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that comparable 4 was most similar to Phase 5 in exposure and
location, but it was inferior in configuration and was thus a
reasonable to slightly low indicator. Mr. Kelley concluded that
Phase 5 had a value of $6 per square foot.
Comparables 3 and 4 were sold in 1996. In the period
between those sales and the date of death, Sherwood experienced
rapid population growth and increased demand for commercial
property. Given the lapse in time and the change in demand for
commercial property, we find that comparables 3 and 4 are not
reliable indicators of value. Therefore, we take into
consideration comparables 1 and 2 only.
b. Discounted Cashflow Analysis
Mr. Kelley determined that Phase 5 was not readily
marketable on the date of death and that it would take 3 years to
sell the property. To account for “an extended marketing and due
diligence period” and for “the risk associated with the subject
property”, Mr. Kelley applied a discounted cashflow analysis to
Phase 5’s value per square foot to arrive at its “net present
‘as-is’ land value” of $2,075,000.8
8 Mr. Kelley’s discounted cashflow analysis was essentially
a three-step analysis: (1) He adjusted the value per square foot
upwards by 3 percent annually for 3 years to account for
inflation; (2) he then subtracted sales and marketing costs; and
(3) he then discounted that amount by 12 percent annually for 3
years to account for the time-value of money and the risks
associated with the property to arrive at a “net present ‘as-is’
land value”.
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