Hunt & Sons, Inc. - Page 22




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                                                      Petitioner’s                    
                                   Respondent’s     “Estate-Planning”                 
             Property               Appraisal          Appraisal                      
                                   (Mr. Harris)      (Mr. McIntosh)                   
             Watt Avenue         $690,000            $674,000                         
             Fee Drive           240,000             225,000                          
             Mother Lode Drive      230,000             60,000                        
             Total               1,160,000           959,000                          

               Mr. McIntosh did not attempt to apply a “capitalization”               
          rate to his estate-planning values in order to justify                      
          petitioner’s rental rates because such a high “capitalization”              
          rate could not be supported.  Instead, Mr. McIntosh testified               
          that there is no consistent relationship between the value of               
          land and the rental value of land, and that “the use of a                   
          hypothetical cap rate * * * can only do one thing, and that’s get           
          you an inaccurate, unrealistic conclusion.”  This is because, Mr.           
          McIntosh claims, a tenant will pay more than the fair market rent           
          determined through the application of a “capitalization” rate               
          applied to the fair market value of the property if the tenant              
          can earn a profit at the higher rent.                                       
               We do not find Mr. McIntosh’s testimony credible in this               
          respect.  The fair market value of the land reflects the highest            
          and best use of the property.  The “capitalization” rate reflects           
          the rate of return that the owner would require from, and that a            
          tenant would pay to lease, the land.  The “capitalization” rate             
          reflects prevailing market interest rates for risk-free                     
          investments, together with a risk premium that takes into account           





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Last modified: May 25, 2011