David J. Silvestri v. Board of Assessors of the City of Lowell (July 18, 2012)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



DAVID J. SILVESTRI		      v.		BOARD OF ASSESSORS OF
								THE CITY OF LOWELL

Docket No. F295982		   			Promulgated:
		 						July 18, 2012


	This is an appeal 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 Lowell ("assessors" or "appellee") to abate taxes on certain real estate owned by and assessed to David J. Silvestri ("appellant" or "Mr. Silvestri") under G.L. c. 59, §§ 11 and 38 for fiscal year 2008.
	Commissioner Mulhern heard this appeal.  Chairman Hammond and Commissioners Scharaffa, Egan and Rose joined him in the decision for the appellant.
	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.

	David J. Silvestri, pro se, for the appellant.
	Maria Sheehy, Esq. for the appellee.



FINDINGS OF FACT AND REPORT
	On January 1, 2007 ("relevant date of assessment"), the appellant was the assessed owner of a 5,840-square-foot parcel of real estate improved with a three-story, mixed-use building located at 742 Lakeview Avenue in the City of Lowell ("subject property").  The subject property is situated on a corner lot, at the intersection of Lakeview Avenue and Aiken Street, in the neighborhood known as "Centralville."  Originally built in the late 1800s, the subject building is in fact two separate buildings connected by a "corner-store" retail unit, with three additional smaller retail units located on the first floor.  The second and third floors each have four, three-bedroom apartments.  The building has a total area of 11,579 square feet.  The area is developed with similar older wood-framed, multi-family properties, with some being mixed-use with first-floor retail space.
	For fiscal year 2008, the subject property was valued at $726,800.  The assessors classified the subject property as forty-percent commercial and sixty-percent residential.  The assessors assessed a tax on the commercial portion, at the rate of $21.27 per thousand, in the amount of $6,183.61.  The assessors also assessed a tax on the residential portion of the subject property, at the rate of $ 10.60 per thousand, in the amount of $4,622.45.  The total tax assessed for the subject property was $10,806.06.  Lowell's Collector of Taxes mailed the fiscal year 2008 actual tax bills on December 31, 2007.  The appellant paid the tax assessed without incurring interest and, in accordance with G.L. c. 59, § 59, timely filed an Application for Abatement on January 31, 2008.  The assessors denied the appellant's abatement application on April 13, 2008.  The appellant seasonably filed an appeal with the Appellate Tax Board ("Board") on May 20, 2008.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
	The appellant contended that the subject property was overvalued for the fiscal year at issue.  The appellant presented his case through his testimony and exhibits which included: Multiple Listing Service ("MLS") listings for six purportedly comparable-sale properties located in Lowell; a chart listing the assessed values of the subject property and six purportedly comparable properties for fiscal years 2001 through 2011; photographs of the subject property and the appellant's comparable-sales and comparable-assessment properties; a copy of the subject property's deed; a listing of the subject property's calendar year 2007 income and expenses; a photocopied map of the immediate area and numerous photographs.
	The appellant's purportedly comparable sales occurred between March, 2006 and December, 2007, with sale prices ranging from $275,000 to $665,000.  Only one of these properties had any retail space; the remaining five properties were multi-family apartment buildings.  The appellant did not make any adjustments to the sale prices of these purportedly comparable properties to account for differences between his comparable properties and the subject property, and did not explain how those differences would impact the subject property's fair market value.
	The appellant also submitted a listing of the subject property and six purportedly comparable properties' assessed values for fiscal years 2001 through 2008.  The appellant contended that the subject property experienced a larger percentage increase in assessed value in comparison to these properties.  The appellant did not offer into evidence property record cards for these properties or any evidence comparing the important characteristics of the purportedly comparable properties to those of the subject property with reasonable adjustments for differences.  
	Finally, the appellant submitted the subject property's calendar year 2007 rent roll and expense statement.  Mr. Silvestri testified that as of the relevant date of assessment, the rent for the larger retail unit was $1,000 per month, rents for the three smaller retail units ranged between $650 and $660 per month, and the apartment rents ranged from $900 to $950 per month.  Mr. Silvestri further testified that the total income for calendar year 2007, after vacancy and rent loss, was $103,335 and total expenses for 2007 were $50,736.  On cross-examination the appellant was questioned about the listed expenses for "appliance reserves" and "labor."  The appellant did not provide any supporting documentation for these expenses.  Furthermore, the appellant did not provide a capitalization rate or provide any type of valuation analysis.       
	The assessors presented their case-in-chief through the testimony of assessor Susan Lemay and the introduction of several exhibits, including the requisite jurisdictional documents and a sales-comparison summary report for four mixed-use buildings in Lowell.  The assessors' report included the number of retail and residential units, and also the sales and assessment information for each of the cited properties.  According to the assessors' report, the subject property's per-square-foot assessment was lower than the per-square-foot sale price and assessed values of the assessors' purportedly comparable properties.  However, like the appellant, the assessors failed to make adjustments to any of the comparable properties' sale prices or assessed values to account for differences between their purportedly comparable properties and the subject property.
	Ms. Lemay testified that the income-capitalization approach was also part of valuing the subject property for the fiscal year at issue.  Based on her knowledge of the Lowell real estate market and income and expenses reported by other properties' owners, Ms. Lemay testified that for the fiscal year at issue commercial rents were about $8.50 per square foot and that the rents for three-bedroom apartments were approximately $980 per month.  She determined that an overall vacancy rate of 10% was appropriate.  With respect to operating expenses, Ms. Lemay testified that the commercial component was approximately 30% of effective gross income and that the residential component was approximately 35% of effective gross income.  Finally, Ms. Lemay testified that an overall capitalization rate of 11.5% was appropriate.
	After considering all of the evidence of record offered by both parties, the Board found and ruled that the subject property was overvalued for fiscal year 2008.  In reaching this decision, the Presiding Commissioner gave little weight to both the appellant's and the assessors' comparable-sales and comparable-assessments analyses.  The Board found that the appellant failed to establish basic comparability between his comparable-sale properties and the subject property, noting that five of the six cited properties were multi-family apartment buildings with no retail space.  The Board further found that both parties failed to provide any adjustments to either the sales' prices or assessed values to account for crucial differences between the subject property and their purportedly comparable properties. Absent such adjustments, the Board found that no meaningful comparison of these properties with the subject property could be made.  Therefore, the Board found that both parties' comparable-sales and comparable-assessments analyses lacked persuasive value.
	Instead, the Board found that the income-capitalization approach was the proper methodology to value the subject property under the circumstances.  Given the age and condition of the subject building and the credible testimony of Mr. Silvestri, the Board found that the first-floor retail rents offered by Mr. Silvestri were appropriate.  The Board further found that a rent of $965 per month for the apartments, which was within the range suggested by the parties, was reasonable.  The Board further found that the assessors' vacancy rate, operating expenses and overall capitalization rate were credible.  A summary of the Board's income-capitalization approach is contained in the following table.







Projected Income		Commercial	Residential	Total	
     Commercial 	($1,000 + 3($660)) * 12	$35,760			
     Residential	($965 * 8) * 12		$92,640		
Total Projected Income				$128,400	
Vacancy Rate	10%	 -3,576	 -9,264	-$12,840	
Effective Gross Income		$32,184	$83,376	$115,560	
Operating Expenses					
     Commercial	($32,184 * 30%)	 -9,655			
     Residential	($83,376 * 35%)		 -29,182	-$38,837	
Net Operating Income					
     Commercial		$22,529			
     Residential			$54,194		
  Total				$76,723	
Overall Capitalization Rate				
11.50%	
Fair cash value				$667,000	

  
	Based on the evidence presented, the Board found that the subject property's fair cash value for the fiscal year at issue was $667,000 and that the subject property was overvalued by $59,800.  After allocating the fair cash value and values abated in the same manner as the assessments -- 40% commercial and 60% residential -- the Board granted a total abatement of $889.11.	

OPINION
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 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).  
An assessment is presumed valid unless the taxpayer sustains his burden of proving otherwise.  Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  Accordingly, the burden of proof is upon the appellant to make out his right as a matter of law to an abatement of the tax.  Id. 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. v. Assessors of Lynn, 393 Mass. 591, 600 (1984) (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
	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).  In addition, evidence of comparable assessments may also be used to determine a property's fair cash value. "At any hearing relative to the assessed fair cash valuation . . . of property, evidence as to the fair cash valuation . . . at which assessors have assessed other property of a comparable nature . . . shall be admissible."  G.L. c. 58A, § 12B. 
	Properties are "comparable" to the subject property when they share "fundamental similarities" with the subject property.  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."  Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981).
	Purportedly comparable properties used in a comparable-sales or comparable-assessments analysis must be adjusted for differences with the subject property. See Graham, Mass. ATB Findings of Fact and Reports at 2007-402 ("The assessments in a comparable assessment analysis, like the sale prices in a comparable sales analysis, must [] be adjusted to account for differences with the subject.").  Without appropriate adjustments the values assigned to the purportedly comparable properties do not provide reliable indicators of the subject property's fair cash value.  Lupacchino v. Assessors of Southborough, Mass. ATB Findings of Fact and Reports 2008-1253, 1269.  
	In the present appeal, the Board found that the appellant failed to establish basic comparability between his purportedly comparable-sale properties and the subject property, noting that the majority of the chosen properties were multi-family apartment buildings with no retail space.  The Board further found that both parties failed to make any adjustments for differences between their comparable-sales and comparable-assessments properties and the subject property.  The Board found that without the necessary adjustments to compensate for any differences between the purportedly comparable properties and the subject property that would affect fair market value, the parties' comparable-sales and comparable-assessments analyses were flawed and thus lacked probative value.
 "The board is not required to adopt any particular method of valuation," Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (19896), but the income-capitalization method "is frequently applied to income-producing property."  Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984).  Under the income-capitalization approach, valuation is determined by dividing net-operating income by a capitalization rate.  Board of Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986).  Net-operating income is obtained by subtracting expenses from gross income.  Id. at 523.  The income stream used must reflect the property's earning capacity or market rental value.  Pepsi-Cola Bottling Co., 397 Mass. at 451.  Using actual income figures may be acceptable, as long as they reflect the market for the particular type of property involved.  See id. at 449; see also Carye v. Assessors of Chelmsford, 394 Mass. 1001 (1985) (affirming the Board's use of actual rents for valuation because there was substantial evidence in the record to support the Board's conclusion that actual rents were an adequate measure of the earning capacity of the real estate at issue in that appeal).   
After accounting for vacancy and collection losses, the net-operating income is obtained by deducting the landlord's appropriate expenses.  General Electric Co., 393 Mass. at 609.  The expenses should reflect the market.  Id.  The capitalization rate should consider the return necessary to attract investment capital.  Taunton Redev. Assoc., 393 Mass. at 295.  
In reaching its opinion of fair cash value in this appeal, 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 v. Board of Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp., 383 Mass. at 473; New England Oyster House, Inc., 362 Mass. at 702.  "The credibility of witnesses, the weight of evidence, and inferences to be drawn from the evidence are matters for the board."   Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).  
In reaching its decision, the Board was not limited to the appellant's evidence of overvaluation.  Instead, the Board's determination "must be made 'upon consideration of the entire record.'"  New Boston Garden Corp., 383 Mass. at 466 (quoting Cohen v. Board of Registration in Pharmacy, 350 Mass. 246, 253 (1966).  The Board was entitled to rely on all of the evidence, and not just that presented by the appellant, to determine whether there is overvaluation.  Haynes v. Assessors of Middleton, Mass. ATB Findings of Fact and Reports 2011-143, 183 (citing General Electric Co., 393 Mass. at 600); see also Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 302 (1982) ("The board's decision must be supported by substantial evidence considering the entire record before the board.").
The Board need not specify the exact manner in which it arrived at its valuation.  Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971).  The fair cash value of property cannot be proven with "mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment."  Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 72.  In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value.  General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984). 

The Board applied these principles in reaching its conclusion that the subject property was overvalued for the fiscal year at issue. Accordingly, the Board issued a decision for the appellant and granted an abatement in the amount of $889.11.

         APPELLATE TAX BOARD

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


A true copy,

Attest: ___________________________
        Clerk of the Board

ATB 2012-926