Court Opinion

ID: 8375390
Source: CourtListenerOpinion
Date Created: 2022-10-21 22:01:41.044481+00
Date Added: 2024-06-11T16:46:32.553762
License: Public Domain

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