In re Broad Sound Park Associates , 1990 Bankr. LEXIS 2759 ( 1990 )

DECISION AND ORDER

ARTHUR N. VOTOLATO, Jr., Bankruptcy Judge.

Heard on the motion of the Chapter 11 debtor, Broad Sound Park Associates, to establish the market value of Debtor’s property in the City of Revere, Massachusetts, for tax purposes, for the years 1987-1990, pursuant to 11 U.S.C. § 505. At the urgent request of the Debtor (and with the consent of the City of Revere), because of the necessity to provide a judicial determination of the market value of the subject property prior to an anticipated sale by the end of December, 1990, we render our abbreviated decision, without detailed findings of fact and conclusions of law.

Upon review of the entire record, and after consideration of testimony given over several days of trial held on November 26 and 30, and December 5, 1990, we determine the market value of the subject property to be as set forth in numbered paragraphs 1 through 4 below. We understand that the Debtor has not contested the City of Revere assessments before any other judicial or administrative tribunal of competent jurisdiction, thereby preserving this Court’s jurisdiction over this action under 11 U.S.C. § 505(a).

The subject property, located at 300 Ocean Avenue in the City of Revere, fronting directly on Revere Beach, is a four year old, five story, steel frame office and retail sales building with a basement level garage accommodating 80 cars. The building is situated on three parcels of land totalling 33,081 square feet, of which one 4,925 square foot parcel is leased from the MBTA. Of the total 87,148 square feet of available rental space, 18,520 square feet are reserved for retail use, with the remaining 68,628 square feet dedicated to office occupancy.

Construction began in mid-1985, with the “shell” of the building completed in February of 1987. The owners’ leasing program, which was the subject of much controversy and conflicting expert (and other) testimony at trial, resulted in a total area of 2,488 square feet under lease by the end of 1987. By the end of 1988, a total of 16,828 square feet had been leased, and by year-end 1989, a total of only 30,191 square feet had been leased. The occupied areas consist of both office and retail space. During the period in question, the retail space, in particular, has been subject to a high incidence of tenant failure and turnover.

The City of Revere has assessed the property, for tax purposes, as listed below.¹ At the hearing, the Debtor, using an income approach,² and City, using a hybrid replacement value and income approach, have submitted appraisals as follows:

Period Assessment Debtor’s Appraisal Revere Appraisal

1/1/87 (FY 88) 8,000,000. 4,200,000. 8,645,000.

1/1/88 (FY 89) 8,030,000. 5,025,000. 8,032,500.

1/1/89 (FY 90) 7,705,800. 5,060,000. 6,005,550.

1/1/90 (FY 91) 7,705,800. 4,750,000. 4,725,000.

Based upon this Court’s impression and understanding of the testimony and the exhibits, together with consideration of the real estate market conditions for the period in question, it is our independent judgment that the market value of the subject property is:

1. For the period beginning 1/1/87 (fiscal year 1988) — $6,850,000. In arriving at this figure, we are mindful of the amount of hard construction and acquisition costs expended on the project in the approximate amount of $6,210,000, financing costs of $744,685, and other soft costs of approximately $2,500,000 (a good deal of which we disregard for purpose of this valuation).

2. For the period beginning 1/1/88 (fiscal year 1989) — $6,300,000.

3. For the period beginning 1/1/89 (fiscal year 1990) — $5,650,000.

4. For the period beginning 1/1/90 (fiscal year 1991) — $4,750,000.

Enter Judgment consistent with this opinion.

1 . The tax rates for the years in question are: 120.11 per $1,000 of value for fiscal year 1988; $24.69 per thousand for fiscal year 1989; and $22.31 per thousand for fiscal year 1990. The rate for fiscal year 1991 has yet to be determined.

2 . The Debtors use a variation of the "Income” approach, known as the "Discounted Cash Flow” method of valuation.