HERITAGE REALTY TRUST v. BOARD OF ASSESSORS OF THE
JOHN ABDELAHAD, TRUSTEE CITY OF QUINCY
Docket Nos. F320271, F322732 Promulgated:
July 11, 2016
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 City of Quincy (“assessors” or “appellee”), to abate taxes on certain real estate in the City of Quincy, owned by and assessed to John Abdelahad, Trustee, Heritage Realty Trust (“trust” or “appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal years 2013 and 2014 (“fiscal years at issue”).
Commissioner Rose heard these appeals. Chairman Hammond and Commissioners Scharaffa, Chmielinski, and Good joined him in the decisions 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.
Peter E. Moran, chair of the assessors, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact.
On July 31, 2012, the appellant became the assessed owner of a 0.26-acre parcel of land improved with a four-story, mixed-use building located at 1495 ancock Street in Quincy
Hancock Street in Quincy (“subject property”).1 For assessment and real estate tax purposes, the subject property is identified on the assessors’ Map 1148 as Block 21, Lot 3.
The assessors assessed property taxes on the subject property as follows:
Tax Rate per $1,000
The appellant timely paid the taxes due without incurring interest and timely filed Applications for Abatement for each of the fiscal years at issue. The appellee denied the applications, and the appellant seasonably appealed the denials to the Board. The relevant dates relating to the Board’s jurisdiction are set forth in the following table.
Tax Bills Mailed
On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
At the hearing of these appeals, the appellant presented its case-in-chief through the testimony of John Abdelahad, trustee of the appellant and the introduction of several exhibits, including: a copy of the subject property’s floor plan; the subject property’s quitclaim deeds dated July 31, 2012 and July 1, 2014; and the appellant’s opinion of fair market value, which included an income-capitalization analysis. For their part, the assessors relied primarily on the cross-examination of Mr. Abdelahad and also the introduction of the requisite jurisdictional documents and the subject property’s property record cards for the fiscal years at issue.
The subject property is a four-story, mixed-use building located in downtown Quincy with a net rentable area of 24,664 square feet.4 The first floor is occupied by a sports’ bar and floors two through four are occupied by various offices. The subject building, which was built in 1980, has a steel frame with a concrete and glass exterior and a flat roof with a tar and gravel covering. The building has two elevators and also two stairwells. The assessors rated the subject property as in “good” condition.
Mr. Abdelahad testified that prior to the July 2012 purchase of the subject property, the appellant held a second mortgage on the subject property. He further testified that the previous owner defaulted on his loans and if he did not step in at the time, the appellant’s financial position would have been severely compromised. Therefore, the appellant obtained a $2,200,000 mortgage and purchased the subject property on July 31, 2012 for $3,100,000. It was, in his opinion, and uncontroverted by the assessors, not an arms-length-sale.
To support his claim that the subject property was overvalued for the fiscal years at issue, Mr. Abdelahad relied on the subject property’s actual income and operating expenses. To determine the subject property’s potential gross income he used: $20 per square foot for the first-floor retail space; $15 per square foot for the floors two and three office space; and $18 per square foot for the fourth floor office space. This resulted in a total potential gross income of $418,249, which he stabilized for both fiscal years at issue. Mr. Abdelahad then applied a 10% vacancy and collection loss to arrive at an effective gross income of $376,424.
For expenses, Mr. Abdelahad relied on the subject property’s 2013 reported operating expense of $97,843, which he also stabilized for both fiscal years at issue. Lastly, Mr. Abdelahad selected an overall capitalization rate of 10.5% to arrive at an estimated fair market value of $2,653,200 for both fiscal years at issue.
Mr. Abdelahad’s income-capitalization analysis is summarized in the following table.
Although the assessors challenged the appellant’s rentable square footage, they did not contest any other part of the appellant’s income-capitalization analysis. Instead, the assessors rested on the presumed validity of their assessments.
Based on all of the evidence, the Board found that the appellant met his burden of proving that the subject property was overvalued for the fiscal years at issue. The Board concurred that the preferred method for ascertaining the fair cash value of the subject property for both fiscal years was through an income-capitalization methodology. The Board found that the subject property’s leasable space was the 24,664 square feet measured by the appellant.
The Board further found that Mr. Abdelahad’s selection of rents, vacancy and collection loss, operating expenses, and overall capitalization rate, which were based on the subject property’s actual income and expenses for calendar year 2013 and were not challenged by the assessors, were reasonable. Thus, the Board found that Mr. Abdelahad’s income-capitalization analysis was credible and reliable, and therefore the Board adopted his rounded fair market value of $2,650,000 for both fiscal years at issue.
On this basis, the Board found that the subject property was overvalued by $1,070,400 for both fiscal years at issue and ordered abatements in the amount of $33,092.60, which included a CPA surcharge for fiscal year 2013, and $33,752.90, which included a CPA surcharge for fiscal year 2014.
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 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 [appellant] 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) (quotingJudson 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 taxpayer . . . prove[s] the contrary.'" General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting 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., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). In the present appeals, the appellant demonstrated that the subject property was overvalued for fiscal year 2012 "'by introducing affirmative evidence of value which undermine[d] the assessors' valuation.'" Id.
Generally, real estate valuation experts, 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 income-capitalization approach is “frequently used with respect to income-producing property. Pepsi Cola Bottling Co. v. Assessors of Boston, 3798, Mass. 447, 449 (1986). In the present appeals, the Board agreed with the appellant that the income-capitalization approach was the most appropriate method to value the subject property.
“The direct capitalization of income method analyzes the property’s capacity to generate income over a one-year period and converts that 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 shouldbe 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).
“Choosing an appropriate gross income figure for establishing an income stream was within the board’s discretion and expertise.” Fox Ridge Assoc. v. Assessors of Marshfield, 393 Mass. 652, 654 (1984). “The issue of what expenses may be considered in any particular piece of property is for the board.” Allstores Realty Corp. v. Assessors of Peabody, 391 Mass. 60,65 (1984). Lastly, the capitalization rate selected should consider the return necessary to attract investment capital. Taunton Redevelopment Auth. V. Assessors of Taunton,393 Mass. 293, 295 (1984).
In these appeals, the Board found that the appellant’s net rentable area, which was based on Mr. Abdelahad’s measurement of the subject property’s interior rental space was the most reliable and credible evidence of the subject property’s rentable area. The Board further found that the appellant’s per-square-foot rental values, vacancy rates, operating expenses, and overall capitalization rates, which were derived from the subject property’s actual income, as well as Mr. Abdelahad’s familiarity with the Quincy real estate market and industry surveys, were credible.
On the basis of the Board’s subsidiary findings and calculations, the Board found and ruled that the subject property was overvalued by $1,070,400 for both fiscal years at issue and granted abatements in the amount of $33,092.60, which included a CPA surcharge for fiscal year 2013, and $33,752.90, which included a CPA surcharge for fiscal year 2014.
THEAPPELLATE TAX BOARD
Thomas W. Hammond, Jr., Chairman A true copy, Attest: _______
Clerk of the Board
1 G.L. c. 59, § 59 provides that a property owner who acquires title to a property after January 1 in any year is treated as the assessed owner and therefore is entitled to apply for an abatement.
2 This amount includes a $1,138.81 Community Preservation Act (“CPA”) surcharge and a $250.00 special assessment.
3 This amount includes a $1,118.88 CPA surcharge and a $250.00 special assessment.
4 The subject property’s record card lists the rentable area at 33,904 square feet. However, the Board adopted the measurement proposed by the appellant because Mr. Abdelahad testified that he had measured the subject property with a tape measure on three separate occasions.