Thomas G. Feenan, Trustee of the Domili Realty Trust v. Board of Assessors of the City of Quincy (March 7, 2016)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD




THOMAS G. FEENAN, TRUSTEE	    v.	  BOARD OF ASSESSORS OF
OF THE DOMILI REALTY TRUST                THE CITY OF QUINCY


Docket Nos.: F317866 & F320834	 	  Promulgated:
								  March 7, 2016


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


	Paul N. Barbadoro, Esq. for the appellant.

	Peter E. Moran, Director of Assessing, and Marion A. Fantucchio, Member, for the appellee.  
FINDINGS OF FACT AND REPORT
Introduction and Jurisdiction
On January 1, 2011 and January 1, 2012, the appellant was the assessed owner of an office condominium unit, identified as U#220, located at 234 Copeland Street in Quincy ("subject property").  The subject property is identified by the appellee on Map 4017, as Parcel 38, Unit 220.
 For fiscal year 2012, the assessors valued the subject property at $858,900 and assessed a tax thereon, at the commercial real estate rate of $28.66 per thousand, in the total amount of $25,112.23.  In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest.  On January 9, 2012, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors.  On April 26, 2012, pursuant to the appellant's written consent to extend the time beyond the three months from the date his application was filed, the assessors denied the appellant's abatement application.  On July 24, 2012, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed an appeal with the Appellate Tax Board ("Board").  
For fiscal year 2013, the assessors valued the subject property at $951,200 and assessed a tax thereon, at the commercial real estate rate of $30.61 per thousand, in the total amount of $29,407.39.  In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest.  On January 14, 2013, in accordance with G.L. c. 59, § 59, the appellant timely filed an abatement application with the assessors, which they denied on April 3, 2013.  On July 1, 2013, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed an appeal with the Board.  
On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The subject property is an owner-occupied office condominium within an office condominium complex located on Copeland Street near the intersection of Furnace Brook Parkway.  The condominium complex consists of two buildings containing a total of 30 office condominium units situated on a 1.49-acre parcel of land.  The subject building was built in 1988 and last renovated in 2007.  The subject property contains a total useable area of 4,974 square feet, which includes a reception area, a conference room with an atrium-style ceiling, an open office area with temporary office cubicles, seven private offices, two larger offices, a half-bathroom, and an employee break area.  Interior finishes include carpet and vinyl tile floors, painted plaster and glass partitions, and suspended acoustic tiles.  Overall the subject property is in average condition.
Appellant's Case-in-Chief
The appellant presented his case-in-chief through the testimony and summary appraisal report of Eric Wolff, a certified real estate appraiser whom the Board qualified as an expert in real estate valuation.  After determining that the subject property's highest and best use was its continued use as an office condominium, Mr. Wolff considered the three usual methods for estimating the value of the subject property for the fiscal years at issue.  Although he believed that the cost approach is sometimes meaningful in valuing property similar to the subject property, he determined that the primary approaches to apply here were the sales-comparison and the income-capitalization approaches.  Therefore, in determining his opinion of the subject property's fair market value for the fiscal years at issue, Mr. Wolff relied on both the sales-comparison and the income-capitalization approaches, giving them equal weight. 
Sales-Comparison Approach
	For fiscal year 2012, Mr. Wolff relied on six purportedly comparable properties that sold between March 21, 2008 and July 5, 2010.  His sales-comparison analysis is reproduced in the following table.  

	Sale #1	Sale #2	Sale #3	
Address	1147 Hancock Street, Unit 210-212	228 Copeland Street,
Unit 320	1261 Furnace Brook,
Unit 14	
Sale Date	7/6/2010	4/16/2010	3/3/2010	
Sale Price	$215,000	$887,500	$215,000	
Unit Area (sf)	1,791	4,121	1,363	
Price Paid
 (psf)	
$120.04	
$215.36	
$157.74	
				
Adjustment				
  Unit Size	-20%	-5%	-25%	
Adjusted Price
(psf)	
$96.04	
$204.59	
$118.31	

	Sale #4	Sale #5	Sale #6	
Address	1261 Furnace Brook, Unit 12	228 Copeland Street,
Unit 225	228 Copeland Street,
Unit 330	
Sale Date	1/29/2010	7/11/2008	3/21/2008	
Sale Price	$200,000	$309,200	$365,965	
Unit Area (sf)	1,134	1,571	1,997	
Price Paid
 (psf)	
$176.37	
$196.82	
$183.26	
				
Adjustment				
  Unit Size	-30%	-25%	-20%	
Adjusted Price
(psf)	
$123.46	
$147.61	
$146.61	

According to Mr. Wolff's analysis, his purportedly comparable sales yielded adjusted sale prices that ranged from $96 to $204 per square foot.  In his opinion, sales #1, #3, #4, #5 and #6 were the most comparable to the subject property.  The adjusted sales prices for these properties ranged from $96 to $148 per square foot with an average of $126 per square foot.  Mr. Wolff selected $126 per square foot as the indicated value for the subject property's 4,974 square feet, which yielded a rounded value of $625,000 for fiscal year 2012.
For fiscal year 2013, Mr. Wolff relied on five purportedly comparable properties that sold between January 29, 2010 and February 2, 2011.  His sales-comparison analysis is reproduced in the following table.  
	Sale #1	Sale #2	Sale #3	
Address	228 Copeland Street,
Unit 230	1147 Hancock Street, Unit 210-212	228 Copeland Street,
Unit 320	
Sale Date	2/2/11	7/6/2010	4/16/2010	
Sale Price	$210,000	$215,000	$887,500	
Unit Area (sf)	1,903	1,791	4,121	
Price Paid
 (psf)	
$110.35	
$120.04	
$215.36	
				
Adjustment				
  Unit Size	-20%	-20%	-5%	
Adjusted Price
(psf)	
$110.35	
$96.04	
$204.59	

	Sale #4	Sale #5	
Address	1261 Furnace Brook,
Unit 14	1261 Furnace Brook, Unit 12	
Sale Date	3/3/2010	1/29/2010	
Sale Price	$215,000	$200,000	
Unit Area (sf)	1,363	1,134	
Price Paid
 (psf)	
$157.74	
$176.37	
			
Adjustment			
  Unit Size	-25%	-30%	
Adjusted Price
(psf)	
$118.31	
$123.46	

According to Mr. Wolff's analysis, his purportedly comparable sales yielded adjusted sales prices that ranged from $88 to $204 per square foot.  He opined that sales #1, #2, #4 and #5 were the most comparable to the subject property and, based on those, he selected $106 per square foot as the indicated value for the subject property's 4,974 square feet, which yielded a rounded value of $525,000 for fiscal year 2013.
Income-Capitalization Approach
	For his income-capitalization analyses, Mr. Wolff selected twelve leases for properties that ranged in size from 600 to 5,100 square feet.  Seven of these properties rented on a gross basis with rents that ranged from $18.00 to $20.11 per square foot; the remaining five properties rented on a modified gross basis with rents that ranged from $18.00 to $22.00 per square foot.  Based on the subject property's location, with very good access to the Southeast Expressway, Mr. Wolff opined that an economic rent of $20.00 per square foot on a gross plus utilities basis was appropriate for the subject property for the fiscal years at issue.  Applying this rate to the subject property's net rentable area of 4,974 square feet, resulted in a potential gross income ("PGI") of $99,480 for both fiscal years at issue.   
	For vacancy and collection loss, Mr. Wolff reported that local brokers were estimating vacancy rates for office space ranging from 10% to 20%.  For purposes of the subject property, Mr. Wolff selected a vacancy rate of 5% based on his experience with this type of property.  Application of Mr. Wolff's vacancy rates resulted in an effective gross income ("EGI") of $94,506 for both fiscal years at issue.
	Next, Mr. Wolff determined the subject property's net-operating income by deducting from the EGI the subject property's estimated operating expenses.  Mr. Wolff noted that within the subject property's competitive market area, the landlord was responsible for all operating expenses, including those associated with the management and structural maintenance of the building.  Mr. Wolff adopted a management fee equal to 2% of the EGI and also a replacement reserve equal to 1% of PGI, which he testified were typical in the market.  Lastly, Mr. Wolff allowed a deduction for condominium fees in the amount of $27,018, based on the appellant's reported expense of $2,251.50 per month.  Mr. Wolff deducted these expenses from his EGI to derive a stabilized net-operating income of $64,603 for the fiscal years at issue.
	The next step in Mr. Wolff's income-capitalization analysis was the selection of a capitalization rate for the fiscal years at issue. Mr. Wolff developed his capitalization rates using a band-of-investment technique. This method produced capitalization rates of 8.50% and 8.00% for fiscal years 2012 and 2013, respectively.  Mr. Wolff determined that his capitalization rates were consistent with rates published by national surveys, such as the Fourth Quarter Korpacz Real Estate Investor Survey Reports for 2010 and 2011 for non-institutional grade office properties in the Boston area. Mr. Wolff also stated that he verified his band-of-investment results with capitalization rate ranges for Class B/C office properties in the Boston area published by CB Richard Ellis.  He then added the applicable tax factors to produce overall capitalization rates of 11.366% and 11.061% for fiscal years 2012 and 2013, respectively.
Mr. Wolff's income-capitalization analyses are reproduced in the following table.
Mr. Wolff's Income-Capitalization Approach for FY12 & FY13

INCOME                             
Office Space                                                 4,974 square feet 
  @ $20.00 psf          
Potential Gross Income:                                            $    99,480	
Vacancy & Collection Allowance (5%)                               ($    4,974)        	
Effective Gross Income:                                            $    94,506	
	
EXPENSES
	
  Management Fee         $ 1,890  @ 2% of EGI
  Replacement Reserves   $   995  @ 1% of PGI
  Operating Expenses     $27,018  @ $2,251.50/month  

Total Expenses:                                                   ($   29,903) 	
	
Net-Operating Income:                                              $    64,603	
	
 Divide by: Total Capitalization Rate for Fiscal Year 2012 - 11.366%	
	
Indicated Value for Fiscal Year 2012                               $    568,388	
Rounded Value for Fiscal Year 2012                                 $    570,000	
	
Divide by: Total Capitalization Rate for Fiscal Year 2013 - 11.061%	
	
Indicated Value for Fiscal Year 2013                               $    584,061	
Rounded Value for Fiscal Year 2013                                 $    585,000	

To arrive at his reconciled final opinions of value of $600,000 and $555,000 for the subject property for fiscal years 2012 and 2013, respectively, Mr. Wolff used an average of the values derived from his sales-comparison and income-capitalization approaches.
Assessors' Case
For their part, the assessors offered into evidence the requisite jurisdictional documentation and the subject property's property record cards for the fiscal years at issue, and rested on their assessments.
The Board's Findings
On the basis of the documents and testimony admitted into evidence during the hearing of these appeals, as well as reasonable inferences drawn therefrom, the Board ultimately found that the appellant failed to meet his burden of proving that the subject property was overvalued for the fiscal years at issue.  
More specifically, with respect to Mr. Wolff's sales-comparison approach, the Board found that there were several fundamental shortcomings.  First, the Board found that Mr. Wolff's size adjustments, calculated at 5% for every 500 square foot difference with the subject property, were arbitrarily chosen and lacked support.   The Board further found that the sale properties most heavily relied upon by Mr. Wolff, ranging in size from 1,134 square feet to 1,997 square feet, presented too great a size discrepancy in comparison to the subject property's 4,974 square feet.  This dissimilarity required extensive size adjustments arbitrarily applied by  Mr. Wolff at 20% to 30%.  In addition, the Board found that Mr.  Wolff's failure to include the admittedly arm's-length sale of 228 Copeland Street, Unit 320, which is located in the same building as the subject property and is virtually the same size and condition, for a spurious reason, rendered his sales-comparison analyses suspect.  In the Board's opinion, this property, which sold on April 16, 2010 for $887,500, was the most comparable to the subject property and should have been afforded significant weight, notwithstanding Mr. Wolff's assertion that the negotiated price had decreased several times before the actual sale and closing.  
The Board further found that Mr. Wolff's use of the income-capitalization approach was improper in these appeals.  First, none of Mr. Wolff's purportedly comparable leases was for an office condominium.  In addition, in his appraisal report, Mr. Wolff noted that most rents ranged from $18.00 to $20.00 per square foot on a gross basis.  He, however, chose $20.00 per square foot on a gross plus utilities basis, and failed to offer an explanation.  Moreover, at the hearing of these appeals, Mr. Wolff conceded that office condos, like the subject property, are seldom leased, and he admitted that the income-capitalization approach is not the proper methodology for valuing them.  The Board concurred.
Lastly, the Board found that Mr. Wolff's method of reconciling the values derived from his sales-comparison and income-capitalization approaches, by averaging the two values, was faulty.  Using the sales-comparison approach, the subject property's fair market value decreased by $100,000 from fiscal year 2012 to fiscal year 2013, whereas, using the income-capitalization approach, the subject property's fair market value increased by $15,000 over the same time period.  Furthermore, and as stated above, the income-capitalization approach was not an appropriate method to use to value the subject property.  Therefore, the Board found that Mr. Wolff's final determination of value, which relied in large part on an improper methodology, for the fiscal years at issue, was fundamentally flawed and unpersuasive.
On this basis, the Board found and ruled that the appellant failed to meet his burden of proving that the subject property was overvalued for the fiscal years at issue.  Accordingly, the Board issued a decision for the appellee in these appeals.

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 from 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 sustain the burden of proving the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting from Schlaiker, 365 Mass. at 245)).
In appeals before this Board, a taxpayer "'may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors' method of valuation, or by introducing affirmative evidence of value which undermines the assessors' valuation.'"  General Electric Co., 383 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). 
"[S]ales of property usually furnish strong evidence of market value, provided they are arm's-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller."  Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982).  Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue.  Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff'd 73 Mass. App. Ct. 1107 (2008).
Properties are "comparable" when they share "fundamental similarities" with the subject property, including age, location and size.  See Lattuca v. Robsham, 442 Mass. 205, 216 (2004).  The appellant bears the burden of "establishing the comparability of . . . properties [used for comparison] to the subject property."  Silvestri v. Assessors of Lowell, Mass. ATB Findings of Fact and Reports 2012-926, 935.  Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981).  "[B]asic comparability is established upon considering the general character of the properties." Id. Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value."  New Boston Garden Corp., 383 Mass. at 470. 
In the present appeals, almost all of Mr. Wolff's purportedly comparable sales, for both fiscal years at issue, were considerably smaller than the subject property, less than half the size, requiring extensive adjustments.  The Board found that Mr. Wolff failed to adequately explain how he arrived at his size adjustments.  Furthermore, the Board found no justification for Mr. Wolff's failure to include in his final analyses the sale at 228 Copeland Street, Unit 320, which is only slightly smaller than the subject property and sold for $887,500 shortly before the relevant dates of assessment, thereby rendering his analyses questionable and unpersuasive.
The income-capitalization approach is "frequently used with respect to income-producing property."  Pepsi Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).  At the hearing of these appeals, Mr. Wolff conceded that office condos, like the subject property, are seldom leased and therefore the income-capitalization approach was not the proper methodology for valuing it.  The Board agreed and thus rejected Mr. Wolff's income-capitalization analyses.
Lastly, the Board found and ruled that Mr. Wolff's method of determining the subject property's fair market values for the fiscal years at issue, by averaging the values derived from his sale-comparison and income-capitalization analyses, was, under the circumstances, improper.  The Board, therefore, found that Mr. Wolff's final determination of value for the fiscal years at issue was flawed for this reason as well.

Based on all of the evidence presented, the Board found and ruled that the appellant failed to meet his burden of demonstrating that the subject property was overvalued for the fiscal years at issue.  The Board therefore, decided these appeals for the appellee.
					THE APPELLATE TAX BOARD




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


A true copy,
Attest:					_______
   Assistant Clerk of the Board

       

  This amount includes a $246.16 Community Preservation Act ("CPA") surcharge and a $250.00 special assessment.
 See G.L. c. 59, § 64.
  This amount includes a $291.16 CPA surcharge.

ATB 2016-37