Rose V. Smith & Rebecca S. Baker, Trustees of the RVS Nominee Trust v. Board of Assessors of the Town of Weymouth (June 20, 2012)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



ROSE V. SMITH & REBECCA S. BAKER,   v.  	BOARD OF ASSESSORS OF 
TRUSTEES OF THE RVS NOMINEE TRUST		THE TOWN OF WEYMOUTH

Docket Nos. F305282 (FY 2010)
            F312895 (FY 2011)			Promulgated:
								June 20, 2012

	These are appeals 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 Weymouth (the "appellee" or the "assessors") to abate taxes on certain real estate in the Town of Weymouth owned by and assessed to Rose V. Smith and Rebecca S. Baker, Trustees of the RVS Nominee Trust (the "appellants") under G.L. c. 59, §§ 11 and 38 for fiscal years 2010 and 2011.  
	Commissioner Mulhern heard these appeals. Chairman Hammond and Commissioners Scharaffa, Rose, and Chmielinski joined him in the decisions for the appellee.  
	These findings of fact and report are made pursuant to requests by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.  

	Matthew A. Luz, Esq. for the appellants. 
	James S. Timmins, Esq. for the appellee.  

FINDINGS OF FACT AND REPORT
	There is no dispute between the parties with respect to the following facts.
	On January 1, 2009 and January 1, 2010, the appellants were the assessed owners of a parcel of real estate, designated for assessing purposes as map/block/lot 29-327-024, located at 25 Main Street in the Town of Weymouth, and used as an automobile dealership (the "subject property").  The subject property has curb cuts and approximately 407 feet of frontage along Main Street, which is also known as State Route 18, a two-lane, heavily traveled roadway traversing north -- south through town.  The subject property is situated at the intersection of State Routes 18 and 53 in an area densely developed with a variety of retail, automotive-related, office, and other service-oriented properties.  This area of Weymouth is primarily commercial and has good access to area and regional highway systems, particularly State Route 3 which is only one-half mile south on State Route 18.  
The subject property's parcel is irregularly shaped and contains a total land area of 4.40 acres.  It is at grade level with Main Street and is improved with an 18,856-square-foot building with an additional 3,600 square feet on a mezzanine level.  The building is a masonry-frame structure constructed on a concrete foundation, with a flat, rubber roof and a dryvit and concrete-block exterior.  The existing structure occupies about 9.8% of the parcel's total land area.  The majority of the remaining area is paved in asphalt for employee and customer parking as well as the display and storage of automobiles.  A portion of the rear section of the subject property contains vegetation and serves as a buffer to a bordering residential area.  All utilities are available at the site including municipal water and sewer, as well as gas, electric, cable, and telephone service.  The subject property is located primarily in the Limited Business (B-1) zoning district; however, a portion of the rear of the subject property is located within the Residential Low Density (R-1) zoning district.  The subject property's current use as an automobile dealership facility is a legal non-conforming use.      
The subject property's building consists of an automobile showroom and customer service and office areas.  The showroom is located in the front portion of the building where it is visible from Route 18.  It includes eight private sales offices, a customer waiting room, and two bathrooms.  In addition, the mezzanine level above the showroom contains a private office, a conference room, an employee break area, a storage area, a bathroom, and an open administrative space that includes three private rooms and two bathrooms.  The rear of the first floor is divided into three sections consisting of a customer service and parts department area, an automobile repair area, and an automobile body shop area.  The automobile repair area contains twelve service bays and one wash bay.  The automobile body shop area includes a paint booth and one private office.  There are at least four overhead doors for vehicular access to appropriate areas.  
The interior finishes are typical for an automobile dealership with large plate glass windows, painted plaster walls, vinyl tile floors in the showroom area and carpet in the sales office area, and painted plaster ceilings.  The interior of the administrative office area includes painted plaster and wood-paneled walls, carpeted floors, and suspended acoustic-tile ceilings.  The interior of the customer service area includes painted plaster and wood-paneled walls, vinyl floors, and acoustic-tile ceilings.  The interior of the automotive repair and auto body shop areas include concrete block walls, concrete floors, and insulated panels or exposed metal ceilings.  Lighting for the building is provided by fluorescent panel or strip lighting fixtures.  Overall, the interior finishes are of average quality and appeal.     
	For fiscal years 2010 and 2011, the assessors valued the subject property at $2,038,600 and $1,945,500, respectively and assessed taxes thereon, at the corresponding rates of $18.38 and $19.41 per thousand, in the amounts of $37,469.47 and $37,762.15.  Weymouth's Treasurer/Collector mailed the fiscal year 2010 and 2011 actual tax bills on or about December 31, 2009 and December 31, 2010, respectively.  In accordance with G.L. c. 59,    § 57C, the appellants paid the taxes assessed without incurring interest. 
	On or about January 20, 2010 and January 7, 2011, in accordance with G.L. c. 59, § 59, the appellants timely filed their respective fiscal year 2010 and 2011 applications for abatement with the assessors.  The assessors denied the applications on February 23, 2010 and on April 28, 2011, respectively.  On March 29, 2010 and June 20, 2011, in accordance with G.L. c. 59, §§ 64 and 65, the appellants seasonably filed their corresponding fiscal year 2010 and 2011 petitions with the Appellate Tax Board (the "Board").  On the basis of these facts, the Board found and ruled that it had jurisdiction over the fiscal year 2010 and 2011 appeals.  
	The appellants presented their case-in-chief, challenging the assessments, primarily through the testimony and appraisal report of their real estate valuation witness, Eric Wolff.  The assessors entered the usual jurisdictional documents into evidence along with several other exhibits, including the subject property's property record cards for the fiscal years at issue, but did not present any other exhibits or testimonial evidence, essentially resting on their assessment.  A summary of the parties' valuation evidence follows.  
To ascertain the subject property's highest and best use and to develop estimates of the subject property's values for the fiscal years at issue using income-capitalization and sales-comparison methodologies, Mr. Wolff testified that he conducted a careful inspection of the subject property, examined the property's legal occupancy, and reviewed relevant zoning regulations to determine the property's range of alternative uses.  In addition, Mr. Wolff testified that he conducted a thorough examination of the Weymouth real estate market with a particular emphasis on the automotive dealership submarket.  He claimed that he researched recent comparable property transfers and attempted to question market participants about the terms and conditions associated with the transactions.  He also maintained that he conducted physical inspections or observations of all comparable properties used in his analysis.  Moreover, Mr. Wolff asserted that he examined relevant sales, offerings, and lease data from the competitive market area and reviewed vacancy levels and development trends.  Finally, he obtained additional pertinent information from various publications and sources, such as the Warren Group, the CoStar Group, the Norfolk County Registry of Deeds, Weymouth's Zoning Ordinance, the assessors, Weymouth's Tax Collector, and Weymouth's Building Department.  
Relying on data from these sources, Mr. Wolff testified that he first determined that the subject property's highest and best use was its continued use as an automobile dealership.  He concluded that, at all relevant times, there was some demand for automotive dealership space similar to that on the subject property and the subject property's existing automotive dealership use maximized its financial potential and productive use.  To estimate the value the subject property as an automobile dealership, Mr. Wolff eschewed the cost approach because of the age of the structure on the subject property and his understanding that the market would not rely upon a cost approach to ascertain a value for the subject property for the fiscal years at issue.  Instead, he focused on sales-comparison and income-capitalization methodologies, which he believed were more consistent with valuation methods employed by market participants.
	In his sales-comparison approach for fiscal year 2010, Mr. Wolff compared the subject automobile dealership to the sales of four other automobile dealerships in Braintree, Canton, Randolph, and Foxborough.  These purportedly comparable properties were sold in December, 2008, October, 2008, January, 2008, and December, 2007, respectively, and brought unadjusted per-square-foot sale prices of $89.73, $132.65, $99.56, and $102.17, respectively.  Mr. Wolff then adjusted the prices paid, per square foot of building area, for these properties to account for what he perceived to be their differences with the subject property.  The factors for which he adjusted include location, building condition, and building size.  He considered, but did not adjust for, the dates of the sales, believing that the market was stable during this period of time.  Mr. Wolff also adjusted each of the comparable sales upward by five percent to reflect the presence of 3,600 square feet of mezzanine space in the subject property's building and the absence of such space in the purportedly comparable properties' buildings.  Mr. Wolff did not consider or adjust for the size of the purportedly comparable properties' parcels compared to the subject property's.  He did, however, admit that parcel size was a relevant factor.  
After adjustment, Mr. Wolff's per-square-foot sale prices ranged from $82.00 to $139.00 with an average (mean) of $101.00.  Mr. Wolff selected the mean value of $101.00 per square foot in estimating the total value of the subject automobile dealership at $1,904,456, which he rounded to $1,900,000 for fiscal year 2010.  
	In his sales-comparison approach for fiscal year 2011, Mr. Wolff compared the subject property to five other automobile dealerships in Attleboro, Brockton, Braintree, Canton, and Randolph.  Three of these properties were the same ones that Mr. Wolff used in his fiscal year 2010 analysis.  These five purportedly comparable properties were sold in November, 2009, June, 2009, December, 2008, October, 2008, and January, 2008, respectively, and brought unadjusted per-square-foot sale prices of $44.86, $68.99, $89.73, $132.65, and $99.56, respectively.  As he did for fiscal year 2010, Mr. Wolff then adjusted the prices paid for these properties, per square foot of building area, to account for what he considered to be their differences with the subject property.  He adjusted for the same factors that he used in his fiscal year 2010 analysis, including an upward adjustment of five percent to reflect the presence of 3,600 square feet of mezzanine space in the subject property's building that the purportedly comparable properties' buildings lacked.  Once again, Mr. Wolff did not consider or adjust for the size of the purportedly comparable properties' parcels compared to the subject property's.  
After adjustment, Mr. Wolff's per-square-foot sale prices ranged from $52.00 to $139.00 with an average (mean) of $90.00.  Mr. Wolff selected the mean value of $90.00 per square foot in estimating the total value of the subject automobile dealership at $1,697,040, which he rounded to $1,700,000 for fiscal year 2011.
Despite his development of values for the subject property for fiscal years 2010 and 2011 using comparable-sales analyses, Mr. Wolff did not rely on these values, testifying that: 
I think the problem with the approach is the motivation behind the automobile dealerships.  Sometimes they're bought for branding.  Sometimes they're bought to use for alternative uses. And you have a very difficult time valuing an on-going business versus properties that are no longer being operated as dealerships.  You have some dealerships that are sold for used car dealerships, and then you have some that are sold as, you know, branded dealerships.  And I think that trying to reconcile that information is very difficult. And it could be very misleading.  So, although I did the approach and did come up with values to support the income approach, I did not rely on it at all. 

In his income-capitalization approach for the fiscal years at issue, Mr. Wolff estimated what he considered to be an appropriate market rent by comparing the subject property to seven other dealerships located in Weymouth, Wakefield, Milford, Beverly, Raynham, and Brockton.  The rents paid by these purportedly comparable automobile dealerships, on a triple net basis, ranged from a dealership in Brockton's rent of $6.40 per square foot to a dealership in Milford's rent of $22.56 per square foot.  The lone purportedly comparable dealership in Weymouth paid rents in the $8.09-$8.52 range.  The median rent, which a second automobile dealership in Brockton paid, was $12.00 per square foot.  Mr. Wolff selected what he considered to be a fair market rent of $8.00 per square foot, on a triple net basis, for the subject property for both fiscal years at issue.  Mr. Wolff admitted in cross-examination that he selected these dealerships because they were part of his existing data base and that he did not conduct any additional research on rents in the marketplace.  Consequently, he failed to include in his analysis several other automobile dealerships in Weymouth that shared many of the same characteristics as the subject property.  Moreover, in cross-examination, Mr. Wolff admitted that he did not create an adjustment grid to more precisely modify his purportedly comparable properties' rents to reflect the subject property's differing characteristics.  Instead, Mr. Wolff acknowledged that he simply used a highly subjective and very general approximation.    
To determine the subject property's gross potential income, Mr. Wolff included the mezzanine space in his estimate of the 22,456-square-foot useable area associated with the subject property's building.  Accordingly, using this area and a rent of $8.00 per square foot, resulted in a potential gross income of $179,648.  
Mr. Wolff testified that he estimated his vacancy rates for the fiscal years at issue using: (1) information from local brokers who estimated that the vacancy rates for local retail and industrial space ranged between 5% and 15%; (2) market survey reports by CoStar Group indicating that the vacancy rates for local retail and industrial space ranged from 3% to 10%; and (3) data from the National Automobile Dealership Association suggesting that the number of automobile dealerships located in Massachusetts declined by 14% during the relevant time period.  Based on this information and the subject property's location, relative size, and current physical condition, he selected a vacancy and credit loss rate for the subject property of 10%.  He did not consider that, at all relevant times, the subject property, and apparently all of his purportedly comparable properties, were fully occupied single-tenanted facilities.  After applying his vacancy rate to his potential gross income figure, Mr. Wolff derived an effective gross income amount of $161,683.  
For expenses, Mr. Wolff observed that tenants in similar space are responsible for all operating expenses except management fees and structural costs.  He, therefore, applied as his expenses only a management fee of five percent of effective gross income and a replacement reserve allowance equal to three percent of potential gross income in deriving a stabilized net income of $148,210 before capitalization.  Mr. Wolff did not enter into evidence or offer any specific underlying support for the expense percentages that he used in this income-capitalization technique, instead representing that he relied on his experience as an appraiser of these types of properties and on information in his data base from past appraisals. 
In determining his overall capitalization rates of 9.0% for fiscal year 2010 and 9.5% for fiscal year 2011, Mr. Wolff utilized a band-of-investment technique for which he assumed loan-to-value and equity-to-value ratios of seventy and thirty percent, respectively, a mortgage capitalization rate of 9.30% for both of the fiscal years at issue, an equity capitalization rate of 12.50% for fiscal year 2010 and an equity capitalization rate of 14.00% for fiscal year 2011, as well as a credit for equity build-up.  He did not provide underlying support for the mortgage capitalization rate and equity capitalization rates that he selected.  For these purposes, Mr. Wolff assumed that the value of the subject property would remain stable during the relevant time period.  He compared the overall capitalization rates that he developed using his band-of-investment technique to those for non-institutional grade retail and industrial properties published in the First Quarter 2010 Korpacz Real Estate Investor Survey Report and the First Quarter 2011 Korpacz Real Estate Investor Survey Report (together, the "Korpacz Reports").  After finding that the overall capitalization rates that he developed using his band-of-investment technique were consistent with the averages and within the ranges reported in the Korpacz Reports, Mr. Wolff adopted them.   Mr. Wolff then divided his net income figure of $148,210 for fiscal year 2010 by his 9.0% overall capitalization rate for fiscal year 2010 and estimated the value of the subject property for fiscal year 2010 at $1,646,773, which he rounded to $1,645,000.  For fiscal year 2011, Mr. Wolff divided his net income figure of $148,210 by the 9.5% overall capitalization rate that he developed for that fiscal year and estimated the value of the subject property at $1,560,101 for fiscal year 2011, which he rounded to $1,560,000.  
As discussed, infra, Mr. Wolff did not reconcile the estimates of the subject property's values that he derived from his comparable-sales approach with those that he derived from his income-capitalization approach because he determined that, in this instance, the comparable-sales approach was not "a reliable indicator of value."  Accordingly, he simply relied on the $1,645,000 and $1,560,000 values that he developed for fiscal years 2010 and 2011, respectively, using his income-capitalization method as representing the fair cash values of the subject property for those fiscal years.     
A summary of Mr. Wolff's income-capitalization methodology for the fiscal years at issue is contained in the following table.

Potential Gross Income ("PGI"):		
  22,456 SF @ $8.00/SF	 $  179,648	
		
Less: Vacancy & Collection Loss - 10.0%	($   17,965)	
		
Effective Gross Income ("EGI")	 $  161,683	
		
Expenses:		
  Management Fee - 5% of EGI	($    8,084)	
  Replacement Reserves - 3% of PGI	($    5,389)	
		
Net Operating Income ("NOI")	 $  148,210	
		
Capitalization Rate for Fiscal Year 2010	     9.0%	
		
Estimated Value for Fiscal Year 2010	 $1,646,773	
		
Rounded Value for Fiscal Year 2010	 $1,645,000	
		
		
Capitalization Rate for Fiscal Year 2011	     9.5%	
		
Estimated Value for Fiscal Year 2011	 $1,560,101	
		
Rounded Value for Fiscal Year 2011	 $1,560,000	

	While the assessors did not call any witnesses to testify, they did present, among several other exhibits, the relevant property record cards which contained the income-capitalization methodology that they used to value the subject property for the fiscal years at issue.  These cards included income and expense figures derived from the subject property's and other local commercial properties' income and expense submissions.  In valuing the subject property for the fiscal years at issue using this income-capitalization approach, the assessors selected a rent of $10.00 per square foot and used a vacancy rate of 5% to reach their effective gross income amount of $213,332.  The assessors then subtracted an amount equivalent to 10% of the effective gross income for expenses, resulting in a net income calculation of $191,999.  For fiscal year 2010, the assessors applied a capitalization rate of 9.6% resulting in a $2,000,000 rounded estimate of the subject property's fair cash value.  For fiscal year 2011, the assessors applied a capitalization rate of 9.8% resulting in a $1,959,200 estimate of the subject property's fair cash value.     
After considering all of the evidence, and reasonable inferences drawn therefrom, the Board found that the subject property's highest and best use was, as both Mr. Wolff and the assessors' evidence suggested, its existing use as an automobile dealership.  The Board found that the subject property's underlying characteristics rendered it particularly well-suited for its existing use and no other uses were directly supported by the evidence or recommended or advanced by the parties.  
The Board also agreed with Mr. Wolff's and the assessors' approach of valuing the subject property using an income-capitalization methodology.  The Board found that Mr. Wolff's comparable-sales approach likely did suffer from some of the infirmities that caused Mr. Wolff to dismiss the values derived from it.  Moreover, in cross-examination, Mr. Wolff admitted that he did not thoroughly investigate the relevant market and was unsure whether certain sales included inventory or other business-related components in the reported sale price.  The Board also accepted Mr. Wolff's rationale for not using a cost approach here and recognized that potentially income-producing properties, like the subject property, are often best valued using an income-capitalization methodology.  
 With respect to selecting appropriate market rents for determining the subject property's gross potential income for the fiscal years at issue, the Board determined that Mr. Wolff's recommended rate of $8.00 per square foot was not credible.  It was almost entirely based on the unadjusted rent from one property in Weymouth, which had a considerably smaller parcel than the subject property and was situated in a less desirable location.  The Board found that the assessors' rate of $10.00 per square foot better reflected the overall evidence and an appropriately adjusted rental figure derived from Mr. Wolff's purportedly comparable Weymouth property.  The subject property's rental area was not in dispute.  The parties agreed that the subject property's rentable area was 22,456 square feet, and the Board adopted that area.  
For a vacancy rate, the Board recognized that, at all relevant times, the subject property and all of the purportedly comparable properties were fully occupied single-tenanted properties.  Mr. Wolff, relying predominantly on a blend of industrial and retail vacancy rates ranging from 5% to 15%, recommended a vacancy rate of 10%, while the assessors used a rate of 5%.  In light of the subject and comparable properties' occupancies and in consideration of Mr. Wolff's underlying data, the Board determined that a rate in the lower half of the range used by Mr. Wolff was most apt.  Accordingly, the Board adopted a vacancy rate of 7%.  
For expenses, the Board found that Mr. Wolff's recommendations were better defined than the assessors' 10% generalization.  Accordingly, the Board adopted Mr. Wolff's recommended management fee of 5% of effective gross income and his suggested reserve allowance of 3%.  The Board, however, applied the 3% multiplier to the subject property's effective gross income, as is customary in appraisal practice, as opposed to its potential gross income, as Mr. Wolff had done.  See, e.g., Appraisal Institute, The Appraisal of Real Estate 496, 498 (13th ed. 2008)(referencing replacement allowances and expenses as percentages of effective gross income).
With respect to capitalization rates, Mr. Wolff used rates of 9% for fiscal year 2010 and 9.5% for fiscal year 2011, and the assessors used similar rates of 9.6% and 9.8%, respectively.  The assessors offered no underlying support for their rates, while Mr. Wolff supported his rates with his band-of-investment technique and two Korpacz Reports.  The Board adopted Mr. Wolff's rates because they were amply supported with market data, while the assessors' were not.
Based on these subsidiary findings, the Board determined that the subject property's fair cash value was $2,135,000 for fiscal year 2010 and $2,022,000 for fiscal year 2011; the corresponding assessments were $2,038,600 and $1,945,500.  A summary of the Board's methodology is contained in the following table. 


Potential Gross Income ("PGI"):		
  22,456 SF @ $10.00/SF	 $  224,560	
		
Less: Vacancy & Collection Loss - 7.0%	($   15,719)	
		
Effective Gross Income ("EGI")	 $  208,841	
		
Expenses:		
  Management Fee - 5% of EGI	($   10,442)	
  Replacement Reserves - 3% of EGI	($    6,265)	
		
Net Operating Income ("NOI")	 $  192,134	
		
Capitalization Rate for Fiscal Year 2010	     9.0%	
		
Estimated Value for Fiscal Year 2010	 $2,134,822	
		
Rounded Value for Fiscal Year 2010	 $2,135,000	
		
		
Capitalization Rate for Fiscal Year 2011	     9.5%	
		
Estimated Value for Fiscal Year 2011	 $2,022,463	
		
Rounded Value for Fiscal Year 2011	 $2,022,000	

On the basis of these findings and analyses, the Board ultimately found that the appellants failed to prove that the assessors had overvalued the subject property for fiscal years 2010 and 2011.  Accordingly, the Board 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; Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975).  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).  Accordingly, fair cash value means fair market value.  Id.  
	The assessment is presumed valid unless the taxpayer sustains the burden of proving otherwise.  Schlaiker v. Assessors of Great Barrington, 356 Mass. 243, 245 (1974).  Accordingly, the burden of proof is upon the appellants to make out their right as a matter of law to an abatement of the tax.  Id.  The appellants must show that the assessed valuations of their property were improper.  See Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 691 (1982). 
But "[p]rior 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, Mass. ATB Findings of Fact and Reports 2000-859, 875 (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). "[T]he phrase 'highest and best use' implies the selection of a single use for . . . property and . . . the Board is required to make its best judgment as to what that use is likely to be, considering all the evidence presented."  New England Telephone and Telegraph Co. v. Assessors of the Town of Framingham, Mass. ATB Findings of Fact and Reports 1988-95, 150.  In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted.  See Leen v. Assessors of Boston, 345 Mass. 494, 504 (1963); Boston Gas Co., 334 Mass. at 566.  If the property is particularly well-suited for a certain use that is not prohibited, then that use may be reflected in an estimate of its fair market value.  Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386 (1975).    
In the present appeals, the Board agreed with the parties and found and ruled that the highest and best use of the subject property was its existing use as an automobile dealership.  The Board determined that the subject property's characteristics made it particularly well-suited to its existing use.  No other uses were recommended or advanced, and the evidence did not directly support any other uses. 
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 Redev. Auth., 375 Mass. 360, 362 (1978).  "The board[, however,] is not required to adopt any particular method of valuation."  Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  
The appellant's valuation expert did not rely upon the cost approach given the age of the structure on the subject property and his understanding that market participants do not use it.  The Board agreed with him in this regard.  Furthermore, the Board ruled that "[t]he introduction of evidence concerning the value based on [cost] computations has been limited to special situations in which data cannot be reliably computed under the other two methods."   Correia, 375 Mass. at 362.  The Board found here that no such "special situations" existed, and, even if they did, there was virtually no evidence on which to reliably base a value using a cost approach.    
"[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, 385 Mass. at 682.  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.  McCabe v. Chelsea, 265 Mass. 494, 496 (1929).  
In the present appeals, the Board found that the sales-comparison method was not the most effective and reliable way to value the subject property.  Like the appellants' valuation expert, the Board concluded that it was not possible to ascertain whether values for the purportedly comparable automobile dealerships' personal property and business components were included in their sale prices.  Consequently, the Board found and ruled that the values derived for the subject property using the comparable-sales methodology were not sufficiently trustworthy.     
The use of the income-capitalization approach is appropriate when reliable market sales data is not available.  Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810, 811 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941).  It is also an appropriate technique to use for valuing income-producing property.  Id. at 64-65; Pepsi-Cola Bottling Co., 397 Mass. at 449.  In these appeals, the Board relied exclusively on the value determined from the income-capitalization approach because the other methods were not appropriate under the circumstances, and the approach that the Board used was equivalent to what buyers and sellers in the marketplace would have used under the circumstances.   See New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); New England Oyster House, Inc., 362 Mass. at 701-702.
The income stream used in the income-capitalization method must reflect the property's earning capacity or economic rental value.  Pepsi-Cola Bottling Co., 397 Mass. at 451.  Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, they are indicative of the subject property's earning capacity.  See Correia,     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, 878 (1980)(rescript); Avco Manufacturing Corp. v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142, 166.  After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  Pepsi-Cola Bottling Co., 397 Mass. at 452-53.  Generally, the selection of expenses is for the Board.  Id.  "The issue of what expenses may be considered in any particular piece of property is for the board."  Alstores Realty Corp. v. Assessors of Peabody, 391 Mass. 60, 65 (1984).    
The Board's selection of its gross-income figure was consistent with the underlying information submitted by the appellants' valuation expert and with the amount actually used by the assessors in their income-capitalization methodology.  Similarly, the Board's vacancy and credit loss rate was based on underlying data and information submitted by the appellants' valuation expert and fell between the rate recommended by the appellants' valuation expert and the one actually used by the assessors in their income-capitalization methodology.  The Board's expense deductions were consistent with those offered by the appellants' valuation expert, which, in the Board's view, were more particularized than the assessors' more generalized approach.  The Board found and ruled that because a landlord is responsible for some expenses even in a triple-net leasing situation, it was appropriate to deduct here for management fees and replacement reserves.  While the Board adopted the percentage multipliers recommended by the appellants' valuation expert, it applied those multipliers to its effective gross income amount, consistent with generally accepted appraisal principles.  See Sanmar v. Assessors of North Adams, Mass. ATB Findings of Fact and Reports 2005-81, 93-94, 97-99, 104, 109, 110 (and the cases cited therein).  
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).  Use of the "tax factor" is unnecessary under the single-tenant premise because the net rental income reflects the assumption that the tenant pays the taxes.  General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 610 (1984).  Relying on these principles and its subsidiary finding that the overall capitalization rates developed by the appellants' valuation expert were supported by his band-of-investment technique and two Korpacz Reports, the Board adopted his recommended overall capitalization rates for the fiscal years at issue.  Like the appellants' valuation expert and as evidenced by the assessors' property record cards, the Board did not use a tax factor here because it found that the property was best suited for single-tenant occupancy under a triple-net leasing scenario.   
In reaching its opinion of fair cash value in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested.  Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight.  Foxboro Associates, 385 Mass. at 683;      New Boston Garden Corp., 383 Mass. at 473; New England Oyster House, Inc., 362 Mass. at 702.  In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value.  General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).
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."  Boston Consol. Gas Co., 309 Mass. at 72.  "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the board."   Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).  
The Board applied these principles and its subsidiary findings in determining that the fair cash value of the subject property was $2,135,000 for fiscal year 2010 and $2,022,000 for fiscal year 2011.  Both of these values exceed the corresponding fiscal year's assessments of $2,038,600 and $1,945,500.
On the basis of all of the evidence, and reasonable inferences drawn therefrom, as well as its subsidiary findings and rulings, the Board ultimately found and ruled that the appellants failed to demonstrate that the subject property was overvalued for the fiscal years at issue.  
Accordingly, the Board issued decisions for the appellee in these appeals.   

					  APPELLATE TAX BOARD



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


A true copy,

Attest: ________________________
	   Clerk of the Board

 When the mortgage capitalization rate (RM) and equity capitalization rate (RE) are known, an overall capitalization rate may be derived with the band-of-investment, or weighted-average, technique using the following formula:

	Mortgage Component	  Loan-to-Value Ratio x RM	   
	Equity Component		+ Equity Ratio x RE		
					  Overall Capitalization Rate
            
Ordinarily, the band-of-investment technique does not require a separate adjustment for equity build-up.  See Appraisal Institute, The Appraisal of Real Estate 506 (13th ed. 2008).
 The appellants did not submit any income figures for the subject property to the assessors; they only provided the actual expense amounts.

ATB 2012-791