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reversionary value. He first calculated the reversionary value,
using the reversionary capitalization rate. He then subtracted
costs of sale, then added this result to the cash-flow figure for
year 4. He then discounted to present value the cash-flow figure
for each of 4 years following the date of valuation, using the
discount rate.
Dvorak applied different discount and capitalization rates
depending on whether he was assuming the existence of HUD
subsidies. For Charlotte, the discount rate without the HUD
subsidies was 13 percent, and with the HUD subsidies was 15
percent. The capitalization rate for the reversionary interest
was 11 percent without, and 12 percent with, HUD subsidies. For
Monroe, the discount rate was 13 percent without, and 14 percent
with, the HUD subsidies. The capitalization rate for the
reversionary interest was 11.25 percent without, and 11.75
percent with, HUD subsidies. He used higher rates for the HUD-
subsidized housing because he believed an investor would demand a
greater rate of return due to the risk of losing the HUD
subsidies.
Rather than attacking the specific method by which Dvorak
generated his discount and capitalization rates, respondent
argues that the rates should match the rates of the properties
that Dvorak used as comparables for his market method value. In
other words, respondent looks at the market comparables, examines
their rates of return, and criticizes Dvorak’s income method
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