Champions Retreat Golf Founders, LLC., Riverwood Land, LLC., Tax Matters Partner

United States Tax Court

T.C. Memo. 2022-106

CHAMPIONS RETREAT GOLF FOUNDERS, LLC, RIVERWOOD

LAND, LLC, TAX MATTERS PARTNER,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent 1

—————

Docket No. 4868-15. Filed October 17, 2022.

—————

Vivian D. Hoard, for petitioner.

Teri L. Jackson and John P. Healy, for respondent.

SUPPLEMENTAL MEMORANDUM

FINDINGS OF FACT AND OPINION

PUGH, Judge: This case is before the Court on remand from the

U.S. Court of Appeals for the Eleventh Circuit for further consideration

consistent with its opinion in Champions II, 959 F.3d 1033, vacating our

decision in Champions I, T.C. Memo. 2018-146. The Eleventh Circuit

concluded that Champions Retreat Golf Founders, LLC (Champions

Retreat), is entitled to a charitable contribution deduction under section

170 2 for the donation of a conservation easement in 2010. We must

1This Opinion supplements our previous Opinion Champions Retreat Golf

Founders, LLC v. Commissioner (Champions I), T.C. Memo. 2018-146, vacated and

remanded, Champions Retreat Golf Founders, LLC v. Commissioner (Champions II),

959 F.3d 1033 (11th Cir. 2020).

2 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references

are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant

times, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Served 10/17/22

2

[*2] determine the proper amount of that deduction, which in turn

requires us to value the conservation easement at the time of the

donation. 3

FINDINGS OF FACT

We summarize facts from our original opinion and set forth

additional findings of fact relevant to the valuation issue that remains.

Champions Retreat is a Georgia limited liability company with its

principal place of business in Augusta, Georgia.

I. The Golf Course

Champions Retreat was formed on November 6, 2001, to develop

and operate a golf course. On April 5, 2002, it acquired a 463.3-acre tract

of land. On 95.34 acres it developed a neighborhood called Founders

Village, and on 365.56 acres it built a 27-hole golf course. It raised an

initial $13.2 million for construction of the golf course by selling

residential lots in Founders Village. All 67 lots in Founders Village were

sold within a few months after construction. The golf course was

completed in June 2005.

The golf course has three nine-hole courses, a pro shop, a

restaurant, a locker room, a cart storage facility, a driving range and

practice area, and a paved parking lot. Gary Player, Arnold Palmer, and

Jack Nicklaus each designed one of the nine-hole courses. Mr. Player

designed the Creek course; Mr. Palmer designed the Island course; and

Mr. Nicklaus designed the Bluff course. 4

3 After the case was remanded, we asked the parties whether additional

briefing or argument was necessary. They responded that the record was closed and

the remaining valuation issue fully briefed, and all that remained for us was to decide

the value of the conservation easement. We are aware that on December 18, 2018,

before the case was remanded to us, the United States filed a complaint in the U.S.

District Court for the Northern District of Georgia against multiple defendants

including Claud Clark III, petitioner’s expert witness in this case. See United States v.

Zak, No. 1:18-cv-5774-AT, 2019 WL 13059907 (N.D. Ga. June 28, 2019). Because

neither party brought this to our attention and it is not part of the record before us, we

do not consider it in our Opinion.

4 For purposes of our Opinion we refer to the buildings and the three 9-hole

courses together as the golf course and specify, as appropriate, whether we mean the

existing 27-hole golf course or a hypothetical 18-hole golf course considered by the

experts. We use the generic term “property” when discussing the valuation performed

3

[*3] The Creek course is the westernmost of the three courses and it

almost completely surrounds Founders Village. Due east of the Creek

course is the driving range. The Bluff course is to the north-northeast of

the driving range. The Island course is due east of the driving range.

The Little River—an offshoot of the Savannah River that goes around

Germain Island—runs through the Island course. Six of the nine holes

on the Island course are on Germain Island.

The golf course is a few miles south of the Strom Thurmond Dam,

which is operated by the U.S. Army Corps of Engineers. The dam

provides flood control for properties along the Savannah River including

the golf course. In the past, water released through the dam into the

Savannah River flooded the golf course. The Island course flooded more

frequently than the other two courses.

The Federal Emergency Management Agency (FEMA) prepares

flood insurance rate maps for Columbia County, Georgia, where

Champions Retreat is located. According to those maps, at least a

portion of the golf course was within a floodplain area. The 2010 version

of those maps failed to use the most recent topographic data. At the time

of trial, FEMA was revising the maps to account for the most recent

data.

II. Development Restrictions

The golf course is in Riverwood Plantation, a master planned

community that occupies approximately 3,000 acres. A Planned Unit

Development (PUD) narrative was prepared in July 1998 by the

previous owner, and a PUD zoning governed the development of

Riverwood Plantation. The PUD provided that the development “may

include either an 18 hole or a 27 hole golf course.” The development of

Riverwood Plantation was not complete at the time of trial.

The golf course is in a section of Riverwood Plantation called the

Reserve. Along with the golf course and Founders Village, the Reserve

includes Bishops Court; the Cottages at Riverwood Plantation

(Cottages), which adjoin the golf course; and the Bungalows at

Champions Retreat (Bungalows). The Cottages and the Bungalows

provide guest accommodations. Bishops Court is a residential

development of 95 residential lots; none of the lots adjoins the golf

by the experts, explaining any differences between what they valued to the extent

relevant to our analysis.

4

[*4] course. As of January 2010, 50 of the 95 lots in Bishops Court had

been sold.

The golf course, Founders Village, Bishops Court, Cottages, and

Bungalows are subject to certain declarations and restrictions

(declarations). 5 Each developed area within the Reserve is subject to the

Reserve declaration. And the Reserve is subject to the Riverwood

Plantation master declaration. Riverwood Land, LLC (Riverwood Land),

is the declarant in all of these declarations.

The Riverwood Plantation master declaration states that the

construction of recreational facilities is not guaranteed:

“Proprietary Recreational Facility” means real property

within the Development Plan which is developed into and

operated privately or commercially as a recreational

facility for golf, tennis, swimming, or other sports and

leisure activities. The construction of Proprietary

Recreational Facilities is not guaranteed in the

development of Riverwood.

The Reserve, Founders Village, and Bishops Court declarations

have a slightly different provision: “Except for the construction of a golf

club on the Golf Club Property, the construction of recreational facilities

is not guaranteed in the development of the Reserve.” 6

The Reserve, Founders Village, golf course, Cottages, and

Bungalows declarations define golf club property:

“Golf Club Property” mean all Parcels, collectively,

designated as such on the recorded plats of The Reserve or

in the Master Documents. Golf Club Property may be used

for golf courses, driving ranges, putting greens, clubhouses,

lodges, and other facilities and amenities reasonably

associated with a golf club.

Section 1 (Use) of Article VI of the golf course declaration states

that “[t]he Parcels and Improvements thereon in Champions Retreat

shall be used exclusively for the operation of a golf club, which may

5 The parties refer to the golf course declaration as the “Champions Retreat

declaration.”

6 The text quoted is almost identical across the declarations. To the extent

variations are not relevant for our analysis, we do not discuss them.

5

[*5] include golf courses, driving ranges, putting greens, clubhouses,

lodges, and other facilities and amenities reasonably associated

therewith.”

The Reserve, Founders Village, golf course, and Cottages

declarations all state that “[n]o person or entity shall commit any act in

The Reserve, or maintain any Parcel in a manner, which would detract

from the playing qualities or aesthetics of the golf club, or constitute an

annoyance to persons utilizing its facilities.”

Each declaration includes an almost identical reservation

regarding amendment by the declarant (Riverwood Land):

During the Development Period,[7] Declarant reserves and

shall have the sole right, without the approval of any

Owner or Mortgagee: (a) to amend this Declaration (i) to

cure any ambiguity or inconsistency, (ii) to comply with the

request of any Mortgagee referred to in Article VII,

Section 8 of the Master Declaration within two years from

the date hereof, or (iii) in any other manner which does not

adversely affect the substantive rights of an existing

Owner or Mortgagee; (b) to annex additional land to

Champions Retreat and impose additional covenants,

conditions and restrictions thereon; and (c) to include in

any contract, deed or other instrument any additional

covenants, conditions and restrictions applicable to any

Parcel which do not lower the standards of this

Declaration.

The golf course declaration also permits amendment by the golf

course owner in section 1 of Article VII:

This Declaration may be amended by the Golf Club Owner

by the execution of a written instrument in recordable form

containing the amendment. During the Development

Period, any such amendment shall require the written

approval of Declarant. Thereafter, any such amendment

shall require the written approval of the Board, the

amendment shall be effective when such instrument is

7 The Declarations define the “Development period” as “the period commencing

on the date hereof and ending when Declarant has sold or committed to a separate

scheme of development all land in the Development Plan.” The Development Plan is

not part of the record.

6

[*6] recorded in the real estate records of Columbia County,

Georgia.

Each declaration provides that it “may be terminated at any time

within the initial twenty (20) years period by recording an instrument

signed by Declarant, the Golf Club Owner, and eighty percent (80%) of

the Owners.” 8

III. The Easement

On December 16, 2010, Champions Retreat conveyed an

easement to the North American Land Trust (NALT) that covered

348.51 acres of the golf course (easement area). The easement area

includes 25 of the 27 holes in their entirety, most of the 2 remaining

holes, and the driving range. It does not include the parking lot, the pro

shop, the restaurant, the locker room, the cart storage facility, the

Cottages, or the Bungalows.

The easement document restricts the ways that Champions

Retreat can use the easement area, including the types of structures

that Champions Retreat can build on the easement area. Among other

things, the easement document prohibits division of the easement area

into lots.

IV. The Subsequent Sale

In October 2014 the golf course was sold to Tower 3 Golf,

Champions Retreat, LLC, for $4,543,000. As a condition of sale,

Champions Retreat had to purchase additional land, which cost

$187,368, and build a maintenance facility, which cost $1,564,644. The

sale price also included inventory of $234,941 and other fixed assets and

improvements of $357,585.

Shortly before the 2014 sale, the golf course declaration was

amended by Riverwood Land (as declarant) and Champions Retreat (as

golf course owner) pursuant to section 1 of Article VII. The amendment

deleted section 1 of Article VI, the use restriction, entirely.

V. Champions Retreat’s Reporting Position

Champions Retreat claimed a $10,427,435 charitable

contribution deduction on its Form 1065, U.S. Return of Partnership

8 The Golf Club Owner is only mentioned in the golf course declaration.

7

[*7] Income, for the 2010 taxable year, for its grant of the easement to

NALT. Champions Retreat included with its Form 1065 a copy of an

appraisal performed by Claud Clark III. His appraisal relied on the

“before and after” method to value the easement. See Treas. Reg.

§ 1.170A-14(h)(3)(i) and (ii). Mr. Clark concluded that the highest and

best use of the property unencumbered by the easement was as a

residential subdivision. On the basis of that conclusion, he calculated

the fair market value of the easement to be $10,427,435.

VI. Expert Witnesses

The parties offered expert witnesses to assist us in valuing the

conservation easement. Because our valuation hinges on our evaluation

of the competing expert opinions, we examine the details of their

opinions in our analysis but summarize briefly below.

Petitioner again hired Mr. Clark, who was a certified general real

estate appraiser licensed in Alabama, Florida, Georgia, South Carolina,

Ohio, and Colorado, this time to prepare an expert report. 9 He has taken

a specialized course in conservation easement appraisals, and in the last

15 years has appraised over 200 conservation easements.

We recognized Mr. Clark as an appraiser competent to value

conservation easements. He offered his opinion that before the easement

grant, the highest and best use of the property was as a partial

residential subdivision with an 18-hole golf course, and after the

easement grant, a 27-hole golf course. Using the “before and after”

method, Mr. Clark opined that the fair market value of the easement

was $10,883,789.

9 Petitioner’s posttrial briefs are problematic in their presentation of Mr.

Clark’s opinions. Simply put, counsel for petitioner disregarded the limitations of the

rules of evidence and the bounds of the record in this case. In posttrial briefs, petitioner

referred to Mr. Clark’s expert report as a supplement to his original appraisal even

though the original appraisal was not accepted as his expert report. This reinforced

our impression that Mr. Clark was serving as an advocate as much as an expert. In

addition, petitioner’s posttrial briefs rely upon an Internal Revenue Service (IRS)

appraiser who did not testify and whose report was not in the record. We allowed

petitioner to question Mr. Clark about the basis for his opinion (his reliance on the IRS

appraiser); but we also observed that petitioner could not use a testifying expert (or

his report) as a back door to admit the expert opinion of someone not testifying. The

problem that we face in this case is that respondent did not offer a viable alternative

to Mr. Clark’s flawed opinion. See discussion infra Part V.

8

[*8] Petitioner also offered the opinion of Thomas F. Wingard on the

highest and best use of the property. Mr. Wingard has been a real estate

appraiser for about 40 years and a member of the Appraisal Institute for

more than 30 years. He has special training in conservation easement

valuations.

We recognized Mr. Wingard as an expert in conservation

easement valuations. He concluded that the highest and best use of the

property before the easement was as a partial residential development.

He also opined on the correlation between the sale price of the golf

course in 2014 and its value in 2010. Mr. Wingard co-authored his expert

report with his colleague Martin H. Van Zandt, who did not testify at

trial. During voir dire Mr. Wingard explained that he adopted those

sections in the report that were written by Mr. Van Zandt.

Respondent offered the opinion of David G. Pope, who has been a

real estate appraiser for about 33 years, specializing mostly in hotels

and golf properties. Mr. Pope is licensed in Georgia and is a member of

the Appraisal Institute as well as the Society of Golf Appraisers (serving

as vice president at the time of trial). He had not valued a conservation

easement before this assignment but did take a course on valuing them.

We recognized Mr. Pope as an expert in the valuation of real

estate. He concluded that the highest and best use of the property before

and after the easement grant was the operation of the golf course.

According to Mr. Pope, because the highest and best use of the property

remained the same before and after, the fair market value of the

conservation easement was $20,000.

OPINION

I. Burden of Proof

Ordinarily, the taxpayer bears the burden of proving that the

Commissioner’s determinations are erroneous. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). That burden includes proving

entitlement to any deductions claimed. See INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering,

292 U.S. 435, 440 (1934). Resolution of the valuation dispute before us

does not depend on which party has the burden of proof. We resolve it

on a preponderance of the evidence in the record. See Knudsen v.

Commissioner, 131 T.C. 185, 189 (2008), supplementing T.C. Memo.

2007-340; Schank v. Commissioner, T.C. Memo. 2015-235, at *16.

9

[*9] II. Valuation Principles

Section 170(a)(1) provides that a deduction is allowed for any

charitable contribution that is paid within the taxable year. In general,

a taxpayer may not claim a deduction for a charitable contribution of

property consisting of less than the taxpayer’s entire interest in the

property. See § 170(f)(3). A taxpayer may deduct the value of a

contribution of a partial interest in property, however, if the

contribution constitutes a “qualified conservation contribution.”

§ 170(f)(3)(B)(iii). In Champions II the Eleventh Circuit found that

Champions Retreat is entitled to a charitable contribution deduction; to

determine the amount of the deduction we now must determine the

value of the easement contributed. We start with the legal principles we

must apply.

The amount of a charitable contribution deduction generally is

the fair market value of the contributed property at the time it is

contributed. Treas. Reg. § 1.170A-1(a), (c)(1). The fair market value is

the price at which the property would change hands between a willing

buyer and a willing seller, neither being under any compulsion to buy or

sell and both having reasonable knowledge of relevant facts. Id.

para. (c)(2). As this Court has explained, under the willing buyer and

willing seller standard, the buyer and the seller are hypothetical

persons, rather than specific individuals or entities. Bank One Corp. v.

Commissioner, 120 T.C. 174, 306 (2003), aff’d in part, vacated and

remanded in part sub nom. JP Morgan Chase & Co. v. Commissioner,

458 F.3d 564 (7th Cir. 2006). Valuation is not a precise science, and the

value of property on a given date is a question of fact to be resolved on

the basis of the entire record. See Kaplan v. Commissioner, 43 T.C. 663,

665 (1965).

Where, as here, there is no established market for similar

conservation easements and no record exists of sales of easements, the

fair market value of the donated easement “is equal to the difference

between the fair market value of the property it encumbers before the

granting of the restriction and the fair market value of the encumbered

property after the granting of the restriction.” Treas. Reg.

§ 1.170A-14(h)(3)(i). We have used this methodology in evaluating

conservation easements. See, e.g., Browning v. Commissioner, 109 T.C.

303, 315, 320–24 (1997); Hughes v. Commissioner, T.C. Memo. 2009-94,

2009 WL 1227938, at *4. The parties’ experts agree that the before and

after method applies here.

10

[*10] Lastly, when using the before and after valuation method, any

enhancement in the value of a donor’s other property resulting from the

easement contribution, or of property owned by certain related persons,

reduces the value of the charitable contribution. Treas.

Reg. § 1.170A-14(h)(3)(i).

III. Expert Reports Generally

As is common in valuation cases, the parties offer expert opinions

to assist us. An expert’s opinion is admissible if it assists us, as the trier

of fact, to understand the evidence or to determine a fact in issue. Fed.

R. Evid. 702(a); Rule 143(g). We evaluate expert opinions in the light of

each expert’s demonstrated qualifications and other evidence in the

record. See Parker v. Commissioner, 86 T.C. 547, 561 (1986). When

experts offer competing estimates of value, we determine how to weight

those estimates by examining the factors they considered in reaching

their conclusions. See Casey v. Commissioner, 38 T.C. 357, 381 (1962).

In prior cases we have cautioned the parties that we may find that

the evidence of value presented by one of the parties is “sufficiently more

convincing than that of the other party, so that the final result will

produce a significant financial defeat for one or the other, rather than a

middle-of-the-road compromise which we suspect each of the parties

expects the Court to reach.” Buffalo Tool & Die Mfg. Co. v.

Commissioner, 74 T.C. 441, 452 (1980); see also Boltar, L.L.C. v.

Commissioner, 136 T.C. 326, 333–40 (2011) (rejecting expert opinion

that disregards relevant facts affecting valuation or exaggerates value

to incredible levels as unreliable and unhelpful to the Court). We also

may accept only those portions of expert opinions that we find reliable.

See Parker, 86 T.C. at 561–62. And we may determine value on the basis

of our own examination of the record. See Silverman v. Commissioner,

538 F.2d 927, 933 (2d Cir. 1976), aff’g T.C. Memo. 1974-285.

While parties may try “to infuse a talismanic precision,” we have

characterized the valuation task as “inherently imprecise and capable

of resolution only by a Solomon-like pronouncement.” Messing v.

Commissioner, 48 T.C. 502, 512 (1967). It is not an exact science; rather

it is a question of judgment dependent on the evidence put before us. See

Estate of Spruill v. Commissioner, 88 T.C. 1197, 1228 (1987).

With these legal principles in mind, we first consider the experts’

opinions on highest and best use of the property before and after the

grant of the easement. We then evaluate the experts’ opinions on the

11

[*11] value of the property with and without the easement. We conclude

by computing the value of the easement after making those adjustments

that are supported by the record.

IV. Highest and Best Use

In determining the fair market value of property, we first must

determine its highest and best use. See Stanley Works & Subs. v.

Commissioner, 87 T.C. 389, 400 (1986); Treas. Reg. § 1.170A-14(h)(3)(i)

and (ii). In determining a property’s highest and best use we consider

the highest and most profitable use for which it is adaptable and needed

or likely to be needed in the reasonably near future. Olson v. United

States, 292 U.S. 246, 255 (1934). The highest and best use can be any

realistic, objective, potential use of the property. Symington v.

Commissioner, 87 T.C. 892, 896 (1986).

Mr. Clark, Mr. Wingard, and Mr. Pope all began their respective

analyses by determining the highest and best use of the property before

and after Champions Retreat granted the conservation easement. Mr.

Clark determined that the highest and best use of the property before

the easement grant was as a residential subdivision with an 18-hole golf

course; Mr. Wingard essentially agreed with Mr. Clark; and Mr. Pope

concluded that the highest and best use before the easement grant was

operation of a 27-hole golf course.

All agree that because of various use restrictions imposed by the

easement document, the highest and best use of the property after the

easement grant was the continuing operation of a 27-hole golf course.

Almost the entire difference between the parties’ competing

easement valuations is attributable to their disagreement over the

highest and best use of the property before the easement grant. Thus,

the first issue that we must decide is the highest and best use of the

property before the easement grant. We conclude that petitioner’s

argument that the highest and best use of the property was a residential

subdivision with an 18-hole golf course is stronger.

A. Mr. Clark

Petitioner’s first expert, Mr. Clark, opined that the highest and

best use of the property in late 2010 was as a residential subdivision

with an 18-hole golf course.

12

[*12] Mr. Clark divided the property into three parts: (1) 81.5 acres

consisting of the Bluff course and the 17 existing lots along the Creek

course (Bluff course part), (2) 278.44 acres consisting of the Creek and

Island courses, and (3) the five rental cottages. He performed a highest

and best use and valuation analysis on each part separately.

For the Creek and Island courses part, Mr. Clark concluded that

its highest and best use would be to continue as an 18-hole golf course.

Since respondent argues that the entire property should be a golf course,

both parties in effect agree that the highest and best use of the Creek

and Island courses part is to remain a golf course. We adopt their

consensus.

For the five rental cottages, Mr. Clark concluded that their

highest and best use would be to continue as golf course guest

accommodations. Respondent does not contest this, and we therefore

conclude that this would be the highest and best use for the cottages.

The parties disagree about only the Bluff course part. 10 Mr. Clark

determined that redeveloping the Bluff course part into residential lots

would be its highest and best use. He reached this conclusion by

examining whether this use was (1) legally permissible, (2) physically

possible, (3) financially feasible, and (4) maximally productive. He

applied these factors to the property both as vacant and as improved.

Mr. Clark determined that the development of residential lots

was legally permissible because the property was zoned PUD. He noted

that “no known deed restrictions would further limit the legally

permissible uses.” In his report, Mr. Clark did not discuss any of the

restrictive covenants recorded in the declarations and explained that

Champions Retreat’s representative advised him that the development

would be possible “under any alternative uses.”

In concluding that a residential subdivision was physically

possible on the Bluff course part, Mr. Clark relied on several factors:

10 Respondent noted that by dividing the property into these three parts, Mr.

Clark avoided performing a feasibility analysis of the entire 27-hole golf course, i.e., he

failed to evaluate whether it would have been financially feasible to retain the 27-hole

golf course (its current use). We think that it may be inferred that Mr. Clark thought

that his proposed highest and best use was better than any other use of the property,

including its then-current use. And we note that respondent’s expert, Mr. Pope,

concluded that it was not financially feasible to redevelop the property, mainly on the

basis of a supposed lack of demand; he did not perform a numerical financial feasibility

analysis for a residential subdivision either.

13

[*13] total area included, amount of frontage, shape, topography,

drainage patterns, soil composition, flood plain status, utilities

available, and off-street improvements. Mr. Clark did not discuss these

factors in depth but noted that the property was in a planned

development, with nearby improvements in very good condition. He also

determined that the property was not in a designated flood plain area

and that there were no unusual soil conditions. According to Mr. Clark,

the surrounding wetlands, rivers, and creeks enhanced the property. He

also relied on an engineering plan to confirm that development would be

physically possible.

Mr. Clark concluded that recreational use would not be

financially feasible. He based this conclusion in part on “the poor

operating history financially of the course.” After rejecting recreational

use, Mr. Clark determined that developing the Bluff course part into

residential lots would be financially feasible. The property was in

Riverwood Plantation, which he considered a highly developed and

desirable community. Mr. Clark opined that the remaining 18-hole golf

course enhanced the desirability of a new gated residential development

and that there was strong demand for water and golf course oriented

property, i.e., lots with river and golf course frontage. He noted that

other subdivisions “outside the gate” were successful, and that all the

lots in Founders Village were sold in less than a year. Further, he noted

that at the time of his valuation, no golf course lots were for sale in the

Reserve. This, according to Mr. Clark, signaled “an excellent demand.”

Finally, he concluded that dividing the Bluff course part into residential

lots of varying sizes would be the most productive use.

B. Mr. Wingard

Petitioner’s second expert, Mr. Wingard, also offered an opinion

on the highest and best use of the property before the easement grant: a

full or partial residential development.

First, Mr. Wingard concluded that it would be legally permissible

to redevelop the property. He noted that PUD zoning allowed greater

flexibility to redevelop. Furthermore, Champions Retreat’s

representative advised Mr. Wingard that any restrictions on

redevelopment could be easily terminated.

Second, Mr. Wingard determined that it would be physically

possible to redevelop the land. However, he noted that because of some

narrow corridors around Founder’s Village, redevelopment of that

14

[*14] portion of the property would be more challenging. In addition, the

easternmost portion of the property appeared to be within the flood

plain, and, according to Mr. Wingard, the numerous ponds and wetland

areas could render a portion of the land unsuitable for development. On

the other hand, he noted that wetlands, ponds, and rivers may enhance

a residential development. He thought that the Creek course would

present the most challenge. Mr. Wingard also took into account that the

property had available utilities, including water and sewer, indicating

that redevelopment into residential lots was physically possible.

Third, Mr. Wingard concluded that residential development

would generate enough profit to warrant the costs involved in the

development of the lots and would be financially feasible. He examined

lot sales in Riverwood Plantation from 2008 to 2010 and identified an

active residential real estate market. He determined that there were 58

lot sales in 2008 with an average lot price of $52,885; 17 lot sales in 2009

with an average lot price of $47,100; and 65 lot sales in 2010 with an

average lot price of $50,328. In the last three years before the easement

grant, there was a total of 140 lot sales, with an average absorption rate

of 3.89 sales per month, which he opined was “positive,” considering the

national recession. Demand for residential development in the area led

him to conclude that redevelopment of the property was financially

feasible.

Additionally, Mr. Wingard concluded that residential

development would generate a higher return than operation of the

property as a golf course. He relied on the golf course’s historical income

and expenses from 2008 to 2010. He estimated that the golf course was

operating at a loss in 2008 to 2010 and “the financial feasibility of the

[golf course] . . . [was] questionable.” Consequently, he concluded that

given the significant demand, residential development of a portion or

the entire property would generate a higher return than its current use

as a golf course.

Finally, he concluded that the maximally productive use would be

as a residential development.

C. Mr. Pope

Respondent’s expert, Mr. Pope, analyzed the highest and best use

of the property before the easement grant both as vacant and as

improved. In both scenarios he considered four criteria: legal

permissibility, physical possibility, financial feasibility, and maximum

15

[*15] productivity. Mr. Pope concluded that the highest and best use of

the property as vacant was to keep it vacant for future development of a

golf course, and as improved with a 27-hole golf course was to continue

operating it.

Mr. Pope began by considering whether redevelopment of the

property into residential lots would be physically possible. He noted that

the property had an irregular shape with more than 50% of the land in

a flood hazard area. He opined that with its narrow corridors and

location in a flood hazard area, the property would be more difficult to

develop for residential use: “An obvious ‘physically’ possible use . . . is

for golf course development. Other . . . uses of the land may include some

limited development on the non-flood area portions of the property.” At

trial he admitted knowing that the FEMA flood maps on which he relied

were inaccurate and under review.

Mr. Pope then analyzed legal permissibility, i.e., the zoning and

covenants restricting the property. According to Mr. Pope, residential

redevelopment of an existing golf course carried “a high level of risk and

uncertainty” because of the possibility of implied covenants. Mr. Pope

considered the restrictions in the declarations as potential risks in his

legal permissibility analysis; but because respondent instructed him to

value the property as if these restrictions did not exist, Mr. Pope did not

offer any conclusions regarding their impact.

Next, Mr. Pope focused on financial feasibility. He discussed two

options: residential development and golf course development. He

concluded that there was no immediate financially feasible use for the

property as vacant but continued operation as a 27-hole golf course was

financially feasible.

According to Mr. Pope, market conditions for the two types of

potential uses for the property were the most significant to a financial

feasibility analysis. Specifically, Mr. Pope concluded that at the end of

2010 the demand for additional lot development “was limited.” To reach

this conclusion he analyzed development and sales activity in Founders

Village and Bishops Court.

Mr. Pope noted that even though all 67 lots in Founders Village

were sold within a few months after they were developed, the pace at

which houses were built in Founders Village was much slower: From

2005 to 2010, only 14 houses were constructed, and at the end of 2010,

54 lots were still vacant. According to Mr. Pope, this slow pace of

16

[*16] construction indicated low demand for additional lots similar to

the ones in Founders Village.

Similarly, of the 95 lots in Bishops Court, 43 remained unsold in

2010, and only 33 sold lots had homes built. 11 Thus, Mr. Pope concluded

that additional development similar to Bishops Court also was not

justified because of low demand.

Mr. Pope then turned to the financial feasibility of a golf course.

He noted that “in good real estate markets, golf clubs tend to be

constructed as development amenities that drive lot and home prices

higher. . . . [D]evelopers typically design golf courses to incorporate

unbuildable land, i.e., floodplain land, and to maximize frontage and

views for surrounding residential development.” According to Mr. Pope,

the property was designed this way. Because income from operating a

golf course (without a residential development) would not be enough to

justify construction costs, Mr. Pope concluded that it would not be

financially feasible to develop the property into a golf course if the

property was vacant.

However, Mr. Pope concluded that “in December of 2010

continued operation of the property as a private golf club was financially

feasible.” He based his conclusion primarily on two factors. First, the

repayment of membership fees and deposits (a total of about $2 million)

would complicate a potential redevelopment of the property. Second,

Champions Retreat’s revenues from operating the 27-hole golf course

exceeded operating expenses and supported an expectation of positive

operating profits.

Finally, Mr. Pope concluded that because the continued use of the

property as a 27-hole golf course was the only possible use of the

property (as improved), it also was the use that maximized the value of

the property.

D. Analysis of the Highest and Best Use Before the Easement

Grant

Respondent offers three reasons in support of his position that the

highest and best use of the property in late 2010 could not have been a

residential subdivision: (1) the property was subject to restrictive

covenants that limited its use to a golf course; (2) certain physical

11 The parties stipulated that the total number of lots in Bishops Court was 95,

but Mr. Pope in his report indicated that it was 92.

17

[*17] qualities of the property, namely flood areas and narrow corridors,

would have made redeveloping for residential use difficult; and (3) there

was a lack of demand for residential lots in the area at that time. 12 They

frame the dispute between the parties, so we will examine each of them

in turn.

1. Restrictive Covenants

When the before and after method is used, the appraisal of the

property before the easement grant “must take into account . . . any

effect from zoning, conservation, or historic preservation laws that

already restrict the property’s potential highest and best use.” Treas.

Reg. § 1.170A-14(h)(3)(ii). The golf course, Founders Village, Bishops

Court, the Cottages, and the Bungalows each were subject to certain

declarations and restrictions. Thus, respondent argues, when the

easement was granted, the property already was subject to use

restrictions that made the residential redevelopment a remote

possibility. This argument is unpersuasive.

First, we agree with respondent that the golf course declaration

imposed an express use restriction: Section 1 of Article VI of the golf

course declaration provided that the property had to be used “exclusively

for the operation of a golf club.” However, section 1 of Article VII of that

declaration allowed the golf course owner to amend the declaration

during the development period with the consent of the declarant. At the

time of the grant, Champions Retreat was the owner of the golf course,

Riverwood Land was the declarant, and Riverwood Plantation was still

under development. Under state law, therefore, Champions Retreat

could have amended the declaration to remove the use restriction if

necessary. See Davis v. Miller, 96 S.E.2d 498, 502 (Ga. 1957) (holding

that retention of a right by the subdivision developer to except lots from

recorded restrictions on their use was valid and plaintiffs, having

purchased with notice of the right to make exceptions, could not

complain when exceptions were made pursuant to powers retained). 13

12 Respondent’s expert also observed that any developer would be worried

about implied covenants. That may be so, but respondent failed to show the effect of

this risk on the value of the lots. And we are unpersuaded that the risk of implied

covenants alone would have made redevelopment impossible.

13 Petitioner argued only that the use restriction could have been amended

pursuant to section 2 of Article VII (Amendments by Declarant). Because we conclude

that the use restriction could have been removed pursuant to section 1, by the golf

18

[*18] Second, respondent argues that two other provisions in the

declarations restricted the use of the property to a golf course. We

question this.

The first provision stated that “[n]o person or entity shall commit

any act . . . which would detract from the playing qualities or aesthetics

of the golf club, or constitute an annoyance to persons utilizing its

facilities.” It did not impose an explicit use restriction like the one in the

golf course declaration, which stated unambiguously that the property

“shall be used exclusively for the operation of a golf club.” Instead, it

cautioned property owners to behave or refrain from behaving in a

certain way. And as respondent correctly notes, land use restrictions

must be explicit and unambiguous to be enforced. See Bales v. Duncan,

204 S.E.2d 104, 106 (Ga. 1974) (holding that there is a presumption in

favor of the free use of the land by its owner and that any doubt

regarding the applicability of a restrictive covenant should be resolved

in favor of the owner); see also Pritchett v. Vickery, 156 S.E.2d 459, 462

(Ga. 1967) (holding that use restrictions on private property are not

favored and any claim of use restrictions must be clearly established).

A second provision stated that “[e]xcept for the construction of a

golf club on the Golf Club Property, the construction of recreational

facilities is not guaranteed.” This provision is inconsistent with the one

in the Riverwood Plantation master declaration, which provided that

the construction of recreational facilities was not guaranteed in the

development of Riverwood Plantation. Because each declaration allowed

the declarant to amend it during the development period to cure an

ambiguity or inconsistency, Riverwood Land could have done so. See

Davis, 96 S.E.2d at 502. Nor did this provision expressly call for

construction of a 27-hole golf course, leaving open the possibility that an

18-hole golf course would suffice. At the least this is not a clear use

restriction either.

In sum, restrictive covenants did not prohibit redevelopment of

the Bluff course part into residential lots.

course owner with consent from the declarant, we need not consider whether that

would also have been possible under section 2. In fact, when the golf course declaration

was amended in 2014, and the use restriction in Article VI was deleted entirely,

Champions Retreat (the golf course owner at that time) and Riverwood Land (the

declarant) relied on section 1 and not section 2. And Mr. Pope stated in his report that

Riverwood Plantation was still under development when the easement was granted

(and into 2016).

19

[*19] 2. Irregular Shape and Flood Areas

Next, respondent focused on the challenges presented by certain

physical attributes of the property: the narrow corridors and the flood

plain location. According to Mr. Pope, this could have made

redevelopment more costly and less attractive to developers than a more

typical rectangular parcel. On the other hand, all three experts agreed

that developers purposefully design golf courses in a way that allows

them to incorporate unbuildable land such as wetlands, ponds, and

rivers. This design provides attractive views for the surrounding

residential development, maximizes golf course frontage, and therefore

increases property value.

While irregularly shaped land and the risk of flooding could have

complicated residential development, we are not persuaded that they

would have precluded redevelopment of a portion of the golf course into

residential lots. Any of the challenges or benefits associated with

physical features of the property may (and should appropriately) be

reflected in the cost of developing the property. Mr. Pope failed to do

this.

3. Demand for the Lots

Having determined that redevelopment was legally and

physically possible, we now consider the financial feasibility of the

particular use. The experts provided similar definitions of a financial

feasibility test: Generally, if a particular use can produce sufficient

revenue to pay all expenses and provide a positive return on investment,

that use is considered financially feasible. In evaluating whether

residential redevelopment would be financially feasible, all three

experts focused on market conditions and in particular on demand for

additional residential development in the Reserve. Messrs. Clark and

Wingard found sufficient demand for additional lots, and Mr. Pope found

demand too low to justify further residential development. Although

none of the experts provided a thorough financial feasibility analysis of

all potential uses, we are persuaded that demand was sufficient for at

least a partial residential development, for the following reasons.

In evaluating demand, the experts analyzed residential lot sales

in the years leading up to the grant of the easement. Mr. Pope relied on

sales in Founders Village and Bishops Court, and Mr. Wingard analyzed

sales in 11 Riverwood Plantation neighborhoods. Although Mr. Clark

did not provide a demand analysis in the highest and best use section of

20

[*20] his expert report, he analyzed lot sales in the subdivisions

(including Riverwood Plantation) as part of his before and after method.

See infra p. 24.

Mr. Pope opined that a better measure for demand was the pace

of home construction in the area. He noted that even though all of the

lots in Founders Village were sold within a few months after they were

developed in 2004, many of them remained vacant at the end of 2010.

Moreover, according to Mr. Pope, Champions Retreat had trouble selling

lots in Bishops Court, with many lots still unsold at the time of the

valuation. Mr. Pope concluded that the low absorption rate for lots in

Founders Village and Bishops Court indicated low demand, and

therefore further residential development was less financially feasible

in 2010.

We are unpersuaded by Mr. Pope’s conclusion that the highest

and best use of the property could not be a residential subdivision.

Primarily, it lacks support in the record. Mr. Pope relied on lot sales

(and the pace of home construction) in only two neighborhoods in

Riverwood Plantation. And the fact that the lots in one of those

neighborhoods—Founders Village—were sold within a few months of

development in 2005 undercuts Mr. Pope’s conclusions. We agree that a

low absorption rate in Bishops Court could signal lower demand for the

type of lots that can be found in this particular development; however,

we do not think it is sufficient to support a conclusion of a complete lack

of demand for any type of residential development in the area.

We also are hesitant to draw conclusions about demand based

solely on the fact that some lots remained vacant after they were sold

because there are other plausible explanations, and a developer

normally is less concerned about what happens to a lot after it is sold. A

buyer may acquire a lot intending to build a house immediately or in the

future, or may intend to hold it as an investment hoping for appreciation

without intending to build on it ever. In other words lot vacancy does

not mandate a conclusion that there was no demand.

Mr. Wingard, by contrast, observed an active market for

residential lots in Riverwood Plantation. As he noted in his report, there

were 58 lot sales in 2008, 17 lot sales in 2009, and 65 lot sales in 2010

(in 11 neighborhoods combined). Mr. Clark also observed a number of

sales from 2008 to 2010 (although he did not group those sales year by

year). All three experts mentioned other factors important to evaluating

demand: desirable location, access to utilities and other infrastructure,

21

[*21] and population and household income growth. We found these

observations well grounded in the available market data, and they

persuade us that the demand for additional residential development was

sufficient to make further residential development financially feasible.

E. Conclusion

We conclude on the record before us that the highest and best use

of the property at the end of 2010 (before the easement grant) was a

partial residential development (developing the Bluff course part into

residential lots) together with an 18-hole golf course.

Our next step is to determine the fair market value of the

property as if put to its highest and best use before and after the grant

of the easement.

V. Fair Market Value

Three methods are commonly used to determine fair market

value: (1) the market (sales comparison) method, (2) the income method,

and (3) the asset-based (replacement cost) method. See Chapman Glen

Ltd. v. Commissioner, 140 T.C. 294, 325 (2013). The question of which

method to apply in a particular case is a question of law. Id. at 325–26.

The sales comparison method values a property by comparing it

to similar properties sold in arm’s-length transactions in or about the

same period. See Estate of Spruill, 88 T.C. at 1229 n.24; Wolfsen Land

& Cattle Co. v. Commissioner, 72 T.C. 1, 19 (1979). Because no two

properties are ever identical, the appraiser then considers aspects of the

comparable properties such as time of sale, size, or other significant

features and makes appropriate adjustments for each to approximate

the qualities of the property. See, e.g., Wolfsen Land & Cattle Co., 72

T.C. at 19. The reliability of the sales comparison method depends upon

the comparability of the property selected and the reasonableness of

adjustments made to establish comparability. Id. at 19–20.

The income method values a property by discounting expected

cashflow from the property. See, e.g., Marine v. Commissioner, 92 T.C.

958, 983 (1989), aff’d without published opinion, 921 F.2d 280 (9th Cir.

1991). Property value is determined under this method by adding the

sum of the present values of the expected cashflows from the property

to the present value of the residual value of the property. See Chapman

Glen Ltd., 140 T.C. at 327; see also Crimi v. Commissioner, T.C. Memo.

2013-51, at *64. The theory behind the approach is that an investor

22

[*22] would be willing to pay no more than the present value of a

property’s anticipated future net income. See Trout Ranch, LLC v.

Commissioner, T.C. Memo. 2010-283, 2010 WL 5395108, at *4, aff’d, 493

F. App’x 944 (10th Cir. 2012).

The subdivision development method is a variation of the income

method recognized by this Court previously. See, e.g., Crimi, T.C. Memo.

2013-51, at *64–65; Consol. Invs. Grp. v. Commissioner, T.C. Memo.

2009-290, 2009 WL 4840246, at *15; Glick v. Commissioner, T.C. Memo.

1997-65, 1997 WL 42357, at *5. It values undeveloped land by treating

the property as if it were subdivided, developed, and sold. Glick v.

Commissioner, 1997 WL 42357, at *5.

The subdivision development method consists of six primary

steps. See Crimi, T.C. Memo. 2013-51, at *64 n.28 (citing Appraisal

Institute, The Appraisal of Real Estate 370–76 (13th ed. 2008)). First,

the subdivided property’s highest and best use is determined. Second,

the comparable sales method is used to identify comparable finished

(developed) lots and derive a per-lot value. Third, anticipated gross

proceeds from the sale of the developed lots are calculated by

multiplying the per-lot value by the total number of estimated finished

lots. Fourth, expected net proceeds are calculated by reducing the

expected gross proceeds by direct and indirect costs and entrepreneurial

profit. Fifth, net sale proceeds are discounted to present value at a

market-derived rate over the development and absorption period. Sixth,

appropriate discounts for lack of marketability, partition, and market

absorption are applied where appropriate. The resulting figure equals

the indicated value of the undeveloped subdivision. The same process is

repeated for all of the subdivisions. The sum of the values for all

subdivisions is the value of the entire property.

The replacement cost method values a property by determining

the cost to replace it less depreciation or amortization. See Chapman

Glen Ltd., 140 T.C. at 327. The parties agree that the replacement cost

method is not a reliable method for determining the value of the

property in this case.

We begin our analysis of the fair market values before and after

the easement grant with a review of the experts’ conclusions.

A. Fair Market Value Before the Easement Grant

We concluded above that the highest and best use was as a partial

residential development with an 18-hole golf course before the easement

23

[*23] grant. Because Mr. Pope’s valuation of the easement assumes the

wrong highest and best use of the property before the easement grant

(as a 27-hole golf course), it is not helpful to our valuation. Mr. Clark

valued the property as a partial residential development and an 18-hole

golf course before the easement grant. Therefore, we will start with his

valuation and then consider respondent’s criticisms of it.

1. Mr. Clark

Mr. Clark divided the property into the same three parts for

valuation as for determining the highest and best use: (1) the Bluff

course part, (2) the Creek and Island courses, and (3) the five rental

cottages.

(a) Bluff Course Part

Mr. Clark’s hypothetical subdivision development plan

subdivided the 81.5 acres of the Bluff course into 193 lots, which,

together with the existing 17 lots along the Creek course, comprised a

subdivision of 210 residential lots of varying sizes and frontage:

Lot Type No. of Lots

Waterfront 10

Wetlands frontage 9

Medium golf frontage 30

Small golf frontage 2

Acreage small 2

Large 11

Medium 51

Small 78

Existing lots: acreage golf 13

Existing lots: cottage lots 4

Total 210

Mr. Clark then performed a discounted cashflow (DCF) analysis

of this subdivision to determine the before value. This involved

24

[*24] estimating the retail price at which lots would sell (using the

comparable sales method for this step), projecting the probable

absorption rate (i.e., the number of lots that would sell every year),

estimating sales and holding expenses, and calculating a discounted

present value of the resulting net income stream.

First, Mr. Clark determined development costs of $12,000 per lot

using information from the local developer. He increased this number

by sales commissions (6%), legal and accounting fees (3%), and taxes.

Mr. Clark estimated that the development would be completed in stages

over the 2.5 years.

Second, Mr. Clark estimated gross retail value of the lots using

the comparable sales method. He found sales of the most comparable

lots in Sumter Landing and River Island—competing subdivisions in

Evans, Georgia.

Average Lot

Price sq./ft. Sales

Average Average Absorption

Range of

Subdivision Lot Lot Size Rate per

Lot Number Date

Price -AC Month

Sales of Lots Range

Sumter

Landing $48,000 0.44 $3.80 04/02/09

2009–10 Lot $56,662 1.33

86,200 0.33 26 11/16/10

Sales in

Evans, GA

River Island 65,000 $9.66 03/04/08

2008–10 Lot

149,950 0.55 0.87

Sales in 360,000 28 11/10/10

Evans, GA

Riverwood 47,214

Plantation (2009) 37,000 $4.21 01/27/09 1.67

Lot Sales 0.27

2009–10 52,921 108,600 80 09/24/09 5.79

Interior (2010)

Riverwood

Jan

Plantation

45,000 — 2011

Interior and 77,128 Varies Varies

150,000 390 Dec

River Front

2016

Lots

25

[*25] Mr. Clark determined that sales of comparable lots ranged from

$37,000 to $360,000. He noted a price difference between the riverfront

lots and interior lots as well as interior lots and lots fronting the golf

course. He estimated a $20,000 upward adjustment for lots with golf

course frontage and a $25,000 upward adjustment for sales of

comparable nongated lots.

After making adjustments, Mr. Clark concluded that a range from

$70,000 to $300,000 was a reasonable retail value for the newly

developed lots, and that the gross retail value of all developed lots was

$22,467,800, yielding an average of $106,990 per lot:

Lot Type No. of Lots Price

Waterfront 10 $175,000

Wetlands frontage 9 165,000

Medium golf frontage 30 137,000

Small golf frontage 2 103,400

Acreage small 2 110,000

Large 11 105,000

Medium 51 100,000

Small 78 70,000

Existing lots: acreage golf 13 137,000

Existing lots: cottage lots 4 300,000

Total 210 $22,467,800

$106,990

Average lot price (22,467,800 / 210)

Third, Mr. Clark analyzed the absorption rates in the comparable

subdivisions he identified (Sumter Landing and River Island). He based

his estimated absorption rates on sales of comparable lots in the same

neighborhood and in comparable subdivisions with lots that have water

and golf course frontage. The monthly absorption rate in those

developments ranged from 0.87 to 5.79 lots per month. See table supra

p. 24. Mr. Clark also relied on current and future economic trends,

considered the overall national housing market, and the

26

[*26] population and household income growth projected over the next

five years. 14

Mr. Clark estimated that the lots in the Bluff course part would

be constructed and sold in 2.5 years. In 2011 a total of 58 lots would be

constructed and 67 would be sold (58 newly constructed and 9 existing

lots), with an average absorption rate of 5.58 lots per month. In 2012,

135 lots would be constructed and 96 would be sold, with an average

absorption rate of 8 lots per month. In the first six months of 2013 the

remaining 47 lots would be sold, with an average absorption rate of 7.83

lots per month. 15

Finally, Mr. Clark calculated the discounted present value of the

resulting net income stream from the lot sales. From his estimated total

sales revenue of $22,467,800 he subtracted estimated total expenses of

$4,891,735, resulting in total gross profit of $17,576,065. He then

applied a discount rate of 21.25% over the 2.5 years he estimated that it

would take to sell all of the lots and concluded that the fair market value

of the 81.5 acres and 17 existing lots as of December 16, 2010, was

$13,306,170. 16

(b) Creek and Island Courses 18-holes (278.44

acres)

To determine the value of the 18-hole golf course, Mr. Clark used

the income method. Because he found a limited number of sales of

comparable golf courses, Mr. Clark did not use the comparable sales

method.

Mr. Clark’s income method uses net income and applies a net

income multiplier (a capitalization rate is a reciprocal of the net income

multiplier) to determine the fair market value. Therefore, Mr. Clark

first had to determine the net operating income (NOI) generated by the

property. Champions Retreat’s representative provided to Mr. Clark the

income and expense statements for 2008 to 2010 for the 27-hole golf

14 Mr. Clark’s report includes an Area Data Section which indicates 10.74%

population growth, 11.45% income growth, and 8.31% growth in home values between

2010 and 2015.

15 The total number of lots sold in 30 months is 210; therefore, the overall

average absorption rate is 210 / 30 = 7 lots per month or 84 lots per year.

16 Mr. Clark considered the discount rate of 21.25% reasonable “based on the

current loan interest rate, the risks involved with developing a subdivision and the

projected holding period of 2.5 years.”

27

[*27] course. Mr. Clark computed historical income (less interest, taxes,

depreciation and amortization) for 2008 to 2010 to average $179,522

annually, and, after consulting with several golf course professionals,

reduced this number by 20% to reflect that an 18-hole golf course would

have slightly less income than a 27-hole golf course.

Next, Mr. Clark applied an income multiplier of 8 (equivalent to

a capitalization rate of 12.5%) and determined that the value of an

18-hole golf course on December 16, 2010, was $1,148,936 (($179,522 ×

80%) × 8).

(c) Five Rental Cottages

To determine the fair market value of the five rental cottages Mr.

Clark again used the income method. Champions Retreat’s

representative provided income and expense statements for 2008 to

2010 for the five rental cottages. To calculate the value, Mr. Clark

calculated a capitalization rate and applied it to the NOI for the

projected year. He concluded that on December 16, 2010, the fair market

value of the five rental cottages was $2,355,077. 17

According to Mr. Clark, the total fair market value of the property

as of December 16, 2010, was $16,810,183:

81.5 Acres and 17 lots $13,306,170

18-Hole golf course 1,148,935

5 Rental cottages 2,355,077

Total fair market value

$16,810,183

before easement grant

2. Analysis

Respondent offers two main criticisms of Mr. Clark’s before

valuation. First, respondent argues that the subdivision method Mr.

Clark used, along with his failure to use a comparable sales method,

make his valuation unreliable. Second, according to respondent, Mr.

Clark’s absorption rate is not supported by market data and should be

17 The parties agree that because the before and after values of the cottages

are the same, they do not affect the fair market value of the easement.

28

[*28] lower. We disagree with respondent’s first point but agree with his

second. 18

(a) The Valuation Method

Respondent argues that the subdivision method is “susceptible to

manipulation” and requires an appraiser to make many assumptions.

These assumptions, respondent argues, make this method less reliable

than the comparable sales method.

The comparable sales method is preferred generally, depending

on the situation. See Estate of Spruill, 88 T.C. at 1229 n.24 (“In the case

of vacant, unimproved property . . . the comparable sales approach is

‘generally the most reliable method of valuation . . . .’” (quoting Estate of

Rabe v. Commissioner, T.C. Memo. 1975-26, aff’d, 556 F.2d 1183 (9th

Cir. 1977) (unpublished table decision))). But we have recognized that

the subdivision development method also is an appropriate method. See,

e.g., Crimi, T.C. Memo. 2013-51, at *64–65; Glick v. Commissioner, 1997

WL 42357, at *5.

Respondent criticizes Mr. Clark for mentioning two sales in his

expert report but failing to explain why those two sales could not have

formed the basis for a valuation under the comparable sales method. But

respondent failed to offer his own analysis of those sales using the

comparable sales method. Without more in the record, we cannot

determine whether the lots sold were comparable, how they might have

been similar or different, and whether (or what) adjustments were

18 Mr. Clark was not a compelling witness (and indeed we have criticized him

in other cases, see, e.g., Glade Creek Partners, LLC v. Commissioner, T.C. Memo.

2020-148, aff’d in part, vacated in part and remanded, No. 21-11251, 2022 WL 3582113

(11th Cir. Aug. 22, 2022)); but we note that respondent did not offer specific criticisms

of Mr. Clark’s valuation other than those we address in our analysis, relying instead

on general statements. For example, respondent did not challenge the comparables

Mr. Clark used or suggest alternatives. Nor is there sufficient evidence in the record

for us to second guess Mr. Clark’s valuation except as we set forth below. We are not

valuation experts and can only make adjustments to valuations, or fashion our own

valuation, to the extent that the record permits. Here, the valuations by both Mr. Clark

and Mr. Pope are flawed; but because Mr. Clark’s valuation has more support in the

record, we conclude that it was “sufficiently more convincing,” see Buffalo Tool & Die

Mfg. Co., 74 T.C. at 452, and therefore start with his conclusions and modify them to

the extent we can, using our best judgment, given the record before us, see Estate of

Spruill, 88 T.C. at 1228.

29

[*29] necessary to make those lots comparable to the property at issue

in this case. 19

Thus, constrained by the facts in the record, and with no

competing valuation by respondent, we adopt petitioner’s use of the

subdivision method as appropriate for the property.

(b) The Absorption Rate

The absorption rate of the lots is an important component of Mr.

Clark’s DCF analysis. The absorption rate accounts for the fact that the

value of the property depends in part on how fast lots are sold. Net sale

proceeds must be discounted to present value at a market rate that

reflects the period over which lots will be developed and sold. Mr. Clark

concluded that all the lots in the proposed subdivision would be

developed and sold within 2.5 years with an average absorption rate of

7 lots per month. Respondent argues that this absorption rate is inflated

and unsupported (but did not offer a more appropriate rate).

Petitioner’s other expert, Mr. Wingard, opined that an absorption

rate of 3.89 lots per month was considered high at the end of 2010.

Undermining Mr. Clark’s conclusions further, the absorption rates in

the competing developments that Mr. Clark considered in his report all

were lower than his 7-lots-per-month average, varying from 0.87 to 5.79,

and he failed to take into account low absorption rates in Bishops Court

(although some of the proposed lots in the subdivision differed from the

lots in Bishops Court, some were comparable).

We conclude that an absorption rate of 3.5 lots per month—that

is, one-half the rate that Mr. Clark assumed—better reflects the

evidence before us, including the expert testimony, and is consistent

with Mr. Wingard’s opinion. This rate assumes that it would have taken

five years to develop and sell all the lots in the new subdivision.

Modifying Mr. Clark’s calculations to allow an absorption rate of

3.5 lots per month (and five years to develop and sell) results in a fair

market value of the 81.5-acre subdivision and 17 existing lots of

$10,762,856:

19 Because no two properties are identical, the appraiser has to consider aspects

of the comparable properties such as time of sale, size, or other significant features and

make appropriate adjustments for each to approximate the qualities of the property at

issue. Estate of Spruill, 88 T.C. at 1229 n.24; Wolfsen Land & Cattle Co., 72 T.C. at 19.

30

[*30] Mr. Clark’s computations based on the absorption rate of 2.5 years

Gross Profit from the Sale of Discount Present

Lots (21.25%) Value

Jan–June 2011 $2,869,688 0.908153 $2,606,116

July–Dec 2011 3,927,013 0.824742 3,238,772

Jan–June 2012 4,918,760 0.748992 3,684,112

July–Dec 2012 2,511,804 0.680200 1,708,529

Jan–June 2013 3,348,800 0.617726 2,068,641

Total $13,306,170

Recomputation with an absorption rate of five years 20

Gross Profit from the Sale of Discount Present Value

Lots (21.25%)

Jan–June 2011 $1,434,844 ($2,869,688/2) 0.908153 $1,303,058

July–Dec 2011 1,963,507 (3,927,013/2) 0.824742 1,619,386

Jan–June 2012 2,459,380 (4,918,760/2) 0.748992 1,842,056

July–Dec 2012 1,255,902 (2,511,804/2) 0.6802 854,265

Jan–June 2013 1,674,400 (3,348,800/2) 0.617726 1,034,320

July–Dec 2013 1,434,844 (2,869,688/2) 0.560989 804,932

Jan–June 2014 1,963,507 (3,927,013/2) 0.509463 1,000,334

20 For simplicity, we repeat the same pattern of lot sales for the second 2.5-year

period. Another way to recalculate the absorption rate would be to repeat the pattern

of sales for every six-month period. We performed this calculation too, which yielded a

total present value of $10,754,941. See infra Appendix. The difference of $7,915

between these two recomputed estimates was not significant in the context of this

valuation.

31

[*31]

July–Dec 2014 2,459,380 (4,918,760/2) 0.462670 1,137,881

Jan–June 2015 1,255,902 (2,511,804/2) 0.420176 527,700

July–Dec 2016 1,674,400 (3,348,800/2) 0.381584 638,924

Total $10,762,856

B. Fair Market Value After the Easement Grant

Mr. Clark and Mr. Pope agree that because of the restrictions

placed on the property by the easement document, its highest and best

use was as a 27-hole golf course after the easement grant.

1. Mr. Clark

(a) 27-Hole Golf Course

To determine the value of the property as a 27-hole golf course

after the easement grant, Mr. Clark used the same methodology that he

used for valuing the 18-hole golf course, the income method. He relied

on Champions Retreat’s income and expense statements for 2008 to

2010. He therefore used the same starting annual NOI estimate of

$179,522 and the same income multiplier of 8 and estimated that the

fair market value under the income method was $1,436,176 ($179,522 ×

8).

Then Mr. Clark compared his estimated value under the income

method to the sale price of the property in 2014. He concluded that some

downward adjustments to the $4,543,000 sale price were appropriate to

account for changes to the property after 2010 and for the passage of

time. First, because the 2014 sale contract required Champions Retreat

to acquire additional land and build a maintenance facility, he

subtracted the value of those. Second, he subtracted the value of other

fixed assets and improvements made between 2010 and 2014. Third, he

subtracted the value of inventory that was transferred as part of the

sale. Finally, he made an adjustment to account for the change in the

market in the intervening four years. Mr. Clark summarized his

adjustments as follows:

32

[*32] 2014 Sale Price $4,543,000

Less —

Maintenance facility −1,564,644

construction cost

Additional land purchased for −187,368

maintenance facility

Additional fixed assets and

improvements between 2010 −357,585

and 2014

Food, beverage & golf shop

−234,941

inventory

Adjustment for inventory value

increase in 4 years (1.5% for 4 −131,908

years)

Market condition adjustment

−123,993.24

1.5% for 4 years

Total $1,942,560.76

Mr. Clark opined that the price at which the 27-hole golf course

was sold in 2014 supported his valuation under the income method of

the property on December 16, 2010, of $1,436,176.

(b) Seventeen Existing Golf Course Lots and Five

Rental Cottages

In valuing the 17 existing golf course lots Mr. Clark used a DCF

analysis. He used the same lot values as in his “before” analysis. He

estimated a two-year period to sell all 17, with an absorption rate of 8.5

lots per year. He subtracted sales commissions, closing costs, and real

estate taxes and applied the same 21.25% discount rate. He concluded

that the fair market value of the 17 lots as of December 16, 2010, was

$2,135,141.

33

[*33] Finally, Mr. Clark determined that the fair market value of the

five rental cottages would be the same before and after the easement

grant, $2,355,077. 21

(c) Easement

Mr. Clark concluded that the fair market value of the easement

was $10,883,789:

Before Value —

81.5 Acres and 17 existing lots $13,306,170

18-Hole golf course 1,148,936

Five rental cottages 2,355,077

Less the After Value —

17 Existing lots −2,135,141

27-Hole golf course with

−1,436,176

easement

Five rental cottages −2,355,077

Total $10,883,789

2. Mr. Wingard

Mr. Wingard also considered the sale of the property in 2014 to

arrive at a cash equivalent price of the property on December 16, 2010,

after the easement grant. He made adjustments slightly different from

Mr. Clark’s:

2014 Sale Price $4,543,000

Less —

Maintenance facility −1,564,644

construction cost

21 Mr. Wingard also determined that the improvements on the property that

were not part of the easement would have the same values in both the before and after

analyses and thus would not affect the easement value. Respondent does not contest

this.

34

[*34] Additional land purchased for −187,368

maintenance facility

Additional fixed assets and

improvements between 2010 −357,585

and 2014

Food, beverage and golf shop

−234,941

inventory

Prepaid monitoring fee to

−113,575

NALT

Total $2,084,887

Mr. Wingard noted that the ideal sales comparison method for

property with an easement would rely on other similarly sized

properties with “identical developmental usage and being similarly

encumbered.” He stated that comparable properties were difficult to find

and concluded that “[a]fter an extensive research, this type of data is not

available.” Mr. Wingard then concluded that the adjusted sale price of

the 27-hole golf course in 2014 (with the easement) may be considered

the cash equivalent price of the property in 2010 after the easement

grant.

3. Mr. Pope

Mr. Pope opined that because the highest and best use of the

property before and after the easement grant was as a 27-hole golf

course, the value in both scenarios would be “relatively similar.”

Therefore, according to Mr. Pope, the actual value of the property was

not a “major issue;” instead, the cost of the “impairment imposed by the

Easement” was indicative of a fair market value of the conservation

easement. To compare his after-easement valuation to Mr. Clark’s we

start with his valuation before the easement grant.

To determine the value of the property before the easement grant,

Mr. Pope used the income method (the direct capitalization approach)

and the comparable sales method. Mr. Pope started with the direct

capitalization approach. To project NOI, Mr. Pope relied on Champions

Retreat’s 2008 to 2010 revenue and expenses, the operating history of

the golf course in 2011, and income and expense data from several

comparable businesses. The following charts summarize revenue and

expenses at the golf course, the data from comparable properties, and

Mr. Pope’s projections:

35

[*35] Revenue

Projection

Comparables

A B C SGA

Total Revenue $4,795,371 $3,319,780 $4,533,317 $3,773,775

Property History —

2008 2009 2010 2011

Total Revenue 4,030,088 3,625,318 4,402,221 4,665,344

— $4,486,700

Expenses

Projection

Comparables

A B C SGA

Total Revenue $4,084,752 $2,925,868 $4,554,899 —

Property History —

2008 2009 2010 2011

Total Revenue 4,012773 3,282,306 4,224,083 4,183,872

— $3,941,787

Mr. Pope determined that projected NOI was $544,913 (projected

revenue less projected expenses). He then adopted a capitalization rate

of 11% and by dividing the property’s NOI by 11%, he determined that

the (rounded) value of the 27-hole golf course was $5 million. He reduced

that value to account for the cost of building a maintenance facility. Mr.

Pope acknowledged the higher cost of the maintenance facility that was

constructed in 2014 (in connection with the sale of the property) but

opined that a reduction of $500,000 was “sufficient to establish an

‘average’ maintenance complex.” He concluded that the value of the

27-hole golf course under the income approach was $4,500,000.

Mr. Pope then turned to the comparable sales approach. He

acknowledged that at the end of 2010, the golf course sales market was

still suffering from the recent recession and “there was limited sales

36

[*36] activity” and, consequently, limited comparable sales data. In his

appraisal, he used a gross income multiplier analysis in the context of

comparable sales and determined that the fair market value under the

comparable sales approach was $5,100,000. Mr. Pope then reconciled

the values under the income approach and under the comparable sales

approach. The resulting value was $4,800,000.

Mr. Pope explained that $4,800,000 reflected the total value of the

golf course operation, i.e., it included the (1) real property value,

(2) business personal property value, and (3) intangible business

enterprise value. To determine the value of just the real property, Mr.

Pope made further adjustments. He allocated $500,000 to business

personal property (furniture, fixtures, and equipment) and subtracted

this amount from $4,800,000 to arrive at the fair market value of the

27-hole golf course before the easement grant of $4,300,000.

Mr. Pope concluded that the easement did not have any

“measurable impact in value.” He noted that over time, there may be a

small amount of value loss because of “impairment associated with . . .

transfer fees and monitoring costs for the [e]asement.” According to Mr.

Pope, the value lost would be $20,000. Thus, he concluded that the fair

market value of the property after the easement grant was $4,280,000

($4,300,000 − $20,000) and the fair market value of the easement was

$20,000:

Before Value $4,300,000

Less the After Value 4,280,000

Total $20,000

4. Analysis

(a) Value Under the Income Method

Both Mr. Clark and Mr. Pope used the income method to value

the 27-hole golf course. The biggest difference in their respective

valuations stems from the following two issues: (1) calculation of the

NOI each expert used; (2) expenses allocated to building the

maintenance facility. We address these issues below.

37

[*37] (1) NOI

Mr. Clark based NOI solely on the financial statements from 2008

to 2010, concluding it was $179,522 annually. Mr. Pope estimated NOI

using both 2008–10 financial statements and projections (based on

comparable properties), concluding it was $544,913 annually. Mr. Clark

multiplied NOI by a net income multiplier of 8 (12.5% capitalization

rate) and concluded that the fair market value was $1,436,176. Mr. Pope

applied an 11% capitalization rate to his NOI, then subtracted the value

of the maintenance facility, and concluded that the value was

approximately $4,500,000.

If we plug Mr. Clark’s NOI into Mr. Pope’s formula (allocating

$500,000 for the maintenance facility), we get $1,132,018. Alternatively,

if we plug Mr. Pope’s NOI into Mr. Clark’s formula, we get $4,359,304.

This demonstrates that almost the entire difference in the experts’

valuations stems from their different NOI estimates.

Neither party was particularly helpful to the Court in

determining the appropriate NOI estimate for purposes of applying the

income method. For example, respondent failed to contest Mr. Clark’s

valuation of an 18-hole golf course in the “before” scenario, in which he

used historical NOI. And petitioner simply argued that Mr. Pope’s NOI

was incorrect, ignoring that a potential buyer could take into account

not only historical but also projected income and expenses in estimating

a property’s NOI.

Furthermore, Mr. Pope repeatedly emphasized the importance of

relying on historical operating data as opposed to projections in valuing

an operating golf course. For example, he said that “[m]arket

participants (buyers, sellers, brokers, etc.) for golf properties tend to give

significant weight to historical income levels for an operating club” and

“the valuation of a mature club like the subject will rely largely on its

operating history using the benchmark data primarily as supporting

information.” But Mr. Pope then estimated an annual NOI three times

higher than the average historical annual NOI of the golf course. This

contradicts his statements about the importance of historical operating

data, and undermines our confidence in his NOI estimate. We have

previously held that, in valuing real property, a valuation based on the

actual income and expenses of a property is preferable to one based on

income and expense estimates ascertained from comparable properties.

See Ambassador Apartments, Inc. v. Commissioner, 50 T.C. 236, 243

38

[*38] (1968), aff’d, 406 F.2d 288 (2d Cir. 1969); LeFrak v. Commissioner,

T.C. Memo. 1993-526, 1993 WL 470956, at *12 n.11.

Mr. Clark used a net income multiplier of 8 (12.5% capitalization

rate). And Mr. Pope in his report indicated that capitalization rates for

similar properties ranged from 10% to 12.3%. Thus, we conclude that

Mr. Clark’s net income multiplier of 8, which results in a capitalization

rate of 12.5%, was appropriate.

(2) Maintenance Facility

None of the parties’ expert reports was helpful in determining the

cost of a maintenance facility. Mr. Clark simply relied on the actual cost

of building the maintenance facility in 2014, four years post valuation.

And Mr. Pope explained that he never had a chance to look at the

maintenance facility built in 2014 for the purpose of determining its

value. Thus, his estimate of $500,000 is unsupported. In any case, Mr.

Clark did not subtract the value of the maintenance facility in his

income method, and we agree that it is unnecessary to subtract the value

of the maintenance facility under the income method. Therefore, we do

not need to determine how much it would cost to build a maintenance

facility on the property to apply the income method.

In sum, we think that Mr. Clark’s valuation under the income

method was more accurate than Mr. Pope’s. However, we agree with Mr.

Pope’s inclination to consider income and expense projections in the

computations of the NOI, which Mr. Clark failed to do. Consequently,

we conclude that Mr. Clark’s estimated value of $1,436,176 should be

higher to reflect NOI projections. We now turn to the later sale of the

golf course encumbered by the easement.

(b) Value Based on Subsequent Sale of the

Property

Mr. Clark and Mr. Wingard each offered an opinion on the

correlation of the 2014 sale of the golf course encumbered by the

conservation easement to the posteasement value of the property in

2010. Respondent argues that the 2014 sale should not be considered

because it came after the valuation date. Respondent cites Bergquist v.

Commissioner, 131 T.C. 8, 17 (2008), for the proposition that

“[s]ubsequent events are not considered to fix fair market value, except

to the extent that they were reasonably foreseeable at the date of

valuation.” We have framed this inquiry as a question of

39

[*39] relevance. 22 See, e.g., id. at 18; Trout Ranch, LLC v.

Commissioner, 2010 WL 5395108, at *12; see also Fed. R. Evid. 401

(defining evidence as relevant if it has any tendency to make a fact that

is of consequence in determining the action more or less probable than

it would be without the evidence). And we have admitted, as relevant,

evidence of subsequent sales of property within a reasonable time of the

valuation date. See, e.g., Estate of Hillebrandt v. Commissioner, T.C.

Memo. 1986-560, 1986 WL 21780 (admitting evidence of sales of the

various parcels of property that occurred five years after the decedent’s

death); see also Trout Ranch, LLC v. Commissioner, 2010 WL 5395108,

at *12 (“[T]he evidence of lot sales within a reasonable period after the

date of valuation . . . tends to make a given estimate of the lot prices

more or less likely; that is, such evidence is relevant.”). Here, we agree

with petitioner that the subsequent sale of the property is sufficiently

close in time to the valuation date to make that sale relevant. Next, we

determine the weight of this evidence.

Mr. Clark and Mr. Wingard made slightly different adjustments

to the 2014 sale price to arrive at an adjusted sale price of about $2

million: Mr. Wingard concluded it was $2,084,887, and Mr. Clark, that

it was $1,942,560.76. However, only Mr. Clark’s adjustments accounted

for the passage of time: He subtracted $255,901.24 from the 2014 sale

price to reflect appreciation that occurred in the intervening four years.

Respondent did not challenge this adjustment; and without anything

else in the record that would allow us to assess market changes from

2010 to 2014, we accept this adjustment as appropriate.

Mr. Clark claims that the adjusted 2014 sale price of

$1,942,560.76 supports his valuation under the income method of

$1,436,176, but he does not explain why he concludes this despite the

difference of over $500,000 between the two valuations. The difference

may be attributable to Mr. Clark’s use of a low NOI in the income

method, as we observed above (which undermined our confidence in the

reliability of the value he determined under the income method). The

22 We note in addition that we consider the later sale only insofar as it may be

relevant to our determination of the easement’s value on the date the easement was

granted. Thus, the Eleventh Circuit’s admonition that we not consider subsequent

events that change a valuation after the valuation date would not apply. See O’Neal v.

United States, 258 F.3d 1265, 1271–75 (11th Cir. 2001) (relying on Ithaca Tr. Co. v.

United States, 279 U.S. 151 (1929), and holding that the value of a deduction claimed

under section 2053(a)(3) must be valued as of the date of the decedent’s death and that

events occurring after the decedent’s death that alter the value of the deduction must

be disregarded).

40

[*40] record yields no other insights that would allow us to understand

the difference.

We think that the value that Mr. Clark determined by adjusting

the 2014 sale price, corroborated by Mr. Wingard’s similar conclusion, is

a more reliable indication of the fair market value of the golf course after

the easement grant. No evidence is more probative of a property’s fair

market value than its direct sale. Estate of Newberger v. Commissioner,

T.C. Memo. 2015-246, at *6. We have observed that an arm’s-length sale

of the property to be valued provides more reliable evidence of fair

market value than sales of other comparable properties. See

Ambassador Apartments, Inc., 50 T.C. at 243; see also Hughes v.

Commissioner, 2009 WL 1227938, at *9 (relying on an earlier sale of

property in determining the fair market value because a recent sale is

the best evidence of fair market value); Wortmann v. Commissioner, T.C.

Memo. 2005-227, 2005 WL 2387487, at *10 (stating that the most

persuasive evidence of a property’s value is the actual sale of the

property 17 months before the contribution); Higgins v. Commissioner,

T.C. Memo. 1990-103, 1990 WL 17267 (relying on sale of property four

years after the valuation date).

Finally, we observe that the $4,543,000 sale price of the golf

course with the easement in 2014 (which by then included additional

land and a new maintenance facility, along with other assets and

improvements that were not part of the property valued by the experts

in 2010) is only slightly higher than Mr. Pope’s pre-easement valuation

of $4,300,000 as of the end of 2010, a timeframe for which he could not

find comparable golf course sales because, he acknowledged, the golf

course sales market was still suffering from a recent recession. This

further bolsters our conclusion that Mr. Pope’s before and after values

of the property were excessive (indeed, they were not even playable,

much less close to the pin).

Therefore, after considering the entire record before us, we find

that the fair market value of the golf course after the easement grant

was $1,942,560.

C. Fair Market Value: Conclusion

While we agree with respondent that Mr. Clark’s valuation of the

easement was too high, we reject Mr. Pope’s conclusion that the value of

the easement was de minimis because its grant had no adverse effect on

the fair market value of the property. Not only did the easement

41

[*41] document prohibit further subdivision of the property, but it also

restricted future construction of additional buildings and other

structures on the property. Thus, even assuming that in late 2010 there

was no demand for a 210-lot subdivision, we are hard pressed to imagine

that a prospective purchaser would not have considered easement

restrictions material in determining the purchase price.

On the basis of the record before us, giving due consideration to

our observation at trial of the fact witnesses and the experts, we

conclude that the fair market value of the easement in 2010 was

$7,834,091:

Before Value —

81.5 Acres and 17 existing lots $10,762,856

18-Hole golf course 1,148,936

Five rental cottages 2,355,077

Less the After Value —

17 Existing lots −2,135,141 23

27-Hole golf course −1,942,560

Five rental cottages −2,355,077

Total $7,834,091

As a check on our analysis, we also computed the present value of

the 193 lots that could not be developed because of the easement. The

resulting number, $8,627,715, confirms the appropriateness of our

valuation above. 24 Adjusting this value by $793,624, i.e., by the

difference in value of an 18-hole course before the easement grant and a

27-hole course after the easement grant ($1,148,936 − $1,942,560),

results in $7,834,091, the fair market value of the easement.

23Although we have adjusted the absorption rate that Mr. Clark applied in his

before valuation, we will not do so here. It is reasonable to assume that 17 existing lots

would sell faster than 193 lots that first had to be developed.

24 We calculated that the present value of the Bluff course part (193 newly

developed lots and 17 existing lots) was $10,762,856. See supra p. 30. And the value of

the 17 existing lots was the same before and after: $2,135,141. See supra p. 33. Thus,

the value of just 193 newly developed lots was $8,627,715 ($10,762,856 − $2,135,141).

42

[*42] Any contentions we have not addressed we deem irrelevant, moot,

or meritless.

To reflect the foregoing,

Decision will be entered under Rule 155.

43

[*43] APPENDIX

Recomputation with an absorption rate of five years

Gross Profit from the Sale of Discount

Present Value

Lots (21.25%)

Jan–June

$1,434,844 ($2,869,688/2) 0.908153 $1,303,058

2011

July–Dec

1,434,844 (2,869,688/2) 0.824742 1,183,376

2011

Jan–June

1,963,507 (3,927,013/2) 0.748992 1,470,651

2012

July–Dec

1,963,507 (3,927,013/2) 0.6802 1,335,577

2012

Jan–June

2,459,380 (4,918,760/2) 0.617726 1,519,223

2013

July–Dec

2,459,380 (4,918,760/2) 0.560989 1,379,685

2013

Jan–June

1,255,902 (2,511,804/2) 0.509463 639,836

2014

July–Dec

1,255,902 (2,511,804/2) 0.462670 581,068

2014

Jan–June

1,674,400 (3,348,800/2) 0.420176 703,543

2015

July–Dec

1,674,400 (3,348,800/2) 0.381584 638,924

2015

Total $10,754,941