Georgetown Shopping Center, LLC v. Board of Assessors of the Town of Georgetown (December 16, 2015)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


GEORGETOWN SHOPPING 	   v.	  BOARD OF ASSESSORS OF   
CENTER, LLC					  THE TOWN OF GEORGETOWN
					
	         
Docket Nos.: F319784,			  Promulgated:
		   F322704			  December 16, 2015


	These are appeals filed under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Georgetown ("appellee" or "assessors") to abate taxes on certain real estate in Georgetown, owned by and assessed to Georgetown Shopping Center LLC ("Georgetown Shopping Center" or "appellant") under G.L. c. 59, §§ 11 and 38, for fiscal years 2013 and 2014 ("fiscal years at issue").  
	Commissioner Good heard these appeals. Chairman Hammond and Commissioners Scharaffa, Rose and Chmielinski joined her in the decisions for the appellant.  
	These findings of fact and report are made pursuant to requests under G.L. c. 58A, § 13 and 831 CMR 1.32 of the appellant and appellee.  

	Robert J. Gaines, Esq. for the appellant.
	
Thomas Berube, Chairman and Jay Ferreira, Assistant Assessor for the appellee. 

Findings of Fact and Report

Introduction and Jurisdiction
On the basis of all of the evidence, including the testimony and documentary exhibits entered into the record, the Appellate Tax Board ("Board") found the following facts.  
On January 1, 2012 and January 1, 2013, the relevant assessment dates for the fiscal years at issue, the appellant was the assessed owner of a 3.5414-acre parcel of land, identified by the appellee as Parcel Number 10/B/23 on assessor's map I, located at 44-62 Central Street in the Town of Georgetown ("subject property").  
For fiscal year 2013, the assessors valued the subject property at $2,933,500 and assessed a tax thereon, at the rate of $13.55 per thousand, in the total amount of $39,748.93.  The appellant paid the tax due without incurring interest.  On January 2, 2013, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors, which they denied on March 12, 2013.  In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its petition with the Board on June 10, 2013.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2013.
For fiscal year 2014, the assessors valued the subject property at $2,991,100 and assessed a tax thereon, at the rate of $14.05 per thousand, in the total amount of $42,024.96.  The appellant paid the tax due without incurring interest.  On January 28, 2014, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors, which they denied on March 17, 2014.  In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its petition with the Board on May 6, 2014.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2014.
The subject property is situated on the east side of Central Street, just south of the intersection of Central Street (Route 97) and Route 133 in the downtown neighborhood of Georgetown.  Land uses within this neighborhood consist of a mixture of smaller, commercial developments, including two-story mixed-use buildings that house retail on the first floor and office space on the second floor, and residential developments.  The subject property's parcel is irregular in shape and has frontage along Central Street, a primary thoroughfare within the neighborhood, with one curb cut to Central Street.
The subject property is improved with a typical "strip" community shopping center with six in-line retail units, consisting of 8,374 square feet, which is connected to a 16,886-square-foot supermarket anchor store ("Crosby's Market"), for a total of 25,260 square feet of retail space ("shopping center").  The shopping center was built in 1963 and renovated in 2004.  The subject property also includes 95 open parking spaces.  The appellant also owns two additional buildings - a bank and a retail building - as well as an additional 48 open parking areas.  These are located on an adjacent parcel at 40 Central Street, and while they were erroneously included in the subject assessments, they are not part of the subject property. 
The appellant presented its case-in-chief through the testimony of Linda Meiggs, the property manager for the subject property, and the testimony and appraisal report of Robert Shannon, a licensed real estate appraiser.  The appellee presented its case-in-chief through the testimony and analysis of Jay Ferreira, an assessor with the appellee.
Ms. Meiggs, who manages the subject property as well as other properties in the general vicinity that are owned by the appellant, described the subject property and testified to the specific challenges of its operation.  Specifically, Ms. Meiggs testified that the operating expenses are higher than average for the subject property as compared with other properties in the area because of certain extenuating factors, including: environmental restrictions by the Massachusetts Department of Environmental Protection resulting from groundwater contamination caused by a previous tenant; and heavy snow removal costs, because of the configuration of the lot.  Other challenges at the subject property include limited loading and delivery capacity because of the lack of circular access around the building for trucks, and a general pattern of falling rental rates, bad debt and rental concessions in the subject property's area during the assessment periods at issue.  The Board found Ms. Meiggs to be a credible witness. 
The appellant next called Mr. Shannon, whom the Board qualified as an expert in the area of commercial retail real estate valuation.  Mr. Shannon first determined that the highest and best use of the subject property was its current use as a commercial retail shopping center.  Mr. Shannon next considered the three approaches to value - sales comparison, income capitalization, and cost.  He determined that the income-capitalization approach provided the most meaningful measure for valuing the subject property but that the sales-comparison approach also provided additional support.  Mr. Shannon did not develop a cost approach to value the subject property.
Income-capitalization approach
Mr. Shannon selected the following purportedly comparable leased properties, consisting of in-line leases and anchor leases, for his income-capitalization approach:
#	Location/
Property Name	Lessee	Leased Area (sf)	Date
Lease length 	$/psf
Term
allowances	
1	30 Main Street, Topsfield/
Topsfield Crossing	Some Like It Old Some Like It New	900 	07/2012
2 yrs	$13.00
NNN
$2000+/-
($11.89 effective rent)	
2	144 Newburyport Tpk, Rowley/
Rowley Plaza	Kay's Interiors	1,420	02/2012
5 yrs	$16.06
NNN
None	
3	170 N. Main St, Middleton/
N/A	Basement Barbers/
Cakes by Creative Renaissance	1,800 (900 for each tenant)	08/2013
3 years	$13.00
NNN
None
	
4	15 Walnut Rd, Hamilton/
The Shops at Hamilton Crossing	French Lessons	1,473	08/2010
5 yrs	$19.67
NNN
None	
5	146 High St, Ipswich/
Ipswich Crossing	Pax Massage	1,765	01/2009
5 yrs	$15.98 
NNN
None	
6	180 Endicott St, Danvers/
Endicott Square	Bed Bath and Beyond	36,192	11/01/2011
10 yrs	$11.50
NNN
None	
7	1 Merrill St, Salisbury/
Crossroads Plaza	Bassler Veterinary Hospital/
Auto Value Car Parts	10,000	12/2013
5 yrs	Above $7.00
NNN
None	
8	4 Newbury St, Danvers/
Former Circuit City	a) Golfer's Warehouse
b) Harbor Freight Tools	32,500	10/2010
5 yrs	a)$12.00
b)$13.00
NNN
None	

i. In-line leases
	Mr. Shannon determined that lease comparables #1 through #5 were most comparable to the in-line space at the subject property.  These purportedly comparable lease properties yielded rents ranging from $11.89 to $19.67 per square foot on a triple-net basis.  Mr. Shannon opined that the upper end of the range, Comparable #5, is superior to the subject property with respect to location and tenant mix because it is anchored by a commercially popular tenant -- a CVS Pharmacy with a drive-through window -- while the lower end of the range, Comparable #1, is inferior to the subject property in condition and tenant mix, as it is within a shopping center which lacks a grocery store anchor.  Of the remaining three comparables, Comparable #3 also lacks a grocery store anchor and is thus less comparable to the subject property.  The remaining two comparables both have rent levels at approximately $16.00 per square foot, but Mr. Shannon considered the subject property to be slightly inferior to those comparables.  
	Mr. Shannon next reviewed the most recent in-line lease transactions at the subject center, which ranged from $10.05 to $14.16 per square foot.  Mr. Shannon also interviewed the leasing agent for the subject property.  Based on his analysis, and finding that rent levels remained relatively flat during the relevant time period, Mr. Shannon opined that the fair market rent for the subject property was $15.00 per square foot on a triple-net basis for both fiscal years at issue for the in-line space.  
ii.  Anchor leases
Mr. Shannon opined that lease comparables #6 through #8 were most comparable to the anchor space at the subject property.  These purportedly comparable lease properties yielded rents ranging from $7.00 to $13.00 per square foot on a triple-net basis.  He considered the higher end of the range, Comparable #8, to be superior to the subject property in location and size of shopping center, and even the lower end of the range, Comparable #6, to be slightly superior to the subject property with respect to location.  
Mr. Shannon also reviewed the most recent lease transactions for the anchor tenant, Crosby's, at the subject property.  As a grocery store, Crosby's rent is based on a percentage of its sales, which averaged about $8.4 million annually between 2008 and 2013.  Given the declining sales and the fact that Crosby's does not attract customers from further than a 3-mile radius, Mr. Shannon concluded that 2% of sales was a reasonable sale-percentage for rent at the subject property's anchor space.  After accounting for pass-through expenses of approximately $4.07 per square foot, Mr. Shannon selected $6.00 per square foot on a net basis as the market rent for the anchor space at the subject property for both fiscal years at issue. 
Based on the estimated economic rent of $15.00 per square foot on a triple-net basis for the in-line space and $6.00 per square foot on a triple-net basis for the anchor space, Mr. Shannon estimated the potential rental income for the subject property at $226,176 annually.
Mr. Shannon next considered reimbursement income.  Based on the actual figures from the subject property, Mr. Shannon determined the following stabilized amounts for tenant reimbursements, including real estate taxes:  $104,672 for fiscal year 2013; and $105,404 for fiscal year 2014.  Adding these figures to the rental figures produced potential gross income amounts of $330,710 for fiscal year 2013 and $331,580 for fiscal year 2014.
For vacancy and collection loss, Mr. Shannon reviewed rates in the Boston North market and in Georgetown in particular.  Mr. Shannon also considered that the subject property, as well as the property directly opposite at 65 Central Street, was 100% occupied as of the relevant valuation dates.  However, Mr. Shannon further considered that, because of the economic conditions at the relevant time, none of the tenants at the subject property were nationally known, credit-worthy tenants, thus increasing the chances of credit losses at the subject property.  On the basis of his analysis, Mr. Shannon selected 10% as the vacancy and collection loss rate for the in-line tenants and 5% as a vacancy and collection loss rate for the anchor space, which he claimed resulted in a blended rate of 7.4%.  This produced a deduction of $24,462 for fiscal year 2013 and $24,520 for fiscal year 2014.  Subtracting the total vacancy and collection losses from the gross income amounts produced effective gross incomes of $306,248 for fiscal year 2013 and $307,060 for fiscal year 2014.
Mr. Shannon next opined that, based on the actual operating expenses for the subject property for the period between 2009 and 2013, stabilized reimbursable operating expenses for the subject property should be as follows:  $102,623 for fiscal year 2013; and $103,493 for fiscal year 2014.  
For non-reimbursable expenses, Mr. Shannon reviewed the subject property's historical actual expenses.  Mr. Shannon arrived at the following expense amounts for fiscal year 2013:





accounting and legal 	$ 6,807	
advertising and marketing 	$   511	
LLC fees 	$   638	
management fees @ 6% 	$18,383	
office and miscellaneous  	$   340	
utilities for vacant units  	$   851	
repairs and maintenance  	$ 2,127	
environmental expense  	$18,719	
reserves 	$ 6,318	
leasing commissions 	$ 5,515	
  
Mr. Shannon arrived at the following expense amounts for fiscal year 2014: 
accounting and legal  	$ 6,807	
advertising and marketing  	$   511	
LLC fees @ $638; 	$   638	
management fees @ 6% 	$18,424	
office and miscellaneous 	$   340	
utilities for vacant units 	$   851	
repairs and maintenance  	$ 2,127	
environmental expense  	$18,719	
reserves 	$ 6,318	
leasing commissions   	$ 5,527	

For the capitalization rate, Mr. Shannon reviewed the five sales presented in his sales-comparison approach, as well as six other retail properties that had recently sold.  These sales, a combination of single-tenanted, net-leased properties and multi-tenant properties like the subject property, ranged from a low of 5.6% to a high of 15.3%.  Considering the subject property to be a riskier investment because of the contamination cleanup and the credit risks, Mr. Shannon looked to the upper range of capitalization rates, ranging from 11.2% to 15.3%.  
Mr. Shannon next reviewed published rates in RealtyRates.com, which revealed anchored retail shopping centers ranging from 5.30% to 13.09%, with an average of 10.25%.  
Finally, Mr. Shannon performed a band-of-investment analysis taking into account available mortgage rates and terms as well as expected rates of return from investors.  According to his conversation with a New England broker, a reasonable interest rate for the subject property would be 250 basis points above the Federal Home Loan Bank Board advance rate for five-year money, which on January 3, 2012 was 1.6% and on January 2, 2013 was 1.26%; Mr. Shannon concluded that both these rates yielded an interest rate of 4.1%.  Mr. Shannon next opined that the typical amortization period would be for 25 years with a 70% loan-to-value ratio, and he selected an equity dividend rate of 17%.  From these figures, he calculated an overall base capitalization rate of 9.6%.  
Based on his three approaches, Mr. Shannon selected a base capitalization rate of 10%.  To this he added consideration for the ongoing environmental cleanup at the subject property, thus increasing his capitalization rate to 11%.  Mr. Shannon selected 11% as the base capitalization rate for both fiscal years at issue, to which he added the appropriate tax factor for each fiscal year at issue, because he included tax reimbursements from tenants in his gross income figures.
The value derived from Mr. Shannon's income-approach analysis was $1,300,000 for both fiscal years at issue.  Mr. Shannon's income-capitalization analysis for each fiscal year is summarized below:
Fiscal Year 2013
Rental space			       
  8,282 sf in-line @ $15.00 psf		$   124,230
 16,986 sf anchor  @ $ 6.00 psf		$   101,916
Potential Gross Income				$   226,176

Reimbursement income				$   104,534
Total income				      $   330,710
Vacancy/collection (@ 7.4%)	   	     ($    24,462)
Effective gross income				$   306,248 
Reimbursable operating exp.			$    84,680

Non-reimbursable operating exp.
  Accounting/legal	                 ($     6,807)
  Advertising/marketing		           ($       511)
  LLC fee				           ($       638)
  Management (@ 6%)               	     ($    18,375)
  Office/miscellaneous            	     ($       340)
  Utilities for vacant units             ($       851)
  Repairs/maintenance		           ($     2,127)
  Environmental expenses                 ($    18,719)
  Reserves for replacement               ($     6,318)
  Leasing commissions                    ($     5,512)
Total non-reimbursable exp.	           ($    60,198)       

Total operating expenses	           ($   144,878)

Net operating income			      $   161,369
Capitalization rate			      /11%
Plus tax factor @ 1.38020%		      /12.380200%	
Total Indicated Value		            $ 1,303,446
Rounded					      $ 1,300,000
Fiscal Year 2014
Rental space			       
  8,282 sf in-line @ $15.00 psf		$   124,230
 16,986 sf anchor  @ $ 6.00 psf		$   101,916
Potential Gross Income				$   226,176

Reimbursement income				$   105,404
Total income				      $   331,580
Vacancy/collection (@ 7.4%)	    	     ($    24,520)
Effective gross income				$   307,060 
Reimbursable operating exp.			$    84,680

Non-reimbursable operating exp.
  Accounting/legal	                 ($     6,807)
  Advertising/marketing		    	     ($       511)
  LLC fee				           ($       638)
  Management (@ 6%)               	     ($    18,424)
  Office/miscellaneous            	     ($       340)
  Utilities for vacant units      	     ($       851)
  Repairs/maintenance		    	     ($     2,127)
  Environmental expenses          	     ($    18,719)
  Reserves for replacement        	     ($     6,318)
  Leasing commissions             	     ($     5,527)
Total non-reimbursable exp.	    	     ($    60,262)       

Total operating expenses	           ($   144,942)

Net operating income				$   162,118
Capitalization rate			     /11%
Plus tax factor @1.4447%    		     /12.4447%
Total Indicated Value		    	      $ 1,302,705
Rounded					      $ 1,300,000

Sales-comparison approach
Mr. Shannon testified that his investigation of sales activity in the Eastern Massachusetts as well as Southern New Hampshire areas resulted in five useful sales of commercial retail shopping-center properties.  
	Mr. Shannon's sales, after his adjustments, particularly for location, ranged from $24.89 per square foot to $83.65 per square foot.  Mr. Shannon further applied a 25% adjustment for hazardous waste present at the subject property, which yielded an indicated value under the sales comparison approach equal to $1,243,424, rounded to $1,250,000 as of January 1, 2012 and January 1, 2013.  However, Mr. Shannon admits that "[t]here were sizable adjustments made to each of the transactions," with adjustments higher than 40% for three of his five purportedly comparable properties, and as much as 75% and 85% for two properties, "which weakens this type of analysis."  Exh. 1 at 46.  He thus used this method for additional support for his income-capitalization analysis, but not as an independent indicator of value. 
Reconciliation
Mr. Shannon reconciled the values he obtained by both valuation methods to determine his opinion of fair market value.  He relied solely upon the value he obtained by the income-capitalization approach, but used his sales-comparison approach as a check on value.  Mr. Shannon arrived at an indicated value of $1,300,000 for both fiscal years at issue.  He thus concluded that the subject property was overvalued for both fiscal years at issue.

The appellee's valuation evidence
The appellee presented its case-in-chief through the testimony of its Assistant Assessor, Jay M. Ferreira and a valuation analysis prepared by its Chairman, Thomas J. Berube and Mr. Ferreira.
At the hearing, the appellee was made aware that the assessments contained erroneous assumptions as to the subject property's building area by including a second retail building that was owned by the appellants but is not properly part of the subject property at issue.  The appellee subsequently offered a revised valuation analysis omitting the second retail building, thus reducing the appellee's opinions of value for both fiscal years at issue.  The assessors did not, however, issue a partial abatement for either appeal.  
Based on the corrections made by the appellee, whereby Mr. Ferreira extracted 80% from the income and expense figures to account for the error in building area, the appellee's revised income-capitalization analysis follows.
Mr. Ferreira first considered the highest and best use of the subject property.  He agreed with Mr. Shannon that the highest and best use of the subject property was its current use as a retail plaza with a grocery store anchor.
Mr. Ferreira then considered the income-capitalization approach as the primary means of valuing the subject property.  Mr. Ferreira noted that the appellants had provided the appellee with a complete and thorough income and expense form.  Mr. Ferreira used a market rent model that was formulated from the actual income and expense forms supplied by the appellant, assuming a triple-net lease.  
Mr. Ferreira used a rental figure of $17.30 for the subject property's in-line space, considered to be 8,374 square feet, and a rental figure of $6.36 for its anchor space, considered to be 16,896 square feet, for a total gross rental income of $252,267.  Mr. Ferraira then included reimbursement income of $100,000, a figure which he extrapolated from the owners' reported income and expense statement.  The resulting total potential gross income was $352,267.  
Mr. Ferreira next applied a vacancy rate of 5%, slightly lower than the appellant's vacancy expense, for a deduction of $17,613, which resulted in an effective gross income of $334,654.  
For expenses, Mr. Ferreira deducted 20% of effective gross income from the Crosby's Market lease and the total of the other leases, as well as 20% from the reimbursement income.
For his capitalization rate, Mr. Ferreira performed a band-of-investment analysis.  He assumed an equity yield rate of 13.5%, a mortgage interest rate of 7.25%, an amortization period of 20 years, and a loan-to-value ratio of 70% to 30% over a projected period of 10 years with an equity dividend rate of 3.25%.  From these figures, he calculated a base capitalization rate of 9.46%, which he rounded to 9.5%.  To this, Mr. Ferreira added Georgetown's entire tax factor of 0.01309 for fiscal year 2013, because the landlord was including reimbursements in income.  Adding the tax factor resulted in an overall capitalization rate of 10.8% for fiscal year 2013.  Mr. Ferreira applied this 10.8% capitalization rate to the entire net operating income and arrived at a corrected fair market value of $2,422,731 for fiscal year 2013.  
For fiscal year 2014, Mr. Ferreira reported that the assessors recalculated their original income-capitalization figure by using a corrected square footage for the subject property and then converted that figure to a cost value.  Mr. Ferreira did not provide any analysis for his figure, but the assessors' updated opinion of value based on this approach is $2,403,300.
Mr. Ferreira's updated income-capitalization approach for fiscal year 2013 is summarized below.
Fiscal Year 2013
Rental space			       
  8,374 sf in-line @ $17.30 psf	$   144,868
 16,886 sf anchor  @ $ 6.36 psf	$   107,399

Reimbursement income			$   100,000

Potential Gross Income			$   352,267

Vacancy (@ 5%)			         ($    17,613)

Effective gross income (EGI)		$   334,654

Expenses (@ 20% EGI)
  Crosby's Market			    ($    29,588)
  In-line tenants			    ($    31,654)
  Reimbursements			    ($    19,000)

Net operating income 			$   261,655
Capitalization rate			     /10.8%
Total Indicated Value		     $ 2,422,731

Fiscal Year 2014
Cost value for FY 2014			$ 2,403,300

The Board's conclusions
On the basis of the evidence before it, the Board first determined that the highest and best use of the subject property was its continued use as a strip mall with a grocery store anchor tenant.  Both the appellant's expert witness and the appellee found the subject property's current use to be its highest and best use, and the Board found that this determination was appropriate.  
The Board next agreed with the appellant that there was not a sufficient number of sales of comparable realty for reliance solely on a sales-comparison approach, particularly given the adjustments required to Mr. Shannon's five purportedly comparable sales.  The Board also found that the cost approach was too speculative under the circumstances present in these appeals.  Therefore, the Board found that the income-capitalization approach was the best method for determining the subject property's fair market value for both fiscal years at issue.  
For the rental rates, the Board found that the rent associated with the anchor tenant should be $7.00 per square feet, which takes into account the actual rent paid by Crosby's Market for that space -- the base rent of $6.31-per-square-foot plus the percentage increase based on sales volume.  The Board next found that the rent associated with the other in-line tenants should be $15.00 per square feet for the fiscal years at issue, as these figures were more in line with the recent and most relevant actual leases in effect at the subject property, as well as the market data proffered by the parties.  The Board used the square footages offered by Mr. Ferreira, finding his evidence more credible.  
For its vacancy rate, the Board agreed with the approach suggested by Mr. Shannon of blending the vacancy rates for the anchor tenant and the in-line tenants.  However, a mathematically accurate blended rate that takes into account the square footages of the subject property results in a rate of 6.67%, not Mr. Shannon's figure of 7.4%.  The Board adopted 6.67% as its vacancy factor.
With respect to expenses, Mr. Shannon had recommended expenses that totaled approximately 47% of the effective gross income for the subject property, which took into account ongoing environmental remediation expenses, while the appellee's recommended expenses totaled just about 23% of effective gross income.  The Board found the appellant's overall figures to be too high, particularly since Mr. Shannon failed to relate most of his expenses to any market data.  However, the Board also found, on the facts in these appeals, that market expenses for the subject property should take into account the ongoing remediation expenses.  The Board found that an expense deduction of 40% of effective gross income was a reasonable figure, which took into account both market-value operating expenses and the subject property's historical remediation expenses.
For the capitalization rate, the Board noted that the appellant's expert reviewed national and industry surveys, which showed a range of 5.3% to 13.09%, and his band-of-investment analysis produced a rate of 9.6%.  However, Mr. Shannon then factored environmental issues into his determination and increased his base rate to 11%.  The assessors' base rate was very close to Mr. Shannon's rate without environmental concerns, at 9.5%.  The Board found that a further increase in the capitalization rate was not warranted, because at all relevant times, the subject was a viable income-producing property and the appellant failed to prove that the environmental issue at the subject property was substantial enough to constitute an added investment risk.  Moreover, the subject property's environmental costs were adequately accounted for in the subject property's expenses.  The Board, therefore, selected 9.5% as the base capitalization rate, and to this added, in recognition of the landlord's inclusion of reimbursements into its income, the entire tax rate, as well as the Community Preservation Act surcharge for both fiscal years, thus arriving at the following overall capitalization rates:  10.880% for fiscal year 2013; and 10.947% for fiscal year 2014.
The Board's analyses are detailed below:
Fiscal Year 2013
Rental space			       
  8,374 sf in-line @ $15.00 psf	$   125,610
 16,886 sf anchor  @ $ 7.00 psf	$   118,202

Reimbursement income			$   105,404

Potential Gross Income			$   349,216

Vacancy (@ 6.67%)			    ($    23,293)

Effective gross income (EGI)		$   325,923

Expenses (@ about 40% EGI)	    ($   130,369) 

Net operating income 			$   195,554
Capitalization rate			     /10.880%
Fair cash value			     $ 1,797,371
Rounded					     $ 1,800,000
Assessment 					$ 2,933,500
Over-valuation				     $ 1,133,500
Abatement (@ $13.55 per $1,000)	$    15,819.70
Fiscal Year 2014
Rental space			       
  8,374 sf in-line @ $15.00 psf	$   125,610
 16,886 sf anchor  @ $ 7.00 psf	$   118,202

Reimbursement income			$   105,404

Potential Gross Income			$   349,216

Vacancy (@ 6.67%)			    ($    23,293)

Effective gross income (EGI)		$   325,923

Expenses (@ about 40% EGI)	    ($   130,369) 

Net operating income 			$   195,554
Capitalization rate			     /10.947%
Fair cash value			     $ 1,786,371
Rounded					     $ 1,800,000
Assessment					$ 2,991,100
Over-valuation				     $ 1,191,100
Abatement (@ $14.05 per $1,000)	$    17,237.01

On the basis of the above calculations, the Board thus found and ruled that the subject property was overvalued for both fiscal years at issue.  Accordingly, the Board issued decisions for the appellant and granted abatements in the amount of $15,819.70 for fiscal year 2013 and $17,237.01 for fiscal year 2014.
OPINION
The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38.  Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion.  Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed.  "'The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.'"  Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).  "[T]he board is entitled to 'presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).  
In determining fair cash value, all uses to which the property was or could reasonably be adapted on the relevant assessment dates should be considered.  Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989).  The goal is to ascertain the maximum value of the property for any legitimate and reasonable use.  Id.  "In determining the property's highest and best use, consideration should be given to the purpose for which the property is adapted."  Peterson v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2002-573, 617 (citing Appraisal Institute, The Appraisal of Real Estate 315-316 (12th ed., 2001)), aff'd, 62 Mass. App. Ct. 428 (2004).  In the instant appeals, the Board agreed with the appellant's expert witness and the assessors and ruled that the highest-and-best use of the subject property during the fiscal years at issue was its existing use as a strip-style mall with a grocery-chain anchor tenant.       
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 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).  
The fair cash value of property may often best be determined by recent sales of comparable properties in the market.  See Correia, 375 Mass. at 362; McCabe v. Chelsea, 265 Mass. 494, 496 (1929).  Actual sales generally "furnish strong evidence of market value, provided they are arm's-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller."  Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971).  
However, the use of the income-capitalization approach is appropriate when reliable market-sales data are not available.  Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810, 811 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941).  The income-capitalization method "is frequently applied with respect to income-producing property."  Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  
In the present appeals, although the appellant's expert witness developed both a sales-comparison method and an income-capitalization method, he relied solely upon the income-capitalization method.  The Board found credible Mr. Shannon's premise that, while the sales-comparison approach was useful as a check on value, the sales required too many adjustments to render this approach a reliable indicator of market value on its own.  Moreover, while the appellee's witness relied upon a cost approach for the valuation of the subject property for fiscal year 2014, he provided no analysis whatsoever for the Board to review.  The Board found and ruled that the income-capitalization approach was the most reliable means of valuing the subject property under the circumstances of these appeals.   
"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. v. Assessors of Boston, 428 Mass. 236, 239 (1998).  "It is the net income that a property should be earning, not necessarily what it actually earns, that is the figure that should be capitalized."  Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 436 (2008) (emphasis in original).  Accordingly, 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 v. New Bedford Redevelopment Auth., 5 Mass. App. Ct. 289, 293-94 (1977), rev'd on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Auth., 9 Mass. App. Ct. 877, 878 (1980)(rescript).  
With respect to the rental income, the Board first found that the appellant's expert and the appellee's witness were close in their market rate for the anchor space occupied by Crosby's Market.  The Board, however, found that a more accurate consideration of the sales-percentage clause yielded $7.00 per square foot as a reasonable rental estimate for this space.  For the in-line space, the Board selected $15.00 per square foot as a reasonable rental rate.  The Board found that its selected rental rates were supported by both the actual leases at the subject property as well as the market data submitted by both parties' witnesses.   
For the vacancy rate, the Board adopted the blended approach suggested by Mr. Shannon.  However, the Board found that a mathematically accurate blended rate of the anchor tenant's and the in-line tenants' square footages was 6.67%.  See Olympia & York State Street Co., 428 Mass. at 242 (acknowledging that it is appropriate for the Board to "exercise . . . independent decision-making based on the evidence").  The Board thus adopted this independently calculated figure for its analysis. 
After accounting for vacancy and rent losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co., 393 Mass. at 610.  The expenses should also reflect the market.  Id.; see Olympia & York State Street Co., 428 Mass. at 239, 245.  The Board found that a 40% deduction for expenses was a reasonable estimate for the subject property, which was supported by market data and the subject property's historical expenses, including remediation expenses at the subject property.
The capitalization rate should reflect the return on investment necessary to attract investment capital.  Taunton Redevelopment Associates, 393 Mass. at 295.  The Board considered that the appellant's expert witness and the appellee arrived at base capitalization rates of 9.6% and 9.5%, respectively, under the band-of-investment technique for both fiscal years at issue.  The Board selected 9.5% as a reasonable base capitalization rate for the subject property.  In doing so, the Board disagreed with Mr. Shannon's approach of increasing the capitalization rate for environmental concerns under the facts of this appeal.  The Board ruled that the appellant failed to prove that the environmental issue at the subject property was substantial enough to constitute an added investment risk.  Contrast Wayland Business Center Holdings, LLC, et al. v. Assessors of Wayland, Mass. ATB Findings of Fact and Reports 2005-557, 588 (ruling that "[t]he added investment risk caused by the notoriety and widespread publicity concerning the stigma relating to the subject property's environmental contamination" justified an increase to the overall capitalization rate).  Here, the environmental issue was adequately accounted for in the expenses that the Board allowed.
To the base capitalization rate, the Board added the entire tax factor, plus CPA surcharge, for Georgetown, in recognition of the appellant's inclusion in income of tenant reimbursements and subsequent payment of the property tax and surcharge.  Alstores Realty Corporation v. Assessors of Peabody, 391 Mass. 60, 70 (1984).  On the basis of its calculations, the Board found a fair market value of $1,800,000 for the subject property for both fiscal years at issue.
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 appropriately 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 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 found and ruled that the subject property was overvalued by $1,133,500 for fiscal year 2013 and by $1,191,100 for fiscal year 2014.  The Board thus issued decisions for the appellant and granted an abatement in the amount of $15,819.70 for fiscal year 2013 and an abatement in the amount of $17,237.01 for fiscal year 2014.

  THE APPELLATE TAX BOARD




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



A true copy,


Attest:				_____undefinedundefinedundefinedundefined______
	  Assistant Clerk of the Board	

 The appellee's records for the fiscal years at issue originally, and erroneously, indicated that the subject property contains 5.35 acres.
 This amount does not include the Community Preservation Act ("CPA") surcharge of $1,192.47.
 This amount does not include the CPA surcharge of $1,260.75.
 While it noted some minor mathematical errors in Mr. Shannon's calculations, the Board here reproduced his analysis.

 While it noted some mathematical errors in Mr. Ferreira's calculations, the Board here reproduced his analysis.  
 This amount includes the portion of the CPA surcharge.
 This amount includes the portion of the CPA surcharge.

ATB 2015-612