Case & Engagement Update

As a regular feature in our Valuation Briefs Newsletter, we will discuss the highlights of recent Audit Successes our Clients have had as a result of our real estate appraisal and real estate holding company and discount valuation services.

In a large Estate in the Southern California area, our Client died in February 2007, and at the time of his death, his Trust owned twenty-six (26) properties through three (3) Limited Partnerships, all of which were real estate holding companies. The Properties consisted of Shopping Centers, Mobile Home Parks, Medical Office buildings, Apartment Buildings, and vacant land. The total value of all the real estate appraised was $25,000,000.

This appraisal was conducted for federal estate tax purposes and to assist in the filing of the Form 706 (Federal Estate Tax Return), and it required an appraisal of all of the underlying income producing real estate owned by the Subject Entities in a second-to-die taxable estate.

Given the size of the Estate, the Client, their legal counsel and The Mentor Group, Inc. anticipated close scrutiny of our work by the IRS. In anticipation thereof, we did the following to ensure the supportability of our conclusions of value:

• Thoroughly researched the market for a two year period before our date of death to demonstrate that as of the date of value, for all property types we appraised, values were clearly beginning to decline.
• Interviewed well known Brokers in the area, city Officials, property owners, etc. to get opinions as to the trends in the market and the anticipated market periods that it would take to sell the Subject Properties;
• Conducted additional research in arriving at our Capitalization Rates that included probing for the net operating income (which is often not readily available) on the sales researched in order to determine the true Cap Rate related to the sales, researched RealtyRate.com data, Korpacz Real Estate Investor Survey, visited with large brokerage firms to procure data from them, Band of Investment Analysis, etc.
• Prepared detailed Adjustment Grids for each property and the sales comps used, with detailed explanations about each adjustment, such as size, location, time of sale, condition of the property, access; and
• Presented our conclusions of value for each of the 26 Subject Properties in separate stand alone real estate appraisal reports for each property to ensure a clear understanding of the specific value for each property and the differences in value for each property given that there were five (5) different property types.

All of our real estate values for this Estate were accepted without change or challenge by the IRS