140 GODDARD MEMORIAL DRIVE LLC v. BOARD OF ASSESSORS OF WORCESTER (2019)

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

This is an appeal by the board of assessors of Worcester (assessors) from a decision of the Appellate Tax Board (board). After the assessors denied an application by 140 Goddard Memorial Drive, LLC (taxpayer), to abate taxes on certain real property (subject property) for fiscal years 2015 and 2016, the taxpayer appealed to the board under 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. The assessors' appeal is now before us under G. L. c. 58A, § 13. We affirm.

Background. In 2012, Worcester State University (university) put out a request for proposals to build a parking facility to accommodate the university's parking needs on a temporary basis. The taxpayer's principal, Michael O'Hara, was selling one of his investment properties around that time and sought to acquire the subject property, which would later become the parking facility, to use in a “like-kind” exchange for Federal tax benefit purposes.

The subject property was originally listed for $450,000, which was later reduced to $350,000. O'Hara was able to negotiate the price down further to $260,000. To qualify for the tax benefit, O'Hara then arranged for a qualified intermediary to purchase the subject property. In September 2013 the qualified intermediary sold the subject property to the taxpayer for $750,000, after about $490,000 in site work had been completed to develop the subject property for use as a parking lot.

The same month, the taxpayer and the university signed a five-year lease for 500 parking spaces (parking lease). The annual payments started at $520,000 and gradually increased to $541,000 by the end of the lease term. Also around this time, the taxpayer obtained a mortgage for $1,920,000 to obtain the funds necessary to develop the subject property. The terms of the mortgage required the taxpayer to assign the parking lease to the lender and to provide collateral in addition to the subject property.

The subject property is located in an industrial zone on the outskirts of the city. It is not viable for use as a commercial parking lot because of its remote location and the lack of businesses in the area. The university campus is located two miles away. Beginning early in the lease period, the university expressed dissatisfaction with the location of the subject property because students were unwilling to park there and wait for a shuttle bus to campus.

Discussion. In granting the abatements, the board found that the taxpayer proved the fair cash value of the subject property to be $770,000 and $780,000 for fiscal years 2015 and 2016, respectively, far less than its assessed value of $2,014,000 for each fiscal year. The assessors challenge this determination on two grounds: (1) the board erred by not applying a cost approach, under which valuation would be based on the taxpayer's over $2 million investment in the subject property; and (2) the board erred in finding that the subject property's highest and best use is as an industrial storage lot for equipment and vehicles. We disagree on both counts.

The board was warranted in rejecting the cost 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 explained that the taxpayer's over $2 million investment did not accurately reflect fair cash value because the “acquisition and development of the subject property were part of a like-kind exchange transaction” and “the transaction was structured so that [the university] bore the expenses of development of the parcel.” The board also explained that the mortgage did not accurately reflect fair cash value because “other collateral and [O'Hara's] personal guarantee secured the [taxpayer's] repayment obligations.” As further proof that the assessors had overvalued the property, the board cited undisputed evidence that the assessments were “completely out of proportion to the assessments of other similarly situated properties” and that “the subject property had languished on the market for a number of years before the [taxpayer's] purchase, for a substantially lower sales price than its original asking price.”

The assessors have not shown the board's determinations to be unreasonable. Nor have they shown that it was unreasonable for the board to rely instead 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). The board found that the testimony of the taxpayer's expert regarding comparable rents of nearby industrial properties was “the best evidence of the subject property's earning capacity.” The board also credited the expert's testimony regarding operating expenses and capitalization rates. As the board observed, the assessors did not rebut the taxpayer's evidence and offered no affirmative evidence of their own. Similarly, on appeal, the assessors make no argument that there is a lack of substantial evidence to support the board's findings. See Koch v. Commissioner of Revenue, 416 Mass. 540, 555 (1993).

Substantial evidence likewise supports the board's determination that the highest and best use of the subject property is as an industrial storage lot. See Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). It is uncontested that the subject property is not located near any businesses requiring a parking lot. In addition, the board credited O'Hara's testimony that the university was dissatisfied with the location for use as a satellite parking lot. Based on this evidence, the board permissibly found that “the subject property's use as a commercial parking lot was not feasible in the long term.”

Decision of Appellate Tax Board affirmed.