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capitalization rates found in the Montecito-Santa Barbara area at
or near the time of the alternate valuation date. MVN and MVS
are uniquely situated because of the lack of commercial rental
property in the area. Mr. Holden fails to convince the Court
that his use of widespread, southern California comparables is
appropriate in analyzing MVN and MVS. We are persuaded,
therefore, that a capitalization rate of 9.5 percent is in line
with capitalization rates generally in the Montecito-Santa
Barbara area at the alternate valuation date and is a reasonable
estimation of the appropriate capitalization rate to use in
valuing MVN and MVS.
As stated above, the discount rate is a derivative of the
capitalization rate. Messrs. Holden and Marx agree that a 2-
percent adjustment is needed to account for inflation. Mr. Marx
makes a further adjustment that considers leasing and selling
commissions along with absorption and tenant improvement issues,
which reduces Mr. Marx's capitalization rate adjustment by
approximately one-half of a percent. Mr. Holden makes no such
adjustment. Given the range of estimated adjustments suggested
by the experts, we find that 1.75 percent is a reasonable
adjustment to the capitalization rate in order to arrive at the
appropriate discount rate.
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