STATE TAX COMMISSION OF MISSOURI
| GRADY HOTEL INVESTMENTS, LLC, | ) | |
| Complainant, | ) | Appeal No. 16-79001 |
| ) | Parcel No. 17-5.0-22-000-000-001.001 | |
| v. | ) | |
| ) | ||
| DAVID COX, ASSESSOR, | ) | |
| PLATTE COUNTY, MISSOURI, | ) | |
| Respondent. | ) |
DECISION AND ORDER
Grady Hotel Investments, LLC, (Complainant) appealed the Platte County Board of Equalization’s (BOE) decision finding the true value in money (TVM) of the subject commercial property was $13,447,000 as of January, 1, 2016. The State Tax Commission (STC) concluded Complainant held a leasehold interest in subject property, the leasehold had no bonus value, and that the TVM of the subject property was $0. Respondent filed a petition for judicial review.
The court of appeals affirmed a circuit court judgment reversing the STC’s decision and order. The court of appeals remanded the appeal to the STC for a determination of the true value in money (TVM) of the subject property as of January 1, 2016. Cox v. Grady Hotel Investments, LLC, 605 S.W.3d 575, 586 (Mo. App. W.D. 2020).
Pursuant to the court of appeals’ directions on remand, the substantial and persuasive evidence in the record shows the TVM of the subject property as of January 1, 2016, was $6,139,505. The TVM reflects the $8,500,000 purchase price less the statutorily required deduction for construction and new improvements ($1,200,000) and the value of personal property included in the sale price ($1,160,495); i.e., ($8,500,000 – $1,200,000 – $1,160,495 = $6,139,505).
Background
As of January 1, 2016, the subject property consisted of land improved with a hotel. The land is located within the boundaries of the Kansas City International Airport and is owned by the City of Kansas City. The City-owned land is exempt from ad valorem taxation. Mo. Const. art. X, sec. 6. The Platte County Board of Equalization (BOE) determined the TVM of the subject property as of January 1, 2016, was $13,447,000. Complainant appealed to the STC, alleging overvaluation.
An STC hearing officer issued a decision and order finding Complainant owned a taxable possessory interest. The hearing officer further found Complainant’s 2015 purchase of the subject property for $8,500,000 represented market value. As required by Section 137.115.1, the hearing officer deducted $1,200,000 in construction and new improvements – an amount Respondent acknowledged in written testimony – and concluded the TVM of the subject property as of January 1, 2016, was $7,300,000. Complainant filed an application for review with the STC.
The STC issued a decision and order concluding Complainant had a leasehold interest in the hotel and that the TVM of Complainant’s leasehold was zero because there was no bonus value. Respondent filed a petition for review in circuit court. Respondent asserted, inter alia, the circuit court should order the STC to “consider the sale of $8,500,000 as evidence of valuation.” (Compl. Reply Br. Ex. 1, Petition for Review, “Prayer and Allegations for Relief”)
The circuit court issued a final judgment reversing the STC’s decision and order. The circuit court “specifically” concluded: (1) the bonus value method does not apply because Complainant owns the subject improvements; (2) the STC “should consider the sale price of the property as evidence of value;” and (3) the STC “should not exclude valuation evidence other than a ‘bonus value’ appraisal.” Complainant appealed.
The court of appeals affirmed the circuit court’s judgment. Grady, 605 S.W.3d at 586. The court held the STC erred by concluding Complainant had a leasehold interest subject to valuation by the bonus value method. The court noted that “[c]onsistent with section 137.115.1, the Hearing Officer found the TVM of Grady’s possessory interest to be $7,300,000, to-wit: the purchase price stated in the Agreement of Purchase and Sale of the improvements in 2015 ($8,500,000), less costs paid toward new construction or improvements completed after January 1, 2008 ($1,200,000).” Id. at 579. The court affirmed the circuit court’s judgment and remanded the appeal “to the STC for reconsideration consistent with this opinion.” Id. at 586.
Respondent asserts this appeal presents two issues on remand: (1) determining the TVM of the subject property as of January 1, 2016; and (2) whether that value can be reduced pursuant to the deduction for new construction and improvements pursuant to Section 137.115.1 “without violating the Missouri Constitution.” (Resp. Br. at 2) Respondent asserts the TVM of the subject property should “be established within a range of $12,280,000 to $13,447,000.” (Resp. Br. at 5)
Complainant asserts the TVM of the subject property was either “$2,300,000 or $6,139,505[.]” (Compl. Br. at 14) Complainant’s proposed $2,300,000 value is based on Complainant’s assertion the $8,500,000 purchase price and Respondent’s $4,000,000 land value indicates a TVM of $12,500,000. (Id. at 12; Ex. L. at 7) Complainant further asserts the Rushmore Method for hotel valuation allocates 60% of the value to the real property ($12,500,000 x 0.60 = $7,500,000). (Id.) Complainant deducted from the purported $7,500,000 real property value the land value ($4,000,000) and new construction and improvements ($1,200,000), resulting in a proposed value of $2,300,000. (Compl. Br. at 12)
Complainant’s proposed $6,139,505 value is based on the $8,500,000 purchase price, a deduction for the $1,200,000 in new improvements and construction pursuant to Section 137.115.1 and a $1,160,495 deduction for personal property consistent with Respondent’s valuation of personal property at the hotel. (Compl. Reply Br. at 5).
FINDINGS OF FACT
- The Subject Property. The subject property is located within the boundaries of the Kansas City International Airport on land owned by the City of Kansas City (City). As of January 1, 2016, the land was improved with a hotel commonly known as the Marriott Hotel at KCI. Complainant leases the land from the City but owns the improvements. Complainant purchased the subject property in 2015 for $8,500,000.
The hotel has a nine-story tower built in 1974 and a six-story tower built in 1988. As of the valuation date, the hotel had 384 rooms, meeting spaces, a restaurant, business center, indoor pool, and fitness center.
Complainant and the City executed a Second Amendment to Lease and Concession Agreement obligating Complainant to make capital investments of at least $16,000,000. (Resp. Ex. E) To receive a Marriott franchise, Complainant was required to invest $20,631,000 in renovations, with at least $3,781,000 was dedicated to real property improvements. (Compl. Ex. B, Addendum 8)
- Assessment and Valuation. The BOE determined the TVM of the subject commercial property was $13,447,000 as of January 1, 2016.
- Complainant’s Evidence. Complainant introduced the following exhibits into evidence:
| Written Direct Testimony (WDT) | Complainant’s appraiser, Thomas Slack, testified Complainant’s leasehold interest in the subject property had no bonus value. Slack concluded the TVM of Complainant’s purported leasehold interest was $0 as of January 1, 2016. |
| WDT | Randy Meyer, the CFO of Complainant’s parent company, testified that as of January 1, 2016, Complainant was paying market rent to lease the subject property. Meyer also testified Complainant’s 2015 purchase of the subject property included personal property. |
| WDT | David Long, Deputy Director of the Kansas City Aviation Department, testified the subject property is located “on the Kansas City International Airport” and that Complainant was paying fair market rent for a leasehold interest in the property. |
| Exhibit A | Slack’s Resume |
| Exhibit B | Slack’s Appraisal Report concluding the TVM of Complainant’s purported leasehold interest was $0 as of January 1, 2016. |
| Exhibit C | April 29, 2015, Purchase and Sale Agreement showing Complainant purchased the hotel for $8,500,000. The sale price included personal property. |
| Exhibit D | August 5, 2019, quitclaim deed “to improvements” executed by Complainant, grantee, and Host Hotels & Resorts L.P., grantor. |
| Exhibit E | STC Assessor’s Manual |
| Exhibit F | October 14, 2007, lease agreement between City of Kansas City and Host Hotels & Resorts L.P. |
| Exhibit G | May 26, 2015, lease amendment between City of Kansas City and Complainant. |
| Exhibit H | 2016 Platte County tax receipt showing Complainant paid property taxes on a $4,303,040 assessment. |
| Exhibit I | Federal Aviation Administration (FAA) document establishing several “Assurances” regarding “the performance of grant agreements for airport development, airport planning, and noise compatibility program grants for airport sponsors.” |
| Exhibit J | FAA guidance regarding financial sustainability requirements for airports. |
| Exhibit K | Respondent’s 2016 Valuation Analysis for the BOE with an “Assessor’s recommended value” of $13,447,000. Also submitted as Complainant’s Exhibit A. |
| Exhibit L | Slack’s appraisal review report. Slack concluded Respondent’s valuation analysis failed to value Complainant’s leasehold interest and apply the bonus value method. |
| Rebuttal WDT | Slack testified Respondent’s appraiser failed to follow STC guidance and Missouri law providing the bonus value defines the fair market value of leasehold interests. |
Slack’s appraisal report and testimony focused on determining the bonus value of Complainant’s purported leasehold interest in the improvements. Slack did not perform a complete Rushmore Method analysis. Complainant’s evidence, however, establishes it purchased the subject property for $8,500,000 several months prior to the January 1, 2016, valuation date. Complainant’s evidence further shows the $8,500,000 purchase price included personal property and intangible business value. (Ex. C, section 1.1.61; section 2.2.1; Meyer WDT at 3).
- Respondent’s Evidence. Complainant introduced the following exhibits into
evidence:
| Respondent’s WDT | Respondent’s testimony authenticating exhibits and asserting the subject property was a full-service hotel as of January 1, 2016. Respondent testified the purchase price was “$8.5 M” and that “permanent improvements were completed in 2016 of $1.2 M[.] |
| Exhibit A | Respondent’s two-page, income-based valuation analysis recommending a value of $13,447,000. The two-page analysis is accompanied by several photos of the subject property and the quitclaim deed recorded on August 7, 2016, showing Complainant as the “grantee.” |
| Exhibit B | Complainant’s BOE appeal form asserting the “full value” of the subject property as of January 1, 2016, was $0. Complainant also asserted it made $1,200,000 in improvements to the subject property. |
| Exhibit C | July 7, 2015, letter from Eliot Johnson, Senior Property Tax Manager for Marriott International, Inc., concluding the “subject property’s revised assessment for improvements solely would be $8,339,020” as of January 1, 2015. |
| Exhibit D | Narrative description of planned capital expenditures with representative photos depicting areas in need of renovation. |
| Exhibit E | Second Amendment to lease agreement. |
Respondent testified Complainant purchased the subject property for $8,500,000, but concluded the TVM of the subject property was $11,222,000 as of January 1, 2016. (Resp. WDT at paragraph 3) Respondent’s written testimony is inconsistent with the $13,447,000 value Respondent recommended in his valuation analysis prepared for the BOE. (Ex. A at 2)
Respondent’s testimony also concedes Complainant expended at least $1,200,000 in new construction and improvements to the subject property. (Resp. WDT at paragraph 9). Respondent’s Exhibit B also shows Complainant reported $1,200,000 in improvements to the subject property.
Respondent’s two-page valuation analysis purports to utilize an income-based approach to value the subject property, but does not mention the Rushmore Method utilized to value hotel properties. While Respondent’s analysis included a $1,160,495 deduction in 2015 for furniture, fixtures, and equipment (FF&E), Respondent made no deduction for franchise value. (Ex. A at 1) Aside from an unexplained reference to a “Craig Cap Rate Study,” there is no verification of the purported market-based capitalization rate underlying Respondent’s two-page valuation analysis. Further, Respondent’s valuation analysis does not explain why an 8.6% capitalization rate represents a market rate when the subject’s April 2015 sale price indicates a 22.3% capitalization rate. (Compl. Ex. L)
- Value. The TVM of the subject property as of January 1, 2016, was $6,139,505. The $6,139,505 value is based on Complainant’s arms-length purchase of the hotel property and business for $8,500,000, a $1,200,000 deduction for new improvements and construction pursuant to Section 137.115.1, and a $1,160,495 deduction for personal property consistent with Respondent’s valuation analysis.
CONCLUSIONS OF LAW
- Assessment and Valuation. Commercial real property is assessed at 32% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(c). The TVM is “the fair market value of the property on the valuation date[.]” Snider v. Casino Aztar/Aztar Mo. Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005) (internal quotation omitted). The fair market value is “the price which the property would bring from a willing buyer when offered for sale by a willing seller.” Mo. Baptist Children’s Home v. State Tax Comm’n, 867 S.W.2d 510, 512 (Mo. banc 1993). “True value in money is defined in terms of value in exchange not value in use.” Tibbs v. Poplar Bluff Assocs. I, L.P., 599 S.W.3d 1, 7 (Mo. App. S.D. 2020) (internal quotation omitted). “Determining the true value in money is an issue of fact for the STC.” Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008).
The State Tax Commission utilizes the “Rushmore Method” to estimate the TVM of hotels. Yogijikrupa Hospitality-C LLC, v. Assessor, Taney County, Mo., Appeal No. 19-89506, 2021 WL 4977443, at *5 (Mo. St. Tax Comm’n 2021) (noting “[t]he STC has long recognized the Rushmore Method under the income approach for the valuation of hotel properties”).[1] The Rushmore Method enables a valuation of hotel real estate by deducting the value of a franchise affiliation and the FF&E required to operate a hotel.
The Rushmore Method deducts the contributory value of the FF&E by estimating both the replacement cost and the return generated by the FF&E. The replacement cost is typically reflected in a reserve for replacement. The return on the FF&E is typically estimated by (1) using the market value of the personal property as shown on the assessment rolls; (2) an appraisal of the personal property; or (3) using the depreciated book value of the personal property. Prestige Hotels v. Cox, Appeal No. 20-79023 (Mo. St. Tax Comm’n, Feb. 25, 2022).
- Evidence. The hearing officer is the finder of fact and determines the credibility and weight of the evidence. Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). “Although technical rules of evidence are not controlling in administrative hearings, fundamental rules of evidence are applicable.” Mo. Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 839 (Mo. banc 1977).
- Complainant’s Burden of Proof. The taxpayer bears the burden of proof and must show by a preponderance of the evidence that the property was overvalued. Westwood P’ship v. Gogarty, 103 S.W.3d 152, 161 (Mo. App. E.D. 2003). The BOE’s valuation is presumptively correct. Tibbs, 599 S.W.3d at 7. The “taxpayer may rebut this presumption by presenting substantial and persuasive evidence that the valuation is erroneous.” Id. (internal quotation omitted). The taxpayer also must prove “the value that should have been placed on the property.” Id. “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.” Savage v. State Tax Comm’n, 722 S.W.2d 72, 77 (Mo. banc 1986) (internal quotation omitted). Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is the “party’s duty to convince the fact-finder to view the facts in a way that favors that party”).
- Section 137.115.1. In pertinent part, Section 137.115.1 provides:
The true value in money of any possessory interest in real property in subclass (3), where such real property is on or lies within the ultimate airport boundary as shown by a federal airport layout plan, as defined by 14 CFR 151.5, of a commercial airport having a FAR Part 139 certification and owned by a political subdivision, shall be the otherwise applicable true value in money of any such possessory interest in real property, less the total dollar amount of costs paid by a party, other than the political subdivision, towards any new construction or improvements on such real property completed after January 1, 2008, and which are included in the above-mentioned possessory interest, regardless of the year in which such costs were incurred or whether such costs were considered in any prior year.
The subject real property is located within the boundaries of the Kansas City International Airport. Section 137.115.1 therefore requires deducting the “total dollar amount of costs” paid by Complainant “towards any new construction or improvements” on the subject property completed after January 1, 2008. Respondent testified the total amount of new construction and improvements was $1,200,000. (Resp. WDT at paragraph 9) Respondent’s Exhibit B likewise indicates Complainant made $1,200,000 in improvements to the subject property. No evidence persuasively contradicts Respondent’s testimony or Exhibit B. Section 137.115.1 requires a $1,200,000 deduction from value of the subject property.
Respondent asserts a central issue is whether Section 137.115.1 can be applied “without violating the Missouri Constitution.” (Resp. Br. at 2). The constitutionality of Section 137.115.1 is not at issue in this contested case proceeding. “The declaration of the validity or invalidity of statutes … is purely a judicial function.” State Tax Comm’n v. Admin. Hearing Comm’n, 641 S.W.2d 69, 75 (Mo. banc 1982). Consequently, “[a]dministrative agencies lack the jurisdiction to determine the constitutionality of statutory enactments.” Duncan v. Missouri Bd. for Architects, Pro. Engineers & Land Surveyors, 744 S.W.2d 524, 531 (Mo. App. E.D. 1988).[2] Section 137.115.1 applies and requires the deduction of $1,200,000 for new construction and improvements.
- Complainant Produced Substantial and Persuasive Evidence of Overvaluation.
On remand, the court of appeals mandated that the STC consider the $8,500,000 purchase price as evidence of fair market value. Consistent with the court’s mandate, Complainant emphasizes the fact the subject sold in 2015 for $8,500,000.
A property’s sale price is not necessarily conclusive as to its TVM. Stein v. State Tax Comm’n, 379 S.W.2d 495, 498 (Mo. 1964). While not conclusive, a recent, arms-length sale of a subject property is nonetheless relevant to establishing value as of the assessment date. St. Joe Mins. Corp. v. State Tax Comm’n, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993). The probative value of a prior sale depends on the extent of market changes since the sale and whether the sale was a voluntary transaction, with both the buyer and seller “capable and desirous of protecting his interest.” State ex rel. State Hwy. Comm’n v. Rauscher Chevrolet Co., 291 S.W.2d 89, 92 (Mo. 1956) see also St. Joe Mins. Corp, 854 S.W.2d at 529 (noting evidence of a recent sale is admissible to prove value if the sale was a “voluntary purchase not too remote in time”).
While the 2015 sale of the subject property is not conclusive, it is, on this record, the most persuasive starting point. The substantial and persuasive evidence in this case shows the 2015 sale involved sophisticated parties who executed an arms-length transaction less than one year prior to the January 1, 2016, assessment date. The substantial and persuasive evidence in the record further shows the $8,500,000 purchase price included personal property and intangible business value. There is also substantial and persuasive evidence showing Complainant is statutorily entitled to a $1,200,000 deduction for new construction and improvements. The net result is that the $13,447,000 BOE value, which is the same value listed on Respondent’s unpersuasive, two-page valuation analysis, has been rebutted by substantial and persuasive evidence.
Determining the value of the subject’s real property requires deducting the value of personal property and intangible business value from the $8,500,000 purchase price. The substantial and persuasive evidence in the records shows Respondent’s valued the subject’s personal property at $1,160,495. (Resp. Ex. A) Respondent therefore effectively concedes, as a factual matter, that a deduction of $1,160,495 is required. See Empire Dist. Elec. Co. v. Coverdell, 344 S.W.3d 842, 852 (Mo. App. S.D. 2011) (holding a factual admission is “conclusive”); Norris v. Barnes, 957 S.W.2d 524, 529 (Mo. App. W.D. 1997) (holding a defendant’s statement that the plaintiff’s medical bills were $28,000 was a “conclusive” admission). Deducting the $1,200,000 in new construction and improvements as required by Section 137.115.1 yields a January 1, 2016, TVM of $6,139,505.[3]
Complainant asserts the record also includes substantial and persuasive evidence for an additional business value deduction under the Rushmore Method. In his review appraisal, Slack stated the entire hotel enterprise could be valued at $12,500,000 by adding Respondent’s $4,000,000 land value to the $8,500,000 purchase price. Slack asserted the Rushmore Method allocates 60% of a total hotel enterprise value to the real property, resulting in a real property valuation of $7,500,000 ($12,500,000 x 0.60 = $7,500,000). Complainant asserts subtracting Respondent’s land value ($4,000,000) and the Section 137.115.1 deduction for new construction and improvements ($1,200,000) shows the TVM of the improvements was $2,300,000 as of January 1, 2016. Complainant’s lower proposed value is not supported by substantial and persuasive evidence.
Complainant’s proposed $2,300,000 value is premised on an assumption the Rushmore Method typically allocates 60% of the total hotel enterprise value to the real property. (Compl. Reply Br. at 6) This assumption is based solely on Slack’s explanation of a New Jersey Tax Court case in which Stephen Rushmore – the progenitor of the Rushmore Method – testified the real estate value of the hotel property at issue in that case was 60% the total hotel value. (Ex. L at 7) Rushmore’s testimony regarding a hotel in New Jersey does not establish a universally accepted 60% real estate allocation for all hotels, in all markets, at all times. Rather than relying on rules of thumb, the Rushmore Method is a market-based adaptation of the income approach utilizing data reflecting the market realities of specific hotel properties as of particular valuation date. On this record, Complainant’s proposed 60% real estate allocation is speculative and unpersuasive. The substantial and persuasive evidence in the record supports Complainant’s proposed TVM of $6,139,505.
CONCLUSION AND ORDER
The BOE’s decision finding the assessed value of the subject property was $13,447,000 as of on January 1, 2016, is set aside. The TVM as of January 1, 2016, was $6,139,505.
Application for Review
A party may file an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision. The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.” Section 138.432. The application must be in writing, and may be mailed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov. A copy of the application must be sent to each person listed below in the certificate of service. Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432.
Disputed Taxes
The Collector of Platte County, and the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an application for review, unless the disputed taxes have been disbursed pursuant to a court order under the provisions of section 139.031.
SO ORDERED July 15, 2022.
Eric S. Peterson
Senior Hearing Officer
State Tax Commission
Certificate of Service
I hereby certify that a copy of the foregoing has been electronically mailed and/or sent by U.S. Mail on July 15, 2022, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.
Amy S. Westermann
Chief Counsel
[1] The Rushmore Method is also widely accepted by courts across the country. Glenpointe Assoc. et al. v. Township of Teaneck, 31 N.J. Tax 596, 645 (2020) (holding the Rushmore method is generally used to value hotels); Wisconsin & Milwaukee Hotel, LLC v. City of Milwaukee, 936 N.W.2d 403 (Wis. App. 2019) (holding the “Rushmore approach to value hotels” complied with state law); CHH Cap. Hotel Partners, LP v. D.C., 152 A.3d 591, 597 (D.C. 2017) (the Rushmore method is a “well-established and broadly accepted” method “well-conceived to yield a fair and accurate estimate of market value”); RRI Acquisition Co. v. Supervisor of Assessments of Howard Cty., 2006 WL 925212, at *5 (Md. Tax Feb. 10, 2006) (applying Rushmore and holding a deduction for return on FF & E from income is required); Marriott Corp. v. Bd. of Cty. Comm’rs of Johnson Cty., 972 P.2d 793, 796 (Kan. App. 1999) (holding the Rushmore method was the appropriate method to value a hotel and noting it “has been accepted in a number of litigated matters and rejected in none that have been brought to our attention”); In re J.F.K. Acquisitions Group, 166 B.R. 207, 209 (Bankr.E.D.N.Y.1994) (utilizing the Rushmore method and noting the appraiser who developed the method is an “eminent expert in the field of hotel appraisers.”)
[2] The holding in Duncan is sound, but subsequent cases have emphasized an agency’s exercise of statutory authority “should not be equated to the subject matter jurisdiction constitutionally granted to courts.” Cass Cnty. v. Dir. of Revenue, 550 S.W.3d 70, 74 (Mo. banc 2018); see also McCracken v. Wal-Mart Stores E., 298 S.W.3d 473, 478 (Mo. banc 2009) (noting “sloppy references” to the exercise of “jurisdiction” by administrative agencies). The distinction is not merely semantic, as the courts’ exercise of constitutionally vested jurisdiction to declare the law is fundamentally different than an agency’s limited statutory authority to apply existing law to facts determined by the agency. See State Tax Comm’n, 641 S.W.2d at 75-77.
[3] $8,500,000 – $1,160,495 – $1,200,000 = $6,139,505