- 17 -
the parties arrive at different values for MVN and MVS is that
their experts make different assumptions concerning the discount
rate.7
Both Mr. Marx and Mr. Holden arrive at a discount rate by
abstracting sales of comparable commercial properties in order to
derive a capitalization rate. The capitalization rate is the
property's cash-flow divided by its sales price. The discount
rate is ascertained by making adjustments to the capitalization
rate, primarily for inflation. Mr. Holden's capitalization rate
was derived from a pool of comparable sales more extensive than
Mr. Marx's capitalization rate. Most of Mr. Holden's
comparables, however, are properties located in places outside
the Montecito-Santa Barbara area, such as Oxnard and Los Angeles,
California. Indeed, we find that aspect of Mr. Holden's analysis
troubling. MVN and MVS are located in an area adjacent to the
city of Santa Barbara. MVN and MVS are more than 90 miles away
(...continued)
Year 8 685,026 652,898
Year 9 –- 686,984
Year 10 –- 693,587
Year 11 –- 707,083
7 The discount rate is a rate of return on capital used to
convert future payments, rental income, or receipts into a
present value.
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