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these cases to show that, as of the initiation of either
partnership, such appreciation rates could not be achieved.
For example, respondent's appraiser, Mr. Charles D. Brown,
testified that in Houston, Texas, property values increased
during 1981, 1982, and 1983, even though interest rates
were increasing. He testified that if interest rates had
dropped, then the real estate market in Houston "would have
gone even more ballistic."
Moreover, in an internal memorandum, prepared in late
1983 or early 1984, a member of EPIC's management noted
that "since 1964, mortgage rates have averaged 2.75% above
the inflation rate" and "appreciation rates have also
averaged 2.09% above the inflation rate." On the basis of
these relationships, the memorandum concludes that EPIC's
"partnerships could be expected to generate positive
economic benefits". The memorandum also notes that there
have been periods, notably 1980, 1981, and 1982, when home
price appreciation performed below average, relative to
inflation and interest rates.
Respondent takes the position that neither EPIC nor
any of its limited partnerships, including EA 83-XII and EA
84-III, ever intended to realize a profit. Respondent's
position is that EPIC formed EA 83-XII and EA 84-III and
other limited partnerships in order to "satisfy its
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