Estate of Duilio Costanza - Page 22

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               For respondent, Mr. Bollinger determined that the property             
          should earn $8.75 per square foot and be capitalized at a rate of           
          11 percent.  While he shared Mr. Rexroth’s conclusion that the              
          property paid too much in local taxes, Mr. Bollinger did not                
          increase the capitalization rate on that account.  Instead, he              
          adjusted the amount of anticipated future expenses.  From                   
          projected annual earnings of $96,250, he deducted expenses of               
          $28,272, and he deducted an additional $4,813 representing a 5-             
          percent vacancy rate.  The resulting annual income of $63,165,              
          capitalized at an 11-percent rate, produced a value of $575,000.            
               Initially, we believe that the assumed vacancy rates                   
          determined by each appraiser are unrealistic.  Mr. Rexroth                  
          forecast a vacancy rate of 15 percent over the entire forecast              
          period.  He noted the building’s unusual configuration on its lot           
          and the fact that the area’s actual gross rental for the previous           
          5 years reflected an abnormally higher vacancy rate.  The vacancy           
          rate used in Mr. Rexroth’s calculation is somewhat pessimistic.             
          The vacancy rate closest in time to the sale date is attributable           
          to the departure of a tax-preparation service from the building’s           
          largest unit.  There is no reason to assume that the largest                
          office site would be the one most often vacant.  Although                   
          occasional vacancies could be expected, they would be more likely           
          to occur in the more numerous smaller units.                                

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