Estate of Eileen Kerr Stevens - Page 11




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          this leased interest was 20 years, with a 10-year option that had           
          been exercised and three 5-year options remaining.  One real                
          estate investors’ survey, the Peter F. Korpacz National Investor            
          Survey, Third Quarter 1993, reported that the average going-in              
          capitalization rate on industrial properties such as this was               
          9.55 percent.  The CB Commercial National Investor Survey for the           
          2d Quarter 1993 in the “Warehouse/Distribution” category,                   
          reported a going-in capitalization rate of 9.8 percent.  Because            
          the property had a highly credit-worthy tenant with a long-term             
          lease, Hulberg increased the rate slightly to 10 percent.  The              
          estimated net operating income (NOI) of the subject property was            
          then divided by this rate.  Because the property owners bear no             
          costs beyond their management, the $1.19 rental rate was reduced            
          to $1.17 per square foot to reflect the management fee, resulting           
          in an NOI of $542,081.  The resulting property valuation would be           
          $5,420,810.                                                                 
               The second element of petitioner’s income approach valuation           
          is a discounted cash-flow analysis.  Under this approach, the               
          value of the property is equal to the present value of the future           
          cash.  The owner also possesses a reversionary interest at the              
          end of the holding period.  The rate used to discount the                   
          projected cash-flows and eventual reversionary interest takes               
          into consideration the inherent risks of real estate ownership              
          and competitive alternative investments.  The estate appraiser              






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