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southern California.8 However, because of the unique character
of the Montecito-Santa Barbara area, we are primarily concerned
only with how the softness in the real estate market was
affecting capitalization rates in that area. Mr. Holden reported
that sales in the Santa Barbara area during the time in question
commanded capitalization rates of 9.17 percent and 9.4 percent.
Mr. Marx researched three additional sales in Santa Barbara
during 1993 and 1994 and found capitalization rates ranging from
7.83 percent to 9.4 percent. On the basis of such data, Mr. Marx
concludes that an overall capitalization rate of 9.25 percent to
9.5 percent is appropriate in valuing MVN and MVS. He settles on
9.5 percent as the capitalization rate. Mr. Holden, on the other
hand, went outside the Santa Barbara area in order to justify a
higher capitalization rate for MVN and MVS. In his view,
southern California was experiencing a soft real estate market at
the time of the alternate valuation date. Mr. Holden fails to
explain, however, why any market softness is not already
reflected in the capitalization rates of the Montecito-Santa
Barbara area comparables. We are inclined to keep the
capitalization rate in the instant case within the range of
8 In 1991, the average capitalization rate in southern
California was 9.06 percent; in 1992 it was 9.59 percent; in 1993
it was 9.70 percent; in 1994 it was 10.66 percent; and in 1995 it
was 10.26 percent.
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