Opinion
19-P-1225
10-16-2020
The VILLAGE AT DUXBURY HOMEOWNERS COOPERATIVE CORPORATION v. BOARD OF ASSESSORS OF DUXBURY.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
This is an appeal by the board of assessors of Duxbury (assessors) from the judgment of the Appellate Tax Board (board). The board ordered the abatement of taxes on certain real property (subject property) owned by The Village at Duxbury Homeowners Cooperative Corporation (taxpayer) for the 2015 and 2016 fiscal years on the ground that the assessors overvalued the subject property. Through a variety of claims, the assessors challenge the method used to value the subject property, which they claim was based on clearly erroneous factual findings and unsupported assumptions. We affirm.
Background. The subject property is a senior living facility for residents sixty-two years of age or older located on 37.23 acres of real property at 290 and 338 Kings Town Way in Duxbury. At the assessment dates, the subject property was comprised of 172 independent living (IL) units and thirty-four assisted living (AL) units. Additionally, the subject property houses numerous recreational and occupational facilities including a swimming pool, library, woodworking shop, hair salon, and a freestanding medical office building.
Each IL unit is represented by one share of stock. The AL units are collectively represented by one share of stock held by a partnership. A prospective IL resident must purchase one share of stock and pay a two percent community fee to the taxpayer. Shareholders pay a monthly service fee to the taxpayer, and have the option to incur additional services such as meal plans and housekeeping for a fee. AL residents are tenants of the partnership and pay a monthly service fee and a one-time community fee. When a share of stock is sold, the seller pays both a stock transfer fee and a reserve fund fee to the taxpayer, up to fifteen percent of the sales price.
Contending that the subject property was overvalued, the taxpayer filed abatement applications for the 2015 and 2016 fiscal years. The assessors denied both applications. The taxpayer appealed to the board pursuant to the procedures set forth in G. L. c. 58A, § 7, and G. L. c. 59, §§ 64 and 65. The board concluded that the taxpayer met its burden of proving that the value of the subject property was less than its assessed value, and, accordingly, granted abatements for each fiscal year. This appeal followed. See G. L. c. 58A, § 13.
Discussion. In granting the abatements, the board concluded that the fair market value of the subject property was $32,300,000 and $34,500,000 for the respective 2015 and 2016 fiscal years. These figures were far less than the assessed values of $43,514,400 and $43,427,500 for those fiscal years. At the hearing before the board, the parties proffered competing valuations of the subject property through their expert witnesses. The board ultimately accepted the taxpayer's income capitalization approach and rejected the hybrid sales/income capitalization approach of the assessors.
The board did not adopt the taxpayer's valuation methodology wholesale. Rather, it added the two percent community fee charged to the purchasers of the IL units as ancillary income of those units. The assessors claim, inter alia, that the board should have rejected both valuation methodologies presented to it instead of adopting the purportedly flawed approach of the taxpayer. Although this claim fails for the reasons set forth herein, it is further undercut by virtue of this modification.
On appeal, the assessors assert an array of challenges to the propriety of the income capitalization method adopted by the board. This method was based on a method approved by the board for the valuation of a senior living facility in an earlier case, which was subsequently affirmed by a panel of this court in a summary decision pursuant to our former rule 1:28. See The Willows at Westborough v. Assessors of Westborough, 60 Mass. App. Ct. 1121 (2004) (Willows ). The assessors principally attack (1) the adoption of the "refundable entrance fee" valuation model and accompanying "hypothetical condition" as (a) unsupported by the record, and (b) belied by precedent; and (2) the taxpayer's appraiser's failure to test the reasonableness of his method against comparable facilities. We disagree with these claims.
It is well established that we will not reverse or modify a decision of the board that was based on substantial evidence and a correct application of the law. Koch v. Commissioner of Revenue, 416 Mass. 540, 555 (1993). "In reviewing mixed questions of fact and law, the board's expertise in tax matters must be recognized, and its decisions are due some deference" (quotation and citations omitted). Id.
The board was warranted in rejecting the assessors' hybrid valuation approach as an appropriate means to value the subject property. "The board is entitled to select valuation methods, as long as they are reasonable and supported by the record." Blakeley v. Assessors of Boston, 391 Mass. 473, 477 (1984). Here, the board described several deficiencies with the assessors' hybrid valuation approach. For example, "there were inconsistences in [the assessors' appraiser's] approach from year to year. [He] also double-counted the medical office building by valuing it using an income approach and then adding that value to the total value of the shares in the [c]orporation, which already contain[ed] the value of the medical office building." The board also explained that the assessors' use of the income capitalization method to value the medical office building improperly failed "to use market rents and a capitalization rate derived from market sources." In addition, the assessors' application of a nineteen percent discount to the total value of the shares to account for a developer's profit, overhead, and marketing costs had never been "sanctioned ... for completed, fully operational, turn-key properties like the subject property at issue in [this] appeal[ ]." Consequently, the hybrid valuation inaccurately assessed the real estate's fair cash value because adding the value of the shares of stock "does not provide a fee simple value of the real estate" at issue. See G. L. c. 59, § 38.
The assessors have not shown these findings to be unreasonable or unsupported by the record. Nor have they shown that it was unreasonable for the board to strictly rely on an income capitalization approach, under which valuation "is determined by dividing net operating income by a capitalization rate." Assessors of Brookline v. Buehler, 396 Mass. 520, 522-523 (1986).
Turning first to the assessors' claims that the taxpayer's valuation approach lacked proper foundation and was devoid of support in the record, we disagree. The board had before it a comprehensive appraisal report submitted by the taxpayer. The board concluded that the taxpayer's appraiser appropriately valued the subject property pursuant to an income capitalization method, stating that "[t]he entry fee/monthly fee model applied by the [taxpayer's] appraiser comports with the methodology used by appraisers to value senior housing complexes in Massachusetts and is an effective approach for segregating the fee simple value of the complexes' real estate from personal property and going concern values." See Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956) (assessors value property at fair market value). "Where there is substantial evidence to support the board's decision, we defer to the board's judgment as to what evidence to accept and which method or methods of valuation to rely on." Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 302 (1982). The board credited the taxpayer's appraiser as providing the most accurate assessment of the subject property. That there was no refundable entrance fee paid to the taxpayer is not dispositive because, as explained by the board, the taxpayer's appraiser considered the sales prices of the IL units "to be a proxy for entry fees" at other senior housing complexes that used a refundable entrance model for comparative purposes based upon his research.
"Going-concern value is the value created by a proven property operation with income sufficient to pay a fair return to all the agents of production. It consists of the total value of the real property; personal property such as furniture, fixtures and equipment; and intangible personal property, or the business enterprise." Analogic Corp. v. Assessors of Peabody, 45 Mass. App. Ct. 605, 609 n.5 (1998).
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With respect to the assessors' arguments that the board contravened established precedent, they cite no case for the proposition that an appraiser in tax proceedings is prohibited from invoking a hypothetical condition to aid in their valuation. Moreover, the assessors' attempt to distinguish the present case from Willows is an artifice. There, unlike here, the parties did not dispute that an income capitalization method was the appropriate valuation methodology. The subject property in Willows utilized a refundable entrance fee model, where, at the resident's departure from the facility, the taxpayer would refund ninety percent of the entrance fee to the resident, keeping ten percent for itself. Here, up to fifteen percent of the stock sales price was paid to the taxpayer at the time of the sale between the outgoing and incoming resident. This difference is merely one of form, not substance. Simply stated, whereas the taxpayer in Willows was paid a large fee upfront to use as an interest free loan and was required to return that fee less ten percent at the end of the residency, the taxpayer here was paid approximately fifteen percent of the stock price at the end of the residency by way of the sales fees. On the basis of his research, the taxpayer's appraiser determined that these two types of payments were sufficiently similar for valuation purposes given the uncommon corporate structure of the taxpayer in the present case. Thus, the board reasonably concluded that the taxpayer's use of the Willows methodology properly aided in assessing the fair market value of the real estate at issue here. Because the record supports that conclusion, we decline to disturb it.
Finally, relying on Black Rock Golf Club, LLC v. Assessors of Hingham, 81 Mass. App. Ct. 408 (2012) (Black Rock ), the assessors contend that even if the income capitalization method was the proper valuation method, the taxpayer's appraiser failed to test its reasonableness against comparable facilities. We are not persuaded. For the reasons we have discussed, the board's decision to adopt the income capitalization method of valuation for the subject property was reasonable and supported by substantial evidence. We reached a different conclusion in Black Rock because the evidence there established that the comparisons drawn between various golf clubs were wholly dissimilar to the subject property in that case. Id. at 415-417. Here, the record reveals that the taxpayer's appraiser compared the subject property with four other senior living facilities. One such facility was, as here, organized as a cooperative corporation. The similarities between each comparable facility's corporate and fee structures were testified to extensively, and the assessors had ample opportunity to discredit those comparisons through cross-examination. We do not read Black Rock to suggest that in valuing a piece of property, only identically situated properties may be relied upon for comparative purposes. See Olympia & York State St. Co. v. Assessors of Boston, 428 Mass. 236, 239 (1998) ("In reaching a fair cash value for the property by means of the direct capitalization of income method, appraisers analyze competitive facilities and determine market rents, market vacancy and credit loss rates, market expenses, market capitalization rates, and general market conditions"). Rather, the law "requires the board to assure the reasonableness of its choice by adequate findings and reasoning intelligible to the parties and the reviewing court." Black Rock, supra at 417. That standard was satisfied here. "The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the board." Cummington Sch. of Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977). The board was free to weigh that testimony and accompanying evidence accordingly in light of the particular facts of this case.
Decision of Appellate Tax Board affirmed.