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funds. Thus, we believe an investor would require a lower rate
of return from the partnerships with the trust funds. For this
reason, we believe the trust funds are best accounted for by
means of a reduction in the otherwise applicable capitalization
rate. We have done so earlier in this analysis, where we
rejected Dvorak’s position that an increase in the capitalization
rate was warranted by the risk of loss of the HUD subsidies. We
concluded there that any such risk was offset by a reduction in
risk produced by the trust funds. On this record, we believe
such an adjustment to the capitalization rate is the best means
to account for the effect that the trust funds would have on the
price that a hypothetical buyer would pay for decedent’s interest
in the housing partnerships.14
14 We have considered whether a similar adjustment to take
into account the trust funds is warranted in the case of Keith’s
appraisals of the Clinton and Rocky Mount properties and conclude
that it is not. First, in the case of Clinton, that partnership
held only a maintenance reserve of $8,920, which we believe would
not have been a material consideration in a hypothetical sale.
The Rocky Mount partnership, however, did not hold trust funds of
a magnitude similar to those of Charlotte and Monroe.
Nonetheless, we note that Keith ultimately relied on his market-
based value rather than his income-based value in reaching his
conclusion regarding Rocky Mount. Keith’s market-based value for
Rocky Mount was $1,400,000, while his income-based value was
$1,325,000. In calculating his income-based value Keith used a
discount rate of 15 percent. If we adjust this rate to 13
percent, as we did in the case of Dvorak’s Charlotte report, the
value under Keith’s income approach would be $1,400,901, rounded
to $1,400,000, equal to the value under Keith’s market-based
approach and to Keith’s final value. We note again that
respondent has accepted this value and find that any adjustment
to Keith’s discount rate to reflect the existence of the trust
funds would not alter the final value of Keith’s Rocky Mount
(continued...)
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