Docket No. 05-00359.001-C-3
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They were all located in Davenport, Iowa. Nelson performed the
expense comparison on a line by line basis. Expenses ranged from
$150,027 to $801,020 or from $2,093 to $2,885 per rental unit or
from 39.01% to 58.80% of their effective gross incomes.
After this analysis, Nelson concluded the subject's actual and
stabilized expenses as calculated by Richter were considerably
higher than the expense comparables. Thus, Nelson suggested that
there were some inefficiency in the management or some process of
overstating the expenses that was being applied to the subject's
financial statements. Nelson explained the expense amounts for
his comparables and four of the five expense comparables in
Richter's report were under $3,000 per rental unit. As a result,
Nelson concluded the subject property's expenses as stabilized by
Richter at $378,073 or almost $4,000 per rental unit was
inconsistent with the market, especially given its newer age.
Nelson next calculated a capitalization rate using the same two
methods as developed by Richter. Nelson explained that due to a
lack of investor interest in the Quad Cities market,
capitalization rates tend to be higher than other parts of
Illinois. Using the market extraction method, the appraiser
analyzed suggested sales of apartment complexes located in
Davenport, Iowa, which is located across the Mississippi River
from the Rock Island County. Nelson testified he had complete
income and expense data for these properties. These properties
are from 3 to 37 years old; contain from 52 to 288 apartment
units; and sold from April 2004 to September 2005 for prices
ranging from $1,500,000 to $9,359,500 or from $26,375 to $42,143
per rental unit. Based on these comparables' effective gross
incomes, occupancy rates, operating expenses, and net operating
incomes, Nelson extracted overall capitalization rates ranging
from 7.01% to 9.22%. After considering adjustments, Nelson
determined a capitalization rate of 8.25% was appropriate.
Nelson also developed a capitalization rate of 8.25% using the
band of investments technique, identical to the rate under the
market extraction method. The appraiser next added a tax load of
2.73% to account for real estate taxes resulting in a final
capitalization rate of 10.98%. Capitalizing the subject
property's projected net operating income of $350,205 by 10.98%
resulted in estimated value of $3,189,472 or $33,224 per rental
unit. Nelson next deducted $50,000 to account for the
contributory value of personal property resulting in a final
value estimate under the income approach of $3,139,472. Nelson
calculated the subject's property taxes based on a market value
of $3,149,472 would be $85,776.
As a check of the aforementioned value estimate, Nelson
reconstructed the income approach using the estimated taxes of
