COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
TEXTRON SYSTEMS v. BOARD OF ASSESSORS OF
THE TOWN OF WILMINGTON
Docket Nos.: F254207 (1999)
F256231 (2000) Promulgated:
November 27, 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 real estate taxes assessed under G.L. c. 59, § 38 for fiscal years 1999 and 2000.
Commissioner Egan heard these appeals. Chairman Burns and Commissioners Scharaffa, Gorton, and Rose joined her in the decisions for the appellant.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 8.31 CMR 1.32.
John M. Lynch, Esq. and Stephen W. DeCourcey, Esq. for the appellant.
Alan Altman, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 1998 and January 1, 1999, the appellant, Textron Systems (“Textron”), was the assessed owner of a parcel of land in Wilmington that the Board of Assessors (“Assessors”) described as parcel 73A on map 48 (“subject property,” “subject,” or “property”). The subject property is located less than a mile from the junction of Route 129 and Interstate 93. It is approximately sixteen miles from Boston, and about seven miles from I-495 to the north and three miles from Route 128 to the south. At all relevant times, the parcel contained approximately 52.80 acres of land improved with five interconnected buildings and two other freestanding buildings.[1] The total building area is 728,758 square feet.[2] The subject property is in an area that is zoned for industrial use.
Textron, a defense contractor, built most of this campus-style complex in 1957 for its research, development, testing, manufacturing, and fabrication operations. The subject property has always been owner-occupied. During the fiscal years at issue, approximately fifty-five percent of the property was used for industrial purposes while forty-five percent was used for office or research and development functions. There are 1,366 parking spaces for fewer than 900 employees. Prior to the 1997 sale of 18.2 acres of the site along with three buildings, with a total building area of approximately 126,093 square feet,[3] to Howland Development for $2,100,000, the subject property consisted of ten buildings and seventy-one acres, and, at one time, employed as many as 3,600 workers. Parts of the property are now underutilized.
For fiscal year 1999, the Assessors valued the property at $19,729,500 and assessed a tax thereon, at the rate of $30.08 per thousand, in the amount of $593,463.36. Textron paid the tax without incurring interest. Textron timely filed its request for abatement with the Assessors on January 25, 1999 and then, on July 9, 1999, seasonably appealed the Assessors’ April 13, 1999 denial of its abatement request to the Appellate Tax Board (“Board”). On this basis, the Board found that it had jurisdiction over the fiscal year 1999 appeal.
For fiscal year 2000, the Assessors valued the property at $19,915,900 and assessed a tax thereon, at the rate of $31.77 per thousand, in the amount of $632,728.14. Textron paid the tax without incurring interest. Textron timely filed its request for abatement with the Assessors on January 26, 2000 and, on May 8, 2000, seasonably appealed the Assessors’ March 15, 2000 denial of its abatement request to this Board. On this basis, the Board found that it had jurisdiction over the fiscal year 2000 appeal.
During the relevant fiscal years, there were seven buildings located on the property. All of them relied on a centralized system for air conditioning, heat, and electricity. Buildings 1, 2, and 3 are all three level structures that were built in 1957. Building 1 contains 69,990 square feet, building 2 contains 62,602 square feet, and building 3 contains 194,124 square feet. Building 2 is connected to buildings 1 and 3 by elevated walkways. Building 1 contains a single freight elevator and one truck dock. It primarily supports office and research and development uses. Building 2 contains one narrow loading dock and one oversized hydraulic passenger elevator that provides service to all three buildings’ three levels. Uses in building 2 include the main lobby for the complex, reception area, guard headquarters, kitchen, employee cafeteria, auditorium, and offices. Building 3 contains one loading dock on the second floor and one oversized passenger elevator, which only serves the top two floors. Its uses include office and research and development.
Building 4 is a 166,284 square foot, one-story structure with a 30,129 square foot mezzanine. The majority of the building is used for manufacturing. Most of the mezzanine is office space. There is one loading dock and one elevator, which services the mezzanine area. The ground floor contains high bay areas up to thirty-five feet in height.
Building 6 is a 10,688 square foot, one-story structure. At one time, it served as a ballistic range for the firing of various types of weapon systems and projectiles. Building 8 is a 676 square foot, one-story structure, which, in the past, was used for loading and handling munitions. Both parties’ expert real estate appraisers agreed that these buildings are now obsolete.
Building 9 is a 224,394 square foot, U-shaped structure that was built in 1982 in connection with a Department of Defense contract for the M/X missile program. It is primarily one story with a mezzanine area and a three-story tower. It contains two single-passenger and one freight elevator as well as four loading docks. This building is used for manufacturing, shipping, receiving, warehousing, laboratory and office space.
Textron presented its case in chief through the testimony of seven witnesses.[4] Daniel Sullivan, who had worked at Textron as early as 1980 and at the time of the hearing, was the facilities project manager, described the subject property and its deteriorating conditions and reduced operations. Brian McKenzie and Samuel Oddo, both commercial real estate brokers, testified to the conditions in the commercial real estate market during the fiscal years at issue and the concomitant difficulties marketing older, primarily manufacturing properties like the subject. They both testified that there would be little demand for the subject property as a single-user facility and that renting the property to multiple tenants would necessitate extensive, costly renovations.
Richard W. Reynolds, a principal with an international commercial real estate firm in Boston, who had extensive experience in commercial real estate development and finance, also testified for Textron. Mr. Reynolds analyzed the property’s development potential considering the market and the property’s physical limitations that included restrictions relating to Wilmington’s Groundwater Protection District (“GWPD”), zoning, environmental concerns, and certain parking requirements. He relied on a study conducted by Dr. Robert Ingram, who also testified for Textron in these appeals. Mr. Reynolds determined that market and governmental restrictions limited new construction on the subject site, if vacant, to a total of 381,000 square feet. He further indicated that parking requirements alone might necessitate this limit. He considered the highest and best use of the property on the relevant assessment dates to be the demolition of the existing physical plant and redevelopment of the site into four new three-story office/R&D buildings, each containing approximately 95,000 square feet of rentable space. Mr. Reynolds estimated that the value of the underlying land of the subject property, if vacant and available for new development on the relevant assessment dates, was in the range of $6,045,000 to $6,220,000. To reach this estimate, he relied on sales of comparable sites and improved properties and then, as appropriate, factored in demolition costs.
Robert Ingram, manager of ecological services with the Daylor Consulting Group, described a recent study that he conducted on the environmental and zoning restrictions affecting the property. Dr. Ingram identified Wilmington’s GWPD as one such restriction, which limited to fifteen percent the impervious area that may be created at new constructions, reconstructions, expansions of existing buildings or other new or expanded uses.[5] According to Dr. Ingram, approximately 45.2 acres of the subject property are located within Wilmington’s GWRD. On this basis, he estimated that the total allowable impervious area at the subject property was 14.4 acres. Special permits would be required for any uses exceeding the allowable impervious area within the GWPD. Dr. Ingram testified that other environmental and zoning limitations, including buffer zones under the Rivers and Wetlands Protection Acts[6] and set-backs under Wilmington’s zoning ordinances, further constrained development at the property.
Donald P. Bouchard testified for Textron as its expert real estate appraiser. His appraisal report was entered into evidence. Mr. Bouchard considered two alternative approaches for valuing the subject property. In one of these approaches, he estimated the land value of the subject property as if vacant, which required the complete demolition of the existing improvements. In the other approach, he valued the subject property as currently improved on the relevant assessment dates. In his opinion, the complex exhibited physical deterioration and functional obsolescence and was further adversely affected by external obsolescence. He observed the physical deterioration in the building’s roofs, canopies, electrical, heating and cooling systems, and other structural components. He identified some of the complex’s functional inadequacies in its buildings’ layouts, the inconvenience of the available parking, the limited “vertical transportation,” various energy inefficiencies, obsolete and inadequate electrical, heating and cooling systems, and many outmoded design features. Mr. Bouchard believed that the complex was affected by external obsolescence because he considered the demand for this type of property to be virtually non-existent. He also believed that the complex, as it existed on the relevant assessment dates, was not conducive to multi-tenanted occupancy because of its convoluted layout and many inadequacies.
Under the circumstances, Mr. Bouchard considered the highest and best use of the subject property was to renovate it for reuse as a multi-tenanted complex. He ruled out using income-capitalization approaches for valuing the subject property because of that method’s inability to account accurately for either renovation or demolition costs in a multi-tenant scenario and the scarcity of single-tenant market rental data under a single-tenant assumption. He considered a cost approach unreliable because of the property’s age and condition, and the speculative or highly subjective nature of depreciation estimates. Consequently, Mr. Bouchard settled on the sales-comparison approach as the most reliable indicator of the fair market value of the subject property for the fiscal years at issue in these appeals.
In developing his estimate of the fair market value of the subject property, Mr. Bouchard considered eight sales of large complexes that he considered to be reasonably comparable to the subject property. He ultimately relied, in varying degrees, upon seven of these sales, but only five to any significant extent. Of these five, he relied most prominently on the 1997 sale of a portion of the subject property. According to Mr. Bouchard, all five of these comparable-sale properties shared some important characteristics with the subject property. These characteristics included that they: were formerly owner-occupied or single-user facilities; were built and used for varying manufacturing processes; were purchased on a fee simple basis; were purchased by real estate developers; shared a highest and best use for renovation and conversion into a multi-tenanted facility; required a substantial capital investment for conversion; and, with one exception, required demolition of obsolete portions of the existing facility.
To estimate the fair cash value of the subject property using his sales-comparison methodology, Mr. Bouchard first calculated the price per-square-foot paid for each of the comparable-sale properties. He then made positive adjustments for changing market conditions since time of sale and mostly negative adjustments for location, physical factors, economic factors, and, in the case of his comparable sale numbers 7 and 8, what he termed “the leased fee bundle of rights.” Summaries of his actual adjustments for each of the fiscal years at issue are contained in the following tables.
Fiscal Year 1999
Subject / Sale 1 / Sale 2 / Sale 3City/Town / Wilmington / Lexington / Concord / Bedford
Sale Price / N/A / $7,200,000 / $6,250,000 / $4,850,000
Sq. Footage / 728,758 / 336,405 / 437,442 / 372,000
Price Per SF / N/A / $21.40 / $14.29 / $13.04
Date of Sale / N/A / 4/7/97 / 12/12/96 / 4/1/97
Property Rights / Fee Simple / Fee Simple / Fee Simple / Fee Simple
Adjustment / N/A / 0.00% / 0.00% / 0.00%
Adjusted Price / N/A / $21.40 / $14.29 / $13.04
Market Conditions / 01/01/98 / Inferior / Inferior / Inferior
Adjustment / N/A / 4.00% / 6.00% / 4.00%
Adjusted Price / N/A / $22.26 / $15.14 / $13.56
Location / Average / Superior / Superior / Superior
Adjustment / N/A / -30.00% / -10.00% / -15.00%
Physical Factors / Average / Superior / Superior / Superior
Adjustment / N/A / -20.00% / -20.00% / -10.00%
Economic Factors / N/A / Superior / Superior / Superior
Adjustment / N/A / -5.00% / -2.50% / -5.00%
Sum of Adjustments / N/A / -55.00% / -33.00% / -30.00%
Adjusted Prices[7] / N/A / $10.02 / $10.22 / $9.49
$7,299,603 / $7,449,935 / $6,916,932
Sale 4 / Sale 6 / Sale 7 / Sale 8
City/Town / Wilmington / Billerica / Lowell / Lowell
Sale Price / $2,100,000 / $6,500,000 / $14,500,000 / $6,500,000
Sq. Footage / 126,093 / 617,440 / 876,900 / 363,457
Price Per SF / $16.65 / $10.53 / $16.54 / $17.88
Date of Sale / 4/97 / 12/19/96 / 6/18/96 / 7/24/96
Property Rights / Fee Simple / Fee Simple / Leaseback / Leased Fee
Adjustment / 0.00% / 0.00% / -25.00% / -25.00%
Adjusted Price / $16.65 / $10.53 / $12.40 / $13.41
Market Conditions / Inferior / Inferior / Inferior / Inferior
Adjustment / 4.00% / 6.00% / 9.00% / 9.00%
Adjusted Price / $17.32 / $11.16 / $13.52 / $14.62
Location / Equal / Inferior / Inferior / Similar
Adjustment / 0.00% / 10.00% / 15.00% / 0.00%
Physical Factors / Superior / Superior / Superior / Superior
Adjustment / -15.00% / -20.00% / -25.00% / -20.00%
Economic Factors / Superior / Similar / Similar / Similar
Adjustment / -25.00% / 0.00% / 0.00% / 0.00%
Sum of Adjustments / -40.00% / -10.00% / -10.00% / -20.00%
Adjusted Prices7 / $10.39 / $10.04 / $12.17 / $11.70
$7,573,493 / $7,318,976 / $8,866,078 / $8,523,567
Fiscal Year 2000