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2 This figure equals the reversionary value of
$1,783,308 plus the net operating income from year 4 of
$204,311. The reversionary value equals the net operating
income from year 5, $207,376, divided by our adjusted
terminal capitalization rate of 11.25 percent, minus costs
of sale of $60,034.
3 We discount to present value using our adjusted 13-
percent discount rate.
Value of Decedent’s Interest in the Housing Partnerships
Beck valued decedent’s partnership interests using only the
net asset approach under the theory that rental real estate was
the primary asset of the housing partnerships and the income-
producing value of the partnerships is contained in the net asset
value. We agree. The hypothetical investor would seek the
income stream from the partnerships as going concerns, but,
because the partnerships hold rental properties, the income
stream of the partnerships is reflected in the net asset value,
or income stream, of the underlying properties. See, e.g.,
Estate of Andrews v. Commissioner, 79 T.C. 938, 944 (1982);
Estate of Smith v. Commissioner, T.C. Memo. 1999-368. A value
based principally on the income stream is especially appropriate
in this case, we believe, because the HUD subsidies produced
above-market rents and also, in our view, affect the
capitalization rate that should be used to value the properties.
The impact of the subsidies is thus only captured in an income-
based approach to valuation. Accordingly, we find that an
income-based value, which takes into account the HUD subsidies,
is the most appropriate method to value the housing partnerships.
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