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used an 11-percent discount rate, based on the national investor
survey averages along with a 3-percent property reversion rate.
Applied to the NOI, the resulting value under the discounted
cash-flow method is $5,100,000.
The appraiser then compared the two values and, giving
somewhat heavier weight to the direct capitalization method due
to the relatively flat income stream, reached a $5,300,000 value.
As further support for the estate appraisal value, Hulberg
calculated the cash-flow of the Kmart lease through 2022. The
present value, using a 10-percent discount with a 2-percent
management fee expense, resulted in a value of $5,106,000.
Hulberg then calculated the reversion value of the property at
the 2022 projected end of the lease. Assuming that the 51-year
old building would have a terminating useful life, Hulberg used
the 1993 appraisal value, appreciated the property using a 2-
percent inflation factor, and deducted demolition costs (at $2
per square foot) and sales expenses, yielding a net land value of
$1,678,000. Finally, using a 10-percent present value discount
rate, the land value would be $106,000, which when added to the
cash-flow figure results in a proposed $5,212,000 value.
Respondent’s expert, John A. Thomson, used the discounted
cash-flow method (income approach) coupled with a comparable
sales approach. To determine the appropriate discount rate for
the discounted cash-flow method, Thomson did not look to rates of
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