COMMONWEALTH OF MASSACHUSETTS                      APPELLATE TAX BOARD

STEVEN ROSENTHAL and  		v. 	BOARD OF ASSESSORS OF  MORTON RUDERMAN  			   THE CITY OF CHELSEA

Docket Nos.: F228906 (FY 1995)
		   F228907 (FY 1995)
		   F234821 (FY 1996)	Promulgated: 
							June 29, 2001

	These are appeals under the formal procedure, pursuant to G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes on certain real estate in the       City of Chelsea owned by and assessed to the appellants under G.L. c. 59, § 38, for fiscal years 1995 and 1996.  
	Present Chairman Burns heard these appeals.  Former Chairman Gurge and Commissioners Scharaffa and Gorton joined her in the decisions for the appellants.
	These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13, and 831 CMR 1.32.  
	
Joseph F. Dalton, Esq. For the appellants.

	Mark Newman, Esq. For the appellee.  
                FINDINGS OF FACT AND REPORT																On January 1, 1994 and January 1, 1995, the appellants (as trustees of IBE Realty Trust) were the assessed owners of two contiguous parcels of real estate in the City of Chelsea (the “subject property”).  At all relevant times, the subject property supported a Midas Muffler automotive repair business and warehouse.  The main parcel, which contains an area of 24,967 square feet, is located at 1003-1007 Broadway. The abutting parcel, which contains 5,672 square feet, is located at 997-1001 Broadway.  The subject property is improved with a partial one- and two-story, metal and concrete-block building that contains 21,747 square feet of space.  Chelsea Creek abuts the subject property.    										For fiscal year 1995, the Board of Assessors of Chelsea (“Assessors”) valued the subject property’s main parcel at $683,300 and assessed taxes thereon at the commercial rate of $34.61 per thousand in the amount of $23,649.01.  The Assessors valued the subject property’s smaller parcel at $42,400 and assessed taxes thereon at the same commercial rate of $34.61 per thousand in the amount of $1,467.46.  For fiscal year 1996, the Assessors again valued the main parcel at $683,300 and assessed taxes thereon at the commercial rate of $36.25 per thousand in the amount of $24,769.63.  The appellants did not appeal the fiscal year 1996 assessment on the smaller parcel.  
	The appellants timely paid the taxes assessed for both of the fiscal years at issue in these appeals.  For fiscal year 1995, the appellants filed their applications for abatement for both the subject property’s main and smaller parcel on January 17, 1995, within thirty days of the sending of the related actual tax bills.  The Assessors denied both applications on August 1, 1995, more than three months after their filing.  Accordingly, the Appellate Tax Board (“Board”) found that the applications were deemed denied on April 17, 1995.  The appellants then seasonably filed their appeals with this Board on July 3, 1995.
	For fiscal year 1996, the appellants filed their application for abatement for only the subject property’s main parcel on January 16, 1996.  The application was deemed denied on April 16, 1996 by reason of the Assessors’ failure to timely act on it.  The appellants then seasonably filed their appeal to this Board on           May 30, 1996.  On this basis, the Board found that it had jurisdiction over both of the appellants’ fiscal year 1995 appeals as well as their 1996 appeal.  						The subject property is situated at the intersection of Eastern Avenue, Broadway, and Clinton Street.  The site is approximately one-eighth mile south of Route 16, which traverses in an east-west direction and forms the northerly boundary between Chelsea and Revere.  Route 16, east of Broadway, leads to Bell Circle in Revere and the North Shore, and, west of Broadway, leads to Everett, Malden, and Route 93.  										The subject property’s immediate neighborhood is mixed with some older small industrial and retail buildings, along with residential houses.  Most of the buildings were built in the 1920s through 1950s.  Directly across from the subject property is a mini-shopping center that contains a drug store and a medical building. 					The subject property is level with the grade of the streets that surround it.  Most of the combined 30,639 square foot site is occupied by improvements except for a portion that is paved for parking.  There is also a small, fenced-in area at the rear of the subject property where refuse is stored.  									The 21,747-square-foot building on the subject property was constructed at different times and in different phases.  It houses a complex of three distinct sections and uses: a 6,164-square-foot service area, an 11,445-square-foot warehouse-type storage area, and 4,138 square feet of office space.  In the center of the building, there is an “open to the sky” space of about 2,772 square feet.  The Midas Muffler service area and small sales office is located in the single-story concrete-block portion of the building.  The storage area is principally contained in the eighteen-foot-high sheet metal and two-story concrete-block portion of the structure, while the offices are located primarily on the second level of the concrete-block portion of the storage area.  			The second-floor offices are vacant and in a state of disrepair.  The floors are carpeted and walls papered.  The ceilings are finished with acoustical tiles and recessed fluorescent lighting.  There is at least one stairway for the upper-level office area as well as two lavatories and small lunch and utility rooms.  There is also a small paneled office below a portion of the upper-level office space.											The main storage area is unheated.  It is the major supply depot for the Midas Muffler Company in Eastern Massachusetts storing parts for and shipping them to twenty-eight Midas Muffler shops.  Except for its slightly smaller area, the service area is relatively typical of Midas Muffler facilities containing seven garage-door entrances, four service bays and lifts, a small office and lavatories, as well as a rear storage area for mufflers, tailpipes, manifold pipes, and related parts to service this particular Midas Muffler shop.  Before its conversion to a Midas Muffler facility, the subject property was the central headquarters for GANS Tire Company, a world-wide tire supplier.  									Gerald S. Congdon, the Executive Vice-President of Wakefield Management, the company that owns and operates twenty-eight Midas Muffler shops in Eastern Massachusetts, Rhode Island, and Connecticut, testified for the appellants as one of the trustee owners of the subject property who was familiar with the subject property’s characteristics       
and value (“appellants’ witness”).  He estimated the value of the subject property using an income-capitalization approach, which he verified using a sales-comparison approach.  He decided that the highest and best use of the subject property was its existing use or an industrial use.  He also determined that the subject property would most likely rent to a single-tenant on a triple-net basis.  		In ascertaining an appropriate potential gross rental income to use in his income-capitalization approach, the appellants’ witness examined eight purportedly comparable rental properties in Chelsea and Everett.  The per-square-foot triple-net rents attributable to these properties ranged from $0.90 to $5.25 per-square foot.  He considered the property located at 53-65 Pearl Street in Chelsea as the most comparable to the subject property.  According to the appellants’ witness, this comparable property’s 1994 five-year lease for 30,000 square feet of storage space was for $1.90 per square foot.  After adjusting for such factors as size, condition, age, location, and finish, he attributed a square-foot rental of $2.25 to, what he considered to be, the subject property’s rentable area of 21,747 square feet.  None of his comparable properties supported an automotive-type use; most were warehouse or storage space.  Relying on these figures, he calculated his potential gross income at $44,894.  After accounting for a vacancy rate of ten percent, he calculated his effective gross income at $40,405.  His expenses for management, reserve, and repair costs totaled $4,040 or ten percent of effective gross income.  He divided his net income figure of $36,368 by a capitalization rate of 10.5 percent to reach his $346,335 rounded estimate of the subject’s fair cash value.  										The Board found that the appellants’ witness’s income-capitalization approach was replete with pyramiding errors.  First, his calculation for the subject property’s gross potential income should have equaled $48,931, not $44,894.  Accordingly, the ten-percent vacancy rate then should have been $4,893, not $4,489, resulting in an effective gross income of $44,038, not $40,405.  In addition, his ten-percent expense allocation that was based on his erroneous $40,405 effective gross income also was incorrect.  Using the corrected effective income figure of $44,038, results in a ten-percent expense figure of $4,404.  On this basis, his net income amount should have been $39,634, not $36,365.  Dividing this corrected net income amount of $39,634 by his capitalization rate of 10.5 percent yields an estimated value for the subject property of $377,467 as opposed to his $346,335.  								The appellants’ witness utilized a sales-comparison approach to check his estimate of the subject property’s fair cash value suggested by his income-capitalization approach.  In his sales-comparison methodology, he examined four properties in Chelsea and Everett and relied on the per-square-foot selling prices of three of them with adjustments for such factors as size, location, condition, and functionality.  He did not adjust any sales for time, however, and one of his three selected comparables was a bank sale.  Moreover, only one of the three comparable-sale properties supported an automotive use, which was a van conversion business.  On this basis, the appellants’ witness concluded that the fair market value of the subject property for fiscal years 1995 and 1996 indicated by his sales-comparison approach was $16.00 per-square foot or $348,000.  										Philip J. Waterman, the Chairman of the Assessors testified in support of the assessments.  He was also a certified real estate appraiser whom the Board qualified an expert in the field of real estate valuation (“Assessors’ valuation expert”).  He relied on an income-capitalization approach to verify the values placed on the subject property by each fiscal year’s assessment, which he then confirmed with a sales-comparison technique.  			In his income-capitalization technique, the Assessors’ valuation expert divided the subject property into its three uses.  He attributed 6,164 square feet to Midas Muffler’s automotive-service function, 11,445 square feet to its warehouse and storage space, and finally 4,138 square feet to its office use.  He then developed economic rents of $15.00, $2.00, and $2.00 for each of these areas, respectively.  Most of the comparable properties that he used to develop his economic rent for the subject property’s automotive-service function were properties that supported an automotive-type use.  They were located in the communities of Peabody, Revere, Watertown, and Waltham, and most of them were on heavily traveled roads such as Route 1 and Route 114.  The Assessors’ valuation expert did little to demonstrate his comparable properties’ similarity to the subject property.  He adjusted their actual rents for only location and age, but neglected to analyze other differences including land to building ratios and building characteristics.    								Because the subject property was essentially owner occupied, the Assessors’ valuation expert used a five-percent vacancy rate for the service area, but no vacancy rate for the warehouse and storage section of the subject property.  Like the appellants’ witness, he also used ten-percent of the service area’s effective gross income for its expenses, but he only used five-percent of the warehouse and storage section’s effective gross income for that section’s expenses.  He did not assign any expenses to the office portion of the subject property.  				The Assessors’ valuation expert then capitalized each of these areas’ net incomes by ten percent plus a tax factor and subsequently added each of these results to reach his estimate of the subject property’s fair cash value in fiscal years 1995 and 1996 of $810,400 and $800,200, respectively.  A summary of his income-capitalization methodology is contained in the following table.

Service Area		
     6,146 sq. ft. @ $15.00 per sq. ft.	 $  92,460.00	
     Less 5% Vacancy & Uncollectable	($   4,623.00)	
     Effective Gross Income	 $  87,837.00	
     Less Expenses of 10%	($   8,784.00)	
     Net Income	 $  79,053.00	
     Capitalization Rate of 0.1000
     Plus Tax Factor 0.03461 in FY 1995	
     0.1346	
     Rounded Estimate of Value for FY 1995	 $ 587,320.00	
     Capitalization Rate of 0.1000
     Plus Tax Factor 0.03625 in FY 1996	
     0.1363	
     Rounded Estimate of Value for FY 1996	 $ 580,000.00	
		
Warehouse/Storage Space		
     11,445 sq. ft. @ $2.00 per sq. ft.	 $  22,890.00	
     Less Expenses of 5%	($   1,145.00)	
     Net Income	 $  21,745.00	
     Capitalization Rate of 0.1000
     Plus Tax Factor 0.03461 in FY 1995	
     0.1346	
     Rounded Estimate of Value for FY 1995	 $ 151,600.00	
     Capitalization Rate of 0.1000
     Plus Tax Tactor 0.03625 in FY 1996	
     0.1363	
     Rounded Estimate of Value for FY 1996	 $ 159,500.00	
		
Office Space		
     4,138 sq. ft. @ $8.00 per sq. ft.	 $  33,104.00	
     Less 75% Vacancy	($  24,828.00)	
     Net Income	 $   8,276.00	
     Capitalization Rate of 0.1000
     Plus Tax Factor 0.03461 in FY 1995	
     0.1346	
     Rounded Estimate of Value for FY 1995	 $  61,500.00	
     Capitalization Rate of 0.1000
     Plus Tax Factor 0.03625 in FY 1996	
     0.1363	
     Rounded Estimate of Value for FY 1996	 $  60,700.00	
		
TOTAL INDICATED MARKET VALUE IN FY 1995	 $ 810,400.00	
TOTAL INDICATED MARKET VALUE IN FY 1996	 $ 800,200.00	

With respect to his sales-comparison approach that he used only to corroborate the values that he estimated for the automotive-service portion of the subject property using his income-capitalization technique, the Assessors’ valuation expert relied on seven sales of primarily automotive-service-type properties from relatively nearby communities.  His purportedly comparable properties that were the closest in size to the subject property’s service area sold for values that ranged from $82.00 to $97.00 per-square foot.  Based on these properties and without further adjustment, the Assessors’ valuation expert estimated the value of the service area within the subject property at $95.50 per-square foot or $588,662 for the whole service area.  He did not use a sales-comparison approach to corroborate his estimates of value for the warehouse/storage or office areas within the subject property that he ascertained using his income-capitalization approach.  								On the basis of all of the evidence, the Board agreed with both parties’ witnesses that the income-capitalization approach was the most appropriate valuation methodology to use to estimate the value of the subject property for the fiscal years at issue in these appeals.  The Board also found that the Assessors’ valuation expert’s approach of separately calculating the potential gross income for each of the three distinct uses and their corresponding areas within the subject property was the most appropriate methodology to use under the circumstances present in these appeals.  The Board found that this approach best corresponded to how the property actually would earn rental income in the marketplace.  The Board, however, disagreed with the Assessors’ valuation expert’s further segregation of each area’s vacancy rates and expenses, to the extent that he used them, as well as his separate valuation for each of these areas, which he then added together to determine his overall estimate of the subject property’s value for fiscal years 1995 and 1996.  The Board found that, just as the appellants’ witness had done, these rates and expenses and each area’s value were best considered in the context of the property as a whole because that is how an owner or a seller or buyer would consider and account for them.										Accordingly, the Board found that the most appropriate per-square-foot rents for the automotive-service, the warehouse/storage, and the office areas were $7.00, $1.75, and $2.00, respectively.  The Board relied primarily on both parties’ witnesses’ comparable rentals that were most similar in size, condition, location, approximate age, and use, along with adjustments, for its automotive-service and warehouse/storage rents, and a breakdown of the Assessors’ valuation expert’s effective gross income figure, as explained in footnote 6, for the office rent.				The Board further found that a vacancy rate of ten-percent of the potential gross income, as recommended by the appellants’ witness, was appropriate here.  The Assessors’ valuation expert also agreed with the selection of a ten-percent vacancy rate at least with respect to the service area.  The Board also adopted the appellants’ witness’ recommendation that ten-percent of effective gross income was an appropriate amount to charge for expenses.  Once again, the Assessors’ valuation expert agreed with a ten-percent charge for expenses, at least with respect to the service area.  Finally, the Board adopted the Assessors’ valuation expert’s recommendation of a ten-percent capitalization rate.  The appellants’ witness suggested a nearly equivalent capitalization rate of 10.5 percent.  The Board, like the appellants’ witness, did not include a tax factor in its capitalization rate because it found that the subject property was most likely to be used by a single tenant under a multi-year triple net lease.  The Board further found that parties to a lease would distinguish each of the three functions and related areas of the subject property for assignment of rentals.  On this basis, the Board determined that, in fiscal years 1995 and 1996, the subject property had a fair cash value of $610,920, which it rounded to $611,000.  A summary of the Board income-capitalization approach is contained in the following table.
Potential Gross Income:		
     Service Area
     6,164 square feet x $7.00 per square foot	 $   43,148	
     Warehouse/Storage Area
     11,445 square feet x $1.75 per square foot	 $   20,029	
     Office Area
     4,138 square feet x $2.00 per square foot	 $    8,276	
Total Potential Gross Income	 $   71,453	
Vacancy @ 5%	($    3,573)	
Effective Gross Income	 $   67,880	
Expenses @ 10%	($    6,788)	
Net Income	 $   61,092	
Capitalization Rate	     0.1000	
Fair Cash Value	 $  610,920	
Rounded Fair Cash Value	 $  611,000
	
	Finally, the Board allocated the total rounded fair cash value that it found for the subject property to the smaller and larger parcels on a six-percent to ninety-four-percent basis, just as the overall assessment originally had been allocated.  On the basis of this allocation, the Board found that the fair cash value of the smaller parcel was $36,660, and the fair cash value of the larger parcel was $574,340.  Accordingly, the Board found that the appellant met its burden of proving that the subject parcels were overvalued, and decided these appeals for the appellants.  The Board, therefore, granted abatements for fiscal year 1995 in the amounts of $198.66 and $3,771.11 for the smaller parcel and the larger parcel, respectively, and for fiscal year 1996 in the amount of $3,949.80 for the larger parcel.  														OPINION							The assessors are required to assess real estate at its fair cash value.  G.L. c. 59, § 38.  Fair cash value means fair market value, which 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).  
	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 reproduction.  Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978).  Neither party in these appeals considered the subject property to be special purpose.  Accordingly, they did not suggest using a cost approach for estimating the value of the subject property.  The Board agreed with their conclusion in this regard and ruled that the cost approach was not an appropriate method to use to estimate the value of the subject property in these appeals.  									The fair cash value of property may be determined by recent sales of comparable properties in the market.  Id.  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. Board of 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).  In these appeals, the Board found that the parties’ valuation expert or witness’s purportedly comparable sales were either not comparable, not sufficiently adjusted, not the result of arm’s-length transactions, or flawed in some other respect.  Accordingly, the Board found and ruled that, under the circumstances, the comparable-sales approach could not be relied upon to estimate the value of the subject property for the fiscal years at issue in these appeals.  										The income-capitalization approach is useful for determining the value of income-producing property when the comparable-sales method is unavailable or less probative.  See Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 698-701 (1972); Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810 (1975) (rescript).  With respect to these appeals, the Board found that there was adequate evidence to estimate the fair cash value of the subject property using the income-capitalization approach. “[The board can] accept such portions of the evidence as appear[s] to have the more convincing weight.  The market value of the property [can] not be proved with mathematical certainty and must ultimately rest in the realm of opinion, estimate, and judgment. . . .  The board [can] select the various elements of value as shown by the record and from them form . . . its own independent judgment."  Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. at 72.  See also North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); Jordan Marsh Co. v. Assessors of Malden, 359 Mass. 106, 110 (1971).  Accordingly, the Board used the income-capitalization approach along with selected data presented by the parties to determine the subject property’s fair cash value for the fiscal years at issue.  				The burden of proof is upon the taxpayer to make out its right as a matter of law to an abatement of the tax.  Schlaiker v. Board of Assessors of Great Barrington,     365 Mass. 243, 245 (1974).  The taxpayer must show that the assessed valuation of its property was improper.  See Foxboro Associates v. Board of Assessors of Foxborough,  385 Mass. at 691.  The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise.  Schlaiker, 365 Mass. at 245.  Based on all of the evidence, the Board found and ruled that the appellants met their burden of persuading the Board that their property was overvalued.  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).  In the present appeals, the Board found and ruled that the appellants presented persuasive evidence of overvaluation that undermined the Assessors’ valuation.

On this basis, the Board decided these appeals for the appellants.

						APPELLATE TAX BOARD

					 By: __________________________
						Abigail A. Burns, Chairman

A true copy,

Attest: ______________________ 
         Clerk of the Board