This is an action to determine just compensation for the leasehold interest (and rights arising out of easements and contracts) of the defendant Harsh Montana Corporation in a Wherry Housing Project located at Malmstrom Air Force *746Base, Great Falls, Montana. The action' was brought pursuant to the Housing Act of 1956, approved August 7, 1956 (42 U.S.C.A. § 1594a, 70 Stat. 1110), as amended by Act of Congress approved July 12, 1957 (Pub.L. 85-104, Title V, § 504, 71 Stat. 303), requiring that the Secretary of Defense acquire, by purchase or condemnation, all Wherry housing units located at military installations where construction of Capehart family housing had been approved.
The property was taken on November 1, 1957. The original declaration of taking estimated just compensation at $1.00. An amendment to the declaration of taking filed January 29, 1958, estimated just compensation at $75,000.00. On February 23, 1960, defendant filed a motion for order requiring a further increase to not less than $476,800.00. At a hearing on this motion counsel for plaintiff informed the court that it had received an appraisal in the sum of $141,503.00, upon which plaintiff intended to rely at the trial. Pursuant to order entered May 29, 1960, plaintiff paid the additional sum of $66,503.00, with interest from the date of taking.
The Wherry Housing Act of August 8, 1949, was enacted by Congress to “assist in relieving the acute shortage of housing” at military installations and “to increase the supply of rental housing accommodations available to military and civilian personnel at such installations x- * * » 1 Act provided for the construction of the needed housing by private builders or “sponsors”.2 The Federal Housing Administration was authorized to insure mortgages executed under the Act. The buildings and equipment on the project were constructed in accordance with detailed plans and specifications approved by the Air Force and Federal Housing Administration. The sponsor mortgagors were subject to regulation in such matters as rents, charges, capital structure, rate of return, and methods of operation.
On January 15, 1952, the defendant Harsh Montana entered into a 75-year lease3 with the Secretary of the Air Force, at an annual rental of $100.00, for the purpose of enabling Harsh to construct a housing project upon the leased lands, consisting of 39.582 acres. Concurrently with the execution of the lease there were executed easements and contracts relating to utility services.
On September 11, 1953, Harsh completed construction of a total of 64 residential buildings, providing 400 dwelling units,4 and 33 garage structures providing space for 196 cars, together with a gas system, water system, sewage system, roads, walks, and landscaping. Title to the buildings and other improvements passed to the Government upon their completion. The lessee also furnished ranges, refrigerators, screens and shades.
Harsh’s final estimate of the cost of construction, upon which the maximum *747insurable interest and rental income were based, was $3,565,206.00.5
On October 14, 1953, the defendant Harsh became indebted to Manufacturers’ Trust Company in the sum of $3,-208,600.00, evidenced by a promissory note and secured by real and chattel mortgages. The mortgage indebtedness, bearing interest at the rate of 4% per annum, plus % of 1% F.H.A. premium charged for insurance, was payable in monthly installments of $14,706.08, including principal and interest, beginning April 1, 1954, and continuing to October 1, 1986. The note and mortgages were assigned to Federal National Mortgage Association on January 12, 1954. At the time of taking, the balance due on the note was $3,023,496.78.
The Wherry Act was superseded in 1955 by the Capehart Act,6 which provided that housing constructed on military installations after its enactment would be managed by the Secretary of Defense instead of by private builders as under the Wherry Act. The Secretary of Defense could, in his discretion, acquire existing Wherry housing projects. Where Capehart housing was to be constructed on a military base already served by Wherry housing, acquisition of the Wherry housing was mandatory. This action was instituted pursuant to the latter provision, acquisition having been made necessary by the construction of Capehart housing on Malmstrom Air Force Base, and the failure of negotiations for a voluntary sale.7
- Defendant alleged in its answer that the complaint failed to state a claim, because plaintiff had failed and refused to enter into negotiations with defendant to acquire the project as a condition precedent to the institution of this action, pursuant to the Housing Act of 1956, as amended by the 1957 Act. This court held in an opinion filed June 23, 1958, that the evidence disclosed bona fide negotiations by both parties pursuant to the Housing Act of 1956, which terminated in disagreement, and that neither party requested further negotiations pursuant to the 1957 amendment. The court also denied defendant’s motion for appointment of commissioners to determine the issue of just compensation. By subsequent stipulation of counsel, the cause was tried to the court without a jury, followed by extensive post-trial briefs. Pursuant to agreement of counsel at the time of trial, the court viewed the premises.
The property condemned is Harsh’s interest or equity in the leasehold. Two qualified expert witnesses or appraisers testified for each side. They had testified in prior Wherry cases.8 AH were obviously and understandably partisan, as reflected in their opinions of just compensation :
Total Value Per Unit of Equity Value
J. L. Vaughan, Jr. $1,126,503.00 $2,816.00
O. C. Brothers l;099,866.00 2,749.00
William Molían 189,000.00 472.00
Robert C. Hastings 176,500.00 441.00
*748 Harsh Montana is entitled to just compensation for the property condemned. The test of just compensation is “market value fairly determined”. Market value “is what a willing buyer would pay in cash to a willing seller” for the estate or interest being valued.9 Where there is an established market through sales of comparable property in the same vicinity, it is relatively simple to determine market value. In the absence of any “going market”, the problem becomes more difficult. Then, “[The] amount can be determined only by a guess, as well informed as possible, as to what the equivalent (value) would probably have been had a voluntary exchange taken place”.10 This concept has special relevance here. Not only is there no “going market”, but also a unique estate was taken, involving many intangible and uncertain factors which make difficult the application of any of the standard and recognized approaches to the valuation of property.11 Obviously this accounts in part for the wide variation in the appraisals for the respective parties.
Malmstrom Air Force Base, located approximately four and one-half miles from the center of Great Falls, is an installation of the Strategic Air Command, with responsibility in refueling. It is also the Headquarters of the 29th Air Division Defense. At the time of taking, new construction related to future housing requirements included a Semi-Automatic Ground Environment (SAGE) structure being built at an approximate cost of $5,000,000.00. In addition to the 400 housing units involved in this action, there were 192 other Wherry units and 150 Capehart units, and the construction of 560 additional Capehart units was contemplated. More than 4500 military and civilian personnel were employed on the base. The demand for low-cost base housing was greatly in excess of the housing available. During the years 1953-54 and 1954-55, the rate of occupancy of the Wherry project was in excess of 98%. In 1955-56, it was 99.6%, and in 1956-57, it was 99.8%.
Appraisers for both parties agreed that the Great Falls metropolitan area at the time of taking had a population in excess of 70,000; that Great Falls is an industrial and marketing city, its area activities including agriculture, livestock, wool, minerals and oil; that it is a gateway to a well-known resort and recreational area; that five hydroelectric plants are operated in the immediate vicinity of Great Falls, and that Anaconda Company refines copper and zinc, and manufactures aluminum and copper wire and cable. In personnel and dollar volume of business Malmstrom Air Force Base was the most important segment of the city’s economy.12
In the realm of intangible factors, it seems advisable at the outset to consider two related contentions of the plaintiff, by reason of their effect upon various factors considered by the appraisers in their valuations. Plaintiff argues first that at the time of construction the *749Wherry Housing Project was relatively free from competition but that, “During the interim between the date of construction and the date of taking * * * the City of Great Falls has done considerable building in the direction of Malmstrom Air Force Base, and this lack of competition has practically evaporated.” It is true that there had been substantial building in the direction of Malmstrom. There is no evidence, however, to support a conclusion that the lack of competition had practically evaporated. There was still a housing shortage, although by no means as acute. The rentals in the private housing were not competitive, and the Wherry units were wholly inadequate to meet the demand for low-cost base housing. Otherwise, it seems unlikely that the Government would have contemplated such extensive construction under the Capehart Act.
Plaintiff next argues that any prudent buyer at the time of taking would have considered the possibility of the abandonment of Malmstrom Air Force Base. Counsel refer to the testimony of one of plaintiff’s appraisers that 10.4'% of the Wherry projects had gone into default even in the years “when the Secretary of Defense had certified that there was no present intention to curtail activities at the respective bases”; and that at the time of taking the retention studies showed that between 70 and 80 bases were to be closed. Counsel continues, “One needs only to read the newspapers to realize the transitory period which is being witnessed in military activities. There are the closing of bases, the opening of new bases, changing of missions and, perhaps most of all, there is the changing of techniques of warfare.”
At the time of taking, any possibility of abandonment of Malmstrom Air Force Base, by reason of its strategic location, was exceedingly remote. The base was expanding in activities and personnel. It was being used in meeting the demands arising from new techniques of warfare. There is no question, of course, that if Malmstrom Air Force Base were abandoned, it would be a severe blow to the economy of Great Falls. There is little likelihood that the resulting vacancies could be absorbed in the foreseeable future. Private investors in housing and other property, as well as the Wherry sponsor, would take a severe loss. If the activities were to be sharply curtailed, the investors in private housing, with their higher costs and rentals, would suffer before a Wherry sponsor. In fact, with the demand for low-cost housing on the base, unless the personnel were reduced very substantially, the Wherry sponsor would still have ample occupants for its dwelling units.
It is true, as plaintiff contends, that in determining just compensation on the basis of future income, we are concerned with what the “well informed buyer and seller think when they enter the market place”. In other words, on the basis of the best information available, we must guess what these mythical parties would have considered and what importance they would have attached to the various factors suggested by the respective parties and their appraisers. To what extent would a buyer (and seller) of the leasehold interest of Harsh Montana have considered the possible abandonment of Malmstrom Air Force Base? The best answer is found in the plaintiff’s own reference to the very substantial building in the direction of Malmstrom. If the investors in the apartments and houses in that area had shared plaintiff’s concern with respect to the future of Malmstrom, it seems unlikely that they would have continued, as they admittedly did, to make substantial investments in housing in that area. And while 10% of the Wherry projects may have been in default, there is no evidence to support a conclusion that this was likely to happen at Malmstrom. At the time of taking it was a successful and profitable project. Certainly there was no evidence to show that it was reasonably probable that Malmstrom Air Force Base would be abandoned. Plaintiff’s contention is based solely upon conjectures and possibili*750ties that appeared remote at the time of taking, as they do today.13
In condemnation actions there are three recognized approaches to the valuation of property: (1) the market data approach or consideration of comparable sales; (2) the reproduction cost at the time of taking, less depreciation; and (3) the income approach or capitalization of projected income.
With respect to the market data approach, no evidence was offered of any sales of similar property as substantive proof of the value of the property taken. The plaintiff’s appraisers testified regarding the sales of the stock in three Wherry projects in support of their selection of a capitalization rate. Whei’e evidence of comparable sales is offered in support of, or as background for, opinion testimony and not as independent evidence of value, the foundation requirements to show similarity are less strict. Where the expert has made careful inquiry into the facts, he should be permitted to give the details of the sales upon which his opinion is based. If he has not made careful inquiry or the facts do not support his opinion, this may be developed on cross-examination.14
Plaintiff’s expert witnesses testified regarding sales of all the corpoz’ate stock in three Whez*ry projects: Shreveport Suburban Housing Corp., Barks-dale Air Base, Shreveport, Louisiana; Thomason Park, Inc., Marine Base, Quantico, Virginia; and Fort Devens Manor, Inc., Fort Devens, Ayers, Massachusetts.15 Three cases decided by the Court of Appeals of the Fifth Circuit have considered the question of comparability of the same sales. In United States v. Benning Housing Corporation, 1960, 276 F.2d 248, the trial coui't had found the sales compaz'able. On appeal in that case and again in United States v. Leavell & Ponder, Inc., 1961, 286 F.2d 398, 407, the Court of Appeals held that, “In view of the size of these projects and their potential attraction to others besides local investors * * * such sales are proper for consideration * * *
In United States v. Tampa Bay Garden Apartments, Inc., 294 F.2d 598, the most recent case in the Fifth Ciz'cuit, both the commission16 and trial court17 found *751that the same sales were not comparable. In affirming, the Court of Appeals said in part:
“We do not think the United States is now contending that the three Wherry sales should have been treated by the Commission as evidence of a value, as a basis for determining just compensation, under the separate and independent comparable sales method of appraisal. If it be so contended, then we do not hesitate to say that it has not been shown that the district court’s finding is clearly erroneous.
* * *
“We do not find that either the Commission or the court excluded consideration of the Wherry project sales as one of the considerable number of factors going into the complicated process of determining the value of a Wherry Act leasehold interest by the capitalization of income method. The Government’s appraisers did so consider the other sales giving varying weights to such data.”
If the evidence of the three Wherry sales were offered as substantive proof of value, I would hold that plaintiff had failed to meet the foundation requirements of comparability. It is my conclusion, however, that it was proper to permit plaintiff’s appraisers to testify regarding these sales in support of their selection of a capitalization rate and to give their reasons for considering the sales comparable.18 On this point there was a sharp conflict in the opinion of the expert witnesses, the defendant’s appraisers taking the position that the sales were not comparable and giving reasons for their conclusion. As the court well said in United States v. Tampa Bay Garden Apartments, Inc., supra, these sales have been considered as a factor in “the complicated process of determining the value of a Wherry Act leasehold interest by the capitalization of income method”. By reason of the dissimilarities suggested by the trial court in the Tampa case, however, they are of limited probative value.19
The defendant offered evidence of the cost of reproduction new less depreciation. Plaintiff’s objection to this evidence as substantive proof of value was sustained. The expert witnesses were permitted to testify that they had considered reproduction costs less depreciation to check their opinions on value, but they were not permitted to state their figures or computations.20
*752Substantive evidence of cost of reproduction less depreciation was received without objection in a number of Wherry eases.21 The issue was squarely presented, however, in United States v. Benning Housing Corporation, 5 Cir. 1960, 276 F.2d 248, 253, where the court reversed the judgment of the district court because of the admission of this evidence. In holding that the condemnation of a leasehold under the Wherry Act is not a proper case for valuation on the basis of reproduction cost, the court called attention to the fact that the policy under the Wherry Act “has consistently been one of allowing a return based upon original cost rather than reproduction”, and that such a case accordingly “must be tried on the basis of comparable sales, capitalization of income and original cost.”22
The appraisers for both sides used the capitalization of income approach to value. This involves the determination of the present worth of future income. Under this method “the estimated net return over the estimated life of the improvements is capitalized at a rate which will provide for the recapture or amortization of the value of or investment in improvements, sometimes termed depreciation, as well as a proper return to the investor”.23 The appraisers for the respective parties employed different methods of capitalizing income. Under both methods it was necessary to determine the gross income and expenses to be deducted in arriving at net income. The method employed by defendant’s appraisers then required the determination of a capitalization rate and period of capitalization. The method employed by plaintiff’s appraisers required the determination of a rate of return to equity, in keeping with the market requirements for comparable investments. The differences in approach will be clarified through an analysis of the four appraisals.
Defendant’s witness Brothers arrived at his opinion of value as follows:
1. Relying upon the rentals being collected at the time of taking and income from the sale of utilities, and deducting an allowance for vacancies (1% of dwelling rental and utility income and 5% of garage rental), he arrived at a stabilized gross income of $402,500.00 which a prudent investor could reasonably expect to receive annually over the economic life of the project.
2. By tabulating the annual operating expenses for the four years and forecasting what a prudent investor would anticipate in the future, he arrived at a stabilized expense of $121,480.00, resulting in a net annual income of $281,020.00 before payment of debt service.
3. In converting this income to present worth, he
(a) considered the “remaining economic life of the project” as 69 years (the balance of the lease term) but concluded that the net operating income would be stable for 46 years, and thereafter decline gradually to nothing at the end of the 69 years; (b) found that one dollar receivable for 46 years, discounted at 6%, had a present worth of $15.98, and one dollar receivable 46 years hence, and declining to zero in 23 years, discounted at 7% had a present worth of 420, making a total of $16.40 for the economic life of the project; (c) multiplied $281,-020.00 by 16.40, resulting in a present worth of $4,608,728.00; and (d) estimating the cost of replacing parts for a shorter life than the project at $1,-*753991.100.00, with a present value of $356,-869.00, and deducting this sum from the net income, he arrived at a total value of the lease at $4,250,000.00.24
4. After considering the income analysis, inspecting the property and documents which a prudent investor would examine, and other considerations, he arrived at an appraisal of $4,125,000.00, from which he deducted the balance of the mortgage indebtedness of $3,023,-497.00 and $1,637.00 for the present value of the annual rental due the United States, resulting in the value of lessee’s equity of $1,099,866.00.
Defendant’s witness Vaughan arrived at a figure of $400,000.00 gross income, actual expenses of $118,000.00, and a stabilized net income of $282,000.00. From this figure he deducted $22,000.00 as a reserve for replacements, leaving a net annual income of $260,000.00. He assumed that an investor would expect a return in 40 years, although he considered 69 years the economic life of the project.
In capitalizing the income Vaughan used the Inwood or annuity method, which is based on the premise that the income will continue at a stable level. Using a capitalization rate of 6%, the present value of one dollar for 40 years is $15.0463. Applying this factor to the estimated net income of $260,000.00 resulted in a present worth of $3,912,-038.00,
Vaughan then determined that if the balance due on the mortgage were refinanced at 4%% (the cheapest rate available in the money market) the annual payments would be $194,108.00 instead of the current payments at 4% of $176,173.00. Capitalizing the annual saving of $17,635.00 at 6% resulted in a present worth of $239,673.00 which Vaughan attributed to the advantage of the 4% F.H.A. loan.
Adding the savings resulting from the low interest loan to the present worth of the net income resulted in a total value of $4,151,777.00, which was rounded off at $4,150,000.00. Deducting the balance of the mortgage, Vaughan arrived at an appraisal of the lessee’s equity of $1,126,-053.00. Vaughan used other techniques for checking purposes.25
Plaintiff’s witness Molían found that the average of gross income actually collected for 1956 and 1957 was $396,452.00. Using a 3% vacancy rate, he estimated the gross income at $389,566.00. He found that the average operating expenses and taxes for the two years amounted to $183,906.00, and arrived at a long term estimate of $153,242.00. Adding $21,-892.00 as a reserve for replacement resulted in an operating expense of $175,-134.00. Deducting this from the estimate of gross income resulted in a net income of $214,432.00.
Molían then computed an annual debt service charge at $186,099.00 (5.8'% of the original mortgage of $3,208,600.00), concluding that the net cash available each year would be the difference between the net income and the charge for debt service or $28,333.00. Assuming that the amount of income attributable to lessee’s equity, i. e. $28,333.00, represented 15'% of the total equity (resulting in a multiplier of 6%), Molían computed the total equity at $188,887.00, which he rounded off at $189,000.00.26
In verifying his approach, Molían computed what he considered to be the overall rate of return. The annual requirement for debt service of $186,099.00 represents 5.793% of the total income value *754of $3,212,385.00 (the sum of the equity value of $188,887.00 and balance of mortgage of $3,023,498.00). The annual income attributable to equity of $28,333.-00 represents .882% of the total income value, making an over-all rate of return of 6.675%. Molían found that the overall rate of return of the other three Wherry projects was 6.63%. He considered other federal housing projects and concluded that the 6.675 rate compared favorably with the rate of return of those projects. Dividing 100 by 6.675 results in a multiplier of 14.891. Using the Inwood tables, it was found that this would yield 6% interest and a return of the investment in 39^ years.
Plaintiff’s witness Hastings computed the over-all rental income for 1956 and 1957, compared it with the estimate of income set forth in the project analysis of August 11, 1953, and arrived at a rental income of $374,288.00, to which he added the F.H.A. estimate of utility income of $29,520.00. Allowing 3% for vacancies, Hastings arrived at a stabilized gross income of $391,694.00. His estimate of stabilized expenses and payments to reserve for depreciation, including taxes, amounted to $174,236.00, resulting in a net operating income of $217,458.00. Deducting mortgage payments of $176,473.00 and $9,443.00 for mortgage insurance premiums, he arrived at an annual amount of $31,542.00 available to equity. He found that 17 transactions with F.H.A. financing had an average rate of equity return of 18% and three Wherry projects, 21%. Using the 18% rate, resulting in a multiplier of 5.555, he computed the annual equity return of $31,542.00 to have a present value of $175,233.00.
Hastings determined that 6.149'% was the annual rate of return to satisfy the mortgage indebtedness. Capitalizing the annual debt retirement of $185,916.00 at the rate of 6.149% he arrived at a value of $3,023,500.00, to which he added the present equity value, resulting in a total value of the leasehold of $3,198,733.00. Rounding this off to $3,200,000.00 and deducting the mortgage balance resulted in appraised value of the equity of $176,-500.00. In checking his appraisal, Hastings found the over-all rates of 6.8% equivalent to a compound interest factor of 14.737 and that this multiplier would yield 6% interest plus amortization over 37 years.
The wide disparity in the appraisals is due (1) to a basic difference in the method of capitalizing income; and (2) to differences in estimates of projected income and expenses and factors which should be considered in arriving at the estimates. Quite naturally plaintiff’s appraisers considered the problem from the standpoint of a “willing buyer”, and defendant’s appraisers from the standpoint of a “willing seller”.
It is easy for opposing counsel and the court to criticize both the techniques and conclusions of the obviously partisan approaches of the appraisers. To resolve and reconcile the evidentiary conflicts presents a more difficult problem. The amounts in dispute of necessity are informed guesses of the appraisers. As the court well said in United States v. Tampa Bay Garden Apartments, Inc., supra, “The judicial determination of the award in a condemnation case cannot be made by mechanical or mathematical processes, nor can the process of adjudication be governed by a fixed formula.”27 That is particularly true of Wherry cases.
By agreement of counsel the trial of this action was deferred to await the outcome of similar actions tried in various parts of the country. While some principles applicable to all Wherry cases have been established, there are still marked differences between the parties as to the proper approach and the consideration which should be given various factors in determining value. Nor have the parties been entirely consistent in the position
*755taken in different cases. There has likewise been a wide variation in awards on the basis of unit value.28 The award of course must depend upon the proof in *756each case, but the results in the decided, cases illustrate the difficulty in arriving at any definite criteria of value.
Whatever the technique employed in arriving at value, both the buyer and seller would start with the actual experience of the project at the time of taking, consider the condition of the property and all applicable contracts and regulations, and then project the anticipated income and expense for some time in the future.
Gross Income
The following table summarizes the actual gross income for the year ending March 31, 1957, and the appraisers’ estimate for the future:
Actual year ending
3/31/57 Brothers Vaughan Molían Hastings
Total rentals $369,064 $374,288 $ $368,592 $374,288
Less vacancies 1,337 4,308 11,057 12,114
Net rentals 367,726 369,948 368,000 357,535 362,174
Utilities 31,771 31,452 31,000 29,877) 29,520
Miscellaneous 1,960 1,100 1,000 2,156)
$401,457* $402,500 $400,000 $389,568 $391,694
The total rentals of $374,288.00 used by Brothers and Hastings represented the rentals actually being collected at the date of taking — over $5,000.00 in excess of those collected for the year ending March 31, 1957, and resulting from a rental increase which became effective March 1, 1957. The actual income as of the date of talcing was at the rate of approximately $406,680.00 annually.
It will be noted that the actual vacancy loss for the year ending March 31, 1957, amounted to $1,337.00. Brothers estimates a vacancy loss of $4,308.00 (1% on dwellings and 5% on garages) and Molían and Hastings a vacancy loss of $11,057.00 and $12,114.00 respectively (3% of all income). There was no reason to anticipate any substantial change in the high rate of occupancy in the foreseeable future.29 For the two preceding years it had averaged 99.7%. Brothers’ estimate of 1% vacancy was more realistic than the 3'% used by Molían and Hastings. It is my conclusion that there was good reason to anticipate that the high occupancy actually existing at the time of taking would continue for several years, with some reduction in later years.
*757Expenses
The following table summarizes the actual and estimated expenses:
Actual year ending 3/31/57 Brothers Vaughan Molían Hastings
Administrative $ 50,626 $ 14,800 $ 15,000 $ 22,586 $ 21,763
Ad valorem taxes 32,764* 200 36,350 36,350
Maintenance, repairs, decorating and painting 52,077 58,000 55,000 47,109 49,032
Other expenses 45,554 48,480 48,000 47,197 45,199
$181,021 $121,480 $118,000 $153,242 $152,344
While the expenses are itemized in more detail in the various appraisals, I have grouped them in this manner to indicate the major differences. With respect to administrative expense, it is apparently agreed that nonrecurring legal expense and actual management fees shown on Harsh’s report would not represent items properly chargeable in anticipating future expenses. It will be noted that Molían and Hastings are approximately $7,000.00 higher than Brothers and Vaughan. This results from the addition by Molían and Hastings of a “management fee”. On the other hand, Molían and Hastings are substantially lower in their estimates of maintenance, repairs, decorating and painting.30 In fact, aside from taxes, the appraisers are not far apart in estimating future expenses, ranging from Hastings’ $115,-994.00 to Brothers’ $121,280.00.31
A “management fee” as such is not in the same category as other administrative expenses. A willing buyer might conclude that this amount should not be deducted if he were to manage the property himself. On this point there is a sharp conflict in the testimony of the respective appraisers, which cannot be categorically and mathematically resolved. It is a factor, however, which a willing buyer would consider in projecting the net income which he might anticipate.
The replacement reserve fund had a shortage of $14,605.75, resulting from the payment of attorney fees from that fund to litigate the tax cases. Additional fees had been paid in the sum of $17,-149.56, or a total of $31,755.31. Defendant claims, and I think properly, that in some manner the owner would be entitled to recoup this amount.
*758The item for real estate taxes presents a more difficult problem. The sponsor’s financial statement for the year ending March 31, 1957, contained an item of $36,350.00 for taxes. Molían and Hastings have used that figure in their estimate of taxes to be deducted as a part of the stabilized income. Brothers and Vaughan have omitted this item altogether.
In my opinion neither approach is justified. On the date of taking, there was pending in the District Court of Cascade County an action for the recovery of 1957 taxes paid under protest. Plaintiff and defendant were both of the opinion that under Section 511 of the Housing Act of 1956, Public Law 1020, 84th Cong., 2d Sess., 42 U.S.C.A. § 1594 note, the assessment of taxes against defendant’s property was invalid. In a judgment entered October 29, 1958, it was held that the plaintiff should have refunded 1957 taxes levied and paid under protest in the sum of $32,764.83.
The passage of Public Law 1020, the fact that an action for the recovery of taxes was pending, and that both plaintiff and defendant were of the opinion that the taxes were illegal would be known to a prospective purchaser. While he could not assume without question that Harsh Montana would prevail in its action, he would give consideration to the probability that it would do so. Certainly Harsh Montana, if a “willing seller”, would take this situation into consideration. On the other hand, a prospective purchaser would also anticipate a rental adjustment in the event the taxes were held illegal, the time and amount of any adjustment being uncertain. Both parties could reasonably assume that the savings in taxes would be available for at least a short period of time, but that such savings would be taken into consideration in future determination of rentals.
This is clear from correspondence between the parties. In connection with a rental increase in 1953, Harsh agreed in a letter dated November 20, 1953 (Ex. 50) that “in the event real estate taxes are not legally assessed and located in the property involved, it will reduce the rents in the amount of $7.58 per unit per month, which is the amount of the tax now being levied”. In connection with a subsequent increase in rental in 1955, by letter dated August 5, 1955 (Ex. 53) Harsh was advised that an increase of $4.29 per unit per month would be approved provided Harsh would agree, among other things, that, “(c) In the event of a reduction in taxes, the F.H.A. is to reconsider the rents and require an adjustment thereof in accordance with the findings at that time”. Harsh replied by letter dated August 17,1955 (Ex. 54):
“We do understand that in the event taxes are reduced at some subsequent date, that our operation will then be reviewed on the basis of the facts then existing and a determination then will be made as to proper rentals; in other words, that a reduction in rentals does not automatically result from a reduction of taxes.”
To this letter plaintiff replied on September 8, 1955 (Ex. 55):
“This is to advise that your letter is unsatisfactory and we must insist that you comply with the conditions set forth in Mr. Duell’s letter of August 5th.
“We expect to receive from you, within 15 days from the date of this letter, a letter indicating your compliance with our requirements.”
On December 22, 1955, the director of the Federal Housing Administration wrote to the F.H.A. director at Helena, Montana, (Ex. 59) confirming an understanding that in the event of a tax reduction and within 30 days after the effective date of the reduction, “Funds accrued with the Federal National Mortgage Association in the tax accrual account not required for the payment of taxes may be applied in direct reduction of principal of the insured mortgage. In addition, that if a tax rebate is received in excess of $35,000, all sums rebated in excess of such amount may be applied in direct reduction to the prin*759cipal of the insured mortgage. At the time of reduction in taxes, F.H.A. will reconsider ceiling rents and require adjustments in accordance with their findings at that time.” This was accepted by Harsh in letter dated January 10, 1956 (Ex. 60).
It is clear from the foregoing that while the parties had not agreed upon a precise formula for the reduction of rents upon abatement of taxes, it was contemplated by both parties that a reduction would be made, F.H.A. to reconsider the ceiling rents and require adjustments in accordance with their findings at the time of the tax reduction.
Particularly in connection with any anticipated reduction of rental by reason of the abatement of taxes, any limitations upon the expected annual income becomes significant. Accordingly it is necessary to consider what limitations, imposed either by contract or existing law or administrative policy, would be taken into consideration by a willing buyer and willing seller in “guessing” what reduction might be anticipated by reason of possible abatement of taxes.32 Plaintiff contends that the income is limited by a “dollar amount”, representing the net income allowed at the original processing, i. e. $217,439.00, as contained in the final project analysis dated August 11, 1953. Defendant Harsh contends that the limitation is 6%% of the estimated replacement cost of either the sponsor or F.H.A., whichever is the lesser, and that in any event the amount in the project analysis is erroneous.33
The invitation for bids for the project, dated August 2, 1951 (Ex. 19) contained the following provision:
“Sponsors are advised that the approved rental schedule will be based upon a ‘net return’ not exceeding six and one half per cent of the sponsor’s estimated replacement cost, or the Federal Housing Administration's estimate of replacement cost, whichever is the lesser. Further, the maximum average rental shall not exceed that approved by the services for each project. By ‘net return’ is meant the amount after the provision for payment of all operating expenses, reserves and taxes, and vacancy allowances but before payment of debt service.”
Here the limitation would be based upon the sponsor’s estimated replacement cost of $3,565,206.00.
There was received in evidence a series of Military Housing letters34 and Administrative Rules and Regulations35 setting forth F.H.A. policy. The first reference to “dollar amount” is contained in Letter No. 64, dated January 8, 1954 (Ex. 30), which recited in part that “the net return cannot exceed the dollar amount established in the original processing”.36 *760I find no reference to either dollar amount or percentage limitation in any communications between the parties subsequent to the invitation to bid.
Counsel for both parties comment extensively upon correspondence between the General Counsel of F.H.A., and the Chief of the Lands Acquisition Section of the Department of Justice. A letter from the general counsel dated July 7, 1960 (Ex. 72) reads in pertinent part:
“ * * * Basically, the formula was that the rental rate should not exceed a specified average dollar amount per room per month which would provide a net return of 6%'%. Military housing letter No. 14, issued by the Commissioner under date of August 10, 1951, specifically provided: In * * * Title VIII cases, net return, calculated as herein provided, shall not exceed 6%'%.
“The provision governing the ‘net return, calculated as herein provided’, was that: ‘The director may approve a rent schedule which at 93% occupancy * * * will yield the appropriate net return on the actual estimated replacement cost of the residential portion of the project (including garages and land) plus required working capital.’
“ * * * It is clear that all parties understood that the rent formula was aimed at a 6%'% return.”
The Department of Justice in reply stated that it had been the Department’s understanding in accordance with Military Housing Letter No. 64 “that in Wherry housing projects the net return is to be limited to the dollar amount allowed in the original processing”. A second letter from the General Counsel, dated August 8, 1960, then stated that “our letter of July 7, 1960, should have referred to a 6%'% return as a maximum and the dollar amount allowed in original processing would be controlling in the enforcement of a reduction in rentals consistent with an abatement of taxes.”37
In support of its contention that $217,-439.00 is a fixed maximum, the Government relies in its post trial brief upon two letters from the Commissioner not in evidence, which the court nevertheless has considered, although both were written on August 16, 1960, almost three years after the taking. Both letters state that a Wherry owner should be afforded the opportunity of “realizing substantially the same dollar return as was indicated at the time the mortgage transaction was closed”. (Emphasis supplied.) One letter states that “to this end we continue to approve requests for revised rental schedules to compensate for increased operating costs and taxes”. Defendant objected to the court’s consideration of these letters by reason of the fact they were not in evidence. When the court permitted the Government to use these letters in argument, the defendant submitted three letters38 to show that the letters to the field offices “were never considered as having the force and *761effect of statutes or regulations; that they were merely the announcement of general policies and procedures for the guidance of the field personnel; and that the Commissioner was believed to have authority, for good cause shown, to change or modify the provisions of such letters at will, or, in proper cases, to make exceptions that did not follow the exact provisions of such letters”.39
The foregoing is sufficient to indicate that a willing buyer and seller on November 1, 1957, would have considerable difficulty in determining just what limitation might be followed in arriving at the amount of any rental adjustment by reason of abatement of taxes.40 There is no contention that a net return of 6%% was guaranteed, and it is conceded that the net return could not exceed 6%% 41 It is my conclusion from the invitation to bid, pertinent regulations and letters, as well as the opinion of the general counsel of F.H.A. set forth in his letter of July 7,1960, that, “It is clear that all parties understood that the rent formula was aimed at a 6%'% net return.” In the instant case the return in the initial analysis was close to 6%'%, but in the final analysis was barely 6%. It was the policy of F.H.A. to negotiate with the military services on rental adjustments, and consideration was given to the dollar amount contained in the project analysis, but this amount was not a fixed and controlling maximum.
The net return was based upon an estimated occupancy of 97 % of the dwelling units and 100% of the garages. The Government concedes that the owner would be entitled to the benefit of any occupancy in excess of 97%.42 Moreover, the dollar amount contained in the project analyses did not include any “profit” or “handling charge” which might be realized from utility income;43 nor did it include “miscellaneous income” of approximately $1,900.00.
I cannot accept Vaughan’s treatment of the effect of the low interest rate of 4% on the F.H.A. loan. On the other hand it would result in an earlier payout than a loan at a higher rate. Under the 4% rate the loan would have been repaid in 29 years, with the result that even though there might be a further rental *762reduction at that time, the elimination of the loan payment would more than offset any decline in income or increase in expenses which might otherwise be anticipated. In fact, it seems probable that the net income after debt service would increase rather than decline when the mortgage debt was paid.44
As noted supra, taking into consideration the increase in rental of March 1, 1957, the gross income as of the date of taking was at the rate of approximately $406,680.00 annually. Assuming an administrative expense of $15,000.00, and using the actual expenditure of $52,-077.00 for maintenance, repairs, decorating and painting, and $45,554.00 for other expenses, we arrive at a net income of $294,049.00 which might reasonably be anticipated for the first year, before making allowance for taxes, mortgage payments, or reserve for replacements. Deducting $21,892.00 as a reserve for replacement results in a net income of $272,157.00 before debt service, if no payment were required for taxes.45 Making further deductions of $176,473.00 annual mortgage payments and $15,-117.00 insurance premiums results in a net income of $80,567.00 if no payments were required for taxes. If the taxes of $32,764.00 were not refunded, the net income would be $47,803.00 for the first year.46 If a management fee of $7,000.00 were deducted, all of these figures would be reduced accordingly.
While there is disagreement between the parties and appraisers regarding the inferences to be drawn from the foregoing figures, there is no substantial disagreement with respect to the figures themselves. The net income subsequent to the first year, however, may not be calculated with the same degree of mathematical certainty.47
Factors which both a willing buyer and willing seller would consider in estimating future net income include: (1) the probability that the taxes would be abated (as they were within a year), but with some risk that there would be no abatement; (2) the fact that upon abatement of taxes, a reduction in rental could be anticipated, with the time and exact amount of the reduction uncertain, with (3) a reasonable expectation that in negotiating future rental revisions, the parties would aim at a 6%% net return, but with no guarantee of that return, and that some consideration would be given to the return at the time of processing and approval of the Air Force; (4) a recoupment of the attorney fees in the sum of $31,755.31 by either (a) deferring any rental reduction or (b) permitting recoupment through a lesser reduction in *763rent; (5) the probability that the high occupancy existing at the time of taking would continue for several years with a gradual decline thereafter; (6) the fact that the lease had 69 years to run, but could be terminated after 44 years, and the probability of increased expenses and declining income during the later years; but also (7) the fact that the mortgage debt would be repaid in 29 years, and while a reduction in rentals could be anticipated at that time, the repayment of the mortgage would offset both (a) the increase in other expenses and (b) decline in income which might otherwise be anticipated after the lapse of 29 years; (8) whether $7,000.00 or any other sum should be deducted as a “management fee” if the buyer should employ someone else to manage the property; (9) the possibility of abandonment of Malmstrom Air Base, which, as indicated supra, appears to me to be remote and speculative.
Obviously the amount of net income, before taxes and debt service, of $272,-157.00 would not be continued. Without attempting to give a dollar value to each of the factors enumerated in the preceding paragraph, but giving consideration to all of them and to the opinions of all of the appraisers, it is my conclusion that a fair and reasonable estimate of annual net income, before debt service, is $237,-200.00; that this income could reasonably be anticipated for a period of 40 years;48 and that a capitalization rate of 6% is proper.
Plausible arguments can be and have been advanced in support of each of the techniques employed by the various appraisers. In United States v. Tampa Bay Garden Apartments, Inc., et al., supra, many of the same problems were presented and the same techniques considered. There the trial court adopted the Inwood Coefficient method, and this method was approved by the Court of Appeals.49 The court there also used a period of 40 years and a capitalization rate of 6%.
Multiplying the stabilized net income of $237,200.00 by the Inwood factor of 15.046 results in a total value of $3,-568.911.00.50 Deducting therefrom the amount of the mortgage remaining unpaid at the date of talcing, i. e. $3,023,-497.00 results in an equity value of $545,-414.00. Plaintiff has paid $141,503.00. Deducting this amount leaves a balance of $403,911.00 for which judgment should be entered, with interest at 6% per annum from November 1, 1957.