- 40 -
undeveloped, in the prevailing market in deciding the price for
such properties.
Respondent also contends that Mr. Egan improperly assumed
that all of the properties within each of the different catego-
ries of the remaining unimproved real properties would have
competed in the marketplace. We agree with respondent. We
believe that only those real properties in each category (1) that
are similar in size and (2) that are valued before application of
an absorption discount at approximately the same price per square
foot would have competed with one another.
We are also concerned with certain other aspects of Mr.
Egan's valuation analysis. Mr. Egan included all of the re-
maining unimproved real properties in his discounted cash-flow
analysis, even though, in his view, the highest and best use of
certain of those properties was not "for retail sale". We
believe that Mr. Egan should have included in his discounted
cash-flow analysis only those remaining unimproved real proper-
ties whose highest and best use was to sell them. See Estate of
Andrews v. Commissioner, 79 T.C. at 942.
Mr. Egan does not explain how he arrived at an absorption
period of five years for the unrestricted and wetlands categories
of those properties. In addition, Mr. Egan states that "research
was conducted for comparable sales transactions by property type
for the period 1979 through 1988" with respect to the industrial
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