Opinion
No. 15–P–1377.
10-17-2016
LIBERTY NORFOLK DEVELOPMENT II, LLC v. BOARD OF ASSESSORS OF NORFOLK.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Liberty Norfolk Development II, LLC (taxpayer) appeals from a final order of the Appellate Tax Board (board), which determined that the taxpayer had not met its burden to prove that the subject property was overvalued, and, hence, had not proved that the taxpayer was entitled to an abatement for fiscal years 2011 and 2012. The taxpayer argues that the board erred by finding that the property's highest and best use was its existing use as a retail drug store and by misapplying the income-capitalization method of valuation. For the reasons that follow, we affirm the decision of the board.
Facts. We briefly summarize the board's factual findings. On January 1, 2010, and as of January 1, 2011, the taxpayer was the assessed owner of a 1.37 acre parcel of land located at 3 Liberty Lane in the town of Norfolk. The property was improved with a retail pharmacy store. The building on the locus, which was constructed in 2009, is a single-story, single tenanted, structure with some 14,406 square feet of lease space. The property is situated in the Norfolk Town Commons, a mixed-use, “smart-growth” development area. As of the relevant assessment dates, the property was occupied by Walgreens Eastern Co., Inc. (Walgreens), which operated a pharmacy in the subject building.
For fiscal year 2011, the assessors valued the real property at $3,584,600 and imposed a tax thereon in the sum of $54,127.46, based on a rate of $15.10 per thousand. For fiscal year 2012, the assessors valued the property at $3,584,600 and assessed a tax in the amount of $59,038.36, based on a rate of $16.47 per thousand. The taxpayer applied for an abatement of these amounts, which the local assessors denied. The taxpayer appealed the assessor's refusal to abate the real estate tax assessments to the board pursuant to G.L. c. 58A, § 7A, and G.L. c. 59, §§ 64 and 69. The board ruled that the taxpayer failed to meet its burden of proving that the subject property is overvalued and affirmed the denial of the taxpayer's request for a tax abatement. This appeal followed.
Board proceedings. The taxpayer presented its case for abatement largely through the testimony of two witnesses—Jonathon Shumrak, senior real estate manager for Walgreens, and Charles L. Clark, a real estate appraiser, who was qualified as an expert in the area of commercial real estate valuation. Shumrak described Walgreens' typical practice of entering into a “build-to-suit” long-term lease arrangement. In 2008, Walgreen entered into a seventy-seven year lease with the taxpayer that commenced on January 1, 2010, and expires on December 31, 2086. For the fiscal years in question, the monthly rent due from Walgreens to the taxpayer was $45,250 ($29.44 per square foot).
Clark opined that these rents do not represent the market value because this is a fixed rent designed to recapture the building and financing costs. In his opinion, build-to-suit properties, such as the one here, must be valued as second-generation retail space, that is, space repurposed and rented to other businesses after the national chain drug store has vacated the premises. On this theory, Clark cast a wide net of comparable rentals to also include generalized retailers that conceivably could use the space should Walgreens vacate, and determined the fair cash value for the subject property was $2,050,000 for fiscal year 2011 and $2,500,000 for fiscal year 2012.
The assessors presented estimations through their own expert, William J. Pastuszek, a licensed real estate appraiser. The town's expert opined that the property's current use is its best use, and looked to several local retail pharmacies that were similar in size and composition, including another Walgreens, for comparable properties. The town's expert computed the fair cash value of the subject property at $3,500,000 for fiscal year 2011 and $3,600,000 for fiscal year 2012. The board agreed with both experts' use of the income-capitalization methodology and came to its own valuation of the property, which it rounded to $3,780,000 for both fiscal years. The board concluded that because this figure exceeded the town's valuation, the taxpayer had failed to establish a basis for a tax abatement. We agree.
Standard of review. “Our review of any decision of the board is limited to questions of law.” Towle v. Commissioner of Rev., 397 Mass. 599, 601 (1986). In general, a reviewing court grants “substantial deference to an interpretation of a statute by the administrative agency charged with its administration.” Protective Life Ins. Co. v. Sullivan, 425 Mass. 615, 618 (1997). “A decision of the board will not be reversed or modified if it is based on substantial evidence and a correct application of the law.” Boston Gas Co. v. Assessors of Boston, 458 Mass. 715, 721 (2011). If substantial record evidence supports the board's decision, we shall “defer to the board's judgment as to what evidence to accept and which method or methods of valuation to rely on.” General Elec. Co. v. Assessors of Lynn, 393 Mass. 591, 608 (1984), quoting from Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 302 (1982).
Discussion. 1. Law. Real estate is overvalued if assessed in excess of the “fair cash value” (G.L. c. 59, § 38 ) which means its fair market value. Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 301 (1982). In determining “value” as that term is understood in this tax context, the board may rely on any reasonable valuation method supported by the record. Analogic Corp. v. Assessors of Peabody, 45 Mass.App.Ct. 605, 609 (1998). “The whole matter lies in the realm of fact and is to be ascertained upon all the evidence[,]” Commissioner of Corps. & Taxn. v. Worcester County Trust Co., 305 Mass. 460, 463 (1940), in light of the parties' evidentiary burdens.
“It is well established that the burden of persuasion is on the taxpayer to show that its property was overvalued.” General Elec. Co., 393 Mass. at 598.
2. Burden of proof and substantial evidence. A taxpayer bears the burden “to make out its right as matter of law to 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 taxpayer[ ] sustained the burden of proving the contrary.’ “ General Elec. Co. v. Assessors of Lynn, 393 Mass. at 598, quoting from Schlaiker v. Assessors of Great Barrington, supra. The “presumption” is ified if the taxpayer meets its evidentiary burden of persuasion.
In other words “the taxpayer bears the burden of persuasion of every material fact necessary to prove that its property has been overvalued.” Analogic Corp. v. Assessors of Peabody, 45 Mass.App.Ct. at 607, quoting from General Elec. Co., supra at 599.
We see no basis on this record to reject the board's determination that the capitalization of income approach, upon which both experts relied, was the most appropriate means for valuing the subject property. Nor do we see any reason to set aside the board's own determination of the fair market rent of the subject property, where it was the product of its own analysis based upon the evidence. “[T]he conclusion reached by the board ... did not coincide with the figure given by any witness, but it does not follow ... that this conclusion was, therefore, unsupported by the evidence. The board was not required to believe the testimony of any particular witness but it could accept such portions of the evidence as appeared to have the more convincing weight. The market value of the property could not be proved with mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment .... The board could select the various elements of value as shown by the record and from them form, as it properly did, its own independent judgment.” New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981) (emphasis original), quoting from Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941).
It was entirely proper for the board to decide that the taxpayer's case for fair market rent was understated, especially where the expert relied upon several comparable properties that differed in size and use from the subject property. In the end, the board was entitled to select from the evidence it deemed persuasive and reasonable in forming its own judgment of value. The Legislature has directed us to give “ ‘due weight to the experience, technical competence, and specialized knowledge’ of agencies on judicial review of their decisions.” General Elec. Co. v. Assessors of Lynn, supra at 605, quoting from G.L. c. 30A, § 14, as amended by St.1976, c. 411, § 1. Based on our review, and considering the expertise of the board, which is amply demonstrated here, we conclude the taxpayer's claim of error lacks merit.
“In general, the weight to be given to opinion evidence, not shown to be based on legally incompetent foundations, is for the board.” Boston Edison Co. v. Assessors of Watertown, 387 Mass. at 307.