24 Mass. App. Ct. 122 | Mass. App. Ct. | 1987
The board of assessors of the city of Boston (city) appeals, pursuant to G. L. c. 58A, § 13, from a decision of the Appellate Tax Board (board), granting real estate tax abatements for five fiscal years, 1978 through 1982, to New Boston Garden Corporation (Garden) for property the Garden owns. The building complex, which includes the Boston Garden, an arena familiar as the home of the Boston Bruins and the Boston Celtics, and the North Station Terminal, and which is located at 80-120 Causeway Street in Boston, is the same property which was the subject of appeals to the Supreme Judicial Court from a decision of the board for the three and one-half fiscal years immediately preceding the years in question in this case. See New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456 (1981). The court in that opinion, at 457 and 460 described the property and, at 465 to 467, elaborated upon the substantial evidence test according to which a determination by the board of value of taxable estate is to be reviewed on appeal. See also Fox Ridge Associates & Co. v. Assessors of Marshfield, 392 Mass. 652, 653 (1984); Assessors of Brookline v. Buehler, 396 Mass. 520, 524 (1986).
After a hearing, the board made findings and rulings and ordered tax abatements for each of the years in question.
Procedural rulings. The board in its decision relied heavily on the opinion of the Garden’s expert appraiser, Martin Coleman. The city had had the opportunity to examine Coleman’s written report during settlement negotiations prior to trial. Coleman’s direct examination lasted an afternoon, an entire day, and another morning. The written report was admitted in evidence and marked as an exhibit on the final morning of Coleman’s direct testimony. The city began cross-examination immediately after the luncheon recess. Counsel for the city had been furnished a copy of the report to use while the witness was being examined but was not permitted to remove it from the hearing room. Several times on the day the city began its cross-examination, counsel for the city requested permission to make a copy of the report to use outside the hearing room to prepare for the next day’s cross-examination. Offering a number of different justifications for its rulings, the board denied each such request. In its final decision, the board justified the denial of the requests on the basis of its power to control material in evidence, the Garden’s need for confidentiality, and, inasmuch as the city had the usé of the report during the examination of Coleman and access to it during normal business hours in the clerk’s office, the absence of prejudice to the city.
The Garden attempts to justify the rulings on the basis of Rule 27 of the Rules of the Appellate Tax Board, which provides: “The originals of . . . exhibits introduced in evidence before the Board may be withdrawn from the custody of the Board in such manner and upon such terms as the Board in its discretion may provide.” (See also G. L. c. 58A, § 13.) That rule, however, serves only purposes not relevant here: assuring the preservation of documents needed by the board to perform its function and protecting the interests of parties to proceedings before the board in maintaining control over their original documents. The Garden also relies upon the need, recognized by the board, to protect the confidentiality of its
Nevertheless, the city has failed on appeal to demonstrate how the erroneous ruling caused it to be prejudiced. Bendett v. Bendett, 315 Mass. 59, 65 (1943). Puffer v. Beverly, 345 Mass. 396, 401-402 (1963). Pina v. McGill Dev. Corp., 388 Mass. 159, 164 (1983). There was nothing in the report to which the city’s attorney did not have access before trial and at various times during trial prior to the overnight recess. The report was lengthy, but much of it related to the deteriorated physical condition and design defects of the Garden and generalities about the arena business which were discussed at length in the testimony and reports of other witnesses. To the extent that the report included the Garden’s financial data, that information had been provided to the city in the course of pretrial discovery. Although the rulings were erroneous, we are not persuaded that increased access to the few pages that constituted the heart of the report, the basis for Coleman’s opinion of the Garden’s market value, would have .affected the substance of the cross-examination or the outcome of the case.
We have also reviewed the instances in which the city complains that its right of cross-examination was unreasonably restricted and find no abuse of discretion by the board or any demonstration of prejudice.
Substantiality of the evidence supporting the board’s determination of fair market value. The board relied primarily upon the capitalization of income approach for determining the value of the real estate, as did both the Garden’s expert, Coleman, and the city’s expert, Francis G. McGee. The city in its appeal challenges certain of the board’s determinations of the Garden’s income and expenses, as well as the choice of a capitalization rate to be used to determine the property’s fair cash value. Most of the city’s contentions reduce to claims that the Garden’s evidence or approach should have been rejected by the board. The question we must decide with respect to each of the contentions regarding the board’s approach to determining value, however, is whether that approach is reasonable and supported by the record. See Blakeley v. Assessors of Boston, 391 Mass. 473, 477 (1984); Assessors of Sandwich v. Commissioner of Revenue, 393 Mass. 580, 586 (1984). As to the contested findings, the question is whether they are supported by substan
1. Management fee. The city urges us to reject the imputed management fee allowed by the board as an expense. At trial both Coleman and McGee took the position that the board should impute a market rate management fee in determining the Garden’s annual expense for management of the real estate. The experts differed, however, as to the appropriate rate to apply to the income. The board allowed an imputed management fee at a rate higher than that suggested by McGee and slightly lower than that suggested by Coleman. On appeal the city argues for the first time that only actual expenses incurred by the Garden for management should have been allowed. The argument is based on the observation that expert testimony concerning management fees related to the experience of public arenas rather than privately owned arenas such as the Garden. We are precluded from considering that contention now because it was not even suggested to the board at trial. Moreover, even if we were to consider it, we would not conclude that the board erred. The board was not precluded from equating public and private arenas for these purposes. There was evidence that the duties of arena managers for public and private arenas are similar. The board’s determination, therefore, was based upon substantial evidence.
2. Co-promotion leases. Similarly, the city does not prevail in its contention that the board erred in imputing rents on co-promotion leases. Although leases for most Garden events are standard real estate leases, on occasion the Garden enters into a co-promotion lease. Under such an arrangement, the' Garden assumes responsibility for direct expenses of an event
3. Rents for Bruins events. Similarly, the city has not shown that the board erred in imputing rents rather than using actual receipts for the Bruins events. The finding that there existed some corporate affiliation between the Garden and the owner of the Bruins was amply supported, and the objection to the use of imputed rather than actual figures is raised for the first time on appeal.
4. Recapture rate. The city makes a plausible argument that the board erroneously accepted the 7.5% recapture rate recommended by Coleman. Under the income capitalization approach to measuring the value of real estate, the first step is to determine net operating income by subtracting operating expenses from gross income from the real estate. Net operating income is then divided by a percentage determined to be the appropriate
The use of a recapture rate is based on the assumption that a building has a determinable economic life and that a reasonable property owner would expect to recoup the value of the building over the course of its economic life. At the end of the term of the building’s useful life, found by the board in this case on the basis of substantial evidence to have been ten years in 1978 (the first fiscal year in question), the Garden would be left with the land and an .obsolete structure, which would have to be demolished. Coleman based his opinion that a 7.5% recapture rate was appropriate on the assumption that the building had a ten year economic life and that the residual value of the land, less the cost of demolition, would be 25% of the value of the property.
The city argues that Coleman’s opinion should not have been accepted by the board because it was not based on substantial evidence. Given the unique nature of the property and the obviously significant value of 88,642 square feet of land in downtown Boston, we agree that the expert’s opinion leaves one in the dark as to any rational basis for it and, therefore, that it was unduly speculative. Because Coleman’s opinion on the recapture rate was a significant factor in the board’s ultimate determination of value, and because the opinion was not tied to evidence of land value or demolition costs, reliance by the board on that opinion was at least questionable.
The city may not prevail on the recapture rate issue on appeal, however, because it did not raise the issue, or even “hint” at it, below. G. L. c. 58A, § 13. See Cacciatore v. State Tax Commn., 368 Mass. 149, 151 (1975); New Bedford Gas & Edison Light Co. v. Assessors of Dartmouth, 368 Mass. 745, 752 (1975). McGee, the city’s expert witness, testified to an opinion of value based upon a capitalization rate used by the insurance industry for commercial property into which a recapture rate was built. Coleman’s cross-examination was lengthy and detailed and covered other components of the capitalization rate as well as that aspect of the recapture rate which was based upon the useful life of the building. Cross-examination, however, did not touch upon Coleman’s use of the 25% figure to represent the residual land value. Nor did the city’s requests for rulings or its posttrial brief mention the
5. Causeway Advertising. We come finally to the one meritorious point raised on appeal. It relates to the board’s treatment of income derived,, according to the Garden’s financial statements, from “Causeway Advertising.” As we have indicated, use of the capitalization of income approach required the board to make findings on the Garden’s annual income and expenses related to the operation of the real estate and, on the basis of those findings, to determine net operating income. Coleman ’ s testimony was based upon the Garden ’ s actual financial records. Listed in the expense section of the Garden’s profit and loss statements for its real estate activites, as an item of income offsetting expense for each fiscal year, is an entry for “Causeway Advertising.” However, Coleman eliminated the Causeway Advertising items from his calculations. His elimination of those amounts had the effect of decreasing his opinion of net income and, thus, the value of the property for each of the years. He justified the adjustments by stating that the income entries for Causeway Advertising had “nothing to do with the real estate.” When questioned about the items on cross-examination, he said, “I don’t honestly understand its total function except the income that it produces is totally unrelated to what my job was, so I pushed it to one side and ignored it.” He stated that a year or so previously he had satisfied himself that the item should be eliminated because, as he “vaguely remembered,” it had something to do with program advertising. He went on to say, “I could be completely wrong, but whatever it is, it’s not real estate,” and he added that John Dionne, the Garden’s controller, could answer the question. Dionne testified, but no inquiry was made of him about the Causeway Advertising income. Other receipts from advertising, attributable, according to Dionne, to announcements on the “scoreboard, the Zamboni, posters and billboard,” were listed as income on the financial statements, and no question was raised by the Garden about the propriety of their inclusion for the purpose of determining net income from operation of the real estate.
The issue was adequately raised before the board to permit review on appeal. Although it was not raised in the city’s posttrial brief, it was the subject of persistent cross-examina
Conclusion. The decision of the board must be modified in one particular only: namely, to the extent that the calculations of value for each fiscal year were affected by the elimination of the income from Causeway Advertising. The case is remanded to the board for further proceedings in accordance with this opinion. Neither party is to have the costs of the appeal.
So ordered.
The city had assessed the property for each of the years in question at $3,848,800, of which $1,069,800 was the assessed value of the land. The board found the fair cash value of the property to be $2,740,000 in fiscal
Given the present state of the law, it is unlikely that such a problem would arise today. General Laws, c. 58A, § 8A, as amended by St. 1986, c. 385, § 3, provides: “At least thirty days prior to the hearing of a petition for the abatement of a tax, upon a motion filed by either party and granted by the appellate tax board, the appellant and appellee shall exchange appraisal reports containing such information about the property as the appellate tax board adjudges necessary.” The provision took effect on September 9, 1986, after the hearing in this case.
On four occasions during its cross-examination of William Cunningham, the Garden’s expert witness on arena management, the board instructed the city’s attorney to move on to another issue. In each instance, however, the questioning on the issue had become prolonged and repetitious. See Commonwealth v. Watson, 377 Mass. 814, 837 (1979); Commonwealth v. Dominico, 1 Mass. App. Ct. 693, 714 (1974).
Counsel for the city was also not permitted to question Charles Sink, the Garden’s expert on arena design, about the construction cost of the McNichols Arena, an arena located in Colorado which Sink designed. Since Sink
Counsel for the city was also not permitted to question Paul A. Mooney, president of both the Garden and the Bruins, regarding the identity of the stockholders of the Garden’s parent corporation, Delaware North, Inc. When the board sustained objections to the questions on the ground that it was satisfied that there existed some corporate affiliation between the Garden and the Bruins and the identity of the stockholders was not relevant, the city gave no reason for its need to pursue the inquiry. The city argues on appeal that Mooney’s answers would have established that, given the true nature of the corporate affiliation, the actual rents paid by the Bruins were the result of arms’ length agreements, and the use of imputed rather than actual rents, therefore, was not proper. Since the city did not explain its theory to the board at the appropriate time, there was no reversible error. Davey Bros., Inc. v. Stop & Shop, Inc., 351 Mass. 59, 63 (1966). Commonwealth v. Cheek, 374 Mass. 613, 615 (1978). George v. Jordan Marsh Co., 2 Mass. App. Ct. 848, 849 (1974).
There is no evidence in the record to support the city’s alternative contention that, if income attributable to co-promotion leases is to be imputed, it should be offset by some of the Garden’s overhead expenses. The city does not show, and did not show at trial, what, if any, overhead expenses were attributable to the Garden’s activities as a promoter.
After the Supreme Judicial Court remanded to the board the matter of abatements for the years 1974-1977, New Boston Garden Corp. v. Assessors of Boston, 383 Mass. at 476, the board determined value for each year in question utilizing the capitalization of income approach. Based upon the testimony of David Carney, one of the Garden’s expert witnesses, the board, without discussion, included in the capitalization rate a 7.5% recapture rate based upon “an economic life of ten years and a salvage and residual value of 25%.” New Boston Garden Corp. v. Assessors of Boston, Nos. 80532, 80533, 84766, 90403, slip op. at 3 (App. Tax Bd. July 28, 1981).
In different context, the city’s expert offered an opinion of a land value of over $2,000,000, based on comparable sales, but the evidence was struck from the record. In the absence of any other evidence of land value, the board could have used the assessed value for these purposes. See General Elec. Co. v. Assessors of Lynn, 393 Mass. at 598.