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At trial, petitioners presented their expert witness, Mr.
Peter Larson III. Petitioners offered the expert report of Mr.
Larson for the purpose of proving the amount of rent charged to
ETCO by Mr. and Mrs. Thorpe was not excessive. In his report,
Mr. Larson described the condition of the real estate market in
the Washington, D.C., metropolitan and surrounding area in the
early 1990's as having experienced a dramatic decline, which
caused average rents to be reduced from annual square foot rates
from "upper $20's to low $30's to numbers that did not support
[many commercial projects]." Mr. Larson also indicated in his
report that because of the dramatic decline in the real estate
market, many large institutions sought to restructure leases.
Mr. Larson reasoned that because Mr. and Mrs. Thorpe premised the
amount of rent they charged ETCO on the amount of their debt
obligation in the office condominium, there would be no reason to
consider restructuring their lease agreement with ETCO.
Mr. and Mrs. Thorpe received rent from ETCO of $30,000 per
year ($2,500 per month). Respondent determined that the fair
market rent was $14,028 per year.5 Neither petitioners nor their
expert presented any evidence which would contest respondent's
determination of fair market value based on reasonable
5Mr. and Mrs. Thorpe received rent from ETCO of $30,000 per
year, and respondent determined that the dividend from rental
payments was $15,972 for each of the years in issue. Thus, the
fair rent per year would be $14,028 ($30,000 less dividend of
$15,972 equals $14,028).
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