Fawcett Street Associates v. Board of Assessors of the City of Cambridge (June 30, 2008)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



FAWCETT STREET ASSOCIATES     v.      BOARD OF ASSESSORS OF 
                                      THE CITY OF CAMBRIDGE

Docket Nos. F277493, F282971		 	
                                      Promulgated:
		  		   			   June 30, 2008


	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 appellee Board of Assessors of the City of Cambridge ("appellee" or "assessors") to abate taxes on real estate located in the City of Cambridge, assessed under G.L. c. 59, §§ 11 and 38 to New Boston Seventy Limited Partnership for fiscal year 2005, and to the 70 Fawcett Nominee Trust for fiscal year 2006. These appeals are being prosecuted by Fawcett Street Associates ("appellant") under G.L. c. 59, § 59 as a tenant paying rent and under an obligation to pay more than one-half of the taxes assessed.
	Commissioner Mulhern heard these appeals, and was joined by Chairman Hammond and Commissioners Scharaffa, Egan, and Rose in the decisions for the appellant. These findings of fact and report are made at the request of the
appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
     John M. Lynch, Esq. and Stephen W. DeCourcey, Esq., for the appellant.
     Anthony M. Ambriano, Esq., for the appellee.


FINDINGS OF FACT AND REPORT
	Based on the testimony and exhibits offered at the hearing of these appeals, the Board made the following findings of fact. On January 1, 2004, New Boston Seventy Limited Partnership was the assessed owner of a parcel of real estate located at 86 Fawcett Street in the City of Cambridge ("the subject property"). On January 1, 2005, The 70 Fawcett Nominee Trust, Jerome Rappaport and Janet Aserkoff, Trustees, was the assessed owner of the subject property. On both January 1, 2004 and January 1, 2005, appellant was the lessee in possession of the subject property. 
	Five witnesses testified at the trial of these matters. The witnesses included Robert Reardon, Director of Assessment for the City of Cambridge; Lillian Orchard, the commercial review appraiser for the Cambridge Assessing Department; Mr. Michael Norris, controller for New Boston Fund, Inc.; Mr. Emmet Logue, President of Hunneman Appraisal & Consulting, Inc. and a licensed appraiser; and Mark Reenstierna, a licensed appraiser with T.H. Reenstierna LLC. Moreover, the Appellate Tax Board (the "Board") took a view of the subject property to assist the fact-finding process.
Property Description
	The subject property consists of an irregularly shaped parcel of real estate 4.892 acres in size, improved with an office building and attached garage. The parcel is situated on the easterly side of Fawcett Street roughly 500 feet north of Concord Avenue, in the Alewife neighborhood of West Cambridge. The site is approximately ¼ mile west of Routes 2 and 16. The subject property has 775.97 feet of frontage on Fawcett Street, and is accessible through two curb cuts at opposite ends of the structure. 
	The building was originally constructed circa 1920 as a single-story industrial building with a small two-story office section at the southerly end. The building is steel-framed and has an exterior of masonry over concrete blocks. The foundation is a reinforced poured concrete slab situated on concrete pilings. The roof has a rubber membrane and is stone ballasted in part, and part polyvinyl chloride (PVC) on metal decking. The footprint of the building is relatively long and narrow, running in a southerly to northerly direction. The facility was converted to class-B office space circa 1980-81, with the addition of a partial mezzanine level.
The gross floor area of the building was 140,252 square feet in size, with a rentable area of 127,249 square feet. The property was of average construction. When the building was converted to office use, the former warehouse section became a parking garage of 43,594 square feet. There were a total of 247 parking spaces registered with the City: 114 asphalt paved surface parking spaces, and approximately 133 enclosed garage parking spaces. There was evidence that the actual number of parking spaces was 225. The parking ratio was 1.94 spaces per 1,000 square feet of rentable area if the 247 count is used, or 1.77 spaces per 1,000 square feet of rentable area if the 225 count is considered. The parking garage was in need of substantial improvements, including a reconfiguration of parking spaces, repairs to areas of the paved surface which were cracked, and possibly, demolition and rebuilding. 
The office building includes a two-story office structure at the southerly end, and a converted single-story and mezzanine office section, which accounts for the bulk of the rentable area. The first floor includes approximately 230 offices and three two-story lobbies running east to west, each with its own entrance off Fawcett Street. The first floor also includes a 200-seat cafeteria with a commercial-grade kitchen and walk-in cooler/freezer. There is a tiered auditorium with seating for 174, which was designed to accommodate audio and visual presentations. Partitioned offices span the inside perimeter of the first floor. A fully built-out central core also has partitioned offices off a grid of exterior halls. There are three sets of men's and women's rest rooms on the first floor, one in each of the lobbies, and an additional lavatory next to the kitchen and elevator. The lobbies include minor partitioning for kitchenette units and security personnel.
The office mezzanine level is roughly 5 feet below the second floor of the two-story office section at the southerly end of the building. The mezzanine contains 25,183 square feet of rentable area. The mezzanine includes perimeter offices, interior core office partitioning, and cubicle areas. There are a total of approximately 109 offices. The mezzanine includes a board room with superior accoutrements. The mezzanine level has no rest rooms. The mezzanine has no elevator access except at the southerly end of the building in the two-story section. Windows at the mezzanine level are above eye-level, limiting views to the outside.
The second floor of the two-story section at the southerly end of the building includes perimeter offices and open cubicle areas, a fitness area, and men's and women's locker rooms with sink, toilet, and shower facilities. There is also a small lavatory on the second floor.
The interior flooring is primarily carpeted, with tile in sections of the lobbies, kitchen, and utility areas. The interior walls are painted sheetrock, with exposed brick or concrete block in the shipping/receiving area and the parking garage. The interior ceilings are painted sheetrock and suspended acoustical tile. 
There is one hydraulic elevator which stops on the first floor, the mezzanine, and the second floor, in the two-story section at the southerly end of the building. Most of the mezzanine level must be accessed through stairways. The garage and cafeteria are located at opposite ends of the building. If the building were rented to more than one tenant, occupants would most likely have to exit the building to reach the garage or cafeteria, which would detract from the building's desirability. Another detriment to the subject property is the 25-year-old roof, near the end of its economic life. There was evidence of roof leakage, with numerous water stains and crumbling ceiling tiles. Carpeting in the common areas was in good condition, but carpets in private office areas and the fitness center appeared worn. Some of the tiles in the lobby flooring and ceilings also needed replacement. 
Ownership and Jurisdiction
In January 20, 1981, the owner, Bolt Beranek and Newman ("BBN"), entered into a 65-year ground lease with appellant Fawcett Street Associates, a partnership, for the subject property. After the conversion to office space was completed, appellant then subleased the subject property back to BBN. Genuity, BBN's successor, occupied the subject property through the end of the initial sub-lease term on December 31, 2001. Genuity then exercised an option to stay on from January 1, 2002 through December 31, 2006. However, Genuity declared bankruptcy in November, 2002. Genuity conveyed the leased-fee interest, as encumbered by the ground lease, to Level 3 Communications, Inc. for the nominal sum of $10 in February, 2003. Genuity rejected the sub-lease in May, 2003 and ceased paying rent to Fawcett Street Associates. 
On May 28, 2003, Level 3 Communications conveyed the leased-fee interest in the subject property to New Boston Seventy Limited Partnership for $1,500,000 ("New Boston Seventy"), which in turn conveyed the leased-fee interest to a related party, 70 Fawcett Nominee Trust ("Trust") for $100. Fawcett Street Associates conveyed the leasehold interest in the property to New Boston Fund, Inc., also a related party, on December 14, 2005 for $6,500,000.
As of the time of trial, the premises had been unoccupied since Genuity vacated the subject property in May, 2003. Fawcett Street Associates brought the instant appeal as a tenant paying rent and under obligation to pay more than one-half of the property taxes. 
For both fiscal years at issue, the assessors valued the subject property at $18,899,000. For fiscal year 2005, a tax was imposed at the rate of $18.28 per thousand in the amount of $345,473.72. For fiscal year 2006, a tax was imposed at the rate of $17.86 per thousand in the amount of $337,536.14. Taxes were timely paid. Further jurisdictional information appears as follows:
	Annual Tax
Bills Mailed
   	Abatement Apps. 
Filed	Dates of 
Denials	Petition Filed
With Board 	
FY 2005	11/1/04	11/30/04	1/7/05	4/7/05	
FY 2006	10/17/05	11/14/05	12/22/05	3/22/06	

The foregoing facts establish the Board's jurisdiction over the instant appeals.
Appellant's Valuation Evidence
	The appellant subpoenaed Lillian Orchard of the Cambridge Assessing Department to appear and testify. Ms. Orchard prepared the mass appraisal valuation analysis on which the assessors relied in assessing the subject property. She indicated that the assessors had used the income approach to value, treating the subject as an office property. An average base rent of $34 per square foot was used for the Alewife area, which came to $22.93 per square foot for the subject property after adjustments. A flat vacancy rate of 5% was used across the City of Cambridge, for both years at issue. An expense ratio of 29-30% (of effective gross income after vacancy) was used for office properties, a percentage which was "relatively the same" citywide. This expense estimate was said to include an allowance for reserves. The office portion of the building was rated as being in "good" condition, while the garage was described as being in "average" condition. 
The appellant relied principally on the testimony of real estate appraiser Emmet Logue, whom the Board qualified as an expert witness, in an attempt to demonstrate that the subject property was overvalued. At the time of trial, Mr. Logue had approximately 37 years of experience as an appraiser. A Member and Senior Residential Appraiser of the Appraisal Institute, and also a Member of the Counselors of Real Estate, Mr. Logue was the President of Hunneman Appraisal and Consulting Company. Mr. Logue had experience in appraising several office towers in Boston, and had recently appraised two office buildings in the Alewife area of Cambridge. He testified that he had appraised a total of approximately thirty office properties in Cambridge on a fee-simple basis. His appraisal experience also encompassed valuation of industrial and research and development properties, particularly in the Cambridge real estate market, including the former Arthur D. Little building in the Alewife area.
	Mr. Logue, assisted by Christopher Walsh, inspected the subject property on September 16, 2006. He conducted interior measurements, reviewed building plans, and consulted an architect with knowledge of the property in arriving at his estimate of the amount of rentable space in the subject property. They investigated the Alewife area of Cambridge including the "quadrangle" section where the subject property was located. They reviewed details of the assessments and zoning requirements, and a planning study conducted by the City of Cambridge. Deeds and leases pertaining to the subject property were considered, and the Alewife area was studied carefully to gather information on comparable rentals and availability of office space. Spaulding and Slye (now Jones, Lang, LaSalle), which had previously managed the subject building, was consulted, as well as the owners of the leasehold interest.
Mr. Logue deemed the subject property to be between Classes B and C (or the lower end of class B) as office space, given that the building was converted from an original industrial use and needs improvements. Mr. Logue determined that the highest and best use of the subject property was continuation of the present use as office space. He opined that, with capital improvements, the subject property would be competitive with other office use properties in the Alewife area. He noted that the Alewife office sub-market was generally less desirable than the East Cambridge, Kendall Square, and Harvard Square areas, and more susceptible to market declines. Mr. Logue rejected a highest and best use for multi-family residential development as being too speculative.
	Mr. Logue considered the three basic approaches to value. He rejected the cost approach because of the lapse of time since the office refit in 1980-81, and the need for major upgrading or replacement of mechanical, electrical, and roof systems and a reconfiguration of the property. In his opinion, deductions for external obsolescence and accrued physical deterioration would have been difficult to estimate. Mr. Logue also rejected the sales comparison approach to value, after investigating sales of properties in the relevant marketplace during the time frame of the valuation dates. The sales he identified were of properties encumbered by leases, and thus involved the transfer of leased-fee interests. He concluded that rents in many of these properties were above-market at the time of sale,
such that the sales of the leased-fee interests were not representative of fee-simple values for office properties in Cambridge on the assessment dates at issue. 
	Mr. Logue utilized the income-capitalization approach to derive indicated values for the subject property. He determined after investigation that office rents in Cambridge declined substantially through 2002 and 2003, began to stabilize in 2004, and leveled off in 2005. In the Alewife/West Cambridge market, rents decreased approximately 20% in 2002 and 2003, and 5% during 2004. Mr. Logue studied leasing information from a variety of office properties, all in Cambridge, to derive comparable rental information. He also relied on published information including the Spaulding & Slye survey and the Hunneman commercial report.
According to Mr. Logue's testimony, his investigations suggested that in the prevailing market environment, the subject property would most likely be occupied by up to three tenants. Most of the office properties in the area were multi-tenanted, while the high vacancy rate meant that larger tenants looking for a single occupancy had better quality options.
The table below provides summary information about Mr. Logue's selected comparable office properties.
Location	Leased
Area
SF	Date 
Lease 
Commenced	Annual
Rent PSF	Time-adj. 
Rent PSF
(1/1/04)	Time-adj.
Rent PSF
(1/1/05)	
10 Fawcett St
2nd & 3rd floors
Fresh Pond Square	16,051	6/1/05	$23	$22	$20.90	
10 Fawcett St
5th floor
Fresh Pond Square	27,552	1/1/05	$23.96
(years 1-4)
$26.53 
(year 5)	$25.75	$24.50	
10 Fawcett St
2nd floor
Fresh Pond Square	7582	4/1/04	$20
(year 1)
$21 
(year 2)	$21.50	$20.40	
185 Alewife Brook 
Parkway
Fresh Pond Plaza	2300	8/1/04	$20	$20.60	$19.60	
One Alewife Center
2nd floor	4733	11/1/04	$20.45	$22	$20.90	
One Alewife Center
2nd floor	11,549	8/1/03	$21.56	$19.75	$18.75	
100 Cambridge Park Dr
Cambridge Park
2nd floor	15,877	8/1/03	$8 (year 1)
$25 (year 2)
$28 (year 3)	$22	$20.90	
100 Cambridge Park Dr
Cambridge Park
4nd floor	29,513	7/1/03	$11 (year 1)
$26 (year 2)
$29 (year 3)	$25.20	$23.90	
100 Cambridge Park Dr
Cambridge Park
1st floor	5888	5/1/04	$18 (year 1)
$25 (year 2)
$27 (year 3)	$24.85	$23.60	
100 Cambridge Park Dr
Cambridge Park
5th floor	30,662	8/20/03	$11.50 (year 1)
$21.50 (year 2)
$27.50 (year 3)
	$23.60	$22.40	
100 Cambridge Park Dr
Cambridge Park
3rd floor	14,811	7/1/03	$26.50 (year 1)
$27.00 (year 2)
$28.50 (year 3)	$25	$23.80	
125 Cambridge Park Dr
Cambridge Park
4th floor	12,153	3/1/04	$23	$23.25
	$22.10	
125 Cambridge Park Dr
Cambridge Park
5th floor	33,172	5/1/04	$21.93 (year 1)
$22.80 (year 2)
$27 (year 3)	$26.25	$24.90	
125 Cambridge Park Dr
Cambridge Park
6th floor	4,300	5/1/05	$22 (year 1)
$22.50 (year 2)
$23.50 (year 3)	$22	$20.90	
125 Cambridge Park Dr
Cambridge Park
1st floor	3,131	5/1/05	$26.10	$27.50	$26.10	
150 Cambridge Park Dr
Cambridge Park
9th floor	22,455	2/1/05	$25.50 (year 1)
$26.50 (year 2)
$27 (year 3)	$27.50	$26.10	
150 Cambridge Park Dr
Cambridge Park
2nd floor	7,945	2/1/04
2/1/05
(ext.)	$26 (year 1)
$22 (year 1)	$26
$23.60	$24.70
$22.40	
725 Concord Ave
2nd floor	11,894	12/1/05	$18.50 (year 1)	$20.10	$19.08	
725 Concord Ave
2nd floor	4818	10/1/03	$20 (year 1)
$21 (year 2)
$22 (year 3)	$21	$20	
	Mr. Logue noted that rents were time-adjusted to reflect the respective valuation dates. Rents commencing before January 1, 2004 (fiscal year 2005) were adjusted downward to account for the declining market. No similar adjustments were applied to comparable leases commencing after January 1, 2005 (fiscal year 2006), since the market had by then stabilized. Time-adjusted rents were net of tenant electricity ("lights and plugs") only; other operating expenses were assigned to the landlord. Such lease terms are referred to as "modified gross rents". See THE APPRAISAL OF REAL ESTATE at page 477 (12th ed. 2001). Moreover, most of the comparable office properties were rented with a tenant-improvement allowance provided by the landlord.
Mr. Logue described the comparable properties as all being in superior condition to the subject property in "as is" condition. All the properties had more parking spaces per 1,000 square feet of rentable area than the subject, while none of the properties chosen for comparable rentals required repairs to the HVAC systems or roof as extensive as those needed for the subject property. All of the comparable properties were originally constructed as Class A or Class B office buildings. Given the structural issues at the subject property, Mr. Logue testified that it had "gravitated towards a C building or perhaps a low B building" since the office refit in the early 1980's. In his opinion, leasing the subject building in "as is" condition would exert downward pressure on rents. 
Based on this analysis, Mr. Logue arrived at a fair market rental value for the subject property of $18 per square foot (net of tenant electricity) for fiscal year 2005. Noting the 5% decline in rents over calendar year 2004, he selected a rental value of $17.10 per square foot for fiscal year 2006. Mr. Logue's rental values assumed a tenant-improvement allowance of $15 per square foot as an inducement to prospective renters, given the prevalence of such concessions in the immediate market area. This amount would be amortized over the lease term at 6% annual interest, and discounted by a 35-50% possibility of tenant rollover. He projected an annualized amount of $1.25 to $1.75 per square foot for tenant improvements and selected an allowance at the low end of that range or $1.25 per square foot. 

Mr. Logue observed that the office vacancy rate in the Alewife area stood at less than 10% before January 1, 2001, then spiked to the 20-30% range before dropping to 16% by mid-2005. Given the wide variability in vacancy levels over relatively short time periods, Mr. Logue selected a stabilized vacancy rate of 15% for both years at issue. 
Operating expense data were not available from the prior occupancy of the subject property, since Genuity, which is now out of business, bore responsibility for all expenses under the existing "triple-net" lease. Mr. Logue drew upon operating expense information from surrounding office properties to project allowances for insurance, cleaning, waste removal, maintenance and security, water and sewer, electricity and other utilities, general and administrative expenses, and management. Mr. Logue's expense allowances assumed multi-tenant occupancy and professional management. He opined that operating expenses at surrounding office properties from 2003-2005 ran from $5.50 to $7.50 per square foot, with variability attributable to electricity costs, heating, and maintenance and security. He arrived at an estimate of $6.50 per square foot, net of tenant electricity for lights and plugs. He applied this figure to both fiscal years at issue. 
In his expense analysis Mr. Logue also provided for reserves for replacement for short-lived systems such as the roof and heating. He noted that he had factored the condition of the roof and HVAC equipment and the need for interior renovations and the addition of elevators and rest rooms into his rental estimates. He concluded that $0.50 per square foot of rentable area would be adequate for reserves for replacement -- an estimate he used for both fiscal years at issue. Mr. Logue also projected an allowance for brokerage commissions. He cited a range of $0.70 to $1.60 per square foot in actual brokerage commissions paid for leases in surrounding buildings in the area between 2002 and 2005, with most commissions between $1.00 and $1.50 per square foot. Mr. Logue estimated a brokerage commission based on $1.25 square foot per year for 5-year leases, and assumed a 35-50% likelihood of tenant rollover. His stabilized annual allowance for
brokerage commissions came to $0.50 per square foot for both fiscal years.
In developing a capitalization rate, Mr. Logue utilized the Mortgage Equity Technique and considered published sources of information like the Korpacz Real Estate Investor Survey. In his mortgage-equity analysis, he assumed a 65% first mortgage at 6% interest over a 20-year term. He projected a holding period of 10 years and estimated that a yield rate of 15% would be necessary to attract equity investors. He assumed, based on his stabilized income projections and trends in the office rental market in Alewife, that the subject property would appreciate 20% in value from January, 2004 over a 10-year holding period. The overall rate indicated by the Mortgage Equity Technique would be 8.7% for fiscal year 2005.
Mr. Logue placed the subject property in the non-institutional grade category given its location in a neighborhood which had lost a number of large companies in recent years and had lower occupancy and rent levels than the Harvard Square and East Cambridge areas. The Korpacz survey gave a range of 8.5% to 12.75% for capitalization rates on non-institutional grade office properties in the Boston market area. For fiscal year 2005, he selected a capitalization rate near the low end of the Korpacz range for non-institutional grade properties at 8.75%, taking into consideration the downward trend in capitalization rates from 2003 and 2004 and a slightly improving outlook for the office rental market in Cambridge in 2004. Given the commercial tax rate of $18.28 per thousand in Cambridge for fiscal year 2005, he added a tax factor of 1.828% to yield a final capitalization rate of 10.578% to be applied to net operating income. Mr. Logue's resulting indicated value for the subject property for fiscal year 2005 was $7,900,000 as rounded.
For fiscal year 2006, Mr. Logue noted downward trends in the rates given in the Korpacz report, and capitalization rates for Eastern Massachusetts commercial properties in general between January 1, 2004 and January 1, 2005. His selected capitalization rate for fiscal year 2006 was 8.5%. Adding in the commercial property tax rate of $17.86 per thousand for fiscal year 2006, Mr. Logue selected a final capitalization rate of 10.286%. Mr. Logue's indicated value for the subject property for fiscal year 2006 was $7,200,000 as rounded. 
The pro forma income and expense analyses offered by Mr. Logue are presented in the following tables:
Logue Income Approach Pro Forma FY 05
	Square footage	Rent per square foot	Amount 	
Potential Gross Income	127,249	                            $18.00 	                    $ 2,290,482 	
Less Vacancy and
Credit Loss	15%	                       $343,572 	
Effective Gross Income			                    $1,946,910 	
				
Less Expenses		Amounts		
Operating Expenses	$6.50 	$827,119 		
Brokerage Commissions	$0.50 	$63,625 		
Reserve for Replacement	$0.50 	                           $63,625 		
Tenant Improvements	$1.25 	$159,061 		
				
Total Expenses			$1,113,429 	
				
Net Operating Income			                      $833,481 	
				
Capitalization				
Capitalization Rate	                0.0875			
Tax Factor	0.01828			
Total Overall Rate	0.10578			
				
Indicated Value			                    $ 7,879,381 	
As Rounded			$7,900,000 	
				
Value Per Square Foot			$62 	

Logue Income Approach Pro Forma FY 05
	Square footage	Rent per square foot	Amount 	
Potential Gross Income	127,249	                             $17.10 	                        $2,175,958 	
Less Vacancy and
Credit Loss	15%	                           $326,394  	
Effective Gross Income			                        $1,849,564 	
				
Less Expenses		Amounts		
Operating Expenses	$6.50 	$827,119 		
Brokerage Commissions	$0.50 	$63,625 		
Reserve for Replacement	$0.50 	                           $63,625 		
Tenant Improvements	$1.25 	$159,061 		
				
Total Expenses			$1,113,429 	
				
Net Operating Income			                          $ 736,135 	
				
Capitalization				
Capitalization Rate	              0.085			
Tax Factor	0.01786			
Total Overall Rate	0.10286			
				
Indicated Value			                        $7,156,674 	
As Rounded			$7,200,000 	
				
Value Per Square Foot			$57 	


Appellee's Valuation Evidence

	The assessors presented the testimony of appraiser Mark Reenstierna, who had been affiliated with the firm of T.H. Reenstierna, LLC since 1985. Qualified by the Board as an expert witness, Mr. Reenstierna had been a licensed appraiser for ten to twelve years. As an associate member of the Appraisal Institute, Mr. Reenstierna was, at the time of the hearing, taking a variety of courses towards becoming a full member. Mr. Reenstierna described his experience in appraising commercial properties ranging from small retail spaces to multi-tenant office buildings. He stressed his experience in appraising industrial properties including warehouses, research and development space, and distribution facilities. He mentioned having appraised several properties in the North Point area of Cambridge for mixed-use development. He performed a rental survey to arrive at fair market rental projections for a property at 115 Fawcett Street, which was approximately 100 yards from the subject property. He did not indicate that he had performed appraisals of any office properties in the Alewife area of Cambridge, prior to appraising the subject property.
	Mr. Reenstierna described the current use of the property as "office" in his Report at page 3.  He inspected the subject property on February 16, 2007, at the same time the Board conducted its view. According to his Report, he reviewed building site plans supplied by the owners and leases and deeds for other properties, and
talked with brokers or principals about sales. He also considered a planning study done by the City of Cambridge with respect to the Alewife area, which was released in 2005, after the last valuation date at issue. The study called for a mix of uses including residential development, beyond the area's longtime status as an industrial district with some office development. During the relevant time period, however, the area was located in the O2 ("Office 2") Zoning District. In his highest and best use analysis, he considered the possibility of redevelopment of the subject property, but concluded that the current office use was the highest and best use. 
	Mr. Reenstierna utilized a building area of 141,197 square feet in his valuation analysis. He based this number on external measurements, a building plan prepared by Spaulding & Slye, and information available through the CoStar online data service. Mr. Reenstierna took no internal measurements, nor did he subtract atrium space and
other vertical penetrations to arrive at net rentable area.
	Mr. Reenstierna considered the three traditional approaches to value, but excluded the cost approach. He relied on the sales-comparison and income-capitalization approaches in his valuation analysis. He searched for transactions involving sales of single or two-story office buildings, research and development spaces, and industrial properties for use as comparable sales. The following table summarizes Mr. Reenstierna's comparable sales information:
Address	City	Gross
Building
Area
Sq. Ft.	Sale
Price	Date of
Sale	Sale Price
Per Sq. Ft.
GBA	
100 Cambridge Park	Cambridge	134,570 	$27,000,000	12/23/04	$200.64	
12-62 Moulton St.	Cambridge	133,444	$19,500,000	3/29/04	$146.13	
27-61 Moulton St.	Cambridge 	 96,558	$20,700,000	4/4/05	$214.38	
400-500 Patriot Way	Lexington	335,000	$51,500,000	12/2/02	$153.73	
254 Second Street	Needham	 85,885	$13,200,000	4/20/04	$153.69	
48 Woerd Ave	Waltham	157,199	$18,800,000	12/10/03	$119.59	
134 Coolidge Ave	Watertown	 37,440	$10,800,000	4/4/05	$288.46	
121-125 Walnut St.	Watertown	136,977	$13,480,000	12/3/04	$ 98.41	

	The transactions involving 12-62 Moulton Street and 27-61 Moulton Street were portfolio sales involving seven and six buildings respectively. The seller at 12-62 Moulton Street leased the property back from the buyer after the sale. All of the sales involved the transfer of leased-fee interests except for that of 400-500 Patriot Way, the former headquarters of the Raytheon Corporation, which was vacant when sold. Mr. Reenstierna did not review the leases in place at the properties sold as leased fee. Moreover, his Report does not differentiate office properties from properties which Mr. Reenstierna referred to as "office/R & D." 
	Mr. Reenstierna's Report contained little information to demonstrate the basic comparability of the comparison properties to the subject property. His descriptions of the comparison properties in his testimony often lacked necessary detail as well. Regarding adjustments for differences between the comparison properties and the subject properties, the Report states: "After adjusting the above referenced sales for attributes including, but not limited to, date of sale, building and lot size, building site appeal and amenities including parking, build-out and location, a value range between $125 and $135 per square foot of building area is indicated for the subject property." Report at page 59. At the trial, Mr. Reenstierna supplemented his Report with Exhibit MM, which contained his adjustment grid. 
Mr. Reenstierna selected a value per square foot of $130 to apply to the gross building area of the subject property for both fiscal years at issue. The indicated value for the subject property from Mr. Reenstierna's sales-comparison analysis was $18,360,000 for both fiscal years at issue.
	Mr. Reenstierna also employed an income-capitalization approach to valuing the subject property. His Report recites that "the appraisers have analyzed rental data from properties in the subject's general market area and have determined that a market rent for the subject property of $21 per square foot is appropriate." Report at page 60. This rental rate is said to be on a "modified net basis, as the real estate taxes are not included." Id. However, the Report does not include the appraiser's selection of comparable leasing transactions relied upon in estimating market rental levels. Instead, the Report incorporated Cushman and Wakefield's November 1, 2005 listing of 63 Cambridge class A and class B office properties under lease. On cross-examination, Mr. Reenstierna indicated that he had relied on only those leases in the Fresh Pond and Alewife sections of Cambridge, eight in total, although he said he had given limited weight to some leasing transactions elsewhere in Cambridge. He relied on a real estate broker named William Baker, associated with his firm, for leasing information about certain listed class A office rental spaces in the Alewife area: 150 Cambridge Park Drive and 10 Fawcett Street. These properties were rented on "gross lease" terms, according to Mr. Reenstierna.
	Mr. Reenstierna relied on the vacancy rate for the Cambridge rental market for "office/flex/R & D" properties reported by Spaulding & Slye, which he gave as 24%. He selected a market vacancy and collection loss of 25% in valuing the subject property for both years at issue, higher than Mr. Logue's rate of 15%. In projecting market expenses, Mr. Reenstierna assumed that a tenant would absorb expenses including real estate taxes, insurance, utilities, and regular maintenance to the buildings and grounds during periods of occupancy. He accordingly
assigned operating expenses to only the space he projected to be vacant.
	Mr. Reenstierna assumed that a buyer of the subject property would "hire a management company to run the day-to-day business of operating the property, including meeting tenant needs, collecting rent, paying bills, advertising, etc." Report at page 61. He stated that management costs would "range from 3% to 7% of Effective Gross Income, with the lower end of the range for single-user properties, and the higher end of the range for multi-tenant office, retail, and industrial facilities." Id. Assuming that only two tenants would occupy the property, he estimated a management fee at 4% of Effective Gross Income. For brokerage commissions, Mr. Reenstierna estimated a stabilized cost at 1.8% of Effective Gross Income per year, which worked out to $0.28 per square foot of the building area he used. He assumed that brokers would receive 18% for a 5-year lease, which works out to 3.6% annually. He also assumed a 50% chance that an existing tenant would remain in their space beyond a year. Mr. Reenstierna estimated reserves "[f]or modern industrial facilities regionally" to be in the range of $0.15 to $0.25 per square foot. Report at page 61. His opinion of a reasonable reserve for the subject property was $0.20 per square foot.
	In developing a capitalization rate, Mr. Reenstierna stated in his Report that he relied upon published surveys, the mortgage-equity technique, conversations with local brokers, and extractions from sales. "Published surveys, including Korpacz, The Investment Bulletin, Appraiser News, as well as surveys and articles locally, capitalization rates for research and development/office properties range from 8.15% to 12.0% with an average of 9.60%." Report at page 62. His conversations with brokers led him to believe that buyers of industrial properties in Cambridge expected rates in the 8.25% to 12.0% range. He selected a capitalization rate for both years of 8.5%, then added a tax factor to arrive at a final capitalization rate. His Report gave no detail of the calculations and assumptions he made in arriving at his estimated capitalization rate.
	Mr. Reenstierna's estimate of fair cash value using the income approach was $18,340,000 for both fiscal years at issue. His income capitalization analysis is set forth in the following table:
Reenstierna's Income Approach Pro Forma FY 05-06
		Square footage	Rent per sq. ft.	Amount	
Potential Gross Income		141,197	$21 	$2,965,137 	
Less Vacancy and Credit Loss			25%	$741,284 	
Effective Gross Income				$2,223,853 	
					
Less Expenses	(Applied to 	35,299 s.f. of 141,197)	Amounts		
Operating Expenses	25%	 $                    4.25 	$150,022 		
Management		4%	$88,954 		
Brokerage Commissions		1.8% 	                  $40,029 		
Reserve for Replacement		0.20	                  $28,239 		
Miscellaneous			                                 $22,239 		
Total Expenses			$329,483 		
					
Net Operating Income			$1,894,370 		
					
Capitalization					
Capitalization Rate	8.50%				
Tax Factor	1.83%				
Total Overall Rate	10.33%				
					
Indicated Value			$18,338,526 		
As Rounded			$18,340,000 		

	In his reconciliation analysis, Mr. Reenstierna accorded equal weight to the indications of value based on the sales-comparison and the income approaches. His final value estimate split the difference and came in at $18,350,000. He arrived at the same value for both fiscal years at issue. 
The Board's Valuation Findings
	The Board adopted Mr. Logue's evidence as to the size of the subject property at 127,249 square feet of rentable area. His measurements were reasonably close to the building area reflected in the income section of the property record card. Moreover, based on its view of the subject property, the Board agreed with Mr. Logue that areas of "vertical penetration" do exist within the interior of the building, limiting the amount of rentable area available for tenant use. Mr. Reenstierna's estimate of the building area at 141,197 square feet, based on exterior measurements and secondary source information, was deemed not to be reliable given the open, atrium-like space within the interior of the building.
The Board agreed with Mr. Logue and references in Mr. Reenstierna's Report indicating that the subject property was most suitable for office use. According to Ms. Orchard, the City of Cambridge also classed the subject as a general office property. While Mr. Reenstierna described the use of the subject property varyingly and imprecisely as "research and development", "office", and "flex" in his Report and in the course of the testimony, he never offered a persuasive explanation as to why space modified in 1980-81 to add over 300 offices would be considered "research and development" or "flex" for the valuation dates at issue. Significantly he pointed to no specific "research and development" space in the existing build-out of the subject facility.
	The Board agreed with both valuation experts that the cost approach was unsuitable in arriving at an estimate of fair cash value for the subject property, given the age of the building and the difficulty of making deductions for functional obsolescence and physical deterioration. The Board found Mr. Reenstierna's sales comparison analysis to be unpersuasive. All but one of the proposed comparison properties he cited were sold encumbered by leases; hence leased-fee interests were conveyed. The sales prices on these transactions required adjustments in order to be utilized in deriving an indicated fee-simple value for the subject property. However, Mr. Reenstierna's failure to review the leases in effect at the comparison properties at the time of sale and to investigate the properties more thoroughly than he did undermined the credibility of his purported adjustments. More thorough investigation and analysis would have been required to arrive at an indication of value based on sales of leased-fee interests. See THE APPRAISAL OF REAL ESTATE, supra, at 82. ("When analyzing a leased-fee interest, it is essential that the appraiser analyze all of the economic benefits or disadvantages created by the lease.") 
	Moreover, Mr. Reenstierna failed to establish basic comparability between the subject property and the properties sold. The proposed comparison properties in Lexington, Needham, Waltham and Watertown differed significantly from the subject property in attributes such as location, size, age, condition, and class. The comparison to the former corporate headquarters of the Raytheon Corporation was particularly inapposite in light of Mr. Reenstierna's admission that the subject property would never be considered for use as Raytheon's headquarters. The Cambridge sales Mr. Reenstierna utilized were proximate in location and time to the subject property and the relevant valuation dates, but carried less probative weight due to the fact they were sold as portfolio transactions. Catch-all prices applicable to a variety of different buildings are less reliable in deriving indications of value than a price agreed upon by a buyer and a seller as to a specific property that is comparable to the subject property. Moreover, Mr. Reenstierna's adjustments to the sales prices of the comparison properties to account for differences with the subject property were too non-specific. His adjustments were in the nature of a boilerplate analysis that took insufficient account of the specific characteristics of individual properties.
Finally, the range of indicated sales prices per-square-foot Mr. Reenstierna offered was too wide and indeterminate to permit the selection of a reliable per-square-foot price for the subject property. Mr. Reenstierna's range of adjusted sales prices (as supplemented and corrected at trial) varied approximately $100 per-square-foot from low to high; any choice of a value within so broad a range was arbitrary and excessively subjective. Moreover, Mr. Reenstierna did not provide a convincing justification for his selection of a per-square-foot value to apply to the subject property in a hypothetical sale.	
     The Board was persuaded by Mr. Logue's rejection of the comparable sales approach as a reliable valuation methodology for the subject property. The difficulty of arriving at fee-simple values using sales of leased-fee interests in the available transactions from the relevant time and location made reliance on the sales-comparison approach unsound.
Both appraisers utilized the income-capitalization approach to value, which the Board deemed to be the most reliable method for estimating a value for the subject property as of the valuation dates at issue. First, the rental values imputed to the subject property by the City of Cambridge were a function of its mass-appraisal analysis based on its receipt of income and expense data from property owners citywide. These rental estimates could not be readily interpolated into the property-specific valuation analysis required for the finding of fair cash value by the Board. 
	Mr. Reenstierna's primary reliance on eight office leasing transactions in the Cushman and Wakefield listing for his estimation of market rents was undermined by his failure to confirm the terms of the relevant leases. More fundamentally, Mr. Reenstierna failed to make adjustments to account for the fact that the comparable leases he utilized were made on a gross basis, with the landlord responsible for most expenses, while he imputed modified net terms to a hypothetical lease of the subject property in his valuation analysis.  When extrapolating rent levels under gross leases to a hypothetical net lease, allowance must be made for the difference in allocation of expenses. Appropriate adjustments require knowledge of the relevant level of expenses at the comparison properties relied on for deriving estimated market rents. Absent these adjustments, rents under gross leases cannot be equated with rents under the "modified net" lease terms utilized by Mr. Reenstierna. 
	The Board agreed with Mr. Logue that the appropriate leasing terms would be modified gross, in line with market expectations for similar office properties in the area of the subject property. The landlord would accordingly bear the operating costs except for electricity in rented areas, which would be the responsibility of the tenant. Mr. Reenstierna concurred that office rentals are typically made on a modified gross-lease basis, but adopted "modified net" leasing terms evidently based on his view that the property was of a "research and development" character, a conclusion with which the Board disagreed.

Mr. Reenstierna's ultimate selection of a market rental rate to impute to the subject property was insufficiently explained. The Report contained too little detail of Mr. Reenstierna's study of comparable rental information, which was vague and difficult to follow. He estimated rents at $21 per square foot assuming "modified net" lease terms. He anomalously arrived at higher rental amounts for the subject property, with the tenant obligated to pay expenses in addition to base rent, than rents payable under three gross leases for superior properties that he used as comparables. By putting effective rents at the subject property, with all the issues limiting its appeal to prospective tenants, higher than effective rents at superior "comparable" rental properties, he overstated the income potential of the subject property. 
	Mr. Logue offered his expert selection of rental comparables from a series of Class A and Class B office buildings in the Alewife area of Cambridge. His market research and investigation of properties appropriate for consideration as comparable rentals appeared thorough in contrast to Mr. Reenstierna's wholesale borrowing of secondary source information. Mr. Logue had experience in appraising competitive properties in the relevant sub-market and time period. Moreover, Mr. Logue's rental study included appropriate adjustments for such factors as time, location, and condition. The Board adopted the ranges of market rental rates indicated by Mr. Logue's rental analysis, but arrived at its own judgment of appropriate rental rates for the subject property within those ranges after considering the totality of the evidence. The Board concluded that $19.25 represented the fair market rental value per square foot of the subject property for fiscal year 2005, and $18.75 per square foot was the market rental rate for fiscal year 2006.
	For a vacancy and credit loss rate, Mr. Reenstierna essentially borrowed the figure reported by Spaulding & Slye for "Office/Flex/R & D" space citywide. Mr. Logue conducted a more thorough and site-specific analysis focused on office rentals in the Alewife area of Cambridge. He carefully investigated market vacancy and availability rates, consulting market participants in the process. His Report included a summary of space availability in the office rental marketplace for Cambridge citywide and the Alewife neighborhood specifically as of the relevant time period, plus a detailed discussion of trends in vacancy rates. The Board adopted Mr. Logue's estimate of a 15% rate for vacancy and credit loss, which was closer to the
5% estimate the assessors employed than was the 25% rate used by Mr. Reenstierna. 
Mr. Reenstierna derived his estimates of expenses from properties of doubtful comparability to the subject property. Two of the buildings used for expense information were located in Medford, one in Tewksbury, another in Woburn, and another in Waltham. The properties had uses including research and development and warehousing. Mr. Reenstierna's testimony suggested that he took expense information from these properties because he had previously appraised them, not necessarily because of their comparability to the subject property. He said that, in the time frame relevant to the assessments, he had not appraised any office properties in Cambridge that were similar to the subject property. Furthermore, he relied on generalized expense information that included taxes, without breaking out the tax expense for purposes of his analysis. His expense estimates for the subject property were considerably lower than those of the other office properties he reviewed. His Report does not include information on the adjustments he made in arriving at expense estimates for the subject property, further undermining the probative force of his income-capitalization analysis.
For operating expenses, the Board adopted the range of expense estimates proposed by Mr. Logue, from $5.50 to $7.50 per square foot, as being well-supported by available market data. Based on the evidence and its own view of the property, the Board determined the appropriate level of operating expenses for the subject property within the range proposed by Mr. Logue. The Board observed that the subject has limited grounds and is not in a campus-like setting where landscaping costs would be a significant factor. Additionally, the configuration of the subject building -- its long, narrow footprint, its interior build-out, and the inadequate number of rest rooms and elevators-limited the number of possible tenants to two or three at most. The Board concluded on the basis of all the evidence that operating costs at the subject property would likely be less than those of other multi-tenant office properties in campus-like settings, which Mr. Logue surveyed. Accordingly, the Board selected a market expense estimate of $5.50 per square foot, at the low end of Mr. Logue's range, for both fiscal years at issue. 
	In arriving at an estimate of brokerage commissions, the Board took into account the analyses of both experts. Mr. Reenstierna used an annualized amount per square foot of $0.28, on assumptions of an 18% commission on a 5-year leasing deal, with a 50-50 chance of existing tenants choosing to remain in their space after the lease term. Mr. Logue cited a range of $0.70 to $1.60 per square foot paid for brokerage commissions in surrounding properties. Most commissions fell into the range of $1.00 to $1.50 per square foot. He reconciled at $1.25 per square foot with a 5-year leasing deal. His annualized amount for leasing commissions was $0.50 per square foot.
	The Board observed that Mr. Logue's lease comparables tended to involve smaller spaces than would likely be offered at the subject property, assuming two or three tenants at most. The Board found that the somewhat larger amounts of space available for leasing at the subject property under a two- or three-tenant scenario increased the probability of tenant retention. Accordingly, an allowance for leasing commissions was selected within the range of values offered by the two experts, at $0.40 per square foot. 
	In arriving at an allowance for reserves for replacement, the Board took into account the expert opinions of both Messrs. Logue and Reenstierna. Mr. Reenstierna cited reserve allowances for modern industrial facilities as ranging from $0.15 to $0.25 per square foot. He selected a reserve allowance of $0.20 per square foot as being reasonable for the size, configuration, and age of the subject building. In estimating reasonable reserves for replacement, Mr. Logue considered factors including the poor condition of the roof and the HVAC systems and the need for interior retrofit and additional elevators and washrooms. He estimated a reasonable reserve for replacement at $.50 per square foot.
	While Mr. Reenstierna's analysis was weakened by his reliance on industrial properties, the Board noted that some of the items Mr. Logue expected to fall under reserves for replacement, like reconfiguration of interior space, might overlap with tenant improvements, for which separate allowance was being made. Moreover, Mr. Logue testified that his rental estimates had already taken into account the condition of the roof and the HVAC system. Accordingly, the Board found that an amount falling between the allowances estimated by the respective appraisers was most reasonable in the circumstances. The Board accordingly allowed for reserves for replacement expense at $0.35 per square foot.
	While Mr. Reenstierna made no allowance for tenant improvements, Mr. Logue indicated that tenant improvement outlays were usually made in connection with the leasing of office space in the Alewife area. The Board agreed with Mr. Logue that tenant-improvement allowances would be necessary to attract tenants to the subject property in the prevailing competitive environment. The need for an improvements allowance to attract tenants is sharpened by the condition of the subject property, its status as a lower-grade class B office building, and its layout for single-tenant occupancy, while occupancy by two or three tenants was considered most plausible. The Board concurred with Mr. Logue's opinion as to a reasonable tenant improvement allowance, which took into account the possibility of tenant retention, which would obviate the need for such inducements for those tenants choosing to remain in their spaces after an assumed five-year lease term. The Board adopted Mr. Logue's estimate of $1.25 per square foot as an appropriate allowance for tenant improvements on an annualized basis. 
	Mr. Logue and Mr. Reenstierna arrived at closely corresponding capitalization rates using their respective methodologies: Mr. Logue selected a capitalization rate of 8.75% for fiscal year 2005 and 8.5% for fiscal year 2006, while Mr. Reenstierna used 8.5% for both fiscal years at issue. Both appraisers cited the Korpacz investor survey as a basis for their conclusions. However, the Korpacz survey capitalizes net operating income before any allowance is made for tenant improvements. The Board concluded that a slightly lower capitalization rate was indicated based on the appraiser's analyses, the nature of the Korpacz data, and the reduction being made in net operating income to allow for tenant improvements. The Board selected a capitalization rate of 8.25% as most reasonable for the subject property for the fiscal years at issue. 
	On the basis of the foregoing, the Board found the fair cash value of the subject property to be $11,190,000 for fiscal year 2005 and $10,695,000 for fiscal year 2006. The following tables set forth the Board's valuation findings for fiscal years 2005 and 2006.

Board Income Approach Valuation Analysis FY 05
	Square footage	Rent per square foot	Amount 	
Potential Gross Income	127,249	                             $19.25 	                  $2,449,543 	
Less Vacancy and 
Credit Loss	15%	                     $367,431 	
Effective Gross Income			                  $2,082,112 	
				
Less Expenses		Amounts		
Operating Expenses	$5.50 	$699,870 		
Brokerage Commissions	$0.40 	$50,900 		
Reserve for Replacement	$0.35 	                           $44,537 		
Tenant Improvements	$1.25 	$159,061 		
				
Total Expenses			$954,368 	
				
Net Operating Income			                     $1,127,744 	
				
Capitalization				
Capitalization Rate	                 0.0825			
Tax Factor	    0.01828			
Total Overall Rate	                0.1008			
				
Indicated Value			                   $11,187,939 	
As Rounded			$11,190,000 	
				
Value Per Square Foot			$88 	

Board Income Approach Valuation Analysis FY 06
	Square footage	Rent per square foot	Amount 	
Potential Gross Income	127,249	 $                            18.75 	                   $2,385,919 	
Less Vacancy and
Credit Loss	0.15	                      $357,888 	
Effective Gross Income			                   $2,028,031 	
				
Less Expenses		Amounts		
Operating Expenses	$5.50 	$699,870 		
Brokerage Commissions	$0.40 	$50,900 		
Reserve for Replacement	$0.35 	                           $44,537 		
Tenant Improvements	$1.25 	$159,061 		
				
Total Expenses			$954,368 	
				
Net Operating Income			                     $1,073,663 	
				
Capitalization				
Capitalization Rate	                0.0825			
Tax Factor	0.01786			
Total Overall Rate	                0.1004			
				
Indicated Value			                   $10,693,859 	
As Rounded			$10,695,000 	
				
Value Per Square Foot			$84 	


	The Board found, based on all the evidence, that appellant carried its burden of proof to establish that the subject property was worth less than the amount assessed at $18,899,000 for both fiscal years. The Board found the fair cash value of the property to be $11,190,000 for fiscal year 2005: it follows that the property was overvalued by $7,709,000. At the tax rate of $18.28 per thousand, the abatement of tax totaled $140,920.52 for fiscal year 2005. 
For fiscal year 2006, the Board found the fair cash value to be $10,695,000, with the result that the property, assessed at $18,899,000, was overvalued by $8,204,000. At the tax rate of $17.86 per thousand, the abatement of tax totaled $146,523.44 for fiscal year 2006. Accordingly, the Board decided the instant appeals for appellant. 

OPINION
	Fair cash value is the standard for assessing real property for tax purposes in Massachusetts. See 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…. Accordingly, fair cash value means … fair market value." Northshore Mall Limited Partnership v. Assessors of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 246, citing 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 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, 363 Mass. at 245).
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).  Regardless of which method is employed to determine fair cash value, the Board "must determine 'the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market.'"  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). (Citation omitted.) "The validity of a final estimate of market value depends to a great extent on how well it can be supported by market data." Chatham Investment Trust of Newton v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2007-298, 2007-308, citing THE APPRAISAL OF REAL ESTATE, supra, at 134. 
	The ascertainment of a property's highest and best use is a prerequisite to valuation analysis. See Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 429 (2004); Irving Saunders Trust, 26 Mass. App. Ct. at 843. "A property's highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive." Northshore Mall, Mass. ATB Findings of Fact and Report at 2004-246. In the instant case, both valuation experts reported, and the Board ruled, that the highest and best use of the subject property was a continuation of its existing use as an office property. While Mr. Reenstierna considered a mixed use including possible residential development based on a city planning
study of the Alewife area, the subject property was zoned for office use as of the valuation dates at issue. 
In this appeal, the Board ruled that the cost approach was not appropriate. The parties' valuation experts also eschewed the cost approach. "The 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 v. New Bedford Redevelopment Authority, 375 Mass. at 362.
 Sales of property 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. Board of Assessors of Foxborough, 385 Mass. 679, 682 (1982). See also New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). However, available sales of office properties in the vicinity of the subject property during the relevant time period involved the transfer of leased-fee interests, while the question for decision on these appeals is the value of the fee-simple interest. 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.")  Mr. Reenstierna purported to make adjustments for purposes of deriving fee-simple values from the leased-fee sales he deemed comparable. However Mr. Reenstierna failed to review the information necessary to support reliable adjustments, particularly the leases in effect at the time of sales of the properties he proposed as comparable. Knowledge of relevant lease terms and their relationship to the market is essential to estimate a fee-simple value on the basis of leased-fee transactions. See THE APPRAISAL OF REAL ESTATE, supra, at 82. See also Olympia & York State Street Co., 428 Mass. at 248 ("[I]f there is any relationship at all between [leased-fee and fee-simple] values, it must be derived by performing a series of evaluations and computations on the one to reach the other.")  Mr. Reenstierna's comparable sales analysis was further weakened by the heavy reliance he placed on portfolio transactions involving a single, overall price paid for multiple properties. See Mayflower Liberty Tree, L.L.C. v. Assessors of Danvers, Mass. ATB Findings of Fact and Reports 2005-291, 2005-328 ("The Board recognized that the portfolio sale did not provide a reliable basis for demonstrating the fair cash value of the subject property….") The Board agreed with Mr. Logue's decision to eschew the sales-comparison approach where fair cash value could not be reliably estimated on the basis of transactions in leased-fee interests. Cf. Mayflower Emerald Square, LLC v. Assessors of North Attleborough, Mass. ATB Findings of Fact and Reports 2007-421, 2007-521 ("Board followed and reaffirmed prior rulings that the comparable sales approach 'was unreliable because of the leased-fee nature of the sales'….")(Citation omitted.)
When reliable market data are not available and when the subject is income-producing property, the use of the income-capitalization approach is appropriate. Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 807, 881 (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). Both experts employed an income-capitalization analysis, which the Board adopted as the most reliable method for estimating fair cash value as of the relevant assessment dates.
"The direct capitalization of income method analyzes the property's capacity to generate income over a one-year period and converts the capacity into an indication of fair cash value by capitalizing the income at a rate determined to be appropriate for the investment risk involved." Olympia & York State Street Co., 428 Mass. at 239. The Supreme Judicial Court articulated the formula for direct capitalization of income in Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986):
Under this approach, a valuation figure is determined by dividing net operating income by a capitalization rate. [Citation omitted.] The net income component of the fraction is computed by deducting operating expenses from gross rental income and the over-all capitalization rate is the sum of an appropriate rate of return and a tax factor. 

The task of valuing a property based on this methodology requires that "appraisers analyze competitive facilities and determine market rents, market vacancy and credit loss rates, market expenses, market capitalization rates, and general market conditions." Olympia & York State Street Co., 428 Mass. at 239.
Mr. Logue investigated comparable leasing transactions and selected a series of properties the rental rates for which provided a solid basis for estimating the market rental value of the subject property. Mr. Reenstierna's investigation of leasing transactions, by contrast, was more limited and relied heavily on secondary source information. Moreover, Mr. Reenstierna used gross leases as his source for comparable rental rates, but failed to adjust rent levels to correspond to the net leasing terms he employed in his income analysis of the subject property. Rents taken from gross leases, where the landlord bears most or all expenses, cannot simply be extrapolated into a leasing context in which responsibility for paying expenses falls upon the tenants. Mr. Reenstierna's estimation of market rental rates was accorded little weight.
The Board adopted the range of rental rates Mr. Logue arrived at from his analysis of comparable leases, but used independent judgment in selecting estimates of fair market rent from within Mr. Logue's range.  See Olympia & York State Street Co., 428 Mass. at 242 (Board appropriately "exercise[s] … independent decision-making based on the evidence.") In addition, Mr. Logue conducted careful and thorough research into office vacancies and availability in the Alewife area. Accordingly, the Board adopted Mr. Logue's vacancy and credit loss estimate as well-supported by relevant market data. 
Likewise, Mr. Logue developed a good foundation for projecting a range of operating expenses per square foot incurred by similar office properties in the vicinity of the subject. The Board adopted his range of expense estimates, but gave somewhat greater weight to differences between the subject property and the properties used to derive comparable expense projections. While those properties featured multi-tenant occupancy, the Board found that the subject property was suitable for occupancy by two or three tenants at most. The Board accordingly selected an operating expense estimate at the low end of Mr. Logue's range. 
Mr. Reenstierna's expense estimates were taken from properties of doubtful comparability to the subject property. Mr. Reenstierna departed from the fee-simple income approach methodology adumbrated in Olympia & York State Street Co., 428 Mass. at 239; Buehler, 396 Mass. at 523; and Mayflower Emerald Square LLC, Mass. ATB Findings of Fact and Reports at 2007-523-25, in failing to apply his expense estimates to the entire rentable area of the property. In attributing expenses only to that space he projected to be vacant, he understated the costs of operating the property as a whole, and overstated income-generating capacity by failing to match and subtract the expenses necessary to produce overall income.
Mr. Logue's decision to allow for tenant improvements "above the line", i.e. before arriving at net operating income, was also well-supported by data from the relevant office submarket in Cambridge. As explained in THE APPRAISAL OF REAL ESTATE, supra, at 508, "[t]enant improvements are driven by the market-i.e., they are done if the market dictates it." While in a discounted cash flow analysis, tenant improvements may be addressed at appropriate points over a holding period of many years, "[i]gnoring the impact of TIs in direct capitalization may be a mistake. Stabilized NOI should recognize the tenant improvements made to a property that are appropriate for the market." Id. In this case, the subject property would compete with other office properties which were leased on terms usually including an allowance for tenant improvements. The need for tenant improvements is underscored by the condition and long period of vacancy of the subject property, and the likely need for a refit for use by two or three tenants. 
Mr. Logue had a solid foundation, well-explained in his Report, for treating leasing commissions and reserves for replacements as "above the line" expenses. While he did not include an allowance for tenant improvements, Mr. Reenstierna also treated allowances for leasing commissions and reserves as expenses to be deducted before arriving at net operating income. The Board was of the view that Mr. Logue's figure for reserves may have duplicated amounts likely to be covered by the tenant improvement allowances, and that his leasing commission estimates were based on assumptions slightly too pessimistic for the market. On the basis of the evidence of record, the Board arrived at estimates for leasing commissions and reserves for replacements which were within the range proposed by the two valuation experts. It is appropriate for the Board to make "above-the-line" allowances for items including tenant improvements and leasing commissions where market data so warrant. See Olympia & York State Street Co., 428 Mass. at 243. See also Cambridge Park 125 Realty Corp. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2008-746, 2008-791. 
	Mr. Logue and Mr. Reenstierna utilized capitalization rates which were very close to each other in range. The Board generally agreed with the assumptions entering into their capitalization rate analyses, but placed slightly greater emphasis on the nature of the Korpacz survey data that both experts relied on as a leading source for the numbers they used. The Korpacz survey includes capitalization rate projections that assume items such as tenant improvements are taken "below the line", i.e. not subtracted prior to calculating the net operating income estimate. Capitalization rates run slightly higher when items like tenant improvements are not treated as expenses, so the Board deemed that a slight downward adjustment was in order to arrive at a reliable capitalization rate given the decision to subtract such items "above the line". See Cambridge Park 125 Realty Corp., Mass. ATB Findings of Fact and Reports at 2008-793 ("Capitalization rates that are not derived from the same income and expense components may not be validly compared unless they are appropriately adjusted to reflect those differences.")
The opinion of an expert witness must be based on a proper foundation. See State Tax Commission v. Assessors of Springfield, 331 Mass. 677, 684 (1954). "That a person qualifies as an expert does not endow his testimony with magic qualities." Boston Gas Co., 334 Mass. at 579. As was emphasized in Foxboro Associates v. Bd. of Assessors of Foxborough, 385 Mass. 679, 683 (1982), "'[t]he board was not required to accept the opinion expressed, or the valuation principles used by [the taxpayer's] expert witness.'" (Citation omitted.) The Board is entitled to "'accept such portions of the evidence as appeared to have the more convincing weight.'" Medical Malpractice Underwriting Ass'n of Massachusetts v. Commissioner of Insurance, 395 Mass. 43, 56 (1985)(Citation omitted.) "Moreover, 'the board is entitled to, and did, give weight to the view of the subject property … in determining the fair cash value of the real estate.'" Antonino v. Assessors of Shutesbury, Mass. ATB Findings of Fact and Reports 2008-54, 2008-71 (Citation omitted.) "The essential requirement is that the Board exercise judgment." New Boston Garden, 383 Mass. at 473. 
Decisions of the Board must be based on substantial evidence, defined to mean "'such evidence as a reasonable mind might accept as adequate to support a conclusion.'" RCN-BecoCom LLC v. Commissioner of Revenue, 443 Mass. 198, 204 (2005) (Citation omitted.) "[T]he fair cash value of property 'could not be proved with mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment.'" Montaup Electric Co. v. Assessors of Whitman, 390 Mass. 847, 854 (1984), quoting Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 72 (1941). See also Powell v. Kelly, 223 So.2d 305, 308 (Fla. 1969) ("The appraisal of real estate is an art, not a science.")
 In the instant case, the appellant carried its burden of proof with the persuasive and well-supported expert Report and testimony of Mr. Logue, which was not significantly impeached on cross-examination. Mr. Logue's valuation conclusions were based on a study of conditions affecting the rental of office properties in the particular area of Cambridge where the subject property is located. The Board also drew on elements of Mr. Reenstierna's income capitalization analysis in support of its findings of fair cash value, while rejecting his opinions of market rental rates, operating expenses, and terms for a hypothetical lease of the subject property for each fiscal year at issue. 
The Board, based on all the evidence, found that the subject property, assessed at $18,899,000, was overvalued by $7,709,000 for fiscal year 2005. At the tax rate of $18.28 per thousand, the resulting abatement of tax totals $140,920.52 for fiscal year 2005. For fiscal year 2006, the Board found that the subject property, assessed at $18,899,000, was overvalued by $8,204,000. At the tax rate of $17.86 per thousand, the abatement of tax came to $146,523.44 for fiscal year 2006. Accordingly, the Board decided the instant appeals for the appellant. 

           APPELLATE TAX BOARD

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

Attest: ____________________________
	        Clerk of the Board

 The address "70 Fawcett Street" is also used to identify the subject property.
 Both of the entities holding the leased-fee interest in the subject property on the relevant valuation dates are related to New Boston Fund, Inc. 
 Mr. Norris, the controller for New Boston Fund, Inc., indicated that the real estate taxes were the responsibility of appellant, in testimony which was consistent with the documentary evidence. The Board found and ruled that appellant had standing to pursue this appeal under G.L. c. 59, § 59. 

 Mr. Reardon did not serve as Director of Assessment for the City of Cambridge during the years at issue, and had little relevant information to offer. 
 The City attributed a rental value of $6.35 per square foot to the garage space.
 The zoning as of the valuation dates at issue was for office use.
 One of the sales considered and rejected by Mr. Logue was that of 625 Concord Avenue, also known as 10 Moulton Street, which he considered a lower grade class B office property. Mr. Logue sat on a arbitration panel charged with resolving a dispute as to value between landlord and tenant, and acquired familiarity with 625 Concord Avenue in that capacity. While both properties had substandard parking garages and required considerable repairs, Mr. Logue deemed 625 Concord Avenue to be superior to the subject. He noted that the subject property, unlike 625 Concord Avenue, needed to have the roof and the HVAC systems replaced, and needed improvements to exterior surfaces. Moreover, the property at 625 Concord Avenue was better equipped with elevators. Unlike the subject, 625 Concord Avenue was originally built as an office property.
 Mr. Logue did not rely on the rental of the fifth floor of 10 Fawcett Street because of the unusual lease terms applicable to that space.
 This rental information obtained from brokers was inconsistent with the rent rolls Mr. Logue reviewed. On further investigation he determined that the rent roll was in error while the brokers had been correct. The rent roll reflecting the other second floor lease at One Alewife Center was also in error. The grid reflects the rents Mr. Logue determined to be correct.
 Most of the comparable leases listed in Mr. Logue's Report and reflected above included tenant improvement allowances as part of the leasing transactions.
 Mr. Logue testified that the comparable rentals he reviewed were all under "gross" leases under which the landlord is responsible for all or almost all expenses.
 Mr. Logue identified the properties from which he drew his comparable expense information in response to questions on cross-examination. They included 10 Moulton Street or 625 Concord Avenue; 125 and 150 Cambridge Park Drive; 665 Concord Avenue; 25-51 Moulton Street; 725 Moulton Street; and the Draper Laboratory space at One Hampshire Street in Technology Square. He also gathered expense information from Jones Lang LaSalle and representatives of the owners, who were familiar with the operations of the subject property and managed other office properties in the area. 

 Mr. Logue testified that in a discounted cash flow analysis, as opposed to the fee simple appraisal he performed, tenant improvements and leasing commissions would not be deducted from net operating income.
 Respondents to the Korpacz survey generally capitalize net operating income before such items as tenant improvements, leasing commissions, and reserves are taken into account. Mr. Logue capitalized net operating income amounts from which tenant improvements, leasing commissions, and reserves for replacements had been subtracted. Mr. Logue was aware of and considered the derivation of the Korpacz capitalization rates in arriving at an indicated capitalization rate for the subject property. This factor led him to select a capitalization rate toward the lower end of the Korpacz range.
 By the Board's calculation Mr. Logue's expense estimates totaled $1,113,430 (for both fiscal years at issue), but the difference was too minor to affect the conclusions as to value.
 Mr. Reenstierna was inconsistent in his varying descriptions of the use of the subject property as office vs. research and development or "flex." He stated in his testimony that he considered the subject property to be "research and development" space, citing the classification used by Spaulding & Slye. However, he identified no areas devoted to research and development within the subject property. He admitted on cross-examination there was no laboratory space. Relying on the clear weight of the evidence, the Board deemed the subject property to be an office building.
 As a result of the study, the area was rezoned in June of 2006, after the valuation dates at issue.
 According to his Report at page 51, Mr. Reenstierna considered only the current office use and residential development as possibilities for highest and best use, but he testified that "highest and best use … was for continued use as an office research and development facility…."
 Mr. Reenstierna's estimate of the building area diverged from the measurement the City of Cambridge used in arriving at the assessed value. According to the property record card, the building size was 126,725 square feet. Moreover, Mr. Reenstierna's building area estimate conflicted with a report from Spaulding & Slye for Winter, 2003, which gave the rentable area as approximately 125,000 square feet.
 Ms. Orchard testified that the City of Cambridge regarded the portfolio sales at 12-62 Moulton and 27-61 Moulton Street as "unqualified sales" for its valuation purposes.
 Mr. Reenstierna did not satisfactorily explain why this information on adjustments, an essential element of any comparable sales analysis, was omitted from the Report exchanged with appellant pursuant to the Board's Order.
 By "modified net" Mr. Reenstierna appeared to be referring to terms under which the tenant pays all expenses except real estate taxes and structural repairs. However, the phrase "modified net" is not defined in THE APPRAISAL OF REAL ESTATE at 477. (12th ed. 2001).
 A leasing arrangement under which the tenant bears responsibility for all operating expenses except structural repairs is typically referred to as "triple net." See THE APPRAISAL OF REAL ESTATE at 477 (12th ed., 2001). "Triple net" terms operate to increase the effective rent a tenant is obligated to pay. Id. Mr. Reenstierna testified that leases for research and development spaces are typically "triple net", while office leases usually provide for "gross" rents under which the owner bears the operating expenses of the property; or modified "gross" rents under which tenants bear their own electricity costs only.
 The Board agreed with both valuation experts that estimated market rent should not be applied to the space represented by the parking garage in the former warehouse for purposes of determining the property's income potential. Given the locational characteristics of the subject property, on-site parking would be necessary to support the occupancy of the office space by one or more tenants.
 Mr. Reenstierna made the same blanket 10% adjustment to all but one of the leased-fee sales, in an attempt to derive indications of a fee-simple value. He adjusted the sales price of the sale of 48 Woerd Avenue in Waltham by 5%. None of these adjustments was adequately supported.
 Mr. Reenstierna admitted on cross-examination that he was unfamiliar with features of some of the buildings included in the portfolio transactions like size, age, and interior layout. For those specific properties he was familiar with, he conceded some were not comparable to the subject property standing alone. 
 Rents under a gross lease subsume most or all of the tenant's costs for occupancy of a property, while the tenant under a net lease must add expenses to the base rental amount to ascertain the total obligation. As a result, rent owing under a net lease is effectively higher than it would be at the same nominal amount under a gross lease.
 Mr. Reenstierna's attempt to explain the discrepancy between the expense amounts suggested by his office comparables and the expense ratio he imputed to the subject property lacked credibility. He said that he imputed a lower level of expenses to the subject property to extract the cost of taxes included in expenses at his comparable properties. However, since he never ascertained the amount of the tax component of the expenses on which he relied, any purported adjustment would be speculative and unreliable.

ATB 2008-813