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Commissioner, 94 T.C. 193, 218 (1990); Estate of Gilford v.
Commissioner, 88 T.C. 38, 52 (1987). The owners decided to
refinance the property in 1994, even though a penalty was due and
a strict prepayment restriction was added to the modified
mortgage. This would indicate that there was no intention on the
owners’ part to sell at any time soon after the modification was
completed. For this reason, we do not consider the 1997 sale
price.
Both parties used acceptable methodologies for valuing the
subject property. Although the methodologies were appropriate,
we do not agree in all respects with the manner in which they
were applied. With respect to the Kmart property valuations, we
tend to favor petitioner’s applications. The use of the bond
return by respondent’s expert is less reflective of the below-
market return to be expected from the lease. Comparable real
estate investment returns are more appropriate here. In
addition, we disagree with Thomson’s manipulation of the rates to
cause a higher discount rate for the rental loss. Thomson’s
approach resulted in a higher value favoring respondent but was
without explanation for differing discounts for simultaneous
monetary events.
Moreover, Thomson did not explain his reasons for concluding
that the life of warehouse would exceed 60 years and therefore
have a residual value at the end of the Kmart lease. We accept
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