the income-capitalization method must reflect the property's earning capacity or economic rental value. Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 451 (1986).  Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, they are indicative of the subject property's earning capacity.  See Correia v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 879 (1980)(rescript).  Actual rents from the subject property are also probative in this regard if they reflect the subject's true earning capacity.   Pepsi Cola Bottling Co., 397 Mass. at 451; Irving Saunders Trust, 26 Mass. App. Ct. at 842.  After accounting for vacancy and collection losses, which also must be market based, see Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 239, 241-42 (1998), the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co., 393 Mass. at 610.  The expenses should also reflect the market.  Id.; see Olympia & York State Street Co., 428 Mass. at 239, 243.
The Presiding Commissioner found that the recommendations contained in Mr. Nuss' income-capitalization approach were inadequately supported and his methodology was flawed.  The Presiding Commissioner found that his suggested rent and his vacancy and collection loss percentage were not supported with appropriate market data.  With respect to his rent, Mr. Nuss failed to provide any substantiation for his purportedly comparable properties' leases, and he failed to adjust, or explain why he did not adjust, their rents to account for differences between the rental properties and their leases compared to the subject property and its leases.  Furthermore, he never even established basic comparability between his purportedly comparable properties and the subject property.  With respect to his vacancy and credit loss recommendation, Mr. Nuss admittedly did not review any market data and relied solely on the subject property's then-current vacancy.  Accordingly, the Presiding Commissioner found that the rent and vacancy and collection loss recommendations that Mr. Nuss used in his income-capitalization approach were not adequately supported and were, therefore, not credible.   
The capitalization rate selected should consider the return necessary to attract investment capital.  Taunton Redevelopment Assoc. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  The "tax factor" is a percentage added to the capitalization rate "to reflect the tax which will be payable on the assessed valuation produced by the [capitalization] formula."  Assessors of Lynn v. Shop-Lease Co., 364 Mass. 569, 573 (1974).  It is appropriate to add a tax factor to the capitalization rate in gross leasing scenarios because the landlord is assumed to be responsible for paying the real estate taxes. See Appraisal Institute, The Appraisal of Real Estate 451 (13th ed. 2008).  With respect to his capitalization rate, Mr. Nuss did not explain to the Presiding Commissioner how he developed his suggested rate or upon what sources or market data he relied.  Moreover, Mr. Nuss improperly included real estate taxes as an expense instead of a tax factor added to the capitalization rate.  The Presiding Commissioner found that Mr. Nuss failed to properly develop his capitalization rate and to appropriately account for real estate taxes in his methodology.  
For these reasons, the Presiding Commissioner found and ruled that the income and vacancy and collection loss recommendations, as well as the capitalization rate contained in Mr. Nuss' income-capitalization approach were inadequately supported with market data and his methodology was fatally flawed.   
The assessors attempted to defend the lower value which they now ascribed to the subject property by explaining that they had reduced the condition factor and by introducing a comparable-sales analysis.
Actual sales generally "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. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981).  Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue.  See McCabe v. Chelsea, 265 Mass. 494, 496 (1929).  "A major premise of the sales comparison approach is that an opinion of the market value of a property can be supported by studying the market's reaction to comparable and competitive properties."  The Appraisal of Real estate at 297.  
When comparable sales are used, however, allowance must be made for various factors which would otherwise cause disparities in the comparable prices.              See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082.  "Adjustments for differences in the elements of comparison are made to the price of each comparable property . . . . The magnitude of the adjustment made for each element of comparison depends on how much that characteristic of the comparable property differs from the subject property."   The Appraisal of real estate at 322.  
In the present appeal, the Presiding Commissioner found that while the per-square-foot values which the assessors developed using a comparable-sales analysis tended to support the assessment, the assessors failed to adjust those values to account for differences with the subject property.  Furthermore, the evidence suggested that most of the sales were leased-fee as opposed to fee-simple transactions, and the assessors offered no adjustments or any support for why there should not be any in that regard either.  The assessors acknowledged, however, that they had overrated the condition of the subject property and that its fair cash value for fiscal year 2012 was $431,800.
Based on all of the evidence and his subsidiary findings, the Presiding Commissioner found and ruled that the most persuasive evidence of value was the value proposed by the assessors - $431,800 - after they had inspected the subject property and adjusted its assessed value for condition.    
"The board [is] not required to believe the testimony of any particular witness but [may] accept such portions of the evidence as appear to have the more convincing weight. Boston Consol. Gas Co., 309 Mass. at 72.  "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).
Accordingly, the Presiding Commissioner found and ruled that the fair cash value of the subject property for fiscal year 2012 was $431,800.  The Presiding Commissioner, therefore, decided this appeal for the appellant and reduced the fiscal year 2012 assessment from $467,400 to $431,800, and abated $1,030.51 in real estate tax. 

  					
                      THE APPELLATE TAX BOARD



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

A true copy,



Attest:					
    Clerk of the Board

 The Community Preservation Act (the "CPA") surcharge to the real estate tax was $133.96, bringing the total tax to $13,529.64.
 The subject property's property record card lists the rentable area at 2,710 square feet.  The Presiding Commissioner adopted the measurement proposed by the appellant's witness because he represented that he had measured the property, but the Presiding Commissioner nonetheless found that the 14-square-foot difference was of little consequence.  
 This abatement includes the requisite amount of the CPA surcharge also abated.
 See footnote 3, supra.

ATB 2014-1155