7266 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR 11-17-97 22 7267 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not Present) of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 7268 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CSR 22 7269 1 2 EXAMINATION INDEX 3 Page 4 5 RICHARD DUGGER 6 Examination by Mr. Schwartz..............7270 7 Voir Dire Examination by Mr. Dueffert....7307 8 Continued Examination by Mr. Schwartz....7312 9 Examination by Mr. Dueffert..............7362 10 Redirect-Examination by Mr. Schwartz.....7440 11 Recross-Examination by Mr. Dueffert......7474 12 Cross-Examination by Mr. Keeton..........7482 13 Redirect-Examination by Mr. Schwartz.....7486 14 Recross-Examination by Mr. Dueffert......7489 15 CHARLES WHITE 16 Examination by Mr. Schwartz..............7491 17 18 19 20 21 22 7270 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 4 THE COURT: Be seated, please. The 5 hearing will come to order. Any preliminary 6 matters? If not, we will proceed with the 7 witness. 8 MR. SCHWARTZ: Thank you, Your Honor. 9 The Office of Thrift Supervision calls Mr. Richard 10 Dugger. 11 12 RICHARD DUGGER, 13 14 called as a witness and having been first duly 15 sworn, testified as follows: 16 17 THE COURT: Be seated, please. 18 19 EXAMINATION 20 21 Q. (BY MR. SCHWARTZ) Good morning, sir. 22 A. Good morning. 7271 1 Q. Would you state your full name for the 2 record? 3 A. Richard Lynn Dugger. 4 Q. And where do you live? 5 A. I live in San Antonio, Texas. 6 Q. How long have you lived there? 7 A. Since 1969. 8 Q. And what is your current occupation? 9 A. I'm a real estate appraiser. 10 Q. Would you give us a brief background of 11 your employment history? 12 A. After college, I worked for the Texas 13 Highway Department in Fort Worth for a little over 14 a year. And then I went to work -- I moved from 15 Fort Worth to San Antonio and worked for two 16 separate firms, MAI appraisal firms in 17 San Antonio. And then in the early Seventies, one 18 of my former employers and I formed a firm called 19 Love & Dugger. And then in the early Nineties, 20 the firm was changed to Dugger, Canaday, Grafe & 21 Woelfel. 22 Q. So, how long have you been a practicing 7272 1 appraiser? 2 A. For 28 years. 3 Q. In the time frame of 1985 to '86, 4 approximately how many people were employed by 5 Love & Dugger? It was Love & Dugger at that 6 point? 7 A. Yes, that's correct. Around 20, 21. 8 That would be appraisers. Then we had a staff of 9 another six or seven people. 10 Q. And who gave out assignments? How was 11 the workload distributed? 12 A. Usually through the partners. At that 13 time, there were four partners in the firm. And 14 they would distribute the assignments and review 15 work and work with the appraisers on the work. 16 Q. There is a difference between an 17 appraiser and an MAI? 18 A. No. There is not a difference. MAI is 19 an appraiser. MAI means a member of the Appraisal 20 Institute. 21 Q. Okay. And were there people who didn't 22 have that designation who worked for you? 7273 1 A. Yes, sir, that's correct. 2 Q. And they were appraisers? 3 A. Yes, they were. 4 Q. Did you or Mr. Love directly supervise 5 particular appraisers assigned to individual 6 projects? 7 A. Yes, sir, we did, along with our other 8 partners. 9 Q. And concerning particularly large 10 projects, say, with a value over a million dollars 11 or so, did you work closely with the associates? 12 A. Yes, sir. We worked with them closely 13 on all the assignments. 14 Q. Are you familiar with a parcel of land 15 called Park 410? 16 A. Yes, sir, I am. 17 Q. And how are you familiar with that? 18 A. Well, in the mid-Eighties, we did some 19 appraisal work on that parcel of land on various 20 occasions. 21 Q. Exhibit 7490. What is Exhibit 7490? 22 A. This looks like an agreement to sell a 7274 1 parcel of land that looks like it's around 2 407 acres from a group called Mormac/Leeper to Leo 3 McCloskey and others. And this was dated 1981. 4 Q. When specifically? 5 A. August the 21st, 1981. 6 Q. And what was the price of the property 7 described? I think it's on the second page. 8 A. The price per acre was 13,497 an acre. 9 Total purchase price shows to be $5.5 million. 10 Q. Now, was there a highway adjacent to 11 this property? Are you familiar with this 12 property? 13 A. I think this is part of the Park 410 14 property. The Mormac Group owned a larger piece 15 of property, and they were probably selling this 16 part out of it. And as far as a highway, Loop 410 17 adjoined this property, which is the loop that -- 18 the inner loop that circles the City of 19 San Antonio. 20 Q. Was there another highway intersecting 21 it at this point in time? 22 A. Not 410. There was -- I think the 7275 1 property had Potranco Road, which is a fairly 2 well-known road at the back of this property. 3 Q. And down at the bottom, somewhat 4 legible is the "LD" designation. 5 Does that indicate that this was 6 produced by your firm? 7 A. Yes, sir. This was from our records, I 8 believe. 9 Q. Okay. 10 MR. SCHWARTZ: Your Honor, we move the 11 admission of Exhibit T7490. 12 MR. DUEFFERT: No objections. 13 THE COURT: Received. 14 Q. (BY MR. SCHWARTZ) Exhibit 7491. 15 Mr. Dugger, what is this document? 16 A. This is a document dated 17 September 20th, 1984. It's addressed to Alamo 18 Savings Association in San Antonio. It is a 19 letter of opinion or an appraisal letter that was 20 prepared by one of our partners, Don Canaday, 21 who's an MAI, with reference to the Park 410 West 22 property. 7276 1 Q. Okay. Do you recognize the signature 2 of Mr. Canaday? 3 A. Yes, sir, I do. 4 MR. SCHWARTZ: Your Honor, we move the 5 admission of Exhibit T7491. 6 MR. DUEFFERT: No objection. 7 THE COURT: Received. 8 Q. (BY MR. SCHWARTZ) Who is Mr. Bill 9 Ross at Alamo Savings? 10 A. I don't know who he is. 11 Q. In the "re" line, it says that this is 12 an -- market value appraisal of 427.388 acres of 13 land located on Loop 410 West, San Antonio, Bexar 14 County, Texas." 15 Do you see that? 16 A. Yes. 17 Q. That doesn't mention anything about 18 Northwest Freeway there -- is that right -- or 19 Westside Expressway or anything like that? 20 A. Not that I can see in this letter, no, 21 sir, it doesn't. 22 Q. Okay. Was this the same acreage as the 7277 1 earlier exhibit that we just looked at? 2 A. No, sir. It looks like there is about 3 a 20-acre difference in the first exhibit and the 4 second exhibit. 5 Q. Okay. Is the land covered by the first 6 exhibit encompassed within the 427 acres described 7 in this exhibit? 8 A. I believe it is, yes, sir. 9 Q. Now, what's the purpose of -- this is a 10 value letter? 11 A. Yes, sir. 12 Q. What's the purpose of it? 13 A. I guess to answer the question as to 14 value of the property, I'm sure there was a file 15 that was part of this letter or the letter was 16 produced as a result of an appraisal of the 17 property. But it was to answer the question on 18 value in 1984. 19 Q. And was this a valuation for the raw 20 land without any improvements? 21 A. It appears to be a raw land appraisal, 22 yes. 7278 1 Q. In the second paragraph of the letter, 2 Mr. Canaday writes, "Upon your authorization, the 3 appraisal report can be completed within the next 4 two and one half weeks. The appraisal report will 5 detail all of the pertinent definitions, 6 descriptions, factual data, analysis, and 7 conclusions relative to the subject property and 8 the market area." 9 Do you see that? 10 A. Yes, sir, I do. 11 Q. Why is this done in this manner? 12 A. Well, many times in the past and even 13 today, someone will want an opinion of value or an 14 appraisal letter. And later, if they need a 15 narrative report, they will order it. This is 16 very common in the appraisal business. 17 Q. It was common at this period of time in 18 '84, '85, '86? 19 A. Yes, sir, it was. 20 Q. Still common today? 21 A. Yes, it is. 22 Q. Is it also sometimes done by a phone 7279 1 call? 2 A. It can be a verbal report, yes, sir. 3 Q. And that's -- that was common at the 4 time, as well? 5 A. Yes, sir. 6 Q. So, if after providing this kind of 7 preliminary valuation, if you don't get the 8 authorization to proceed any further, then what 9 happens? 10 A. At that point, you probably send a 11 statement to the client and that's the end of it. 12 Q. The client saves money? 13 A. He can, yes. 14 Q. And you save time? 15 A. Yes, sir, that's correct. 16 Q. On the property your firm was 17 appraising, I think the amount here is $41,300,000 18 on the back page? 19 A. Yes, sir. 20 Q. Would Mr. Canaday have worked with 21 other appraisers in your office? 22 A. He may have. It appears that he 7280 1 probably did this himself. He was one of our 2 partners, and it looks like he did this one 3 himself. He may have gotten some people in the 4 office to help him with the comparable sales or 5 some of the background data, but he was the one 6 that concluded the value. 7 Q. 7492. This is a December 23rd, 1984 8 letter to Mr. Charles White. And do you recognize 9 the signatures on the third page? 10 A. Yes, sir. Someone had signed this for 11 me, and then Gerald Schulz from our office had 12 signed it. 13 Q. Would the signatures followed by the 14 initials "CG," was this signed with your 15 authorization? 16 A. Yes, sir, it was. 17 Q. And is this from your office business 18 records? 19 A. Yes, sir, it is. 20 MR. SCHWARTZ: Your Honor, we move the 21 admission of Exhibit T7492. 22 MR. DUEFFERT: No objections. 7281 1 THE COURT: Received. 2 Q. (BY MR. SCHWARTZ) The letter is also 3 signed by a Gerald Burke Schulz. 4 Who is Gerald Schulz? 5 A. Gerald Schulz is -- was an associate 6 appraiser that had been with our firm quite a few 7 years. And he's an appraiser today, and he was 8 with the firm of Love & Dugger for a number of 9 years. 10 Q. Did he have an MAI designation? 11 A. Not at that time. 12 Q. Did you work closely with Mr. Schulz at 13 this period of time -- 14 A. Yes, sir, I did. 15 Q. -- on this appraisal? 16 A. On this appraisal and a number of other 17 appraisals. 18 Q. In the first paragraph, the letter 19 states -- well, first of all, the letter is dated 20 December 23rd, 1984. And it refers to the 21 effective date of the appraisal of November 30, 22 1985. Is the -- strike that. 7282 1 Was this valuation letter for the 2 property as developed or raw land? 3 A. It appears that this is assuming the 4 property is developed with infrastructure. I 5 notice in the first paragraph it says "Assuming 6 that the property is improved with streets, 7 utility, and divided into 38 parcels or tracts for 8 resale per development plan prepared by 9 Pape-Dawson Engineers of San Antonio. So, it was 10 developed with infrastructure appraisal. 11 Q. And the effective date of the appraisal 12 is November 30th, 1985. The date of the letter is 13 December 23rd, 1984? 14 A. Yes, sir. 15 Q. Is the difference in time something to 16 allow for the estimation of time it would take to 17 complete those improvements? 18 A. I believe that is correct. I think we 19 visited with Pape-Dawson several times to 20 understand what the timing was and the development 21 plan because they are a well-known engineering 22 firm in San Antonio. 7283 1 Q. On the first page, you go on to state 2 that "Another essential assumption in our market 3 value appraisal is that construction work on the 4 access roads and interchanges of the Westside 5 Expressway will begin during the first quarter of 6 1985, and this work will be completed during the 7 first half of 1987." 8 Why was that an essential assumption? 9 A. Well, it affects the utility of the 10 property. Texas Department of Highways, then 11 called the Highway Department, had announced, I 12 believe, at this time that the expressway would be 13 built and -- or it was proposed. And I'm sure we 14 visited with them about timing on that freeway or 15 highway extension. And it would create frontage 16 for this particular piece of land along the north 17 side of the Westside Freeway. 18 Q. Okay. Now, is there a difference 19 between access road and interchanges and the 20 actual expressway? 21 A. Yes, sir. 22 Q. And what's the difference? 7284 1 A. Well, the frontage roads, which were 2 what has been built there to date, would be the 3 service roads for a future freeway. At one time, 4 there was talk that they would build the freeway 5 as a freeway complete to Sea World from US Highway 6 90, which is about 3 miles south of this property. 7 And what was built were the frontage roads to 8 later serve the freeway. And all the right-of-way 9 was donated or acquired and a lot of the 10 engineering work done for the freeway. 11 Q. Were the contracts to build the actual 12 expressway ever let? 13 A. The expressway itself? 14 Q. Yes. 15 A. Well, they put in all the -- a lot of 16 the dirt work. They did a lot of the dirt work 17 and engineering and actually, they have the -- it 18 all piled up there to build the overpasses. 19 Q. But to complete the expressway -- 20 A. But the concrete was not laid for the 21 freeway. The frontage roads or the two lanes, I 22 think, on each side of this dirt work that was 7285 1 done was put in place. 2 Q. Just a moment, please. In the first 3 full paragraph on the top of the second page of 4 the letter, you say on the third line down there, 5 "Because a prudent investor would not undertake a 6 project such as Park 410 West without the 7 expectation of a profit, a developer's profit is 8 deducted from the net sales proceeds." 9 Do you see that? 10 A. Yes, sir, I see it. 11 Q. Did you assume a developer's profit 12 here? 13 A. Yes, sir. I think I did. 14 Q. And how much? 15 A. Let me see here. The developer's 16 profit that was assumed in the cash flow analysis 17 was 15 percent of gross sales. 18 Q. That paragraph -- or the next paragraph 19 on the second page, the second full paragraph, 20 says, "The present value of the future benefits is 21 what is defined as the market value of the 22 appraised property as developed. This is also the 7286 1 price a developer could pay for the developed 2 property, market the project over a ten-semester 3 or five-year period, and realize a 15 percent 4 developer's profit." 5 Do you see that? 6 A. Yes, sir, I do. 7 Q. Now, is this an assumption that a buyer 8 comes along after the Westside Expressway is 9 constructed and that the project is completely 10 developed with the streets and plumbing and 11 landscaping and utilities and ready to be sold for 12 the construction of actual buildings? 13 A. Yes, sir, with the exception that it 14 assumes that the freeway or the highway is going 15 to take, I think, you know, two years or so to 16 build. 17 Q. But that the expressway is under 18 construction? 19 A. Yes, sir, that's correct. 20 Q. If you make that assumption that the 21 project is completely developed and ready for sale 22 and the expressway is under construction, is the 7287 1 amount of risk to the developer who buys it at 2 that point in time when all of the work -- the 3 development work has been done greater or lower 4 than the level of risk to a buyer of the raw land 5 who wants to put in those improvements? 6 MR. DUEFFERT: Your Honor, I have no 7 idea what that means. 8 THE COURT: Well, maybe the witness 9 understands. Do you know? 10 THE WITNESS: Yes, sir, I think so. 11 A. It's saying if you bought a piece of 12 land that had the infrastructure in place, is 13 there the same level of risk as buying a piece of 14 raw land without the infrastructure in place? Is 15 the level of risk different? And in my opinion, 16 the level of risk is different. There is less 17 risk when all the infrastructure has been put in 18 place. 19 Q. (BY MR. SCHWARTZ) Why is that? 20 A. Well, you never know if you're buying 21 something and the infrastructure is planned but 22 not in place, you have costs that are fairly well 7288 1 known through the engineering firm and 2 contractors, but you have unknowns like time of 3 completion, weather, changes in the economy during 4 that construction period, a wide number of things 5 that can happen that you don't have that will 6 happen if the development is already in place with 7 streets and utilities. 8 Q. So, the level of development on the 9 property or, excuse me, the risk to the developer 10 goes down as the level of development goes up. Is 11 that a fair characterization? 12 A. Yes, sir, I think that's, in general, 13 true. 14 Q. And is that consideration of risk a 15 factor that you use when you're appraising the -- 16 giving a valuation of the property? 17 A. Yes, sir, that is true. 18 Q. So, then, your assumption in this 19 letter that a 15 percent profit is reasonable for 20 a developer who comes along after the project is 21 already developed would be different for a 22 developer who has to do the actual developing; is 7289 1 that right? 2 A. Yes, sir. There would be some degree 3 of difference in the risk and the profit and 4 requirement on a project like that. 5 Q. And would the profit incentive for that 6 developer who's buying it as raw land and intends 7 to put in the development be a percentage greater 8 than 15 percent? 9 A. In my opinion, it would, yes, sir. 10 Q. In the next paragraph down, you point 11 out that the Westlakes, if you see -- it's the 12 last full paragraph on the page. "The Westlakes 13 multi-use development located just south of the 14 appraised property is the most persuasive 15 indicator of absorption rates." 16 Do you see that? 17 A. Yes, sir, I do. 18 Q. How far was Westlakes from Park 410? 19 A. Westlakes is a project that was 20 initiated a couple of years before Park 410, and 21 it's directly south of the property. I believe 22 it's right across the Westside Freeway 7290 1 right-of-way to the south. And it also fronts -- 2 or part of the project fronts Loop 410. 3 Q. Very close? 4 A. Yes, sir. Very close. 5 Q. And how many acres is Westlakes? 6 A. Westlakes is slightly over a thousand 7 acres. I think the subject property here was part 8 of a whole land holdings and then Westlakes was 9 carved out of it and then the Park 410 was part of 10 the original parent tract, also. 11 Q. And was one of your assumptions in this 12 paragraph that Park 410 would be developed for 13 multi-family and commercial uses? 14 A. Yes, sir, as a multitude of uses 15 probably incorporating commercial, multi-family, 16 possibly some distribution, a wide variety of uses 17 because of its size. 18 Q. And are those similar to the uses to 19 which Westlakes was being put? 20 A. Yes, sir. 21 Q. Exhibit 7493. Oh, I'm sorry. Going 22 back to the previous exhibit, if you will, for 7291 1 just a moment. I don't know if I asked you what 2 was the valuation that you reached as developed? 3 A. As developed with the infrastructure in 4 place, we appraised it for $67,200,000. 5 Q. Okay. Exhibit 7493, please. Now, this 6 is a several-page exhibit. The documents appear 7 to be somewhat similar. Could you take a look at 8 that and tell me if you can identify the document? 9 A. Yes, sir. I believe this came out of 10 our files. And what it is, the first page is just 11 a handwritten copy of a sale that's written up 12 with reference to Park 410 property being acquired 13 from Alamo Savings and another party, McClintick 14 or McClintick, dated March -- looks like the 29th. 15 And then it appears what happened on 16 the next page, this was typed up. I'm sorry. The 17 next page -- the second page is the sale of the 18 entire Westlakes and Park 410 property, the parent 19 tract. 20 Q. Well, before we get into the actual 21 details of the documents, I'm just asking: These 22 are from your business records? 7292 1 A. Yes, sir, they are. 2 Q. And why are these kinds of things 3 created? 4 A. They are created as a database for our 5 files to monitor the sale of properties in 6 different areas of the city. 7 Q. And do you recognize the handwriting 8 that's on the first -- 9 A. Yes, sir. This is Gerald Schulz' 10 handwriting, who is one of our appraisal 11 associates. 12 MR. SCHWARTZ: Your Honor, we move the 13 admission of Exhibit T7493. 14 MR. DUEFFERT: Your Honor, the third 15 page is missing from the exhibit. If you'll look 16 at the Bates numbers, it skips from 000696 to 17 000698. I certainly have no objection to the 18 exhibit if OTS will provide the missing page. 19 MR. SCHWARTZ: If we have it. I didn't 20 even notice that. If we have it, we'll be happy 21 to provide it. 22 THE COURT: Received. 7293 1 Q. (BY MR. SCHWARTZ) Okay. Then you 2 started to tell us about the second page of that 3 exhibit. It's with the Bates stamp LD000696. 4 This is for the larger tract out of which Park 410 5 was carved? 6 A. This is the parent tract for Park 410 7 and Westlakes development. 8 Q. And it indicates tract size of 9 1533.835 acres? 10 A. Yes, sir, that's correct. 11 Q. And what was -- and when was it sold? 12 A. This was sold in 1980. The exact date 13 does not show up on here. 14 Q. Does it say March? 15 A. It says March of 1980. 16 Q. And what was the price per acre? 17 A. Price per acre was $8700 an acre. 18 Q. And I calculated that out at 19 $13,344,364.50. Does that sound about right to 20 you? 21 A. That sounds about right. 22 Q. Okay. Would you turn two more pages 7294 1 in? The Bates stamp is LD000699. 2 A. Yes, sir. 3 Q. And what's described there? 4 A. This is a sale from the group that 5 bought the original Slick Ranch. This is -- 6 Mormac was a group from Corpus Christi, I believe, 7 with the Leeper brothers, Leeper Investment from 8 San Antonio. And this is the sale of what later 9 became Park 410 West to a group called Notre Dame 10 Development. And this is dated -- I think it's 11 also 1981. I can't tell the exact date. Looks 12 like it's August of 1981. 13 Q. Now, does this acreage also include the 14 Park 410 raw land? 15 A. Yes, sir, I believe it does. 16 Q. It's described as 428.9 acres out of 17 1,533.835? 18 A. Yes, sir. 19 Q. The first exhibit we looked at which 20 was the sale to -- from Mormac/Leeper, the very 21 first exhibit that we looked at. 22 A. Okay. 7295 1 Q. Is this reflective of the same 2 transaction? 3 A. It's hard to tell. I think it is, but 4 the acreage is different because on the very first 5 exhibit, it shows 407.5 acres. This sales sheet 6 which shows to be under contract because, if you 7 notice, there is not a volume of page here, shows 8 428.9 acres. So, there is a difference in the 9 land area. 10 Q. Okay. But is the exhibit -- the first 11 exhibit that we looked at, is that incorporated 12 among this land? 13 A. Yes, sir. It appears to be. 14 Q. Okay. 15 A. Because the price per acre is the same 16 on both. 17 Q. Now, when this particular sale that 18 we're looking at now in Exhibit 7493 occurred, 19 were there any improvements on the land? 20 A. And you're talking about Exhibit 699 21 here? 22 Q. Page 699, that's correct. 7296 1 A. Okay. The question is were there 2 improvements on the land? No, there were none at 3 that time. 4 Q. And what's the price per acre there? 5 A. $13,497 an acre. 6 Q. And then further down, what does it 7 mean when it says "Usable acreage, 336.9 acres or 8 $17,183 per acre net"? 9 A. Apparently, there was some land that 10 was subject to drainage or flooding and the net 11 usable at that point was understood to be about 12 336.9 acres. And dividing the purchase price of 13 5,788,863 by the usable acres indicated the price 14 per usable acre to be $17,183. 15 Q. Would you turn back one page? 16 A. Yes, sir. 17 Q. Page 698. Now, what does this sale 18 reflect? 19 A. This is a sale of a property that's 20 north of the Park 410 West property, about -- 21 probably about a half a mile. It was a sale made 22 in 1981 to Advanced Micro Devices, which is a 7297 1 computer chip manufacturer. And the property sold 2 in '81. 50 acres apparently sold for 31,500 an 3 acre. 4 Q. Further down under the description of 5 the land section, do you see that? 6 A. Yes, sir. 7 Q. It says "Seller to extend military 8 drive west." And the word "seller" is underlined? 9 A. Right. 10 Q. "And extend" -- "and micron drive and 11 extend all utilities up to site." 12 Do you see that? 13 A. Yes, sir, I do. 14 Q. Was this $31,500 per acre that was 15 being paid by Advanced Micro Devices for land that 16 was developed or partially developed? 17 A. I think the price reflected a developed 18 price. That was certainly not -- doesn't appear 19 to be a net price to the seller because the seller 20 was required to extend some infrastructure to the 21 property. 22 Q. And would you turn two pages forward 7298 1 now? Bates LD000700. 2 A. Yes, sir. 3 Q. Now, the grantee is listed as Park 410 4 West JV. Is this the Park 410 property? 5 A. I believe it is. It's my understanding 6 that this is, yes, sir. 7 Q. And what's the price reflected there? 8 A. Price reflected -- the total price is 9 $39,017,699. 10 Q. And that's for 427.388 acres? 11 A. Yes, sir, that's correct. 12 Q. If I did the math right, does that 13 sound about right at $91,093 per acre? 14 A. Yes, sir. I think that would compute 15 to about $2.10 a foot. 16 Q. And at this point in time, was this 17 land developed or undeveloped? 18 A. It was undeveloped. There was no 19 infrastructure like in the way of streets or 20 utilities extending throughout the property. 21 Q. Now, further down on the page in land 22 description -- 7299 1 A. Yes, sir. 2 Q. -- it says "Level commercial tract with 3 frontage along Loop 410, Potranco Road, and 4 proposed Westside Expressway." 5 Do you see that? 6 A. Yes, sir. 7 Q. Was the -- was this price based on 8 speculation that the Westside Expressway would be 9 built? 10 A. Yes, sir. I don't know whether you'd 11 called it speculation. I think the Westside 12 Expressway at that time was probably on the 13 drawing boards and on the way from Texas 14 Department of Highways. 15 Q. But no contracts for the construction 16 had been let at this point? 17 A. I don't know the dates of -- I can't 18 remember. We probably knew at that time. I can't 19 remember. 20 Q. Exhibit 7494. Going back to the prior 21 exhibit one more time, was the price paid based on 22 the assumption that the Westside Expressway would 7300 1 be built? 2 MR. DUEFFERT: Price for what sale, 3 Your Honor? I just want to make sure the record 4 is clear. There is a number of sales discussed 5 here. 6 Q. (BY MR. SCHWARTZ) The price of the 7 sale that's reflected on Bates LD000700, the Park 8 410 West site, was that based on the assumption 9 that the Westside Expressway would be built? 10 A. Yes, sir. I believe it was. 11 Q. Do you recognize -- in Exhibit 7494, do 12 you recognize that handwriting? 13 A. I want to make sure I've got -- it's 14 hard to read the Bates number here, but at the 15 top, it says "7185." 16 Q. Right. Do you recognize the 17 handwriting? 18 A. Yes, sir. 19 Q. Who's handwriting is that? 20 A. That's Gerald Schultz from our office. 21 Q. He worked for you? 22 A. Yes, sir, he did. 7301 1 Q. And the Bates stamp -- it's not clear 2 on the first page; but on the second, third, and 3 fourth, it indicates that they were from your 4 files; is that correct? 5 A. Yes, sir, that's correct. 6 Q. And were these records produced from 7 your business records, the business words of Love 8 & Dugger? 9 MR. DUEFFERT: Objection to the use of 10 the term "business records" in relation to this 11 document. Your Honor, obviously I'm going 12 objecting to this exhibit again that we have the 13 handwriting of yet another witness who is 14 available but not here in the courtroom. 15 MR. SCHWARTZ: Your Honor, these 16 records are produced from the business records of 17 Love & Dugger, and if Mr. Dueffert will allow the 18 witness to answer that question as to whether they 19 came from his business records, then that issue 20 will be put to rest. 21 MR. DUEFFERT: They are not records. 22 They are handwritten scribblings produced from 7302 1 files. That's different than a business record. 2 MR. SCHWARTZ: We don't know that yet, 3 Your Honor. 4 MR. DUEFFERT: It's obvious what they 5 are. 6 THE COURT: Are you going to object to 7 the receipt of this exhibit? 8 MR. DUEFFERT: I believe I will, on the 9 grounds that the author of the notes, once again, 10 is not here. The fact that they come out of the 11 firm's files doesn't entitle this witness to 12 testify as to their meaning. 13 MR. SCHWARTZ: Your Honor, Mr. Dugger 14 has testified that he worked closely with 15 Mr. Schulz. He recognizes Mr. Schulz' 16 handwriting. Mr. Schulz was an associate of his 17 firm, and he worked specifically with Mr. Schulz 18 on the appraisal of this specific property. 19 THE COURT: What are you trying to 20 establish with this exhibit? 21 MR. SCHWARTZ: Well, a number of 22 things, Your Honor. And there are some additional 7303 1 handwritten notes that we believe are Mr. Schulz', 2 further on, that are -- that are equally important 3 that reflect prices paid and requested prices for 4 this specific property. 5 And again, Mr. Dugger worked very 6 closely with Mr. Schulz on this appraisal. He has 7 already testified to that. And Mr. Dueffert has 8 objected merely to the question as to whether this 9 was from Love & Dugger's records. That's the 10 question that's before the witness right now, Your 11 Honor. 12 MR. DUEFFERT: He keeps calling them 13 business records. That doesn't is not a business 14 record. It comes from files. 15 MR. SCHWARTZ: I have asked whether the 16 document came from the business records is the 17 question before the witness. 18 THE COURT: All right. I'll allow that 19 question. You may answer. 20 A. Would you repeat the question? 21 Q. (BY MR. SCHWARTZ) Certainly. Are 22 these notes from the business records of Love 7304 1 & Dugger? 2 A. Yes, sir, they are. 3 Q. Are notes like this prepared in the 4 course of creating an appraisal and performing an 5 appraisal of property? 6 A. Yes, sir. All the time. 7 Q. Do you maintain notes like this 8 regularly? 9 A. Yes, sir. 10 Q. And did you at that time? 11 A. Yes, sir. 12 MR. SCHWARTZ: Your Honor, we move the 13 admission of Exhibit T7494. 14 MR. DUEFFERT: Your Honor, once again, 15 they are not his notes. He did not create them. 16 They are not business records of the type that we 17 just saw where you have a form and you are filling 18 out a form. These are freestyle notes of 19 conversations. Mr. Schulz is available. We have 20 no objection to having Mr. Schulz come in here and 21 talk about them. But to ask this witness to 22 speculate as to what they mean is improper, and 7305 1 it's improper to put this type of stuff into the 2 record without the witness who created them. 3 MR. SCHWARTZ: Your Honor, I don't 4 believe it's necessary to call every witness in 5 the world to identify specific documents. 6 Mr. Dugger has already testified that he 7 recognizes the handwriting as Mr. Schulz'. He 8 worked with Mr. Schulz closely. They were from 9 his business records. They were created in the 10 course of preparing the appraisal that we're 11 talking about. And it seems pointless to have to 12 call in everyone who touched the paper. 13 MR. DUEFFERT: Your Honor, if this was 14 a record, an appraisal report, or a draft 15 appraisal report or comparables on forms, we'd 16 have no objection. But this is not a business 17 record, and it's not reliable without the witness 18 who created it to talk about what it means. 19 THE COURT: Well, I am concerned that 20 if we don't receive it and we have to call in 21 Mr. Schulz, then it takes time and then we have to 22 listen to his testimony. 7306 1 MR. DUEFFERT: Your Honor, the issue is 2 the admission of unreliable evidence. This 3 witness is not in a position to explain another 4 man's handwritten scribblings. 5 MR. SCHWARTZ: Your Honor, that -- 6 Mr. Dueffert's characterization of the notes as 7 handwritten scribblings is a little far-fetched. 8 These notes are typical of what was created for -- 9 in connection with performing appraisals. And as 10 we'll see, as these notes develop throughout 11 Mr. Dugger's testimony, that a clear picture of 12 what occurred happens. 13 MR. DUEFFERT: Your Honor, if you look 14 at the text of the document and see the nature of 15 the words on it, "survey" and "legal" with a check 16 mark on it, "NS Fury" with some numbers underneath 17 it. They are scraps of sentences. It's the type 18 of evidence that, if it's going to be admitted, 19 the person who created it should be here to talk 20 about it. I think Mister -- I think this witness 21 is perfectly capable of testifying to what was in 22 comparable sheets and appraisal reports and 7307 1 drafts, research materials from his files. All 2 I'm saying is that handwritten notes of this type 3 is different. It's not fair to put it into 4 evidence against us. 5 MR. SCHWARTZ: Would it matter if it 6 were typed? I don't understand the objection. 7 They are notes from the business records used 8 during the course of preparing an appraisal. And 9 Mr. Dugger worked with Mr. Schulz closely. 10 Mr. Dugger was the MAI signing the appraisal. 11 Mr. Schulz was the -- was not an MAI, as 12 Mr. Dugger has already testified, and was an 13 associate that he worked with. 14 MR. DUEFFERT: May I ask a single 15 question on voir dire for the document? 16 THE COURT: Yes, you may. 17 18 VOIR DIRE EXAMINATION 19 20 21 Q. (BY MR. DUEFFERT) Mr. Dugger? 22 A. Yes, sir. 7308 1 Q. In your firm, in the course of 2 preparing a formal appraisal report, would you 3 have relied on these notes without first speaking 4 to Mr. Schulz? 5 A. In many cases, I am there when he's 6 take notes like this. I will ask the questions. 7 He will take the notes. This is typical. This is 8 how we -- when we take assignments, this is -- we 9 still do this. I may take the notes. Someone 10 else may take the notes. To answer your question, 11 yes, I would rely on these. 12 Q. Even if you weren't there personally? 13 A. That's correct. 14 THE COURT: Are you contesting some of 15 the facts on the materials here, or are you 16 just -- 17 MR. DUEFFERT: I can't decipher these 18 notes. I don't know what's in there, and I have 19 no idea what Mr. Schwartz is going to do with it. 20 I would propose that we proceed as we have in the 21 past where he asks questions to the witness. The 22 witness can look at the notes to refresh his 7309 1 memory. 2 MR. SCHWARTZ: Your Honor, that's -- 3 the development of these notes is a very important 4 part of the presentation that we're going to -- 5 that we'd like to make today. These notes are an 6 indication of the thinking at the time, and we 7 request that they be received as a part of the 8 record and not merely used to refresh 9 recollection. 10 MR. DUEFFERT: The witness has 11 testified that he was present at meetings. He can 12 look at the notes, he can refresh his memory, and 13 he can testify. That is evidence. It's different 14 to have the notes of another witness come in as 15 evidence independently of the witness' 16 recollection as refreshed by the notes. 17 MR. SCHWARTZ: Again, Your Honor, this 18 is not just another person. This is the associate 19 that he worked closely with in the preparation of 20 this appraisal and supervised throughout the 21 course. He's testified that he attended these 22 meetings and asked questions, and the notes are 7310 1 reflective of those questions. 2 MR. DUEFFERT: If Mr. Schwartz wants to 3 develop that information in that way, it's all the 4 more reason to have the witness who created the 5 notes here. 6 MR. SCHWARTZ: That's only a part of 7 it, Your Honor. As I said before, the development 8 of these notes is what we are seeking at this 9 point. 10 MR. DUEFFERT: The witness is perfectly 11 capable of testifying to that without the notes 12 coming into evidence independently. Your Honor, 13 I've said it before. It appears that they are 14 building a case on scraps of paper, and we just 15 want the people who authored the scraps of paper 16 to talk about them rather than other people 17 speculating about what they mean. 18 MR. SCHWARTZ: Your Honor, we believe 19 that the Court is capable of attributing to each 20 document that it receives the weight that is 21 appropriate for that document. And we believe 22 that the document should be received. 7311 1 THE COURT: Well, since we have an 2 objection, it does seem to me we should have the 3 maker of the document here. 4 MR. DUEFFERT: Thank you, Your Honor. 5 THE COURT: I'm fearful that this will 6 delay the hearing for no purpose, but we are 7 entitled to have the person that wrote these 8 notes. 9 MR. SCHWARTZ: May I develop the 10 questions using the documents without -- or before 11 we obtain that witness. 12 THE COURT: Well, I don't know what 13 questions you're going to ask. If you're going to 14 ask this witness what did Mr. Schulz mean by them, 15 that's what I'm not sure of, unless he has some 16 independent recollection or knowledge. 17 MR. SCHWARTZ: Well, I'm sure that 18 Mr. Dueffert will object if he feels that my 19 questions are inappropriate. Is it okay if we 20 proceed and see how it develops? 21 THE COURT: Well, you can ask your next 22 question. Let's see what it is. 7312 1 MR. SCHWARTZ: Actually, some 2 additional foundation may assist. 3 4 CONTINUED EXAMINATION 5 6 7 Q. (BY MR. SCHWARTZ) If you were 8 reviewing appraisal work that you performed on a 9 particular appraisal at a point in the past and 10 you pulled the files from your business files to 11 do that review, would notes of this type be in 12 those files? 13 A. Yes, sir, they would. 14 Q. And would you be able to interpret 15 notes of this type in order to make a review of 16 that appraisal? 17 A. Yes, sir. In most cases, if I can read 18 them, I can interpret them. 19 Q. In the course of working with 20 Mr. Schulz, did you have occasion to review his 21 notes? 22 A. Yes, sir. 7313 1 Q. And has your interpretation of his 2 notes consistently been consistent with what's 3 written in his notes? 4 A. Yes, sir, it has been. This is 5 commonly done like this when you talk with 6 someone. It's not typed. Even today, this is how 7 I make notes when we talk with someone. 8 Q. And you would rely on notes of this 9 type in performing a review of an appraisal? 10 A. Yes, sir. These are often the most 11 important notes because sometimes they are the 12 first contact you have with the client where you 13 request certain information and talk with them 14 about what is needed in the way of a report or 15 when and the fee and things like that. And those 16 are typically handwritten. 17 Q. And would you -- in making such a 18 review, would you need Mr. Schulz' presence to 19 interpret them for you, or would you be able to 20 review the notes and make the interpretation on 21 your own? 22 A. I would probably -- I would be able to 7314 1 make the interpretation on my own. On something 2 like this, if Mr. Schulz took these notes by 3 himself, he would come back to the office and go 4 over the notes with me. And I'm sure he did when 5 this was done. I can't remember whether I was 6 with him when these notes were made. Oftentimes, 7 though, in a meeting like this with a client, I'll 8 ask the questions and the associate will take the 9 notes. We'll make -- keep a list of the things we 10 need to do in an appraisal or other correspondence 11 that we had with the client. 12 MR. SCHWARTZ: Your Honor, based on 13 Mr. Dugger's representation that he -- that he 14 reviews notes like this and interprets them and 15 consistently interprets them correctly in 16 reviewing an appraisal, I would reiterate our 17 request that this exhibit be admitted, T7494. 18 MR. DUEFFERT: Your Honor, Mr. Schwartz 19 has now confirmed that, indeed, this witness is 20 able to talk about these notes, interpret them. 21 What we want is him to do that in the courtroom. 22 If it's going to refresh his memory, we want to 7315 1 hear about it. What we don't want is the document 2 to come in, the witness was never asked about it, 3 and then suddenly we'll be seeing briefs in two or 4 three months that will be trying to construe the 5 notes themselves. We object to the admission of 6 the notes. 7 THE COURT: I'll sustain the objection. 8 Q. (BY MR. SCHWARTZ) Do you recall 9 whether you worked with Mr. Schulz regarding an 10 appraisal of the Park 410 property? 11 A. Yes, sir. I remember that I did. 12 Q. Okay. There is another appraiser named 13 Ed Schulz. Is that the same Schulz that worked 14 for you? 15 A. No, sir. 16 Q. It's a completely different person? 17 A. I don't know Ed Schulz. 18 Q. Do you know if Mr. Gerald Schulz that 19 worked for you is in any way related to Mr. Ed 20 Schulz? 21 A. I don't think so. 22 Q. Do you recall, in around July of 1985, 7316 1 a meeting or hearing about a meeting with 2 Mr. Charles White? 3 A. In '85, we visited with Charles White 4 several times. And I don't remember the exact 5 time, but we did visit with Charles White several 6 times in '85. And probably in mid-to early '85, 7 we talked with him. 8 MR. SCHWARTZ: Before we get off onto 9 another topic, Your Honor, I would request that a 10 subpoena be issued for Mr. Gerald Schulz. 11 THE COURT: All right. I concur. 12 Q. (BY MR. SCHWARTZ) When you first meet 13 with a prospective client -- with a client, do you 14 request certain documents? 15 A. Yes, sir, I do. 16 Q. And do you request a survey and legal 17 description of the property? 18 A. Yes, sir. We request it. Sometimes 19 it's available. Sometimes it's not. 20 Q. Do you request letters from the City, 21 utilities -- about utilities and streets? 22 A. If they -- if the client has that in 7317 1 their files, yes, we do request information like 2 that. 3 Q. Do you request information regarding 4 flooding? 5 A. Yes, sir. 6 Q. What does that describe? 7 A. Well, a lot of times a client will have 8 a flood study that's been prepared by an 9 engineering firm. And we actually ask for 10 everything in their files that they would have 11 that would in any way impact the value of a 12 property. 13 Q. Engineering study? 14 A. Yes, sir. 15 Q. Closing statement? 16 A. Yes, sir. 17 Q. Pro forma? 18 A. Pro forma, if it's a development like 19 an apartment or something like that, if they have 20 done their own market study, we would request that 21 to see what they think it's going to operate at, 22 from what level it will operate, yes, sir. 7318 1 Q. And what is a pro forma? 2 A. A pro forma is a projection, typically. 3 It can be by anyone -- an appraiser, the 4 developer, a lender -- usually anticipating or 5 showing an anticipated income, expense analysis, 6 and oftentimes a net income analysis. 7 Q. Do you request promotional material? 8 A. Yes, sir. A lot of times, promotional 9 material will have good information about the 10 neighborhood and trends. 11 Q. And a development plan? 12 A. Yes, sir. 13 Q. What is a development plan? 14 A. A development plan often is created in 15 tandem with an engineering firm or possibly land 16 developer and the developer showing a layout of 17 property after it's developed, how they handle 18 streets, utilities, drainage areas, green belts. 19 And it can be a lot of different things depending 20 on the type of project. 21 Q. Would you look the first page of 22 Exhibit 7494 up at the top? 7319 1 A. Yes, sir. 2 Q. Do you have an understanding of what 3 the descriptive phrases at the top of those notes 4 mean? 5 A. Yes, sir, I do. 6 Q. Is that based on your experience with 7 working with Mr. Schulz? 8 A. Yes, sir. 9 Q. And what do they mean? 10 A. They mean -- this was information that 11 we were requesting from them to get started on an 12 appraisal or a valuation assignment. It's a 13 standard we ask of a client like this. 14 Q. Is it also standard to discuss with the 15 client the client's requirements concerning when 16 the appraisal should be completed? 17 A. Yes, sir. 18 Q. And do you recall, in connection with 19 an appraisal of Park 410, what Mr. White's 20 requirements were with regard to completing -- it 21 may help to refresh your recollection to look at 22 the last page of these notes. 7320 1 MR. DUEFFERT: Which appraisal, Your 2 Honor? 3 MR. SCHWARTZ: An appraisal of 4 Park 410. The last page of the notes. 5 A. It says here apparently they needed the 6 value of the property unimproved by July 31st, 7 1985 and the value of the property improved -- 8 that's with infrastructure, I assume -- by 9 August 31st, 1985. 10 Q. (BY MR. SCHWARTZ) And based on your 11 experience working with Mr. Schulz, how do you 12 interpret -- first of all -- strike that. 13 Does this refresh your recollection 14 about the requirements that Mr. White expressed to 15 Love & Dugger? 16 A. Yes, sir. On something like this, we 17 usually ask, you know, "When do you need this 18 appraisal report?" And write down, if it's 19 agreeable with everyone, the date that we 20 anticipate it will be completed. 21 Q. And down at the bottom of that page, 22 there is additional handwriting. 7321 1 Do you recognize that handwriting? 2 A. That's my handwriting. 3 Q. Could you read that, please? 4 A. It says "two purposes," I believe. I 5 don't write as good as Mr. Schulz, I don't 6 believe. One is "internal purposes," and No. 2 is 7 "development lenders." 8 Q. Do you have an understanding today as 9 to what that means? 10 A. Well, we do a lot of appraisals for 11 corporate or internal purposes for corporations or 12 families, and that's what that would mean, I 13 assume. Maybe to help them in their 14 decision-making process. And then the second one, 15 No. 2, development lenders, they were possibly 16 going to seek a development loan and use our 17 services in connection with a development loan 18 related to the property. 19 Q. With regard to the notes that you've 20 reviewed, do you have an understanding of what 21 those notes mean? 22 A. Yes, sir, I do. 7322 1 Q. And what is that? 2 A. You mean the entire -- all these notes? 3 Q. The page that we're looking at, the 4 last page, LD000611. 5 A. Yes, sir. I think I understand what 6 this means. 7 Q. What does it mean? 8 A. It means that at this point, they were 9 considering having an appraisal made of the 10 property as unimproved, before infrastructure, and 11 they were considering having an appraisal made of 12 the property with infrastructure in place with a 13 date of completion being expressed in this letter. 14 They were wanting six copies of the report to be 15 addressed to the joint venture. And then my notes 16 about the two purposes that it might serve. 17 Q. And the -- your notes, would that have 18 been from information that was provided to you by 19 the client? 20 A. Yes, sir. 21 Q. Okay. Exhibit 7495. Is this a 22 document from Love & Dugger business records? 7323 1 A. Yes, sir, it is. 2 Q. And would you describe it? 3 A. This is a standard -- looks like a 4 standard employment letter that we would have used 5 at that time back to Charles White just saying 6 "Here's what we're going to do." And it's 7 outlined as No. 1 and 2 on the first page. No. 1 8 being the appraisal of the property in its state 9 of improvement as it was, and then No. 2 assuming 10 the development that -- or the development plan 11 furnished to us has been completed. And it states 12 the fee and the time frame that these reports will 13 be completed. And basically, that's what it is. 14 Q. And do you recall whether this work was 15 actually performed? 16 A. I can't remember whether it was or not. 17 I think there was an appraisal made about that 18 time. Whether it addressed both of these issues 19 or these questions, I don't know. But I think 20 there was an appraisal made in mid-1985 on the 21 property. 22 Q. On the bottom of the second page, there 7324 1 is the initials "GBS" in capital letters. 2 Do you see that? 3 A. Yes. 4 Q. Is that Mister -- does that indicate 5 that this was drafted by Gerald Burke Schulz? 6 A. That's correct. 7 MR. SCHWARTZ: Your Honor, we move the 8 admission of Exhibit T7495. 9 MR. DUEFFERT: I have no objections to 10 this as a draft. I would like Mr. Schwartz just 11 to clarify with the witness if this letter was 12 ever sent so that's clear on the record. 13 THE COURT: Do you know why this is not 14 signed? 15 THE WITNESS: Well, this is our file 16 copy. And we would have maybe not signed the file 17 copy, but it's not agreed and accepted by 18 Mr. White at this point. Whether it was, I don't 19 know. Our file copies -- usually when it comes 20 back to us, the client will have signed it and 21 dated it. We don't sign these ourselves. We just 22 keep them as a record. 7325 1 THE COURT: I'm not sure what value 2 this is. 3 MR. SCHWARTZ: If I can ask one more 4 question, Your Honor, that might help. 5 THE COURT: Yes. 6 Q. (BY MR. SCHWARTZ) Do you recall if 7 during this time, the assignment that 8 Love & Dugger was requested to do that's reflected 9 in this draft was changed? 10 A. Was changed? 11 Q. Yes, sir. 12 A. I don't recollect whether it was 13 changed. I think -- it's hard to remember back 14 this far, Your Honor. And I think at one point, 15 we did an appraisal of the property as developed 16 that was a narrative report. And possibly, both 17 parts of this were not completed. I can't 18 remember without looking at other documents. 19 THE COURT: Well, it seems to me this 20 is kind of an offer to perform an appraisal and we 21 don't know for sure if it was actually performed 22 according to this. So, I'm not sure where we're 7326 1 going. 2 MR. SCHWARTZ: Well, Your Honor, on the 3 second page of the letter, there is a reference to 4 Federal Home Loan Bank Board Memorandum R-41B. 5 And one of the points I'd like to establish is 6 that the parties were aware of R-41B at this point 7 in time. 8 THE COURT: Proceed. 9 MR. SCHWARTZ: Is the exhibit received, 10 Your Honor? 11 MR. BLANKENSTEIN: Your Honor, for that 12 limited purpose, he can ask the witness the 13 question. 14 THE COURT: I can't see the point of 15 receiving it or not receiving it. It seems to me 16 it's kind of a novelty question. 17 MR. DUEFFERT: Your Honor, I would like 18 the record to reflect we've been here an hour and 19 ten minutes. I don't believe we've ever dealt 20 with anything that was ever imputed to United. I 21 think all of these are conversations among people, 22 and there is no suggestion that any document we've 7327 1 seen so far has gone to United. Again, I don't 2 think we have any objection to this document for 3 the very limited evidentiary value that's there, 4 but I think -- 5 THE COURT: All right. Received. Next 6 question. 7 Q. (BY MR. SCHWARTZ) Do you recall 8 during this time period whether or not the parties 9 have discussed Memorandum R-41B? 10 A. The parties -- 11 Q. This is your firm and Mr. White. 12 A. I can't remember. It was probably 13 discussed with him if they were going to use this 14 for a development loan. 15 Q. Do you recall when Memorandum R-41B was 16 created? 17 A. It was created, I believe, in the early 18 to mid-1980s. The exact date, I don't know. It 19 was not that well known until the mid-1980s. 20 Q. At the time that you were making -- you 21 were having these conversations with Mr. White, 22 however, discussing an appraisal of Park 410, were 7328 1 you aware of R-41B? 2 A. Yes, sir. 3 Q. Exhibit 7069. I think it was admitted 4 at Tab 634. Exhibit 7069 is an appraisal from 5 Love & Dugger dated August 13th, 1985. 6 Do you recognize it? 7 A. Yes, sir, I do. 8 Q. Is it the work product of your firm? 9 A. Yes, sir, it is. 10 Q. Does this appear to be the appraisal 11 that's referred to in the earlier exhibit and the 12 requirement section of the notes that you looked 13 at and that you recalled? 14 A. It appears to be because it's dated 15 just right after the letter was dated. 16 Q. On the first page there, very lightly 17 written in the center appears to be the word 18 "void." 19 A. Right. 20 Q. And underlined. Do you know why that's 21 there? 22 A. There was an appraisal that was 7329 1 prepared after this appraisal, say, four or five 2 months after this. And it superseded this 3 particular appraisal. 4 Q. And what was the value you gave the 5 land in this report? 6 A. This is 388.698 acres, and we appraised 7 it for $44,022,000. 8 Q. Does that work out to about $113,255 9 per acre? Does that sound about right? 10 A. That sounds about right. We were 260 a 11 square foot on the property. 12 Q. And is this undeveloped? 13 A. Yes, sir. This would be undeveloped 14 before the infrastructure is in place. But 15 recognizing that Westside Freeway was going to 16 be -- or the right-of-way was in place for that to 17 be built. 18 Q. So, that's an assumption that was made 19 in this? 20 A. Right. 21 Q. Exhibit 7496. The first page of 22 Exhibit 7496 has some names and initials up at the 7330 1 top. 2 Do you recognize those? 3 A. Yes, sir, I do. 4 Q. And what does this -- what does that 5 indicate to you? 6 A. It indicates that there was a meeting, 7 and these are just identifying the parties that 8 were present. 9 Q. And is that based on your experience 10 working with Mr. Schulz? 11 A. Yes, sir. What we typically do is 12 we -- always at the top of the page when we meet 13 with someone, we -- one of the first things we do 14 is put the date and then who we talked to and who 15 was there at the meeting. 16 Q. Do you recognize the handwriting on 17 this page? 18 A. This is Gerald Schultz', also. 19 Q. Is this also from the business records 20 of Love & Dugger? 21 A. Yes, sir, that's correct. 22 Q. Would you turn to the second page? 7331 1 A. Okay. 2 MR. SCHWARTZ: So that the record is 3 complete, Your Honor, we will offer T7496. 4 MR. DUEFFERT: Same objections, Your 5 Honor. 6 THE COURT: Sustained. 7 Q. (BY MR. SCHWARTZ) Do you recall a 8 meeting or a conversation that Mr. Schulz informed 9 you about on or around November 8th, 1985? 10 A. Yes, sir, after looking at the notes, I 11 do. 12 Q. It refreshes your recollection? 13 A. Yes, sir. 14 Q. And do you recall what Mr. Schulz, 15 Gerald Schulz, told you about that conversation? 16 MR. KEETON: Your Honor, that's 17 hearsay. Mr. Schulz is apparently going to be 18 subpoenaed. To ask what Mr. Schulz said to him in 19 private conversation is clearly hearsay. 20 THE COURT: Denied. You may answer. 21 A. The question was do I remember what he 22 said? 7332 1 Q. (BY MR. SCHWARTZ) What he told you 2 about his conversation. 3 A. Well, we had had some involvement with 4 Park 410, and he -- I assume he came back to the 5 office. It's hard to remember exactly -- and said 6 that we were going to reappraise it. Again, we 7 had done it, I think, in July and it was the end 8 of the year. And that he had talked with -- I 9 don't remember who he said he talked with. Here 10 it says that he talked with David Graham. And 11 that could have been on the telephone. I don't 12 know whether that was in person or not. 13 Q. Do you recall that -- do you recall 14 Mr. Schulz mentioning that he had talked to 15 someone from United Savings? 16 A. I can't remember who he said he talked 17 with. 18 Q. In looking over these notes, do you 19 have an understanding of what Mr. Schulz meant? 20 A. Yes, sir. I would have looked at these 21 notes at the time. 22 Q. And what was your understanding, based 7333 1 on your review of the notes? 2 A. Well, just reviewing the notes, that he 3 had talked with David Graham at United Savings. 4 And David Graham is apparently in charge of the 5 real estate division of United Savings. They had 6 discussed R-41B, and apparently Mr. Graham had 7 told him they had never made a loan greater than 8 an R-41B appraisal or market value. Then there is 9 a note in the middle of the page, 10 "75 million-dollar value needed." 11 Q. What does that reflect or what do you 12 recall Mr. Schulz telling you that Mr. Graham had 13 told him about that? 14 MR. KEETON: Your Honor, just for the 15 record, now we've got double hearsay. Telling you 16 what Graham said to Schulz in a conversation that 17 this gentleman did not have. 18 THE COURT: Denied. 19 MR. DUEFFERT: And Your Honor, also for 20 the record, the witness has testified that he 21 doesn't recall who Mr. Schulz told him Mr. Schulz 22 talked to. I think that's where he began with 7334 1 this. 2 MR. SCHWARTZ: Strike the question. 3 Q. (BY MR. SCHWARTZ) Based on your 4 understanding and experience in reviewing notes 5 that have been taken in the past by Mr. Schulz, do 6 you have an understanding, looking at these notes, 7 as to who Mr. Schulz would have talked to? 8 A. Yes, sir. 9 Q. And who is that? 10 A. David Graham. 11 Q. And what is your understanding, looking 12 at these notes, as to what conversation occurred? 13 A. Well, I can remember when Mr. Schulz 14 came in to my office on this one because we had 15 done this job before. And he just said he had 16 talked with whomever -- and it appears to be David 17 Graham -- and that we're going to do another 18 appraisal of Park 410. And we just looked through 19 the notes and he said they needed $75 million and 20 they wanted to review certain things in the 21 discounted cash flow analysis. Maybe we had -- 22 they had the old report possibly and they were 7335 1 wanting to question some of the things that we 2 would do in the discounted cash flow analysis of 3 the developmental approach related to the discount 4 rate valuing the corner property and the 5 developer's profit. 6 MR. KEETON: Your Honor, I move to 7 strike the last part of the witness' answer. It's 8 clearly not responsive and clearly speculating. 9 THE COURT: Sustained. 10 Q. (BY MR. SCHWARTZ) Do you have a 11 recollection of Mr. Schulz indicating to you from 12 his conversation with whomever -- well, it appears 13 to be Mr. Graham -- that Mr. Graham was requesting 14 you to make a review of the appraisal that you had 15 performed? 16 A. Well, to review certain parts of the 17 appraisal. 18 Q. And what do you recall? 19 A. Well, according to these records, the 20 discount rate and the profit that we would use on 21 a developmental approach. This is standardly done 22 with a lot of clients. They want to know kind of 7336 1 where you're headed. I mean, this is not that 2 unusual with this particular client. How you 3 would handle the corner property. These are the 4 three items here. 5 Q. There is a reference in the middle, 6 "meet with Graham and Gulf Management." 7 Do you see that? 8 A. Middle of which page? 9 Q. Middle of the page just below 10 "75 million-dollar value needed." 11 A. Yes, right. I see that. 12 Q. Do you recall a meeting with Gulf 13 Management and Mr. Graham? 14 A. I met with Gulf Management several 15 times with Mr. Schulz there. I don't remember 16 specifically whether Mr. Graham was there. At one 17 point when we met with Charles White, there was 18 some other people there. I don't remember who 19 they were at this point. It's been 12, 13 years 20 ago. 21 Q. With regard to the discount rate and 22 the value of a corner tract and developer's 7337 1 profit, if those numbers are raised or lowered, 2 the discount rate, the value of the corner tract, 3 and the developer's profit, do those manipulations 4 affect the overall appraised value of the project 5 as a whole? 6 A. They would in one approach to value. 7 The approaches to value that we took on these 8 properties were two. And one was the 9 developmental approach or projecting out income 10 stream expenses and profit before you get to the 11 value of the land and it's a check, really, on 12 your comparable sales. But certainly, any type of 13 change in these particular items makes a 14 difference in the value of the property indicated 15 by the developmental approach. 16 Q. So, if you, say, raise or lower the 17 discount rate, how does that affect the value of 18 the property? 19 A. Well, the discount rate is present 20 valuing of income stream. And if you raise the 21 discount rate, you're going to lower the value. 22 If you lower the discount rate, you raise the 7338 1 value. 2 Q. And changing the value of a corner 3 tract, does that work inversely to what you just 4 said, that if you raise the value of the corner 5 tract, the whole property value goes up? 6 A. Yes, sir, as per the developmental 7 approach, it would. 8 Q. And what about the developer's profit? 9 If you raise or lower the developer's profit, what 10 happens to the overall value of the property? 11 A. It would have an inverse relationship 12 on the value of the property. 13 Q. What does that mean? 14 A. In other words, if you raise the 15 developer's profit, the value of the property is 16 going to go down. 17 Q. And conversely, if you lower -- 18 A. Yes, sir. 19 Q. -- the developer's profit, the value of 20 the property is going to go up? 21 A. By the developmental approach. 22 Q. On the third page, would you take a 7339 1 look at those notes? Does that refresh your 2 recollection about whether Mr. Schulz communicated 3 to you that Charles White of Gulf Management 4 Resources had gone to United Savings Association 5 for a loan? 6 A. Yes, sir. That's what it appears to 7 be. 8 Q. What do you understand that to mean? 9 A. Well, this would be typical of what 10 you'd see. Someone is talking to lenders and, in 11 this case, they were possibly going to present the 12 appraisal to United Savings. A lot of times, a 13 client will call and say "I'm going to go to 14 Cullen Frost Bank" or someone else and they just 15 tell us what they are going to do with the 16 appraisal report. 17 Q. Do you have an understanding of what 18 Mr. Schulz meant by "have gone to United Savings 19 Association for loan"? 20 A. Well, they probably made a loan 21 application and started the correspondence and 22 the -- all the meetings that were necessary and 7340 1 made contact with United Savings to do a 2 developmental loan on this property through United 3 Savings. 4 Q. 7497. Do you recognize these notes? 5 A. These are Gerald Schulz' notes. And 6 there's a little note by me over on the left, and 7 I can't read it. It says "50" something, but -- 8 Q. That's up at the top of the page just 9 below the reference to Charles White? 10 A. Yes, sir. 11 Q. Are these -- are these notes from the 12 business records of Love & Dugger? 13 A. Yes, sir, they are. 14 MR. SCHWARTZ: Your Honor, we move the 15 admission of Exhibit T7497. 16 MR. DUEFFERT: Same objection. 17 THE COURT: Sustained. 18 Q. (BY MR. SCHWARTZ) Do you recall 19 Mr. Schulz communicating to you around December of 20 1985 or early December '85 concerning a 21 conversation that he had had with Mr. White? 22 A. Yes, sir. 7341 1 Q. Do these notes refresh your 2 recollection of that conversation? 3 A. Yes, sir. 4 Q. And what do you recall? 5 A. Well, this was just typical visiting 6 with a client as we're preparing a report, 7 discussing some of -- and in our office, we 8 typically talk to the client as we go along on an 9 appraisal like this and keep them posted as to 10 what we're doing, how we're proceeding with time, 11 generally what we're coming up with, and some of 12 the assumptions that we're making. And this -- 13 this particular notation or group of notations is 14 probably following a conversation that Gerald 15 Schulz and possibly had with Charles White. 16 Q. Now, there is a reference to "RLD." 17 Do you have an understanding of what 18 that means? 19 A. That would be me. 20 Q. That's Richard L. Dugger? 21 A. Yes. 22 Q. And do you recall what you and 7342 1 Mr. Schulz, Gerald Schulz, would have talked about 2 around this time concerning the developmental 3 approach? 4 A. Well, according to this, what I had 5 suggested is we do the report and we include a 6 developmental approach section. I think the 7 report that was done in July did not include a 8 developmental approach. A developmental 9 approach -- and I want to tell what you it is. 10 It's a way to check -- if you've got comparable 11 sales, it's a way to check your comparable sales 12 to see if this particular project has merit and if 13 the value that you're reflecting from the 14 comparable sales you, in fact, can develop it, 15 make a profit, and pay all the cost of 16 development. And it supports -- it's basically a 17 way to check your sales comparison approach. And 18 I was suggesting here that we redo the report 19 because it was getting a little bit -- the market 20 was still real active at the time -- and we 21 include a developmental approach maybe to check 22 ourselves, comparison approach. And it looks like 7343 1 I was suggesting a 4 percent increase in the 2 market value approach or the time adjustment to 3 the comparable sales. 4 Q. Based on these notes and your 5 recollection, would you have had any time 6 constraints in preparing a final appraisal using 7 the developmental approach? 8 A. Well, there is always time constraints. 9 On something like this, it may take three or four 10 or five weeks to do it. 11 Q. But within a month, you would have been 12 able to accomplish that result? 13 A. Yes, sir, typically. 14 Q. Exhibit 7185. Exhibit 7185 is two 15 letters dated January 24th, 1986, and January -- 16 with an attached letter of January 15th, 1986. 17 Have you ever seen these letters or did 18 you see these letters on or around January 1986? 19 A. January of '86. This first letter is 20 not familiar. I don't believe I've ever seen it. 21 Q. And the second? 22 A. No, sir. These are not familiar to me. 7344 1 Q. During your relationship with Mr. White 2 and Mister -- and United Savings, did you have any 3 difficulties meeting United's or Park 410's time 4 constraints? 5 A. We always had some problem with time 6 constraints, but I don't remember any problems, 7 particular problems. 8 Q. Do you recall any discussion that your 9 appraisals were unsatisfactory with those parties? 10 A. I don't recall any discussion like 11 that, no. 12 Q. Earlier, we talked about a conversation 13 that Mr. Schulz had with Mister -- with someone at 14 United regarding a 75-million-dollar value needed. 15 Was Love & Dugger ever able to 16 accomplish an appraisal of the Park 410 property 17 that reached a 75-million-dollar value? 18 A. No, sir. We never appraised it in that 19 range. 20 Q. Exhibit 7143. It is admitted at Tab 21 711. 22 Is this your work product, sir? 7345 1 A. Yes, sir, this is. 2 Q. Would you turn to the fourth page in? 3 It's IV, LD000152. 4 A. Yes, sir. 5 Q. Is there a valuation on that page for 6 the land? 7 A. Yes, sir, there is. 8 Q. And is that the raw land? 9 A. Yes, sir. This is the land without 10 infrastructure in place, but understanding that 11 Westside Freeway was going forward, as was Sea 12 World. Sea World was about 3 miles, 4 miles to 13 the northwest and it had been announced a few 14 months prior to this date of appraisal. 15 Q. And is this appraisal for the raw land 16 or as developed? 17 A. Raw land. 18 Q. Would you turn in there to Page 36? 19 A. Yes, sir. 20 Q. There is a discussion there regarding 21 impact of Sea World. And I believe it continues 22 on to the next page. 7346 1 A. Okay. 2 Q. Did you compute a dollar figure or a 3 percentage value increase attributable to Sea 4 World locating in Westover Hills? 5 A. Where that came from, it's talking 6 about a multiplier. 7 Q. Where are you looking at? 8 A. I'm looking at Page 37. 9 Q. And where? Is that in the end of the 10 first paragraph? 11 A. Yeah. The end of the first paragraph. 12 We may have gotten this from Sea World. We 13 went -- when we were doing this appraisal, we had 14 been to Sea World of Orlando to talk with the 15 developer to see what kind of impact that 16 development had on Orlando in the immediate area. 17 We'd also gotten some numbers from Sea World about 18 what was happening in San Diego. And this number, 19 its impact on the economic multiplier, I don't 20 believe we calculated. I don't think we did. I 21 don't know where it came from. It may have come 22 from Sea World or from San Diego Economic 7347 1 Development Agency or something like that. 2 Q. Well, there is no discussion of Sea 3 World of Orlando in here. 4 A. Right. 5 Q. However, there is a discussion of Sea 6 World of San Diego -- 7 A. Right. 8 Q. -- in here. Do -- is that an 9 assumption that Sea World in San Antonio would 10 have an impact -- an economic impact equal to that 11 of Sea World in San Diego? 12 A. Well, let's see here. This is talking 13 about the economic impact in San Diego. It says 14 the economic multiplier on the community was 15 estimated to be 7 in terms of impacting and 16 providing revenues." 17 All we concluded in the next paragraph 18 is that Sea World would have a significant and 19 long-lasting impact on the areas of population and 20 employment. 21 Q. And that was based on figures from Sea 22 World in San Diego? 7348 1 A. And Orlando, because we visited Orlando 2 Sea World. 3 Q. Would you turn to Pages 47, 48, and 49? 4 What is that chart on those pages? 5 A. This is a chart -- and it's several 6 pages here -- identifying commercial developments 7 in the Park 410 area. Most of these are along 8 Loop 410, in that general area, identifying them 9 as to size and type of development and -- 10 Q. The description at the top of the table 11 says "principal mixed use developments" in Park 12 410 West area. 13 What does that mean? 14 A. These are the major multi-use 15 developments in the area of the Park 410 land. 16 Q. And there is a description. The first 17 one is Alamo Downs? 18 A. Yes, sir. 19 Q. How many acres was Alamo Downs? 20 A. Alamo Downs was approximately 21 300 acres. 22 Q. And when did -- was construction 7349 1 already underway at Alamo Downs? 2 A. Alamo Downs had been around for three 3 or four years. It was north of the property about 4 a mile and a half. 5 Q. There is a description -- a comment 6 section that indicates that construction began in 7 1981. 8 Is that consistent with your 9 recollection? 10 A. Yes, sir. I think that's correct. 11 Q. The next item on the chart is Big 12 Country? 13 A. Yes. 14 Q. Do you see that? 15 A. Yes. 16 Q. How many acres was Big Country? 17 A. Big Country is about 4,000 acres. 18 Q. And was that near the Park 410 19 property? 20 A. Well, it's on the outer loop. It's -- 21 Big Country was mostly a residential development 22 initiated by Jim Rutmore of San Antonio. 7350 1 Q. 4,000 acres? 2 A. Yes, sir. It's outside of 410, oh, 3 about 3 and a half to 4 miles from this property. 4 Q. And was development already underway 5 there? 6 A. Some development. Mostly residential. 7 Q. As of February of 1986? 8 A. Yes, sir. 9 Q. Borderbrook? Do you see that 10 reference? 11 A. Yes, sir. 12 Q. And how many acres was Border Brook? 13 A. Borderbrook was 300 acres. 14 Q. And where was Borderbrook in relation 15 to Park 410? 16 A. Borderbrook would have been or is about 17 a mile and a half to 2 miles northwest of the 18 Park 410 property. 19 Q. And had development already begun in 20 Borderbrook? 21 A. Yes. 22 Q. When was that? 7351 1 A. Looks like the infrastructure was 2 developed about 1984 and that there had been 3 several projects, an apartment and retail center 4 developed in 1985. 5 Q. The fourth item is Crown Meadows. Do 6 you see that? 7 A. Yes, sir. 8 Q. How many acres was Crown Meadows? 9 A. Crown Meadows, 98 acres. 10 Q. And had development begun there 11 already? 12 A. Apparently, it started in 1982. 13 Q. On the next page is a reference to 14 Northwest Crossroads. Do you see that? 15 A. Yes, sir. 16 Q. How many acres was Northwest 17 Crossroads? 18 A. 341 acres. 19 Q. And had development already begun 20 there? 21 A. Yes, sir. The prime develop. I think 22 what had begun there was Advanced Micro Devices. 7352 1 Q. And when was that development begun? 2 A. Well, there were two phases of the AMD 3 plant. The first one was -- I think this says in 4 1981. And then a second phase was, I think, 5 underway in 1985. 6 Q. And Westlakes? 7 A. Yes, sir. Westlakes is the project 8 that is south of the property that we're talking 9 about, and it's a little over a thousand acres. 10 And it includes a mercado mall that was considered 11 a small regional mall on Loop 410. And 12 development there began, oh, several years prior 13 to the date of our appraisal. 14 Q. Are these all of the developments that 15 existed in the Park 410 area at this time? 16 A. These are all the major ones. There 17 were probably some smaller projects, but these are 18 the major projects. 19 Q. Okay. There was also the Wender 20 property? How many acres was that? 21 A. The Wender property is Westover Hills, 22 and it's around Sea World. It would be northwest 7353 1 of this property, and it's several thousand acres. 2 It may be 3 or 4,000 acres. I don't know the 3 exact size of Westover Hills. 4 Q. Is it fair to say that these projects 5 that were in the Park 410 West area had a head 6 start on Park 410? 7 A. Some of them did because they were 8 developed in about 1981, 1982. Some of these were 9 in the initial phases of development, but they 10 were typically a little bit ahead of Park 410. 11 Q. Park 410 at this point was still raw 12 land; is that correct? 13 A. Yes, sir. 14 Q. All of these projects were projects 15 where development had begun or either vertical 16 construction of buildings had started; is that 17 right? 18 A. I believe so, on all these projects, 19 yes. 20 Q. Where is Love & Dugger located? 21 A. We're downtown, right next to the 22 courthouse in San Antonio. 7354 1 Q. San Antonio? 2 A. Right. 3 Q. You're local to San Antonio? 4 A. Yes, sir. 5 Q. Did you do appraisal work for other 6 savings and loans in -- for other savings and 7 loans? 8 A. Oh, yes, sir. Certainly. 9 Q. Exhibit 7498. 10 THE COURT: Mr. Schwartz, we'll take a 11 short recess. 12 13 (A short break was taken 14 at 10:39 a.m.) 15 16 THE COURT: Be seated, please. 17 Mr. Schwartz. 18 MR. SCHWARTZ: Thank you, Your Honor. 19 (11:04 a.m.) 20 Q. (BY MR. SCHWARTZ) Mr. Dugger, the 21 last appraisal that we looked at is February 1986. 22 I just want to clarify: What was the state of the 7355 1 construction of the freeway at this point in time? 2 A. It's hard for me to remember the exact 3 state of the construction. I think some of the 4 right-of-way had been donated by landowners. 5 Whether it was actually under construction, I 6 can't remember. Possibly, it's in the report; but 7 I can't remember specifically. 8 Q. What about the access roads versus the 9 actual expressway? 10 A. Well, the expressway has not been 11 completed, any part of it, even today. So, if 12 there was construction, it was of the feeder roads 13 to the side. 14 Q. Solely the access roads? 15 A. Yes. 16 Q. And are those one-way roads? 17 A. Yes, sir. They are both double lane, 18 one way. 19 Q. Exhibit 7142. And Mr. Dugger, do you 20 recognize this document? 21 A. Yes, sir. It's from our files. 22 Q. And is it an appraisal report dated 7356 1 September 26th, 1988? 2 A. Yes, sir. The letter is dated '88 and 3 that's the date of the appraisal, also, that's 4 correct. 5 Q. And was this prepared by your firm? 6 A. Yes, sir, it was. 7 MR. SCHWARTZ: Your Honor, we move the 8 admission of Exhibit T7142. 9 MR. DUEFFERT: No objections. 10 THE COURT: Received. 11 Q. (BY MR. SCHWARTZ) On Pages IV and V 12 in the cover letter, there is -- first of all, 13 there is a valuation. 14 Is that the valuation as developed? 15 A. The valuation in the center of the page 16 for a little over $60 million and then the 17 paragraph above states "as developed with 18 infrastructure in place." 19 Q. And what's the valuation? 20 A. $60,300,000. 21 Q. And further down on that page, there is 22 a discussion of Scenario 1, 2, 3, and 4 on the 7357 1 next page? 2 A. Yes, sir, that's correct. 3 Q. And then on the next page, there is 4 another valuation? 5 A. Yes, sir. 6 Q. Could you explain what those 7 scenario -- what those scenarios mean and why they 8 would have been done? 9 A. This is a -- a lot of times, a client 10 will ask us to assume different things if they are 11 trying to make a decision. And, in fact, this is 12 investment value. It's not necessarily market 13 value. And this is commonly done with clients 14 that ask us to assume things. As long as the 15 assumptions are reasonable, we can do that. And 16 this is not market value. It's investment value. 17 Apparently, the client had asked us to make some 18 different assumptions and how it would affect the 19 investment value of the property, and that's what 20 we did, in addition to the as-developed market 21 value. 22 Q. And what's the as-developed -- the 7358 1 as-developed market value was the 60,300,000? 2 A. Yes, sir, that is correct. 3 Q. And then the four scenarios that start 4 on the bottom of Page 4 and continue at the bottom 5 of Page 5, could you explain what each of those 6 represents? 7 A. Well, the first scenario assumes that 8 no -- in the developmental approach to value -- 9 and that's one of the two approaches we used in 10 market value. But in this case, in addressing 11 investment value, developer's profit was not taken 12 out as a line item. And it indicates that the 13 value would be -- if you leave developer's profit 14 in there, that the investment value would be 15 $69,300,000. 16 Q. When you say "leave the developer's 17 profit in there," what does that mean? 18 A. When you do a cash flow analysis and 19 you take out expenses like sales commissions, 20 taxes on the land, to get the market value, you 21 typically take out developer's profit or the 22 profit incentive to go forward with the project. 7359 1 In this case, we're estimating some 2 value that's investment value, and we did not 3 abstract it or subtract it as a line item charged 4 to the project. 5 Q. So, is this like what we were talking 6 about earlier when I asked you questions about 7 leaving the -- manipulating the developer's profit 8 for the earlier appraisal that we looked at? And 9 I think you testified that if you lower the 10 developer's profit, the valuation goes higher. 11 Is that what this is saying? 12 A. Yes, sir, that's correct. 13 Q. Okay. The second scenario, what is 14 that? 15 A. See, this assumes a typical developer's 16 profit has been taken; but the discount rate or 17 the cost of capital rate is 9 percent and that has 18 an effect on value, also. 19 In this case, the developer's profit 20 was deducted as a cost, but we assume that maybe 21 interest rates or the cost of borrowing money was 22 going to go down and, instead of being a higher 7360 1 amount, it would be at a rate of about 9 percent. 2 What we're doing in the developmental 3 approach is we're present valuing the net income 4 stream. And when you present value at a lower 5 rate, it causes the value to go up. If the rate's 6 higher, it causes the rate to go down. 7 Q. And the third one? 8 A. This assumes a typical developer's 9 profit has been taken, but the discount rate is 10 slightly different than we talked about under 11 Scenario No. 2 and it's number -- it would be a 12 10 percent discount rate. And that affects the 13 value, also. 14 Q. Again, the higher the discount rate, 15 the lower the valuation? 16 A. Right. 17 Q. And No. 4, is the same true? Scenario 18 No. 4 on the next page. 19 A. Yes. This reflects a higher discount 20 rate. And the discount rate, when you start 21 changing it for that many years -- when you're 22 talking about a five, five and a half, six-year 7361 1 sellout period, it has an effect on your bottom 2 line. 3 Q. This is a 1988 appraisal. Are you 4 aware of whether any of the tracts of land that 5 comprise Park 410 had been sold? 6 A. I don't remember. I don't think they 7 had been, but I don't remember specifically. 8 MR. SCHWARTZ: One moment, Your Honor. 9 I have no further questions at this 10 time, Your Honor. 11 MR. DUEFFERT: Your Honor, if we could 12 go off the record for about two minutes to set up. 13 THE COURT: Yes. 14 15 (Short break.) 16 17 THE COURT: We'll be back on the 18 record. Mr. Dueffert. 19 (11:15 a.m.) 20 21 EXAMINATION 22 7362 1 2 Q. (BY MR. DUEFFERT) Good morning, 3 Mr. Dugger. My name is Paul Dueffert, for the 4 record. 5 Do I understand that you've been 6 designated as an MAI since 1977? 7 A. Yes, sir, that's correct. 8 Q. And what does that indicate about your 9 credentials to appraise properties that are large 10 development projects like Park 410? 11 A. Well, most large projects are appraised 12 typically by MAIs. 13 Q. Why is that? 14 A. I guess it's a client preference, and 15 it's like a designation like a CPA. They 16 understand that the appraiser has had experience 17 in doing different types of properties. 18 Q. Does it indicate a certain level of 19 training and education? 20 A. Yes, sir, it does. 21 Q. You have been in the appraisal business 22 since 1969? 7363 1 A. Yes, sir. Actually, late '68. But 2 just a few months in '68. 3 Q. Okay. And have you spent all of that 4 time as an independent fee appraiser? 5 A. No, sir. 6 Q. Have you spent most of that time as an 7 independent fee appraiser? 8 A. Yes, sir, that's correct. 9 Q. What -- since 1969, what things have 10 you done other than independent fee appraisal 11 work? 12 A. What other things? 13 Q. Yes. What else? 14 A. I've developed some properties. I've 15 been involved in agriculture with my family. I've 16 sold some properties, done a lot of things. 17 Q. Okay. Could you explain a little more 18 fully the work you've done over the years as an 19 independent fee appraiser? 20 A. The work I've done over the years as an 21 independent fee appraiser is a large variety of 22 work. We've -- and I say "we." Our firm and I've 7364 1 done a lot of special purpose properties over the 2 years. Most of our trade area has been Texas, but 3 we do some work occasionally in other states. 4 We've done a lot of work for a wide variety of 5 clients, a lot of family work, estates. We do a 6 lot of work for trust departments of banks, do 7 some condemnation work. We do some work for 8 lenders, and just a wide variety. We do 9 residential work, also. We have people in the 10 office that do residential. We do all types of 11 properties. 12 Q. Do you do appraisal work on significant 13 projects in cities in Texas other than 14 San Antonio? 15 A. Yes, sir. 16 Q. And do you feel the fact that you're 17 not headquartered in Houston or Dallas would 18 prevent you from doing competent work in those 19 cities? 20 A. I would probably want to associate with 21 somebody in a city like that. I could do it. I 22 always feel a little uncomfortable going out of my 7365 1 city. As long as I can associate with somebody 2 that knows the city, I would do that. 3 Q. Okay. And do you have associates in 4 other cities? 5 A. Not that are with a firm, but they are 6 friends that are appraisers and brokers, yes. 7 Q. What other states have you done work 8 in? 9 A. South Carolina, Georgia, California. I 10 say California. I've testified in California but 11 about Texas properties. Oklahoma, Arizona. Those 12 are the other states. Not a great deal of work 13 like that. 14 Q. Do I understand correctly that you've 15 taught a course in real estate appraisal 16 principles at San Antonio College? 17 A. Yes, sir. 18 Q. And when did you do that? 19 A. That was back in the early Eighties. 20 I'm sorry. Early Seventies. It was probably in 21 '73 or '74. 22 Q. Do I also understand correctly that you 7366 1 were the past president of the San Antonio Chapter 2 of the American Institute of Real Estate 3 Appraisers? 4 A. Yes, sir, that's correct. 5 Q. And when did you hold that title? 6 A. That's been a long time ago, also. 7 That was in the, I think, mid to late Eighties. 8 Q. And what type of work did you do in 9 conjunction with that? 10 A. Being president? 11 Q. Yes. 12 A. Just all the things you have to do to 13 be president of a professional organization. We 14 had a regional conference that year in 15 San Antonio, and I was in charge of that or worked 16 on that. And I had been active in the Appraisal 17 Institute, the local chapter, for a long time. 18 Q. Okay. Could you turn to Exhibit T7491, 19 please? That is your firm's September 20th, 1984 20 value letter, I think it was called. 21 A. Yes, sir. 22 Q. You talked a little bit about how this 7367 1 is a document that you might send in advance of a 2 full appraisal report, correct? 3 A. Yes, sir. 4 Q. Was there anything improper or 5 unethical or wrong in your firm sending this 6 letter? 7 A. I don't believe so. It was commonly 8 done among all appraisal firms at that time, and 9 it was a common request of clients to ask for 10 this. 11 Q. Okay. And often, did many clients want 12 preliminary indications of value from you before 13 they decided to go ahead and have the full expense 14 of an appraisal report? 15 A. A lot of clients do, yes. 16 Q. And you never saw anything wrong with 17 that? 18 A. No, sir. Not as long as we have a 19 complete file. 20 Q. Was it your practice in the early and 21 mid-1980s to put all of the information in your 22 working file into your appraisal report? 7368 1 A. No, sir. 2 Q. So, for instance, an example of one 3 appraisal, if you went to Orlando to look at a Sea 4 World, you wouldn't necessarily set forth all of 5 the data you learned in that trip in your 6 appraisal report, correct? 7 A. No, sir, not necessarily all of it. 8 Q. Were you permitted under the standards 9 that governed appraisers to keep some of the 10 information that was in your work file in the work 11 file and not put it in the appraisal report? 12 A. Yes, sir, that's correct. 13 Q. And do you know if this September 20, 14 1984 letter was ever sent to anyone at United 15 Savings Association of Texas? 16 A. No, sir, I don't know. 17 Q. Could you turn to Exhibit T7492? And 18 this is your firm's December 23, 1984 letter to 19 the Park 410 West Joint Venture. 20 I see the addressee is Mr. Charles 21 White. Who was Mr. White? 22 A. Mr. White, at that time, was -- I don't 7369 1 know the exact firm name. He was with a firm that 2 I knew as Gulf Management in San Antonio. 3 Q. And is that also known as Gulf 4 Management Resources, Inc. 5 A. I don't know. 6 Q. Do you know if it also goes by the 7 initials GMR? 8 A. I don't know. 9 Q. Did you have any understanding of what 10 GMR or Gulf Management's role was in Park 410's 11 development at that point? 12 A. No, sir, not specifically. He seemed 13 to be the spokesman for the development at that 14 time, and I figured he was the coordinator of the 15 development. 16 Q. Your client at that point was who? 17 A. It was Park 410 West Joint Venture, 18 attention Charles White. 19 Q. Okay. And was Mr. White the person 20 from whom you were receiving information? 21 A. Well, we received information from a 22 lot of people: Engineers. But it was coordinated 7370 1 through Mr. White. 2 Q. Do you have any understanding that this 3 letter was ever sent to United? 4 A. I have no understanding of whether it 5 was or not. 6 Q. I note on the second paragraph, it 7 talks about construction work on the access roads 8 and interchanges. 9 Do you see that? 10 A. Yes, sir. 11 Q. And we've already talked about this 12 highway at some length this morning. Could you 13 explain your understanding of the process that 14 would be involved in building that highway? 15 A. It's a big question. 16 Q. I could break it down if you'd prefer. 17 A. Why don't you do that, if you don't 18 mind? 19 Q. Okay. First off, I think you also 20 refer in that letter to Pape-Dawson Engineering 21 firm? 22 A. Yes. 7371 1 Q. Were you familiar with that engineering 2 firm? 3 A. Yes, sir. 4 Q. What do you recall about it? 5 A. Well, Pape-Dawson has been around a 6 long time. They are one of the larger engineering 7 firms in town. They have a good reputation. They 8 do a lot of all types of work. They were 9 particularly familiar with this part of the city, 10 I believe, as they are the entire city. And we 11 relied on Pape-Dawson and other engineers for a 12 long time. 13 Q. Did they have a good reputation? 14 A. Yes, sir, and they still do. 15 Q. And were they working with the Park 410 16 West Joint Venture to develop this property? 17 A. I understand that they were. 18 Q. Do you recall when Sea World was 19 expected to open? 20 A. It's in one of the reports. I think it 21 was announced in mid-to latter '85, and I think it 22 was supposed to open in '87. The exact time, I 7372 1 don't know. 2 Q. And do you recall when the proposed 3 Westside Expressway was first announced? 4 A. It was either in '84 -- probably in '84 5 or '85. 6 Q. Did those two announcements have an 7 effect on the market value of land in the 8 neighborhood of Park 410? 9 A. In my opinion, they did, yes, sir. 10 Q. Could you explain why? 11 A. Well, it creates an employment base, if 12 nothing else. Sea World was going to be built in 13 an area where there had heretofore been really no 14 development to speak of. It's a destination 15 project, and it's a large project. It was San 16 Antonio's first theme park. Certainly the 17 Westside Freeway opens up a new corridor. There 18 had never been a freeway in the west -- and I say 19 northwest part of the city other than IH-10, which 20 is a number of miles north. This would open up 21 that area to the west of 410 to new development. 22 It would also connect 410 with US Highway 90, 7373 1 which is the only expressway in west San Antonio, 2 at several miles south of the Park 410 property. 3 Q. So, do you recall that Mr. Schwartz 4 showed you one or more documents that reflected 5 land prices in that neighborhood in 1981? 6 A. Yes, sir. 7 Q. Are you at all surprised that land 8 prices in this neighborhood appreciated between 9 1981 and the end of, say, 1985? 10 A. No, sir, I'm not surprised. 11 Q. Are you surprised that they appreciated 12 substantially during that time period? 13 A. No, sir, I'm not surprised. 14 Q. You talked about the difference between 15 the main lanes of the Westside Expressway and the 16 access roads, correct? 17 A. Yes, sir. 18 Q. Okay. And this letter, this 19 December 23, 1984 letter, only references the 20 access roads, correct? 21 A. The December -- 22 Q. It's Exhibit T7492. Second paragraph 7374 1 on the first page talks about the access roads, 2 correct? 3 A. Yes, sir. 4 Q. Was the expectation in 1984 that the 5 access roads would be completed before the main 6 lanes? 7 MR. SCHWARTZ: Objection, Your Honor. 8 Of whom? Expectation of whom? 9 THE COURT: The witness. 10 A. There was -- it's hard to remember back 11 at that time. There was talk at one time about 12 the freeway being completed all together with the 13 frontage roads. Then later, the freeway was put 14 on hold or delayed till there was enough traffic 15 to warrant the freeway. 16 Q. (BY MR. DUEFFERT) And was your 17 expectation that Sea World would eventually create 18 enough traffic to justify the building of the main 19 lanes of the freeway? 20 A. I think so. I think people didn't know 21 when that would happen, you know, whether the 22 freeway might be built two or three years after 7375 1 Sea World opened or 10 years. But that 2 eventually, they would build the main lanes since 3 they were being given or buying the right-of-way. 4 Q. And you said that the access roads, I 5 believe, were two lanes going in one direction and 6 two lanes coming back in the other direction, 7 correct? 8 A. Yes, sir. Well, I say they were. At 9 that time, I don't think they were in. They 10 were -- they are, today, two lanes in each 11 direction. 12 MR. SCHWARTZ: Your Honor, this exhibit 13 that we've just been handed appears to reflect the 14 condition of the property presently; is that 15 right? 16 MR. DUEFFERT: Presently or recently, 17 correct. And I was going to advise the witness of 18 that as soon as I began. 19 MR. SCHWARTZ: This is not the 20 condition of the property as it existed in 1986? 21 MR. DUEFFERT: I make no such 22 representation. I would like to discuss that 7376 1 matter with the witness. 2 MR. SCHWARTZ: Your Honor, we object to 3 using this exhibit. This is not the condition 4 that the property existed in at the time, and I 5 think that Mr. Dueffert should only be using this 6 exhibit -- should only be permitted to ask 7 questions concerning what the condition of the 8 property is today. 9 THE COURT: I didn't understand that. 10 MR. SCHWARTZ: This is a representation 11 of what the property looks like today, 1997. 12 MR. DUEFFERT: Your Honor, two days 13 ago, we had their expert witness telling us that 14 the highway was never built. I think it's fair to 15 explore this issue with the witness and find out 16 what happened and when. And this is a current 17 photograph, and I think it will speak -- it 18 appears to be reliable. I'm not going to 19 introduce it with this witness. 20 THE COURT: Well, I think what happened 21 eventually has some relevance. I'll deny the 22 objection. 7377 1 Q. (BY MR. DUEFFERT) So, looking at this 2 photograph, Loop 410 and Highway 151, towards the 3 bottom right-hand corner, is the location of 4 Park 410, correct? 5 A. Yes, sir, that's correct. 6 Q. And Westside Expressway is also 7 designated State Highway 151, correct? 8 A. Yes, sir, that's correct. 9 Q. Is there any significance to that 10 designation? 11 A. Well, it's a state highway. It's not a 12 US highway, but it's not a county road. I guess 13 it shows up on the maps. It would show up on the 14 main maps of the city since it is a state highway. 15 And it's maintained by the State, of course, with 16 controlled access. Well, no. I'm sorry. It's 17 not controlled access. 18 Q. Could you explain further about whether 19 State Highway 151 is controlled access? 20 A. Controlled access means a lot of 21 things. Well, this particular state highway has 22 stop signs when you travel along it. You don't 7378 1 overpass these major arteries. You have to come 2 to a stop at all the major intersections. So, you 3 don't have the free flow of traffic like you would 4 on a freeway like on 410. That's the main 5 difference in this and a freeway. 6 Q. Okay. It appears, if you look along 7 the Westside Expressway, that there is a white 8 stripe through portions of it. 9 Is that the main lanes that are being 10 constructed? 11 A. I was wondering about that myself. It 12 looks like that may be the fill material that they 13 have. They have stored some fill material in the 14 middle or between the two lanes and -- I guess to 15 build up the ramps if they ever build the freeway. 16 Q. So, that work was planned from the 17 start, that they were planning ahead in doing 18 that? 19 A. From the start, it was questionable 20 what they were going to do. So, I don't know 21 whether it was planned from the start or not. 22 Q. Do you recall when the four lanes of 7379 1 access roads opened? 2 A. Not specifically. It was in the late 3 Eighties, I think, but I don't know the exact 4 date. 5 Q. Sea World is designated on the 6 left-hand side of the photograph, correct? 7 A. Yes, sir, that's correct. 8 Q. If you could, turn back to your 9 December 23, 1984 letter to Park 410 West Joint 10 Venture. Was that an R-41B appraisal? 11 A. This one -- well, R-41B, no one knew 12 exactly what it was because there was an 13 educational period there where a lot of courses 14 were given in that period of time as to what you 15 would need to do to comply with R-41B. This was 16 probably not -- the R-41B, later it was known that 17 it needed to address feasibility and market 18 studies and that sort of thing. And this, coupled 19 with the file, I'm sure, was a complete appraisal. 20 I don't think we said it was R-41B. I don't know. 21 I don't think we did. 22 Q. Could you explain a little bit more 7380 1 about the courses that you were just referring to? 2 A. Well, the Federal Home Loan Bank Board 3 or whoever was in charge of these memorandums, 4 coupled with some of the appraisal organizations, 5 started putting on some courses in the Eighties -- 6 and I can't remember the exact dates -- to 7 different areas in San Antonio or Austin and 8 Houston talking about the meaning of R-41B and 9 then later, it became R-41C. And the courses were 10 just given at the local real estate boards, 11 typically. 12 Q. Did you take one or more such courses? 13 A. I remember taking one in San Antonio. 14 Q. Do you recall roughly when you would 15 have taken that? 16 A. It was probably about this time frame, 17 '84, '85, something. 18 Q. Do you know when R-41B was first put 19 into effect? 20 A. Someone told me that it was '82. I 21 don't think that it was known too well until a few 22 years after that. 7381 1 Q. You wouldn't need to cite compliance 2 with R-41B if you were addressing an appraisal 3 report to something other than a savings and loan, 4 would you? 5 A. It was my understanding you did not 6 have to at that point. 7 Q. I note that this appraisal report 8 contains an "as of" date that is a future date, 9 November 30, 1985. 10 A. Yes, sir. 11 Q. Mr. Schwartz asked you about that, 12 correct? 13 A. Yes. 14 Q. Do you know if R-41B permitted 15 appraisers to generate reports that valued the 16 property at a future date? 17 A. I can't remember. Any time there is a 18 proposed project of any kind -- apartments, office 19 buildings -- it always is proposed as of a date in 20 the future. So, it's been done for many, many 21 years on new construction. I don't know 22 specifically whether R-41B -- I can't remember 7382 1 whether it permitted that or not. 2 Q. There is a difference between the date 3 the development opens and the date of valuation, 4 correct? 5 A. Well, the date of valuation assumes 6 that certain things had taken place as of that 7 date. Then when it was developed, we don't know 8 when it was developed. That could be any time. 9 It could be sooner or later. 10 Q. There is an attachment to this report. 11 The first page of it at least says "gross sales 12 proceeds." 13 Do you see that? 14 A. Yes, sir. 15 Q. Do you recall who provided you with the 16 information that's reflected in that report? 17 A. This would be our own information. I 18 mean, it's our own projection. 19 Q. But you would get the data from the 20 client, or would that be a projection that you 21 would prepare yourself? 22 A. This would be a projection that we 7383 1 would prepare ourself. Now, the client may have 2 some projections, also, and we might review those 3 projections. 4 MR. SCHWARTZ: Mr. Dueffert, are you 5 through with this photograph? 6 MR. DUEFFERT: Probably not. I think I 7 might be referring to it from time to time. Do 8 you object to its presence in the courtroom? 9 MR. SCHWARTZ: Actually, sir, yes. 10 Again, I don't think that it has much relevance to 11 the condition of the property at the time. I 12 think it's misleading. May I take it down? 13 MR. DUEFFERT: I think it's a useful 14 point of reference. 15 THE COURT: Well, I don't think it's 16 going to mess with anything. Let's just see what 17 it is, if we're going to need it. 18 Q. (BY MR. DUEFFERT) Were there any 19 changes in the appraisal industry in the early and 20 mid-1980s regarding the size of appraisal reports? 21 A. The length, you're talking about? 22 Q. Yes. 7384 1 A. It's hard to remember. They 2 probably -- in the late Eighties, they probably 3 became even longer. They probably become more 4 lengthy all the time. There was always counseling 5 work being done, though, that required, you know, 6 letters of opinion and that sort of thing. 7 Q. The valuation in this December 1984 8 report was $67,200,000 as developed, correct? 9 A. Yes, sir. 10 Q. Was that value estimate reached in good 11 faith? 12 A. Yes, sir, I'm sure it was. 13 Q. Was that your firm's best estimate at 14 the time based on all available information? 15 A. Yes, sir. I'm sure we had a file to go 16 with this. As developed. This is the 17 as-developed value. 18 Q. You discussed earlier the developmental 19 approach to value. 20 A. Yes. 21 Q. Is there a difference between an 22 as-developed value for a property and the 7385 1 developmental approach? 2 A. Yes, sir. Really, they are two things. 3 The developmental approach is a method of 4 projecting income and expenses and profit to get 5 to value. And the as-developed is a value with 6 certain assumptions. 7 Q. As of 1985, how much did it cost to 8 commission a narrative appraisal report that would 9 be in compliance with Rule 4 -- or Memorandum 10 R-41B for a project of this type? 11 A. In what year? 12 Q. Say the mid-1980s, 1985, 1986. 13 A. It depends on the firm. I mean, it 14 could be 50 percent difference. I don't know. 15 Q. What would be the rough range that your 16 firm would charge? 17 A. To do an R-41B report on a project like 18 this? 19 Q. Correct. 20 A. Back then? Oh, I guess anywhere from 6 21 to 8 or $9,000, something like that. 22 Q. And roughly, how many manhours would go 7386 1 into producing such a report? 2 A. Maybe 100 to 150, something like that. 3 It depends on how much data you have. If you have 4 a good -- if you're local and have a lot of data, 5 it won't take you as much time. 6 Q. Would you turn for a moment to 7 Exhibit T7069, which is your firm's August 13, 8 1985 appraisal report on the Park 410 property? 9 A. 7069? 10 Q. Correct. T7069. 11 A. Okay. 12 Q. Who was your client for purposes of 13 this project? 14 A. It says Park 410 Joint Venture. 15 Q. Okay. Turn to the next page which has 16 Roman Numeral III at the bottom. 17 A. Yes. 18 Q. I note at the bottom, it states, "This 19 appraisal report has been prepared to conform to 20 the standards of the American Institute of Real 21 Estate Appraisers and the regulations set forth in 22 Federal Home Loan Bank Board Memorandum R-41B." 7387 1 Do you see that? 2 A. Yes, sir. 3 Q. Was it typical in 1985 and 1986 for 4 your firm to include such a certification in its 5 appraisal reports? 6 A. If -- this one may -- they may have 7 thought this was going to a lender, and we would 8 do that and we would attempt to prepare the report 9 accordingly. 10 Q. If you would turn two more pages ahead, 11 there is an executive summary. 12 Do you see that? 13 A. Yes. 14 Q. It states, rather, in the middle of the 15 page, "Improvements: None." 16 Does that indicate to you that this is 17 a raw land as-is appraisal of the Park 410 18 property? 19 A. Yes, sir, that's correct. 20 Q. If you could turn to Page 92, please. 21 At the bottom of the page is a valuation of the 22 Park 410 property? 7388 1 A. Yes, sir. 2 Q. And that valuation is $44 million 3 and -- $44,022,000, correct? 4 A. Yes, sir, that's correct. 5 Q. Was that your firm's good faith 6 estimate of the value of this property as of 7 July 31st, 1985? 8 A. Yes, sir, that's correct. 9 Q. That was based on the best available 10 information at the time? 11 A. Yes. 12 Q. In preparing a full narrative appraisal 13 report like this, what type of information would 14 you solicit and obtain from your client? 15 A. Well, the first thing we'd like to know 16 is legal descriptions, surveys, plats, engineering 17 studies they might have had done, any 18 environmental issues. That's become more of an 19 issue the last 10 years rather than '85. Aerial 20 surveys, any marketing package they might have. 21 Any interest they have had by prospective buyers 22 of portions or all of the tract, information on 7389 1 what they paid for the property, what they have 2 done to the property since they bought it. 3 Really, the history of the property and the 4 history or projection of where they think they are 5 going with it. 6 Q. Do you recall if you had any problems 7 getting that information from the Park 410 West 8 Joint Venture? 9 A. I don't recall any problems. 10 Q. This appraisal report contains only one 11 approach to the valuation of the property, does it 12 not? 13 A. It looks like it contains the sales 14 comparison approach, and that may be the approach 15 that you're speaking of, which is called the 16 market data approach, also. 17 Q. Is there also something called the cost 18 approach? 19 A. Yes, there is. It would not be 20 applicable to this property. 21 Q. Could you explain that, please? 22 A. This property -- this was appraised as 7390 1 just land, and the cost approach is applicable 2 where there's structural improvements typically. 3 Q. Is there also something called the 4 income approach? 5 A. The income approach is typically used 6 for income-generating properties like office 7 buildings, apartments. 8 Q. And would the Park 410 property be an 9 income-generating property? 10 A. It could be. If it were marketed, it 11 could be. You wouldn't use -- you necessarily 12 don't have to -- or at the time -- I don't know 13 that you have to today use an income kind of 14 projection when you have good sales. 15 Q. And have good appraisal practices 16 evolved over the years? 17 A. Have they evolved? 18 Q. Yes, sir. 19 A. Yes, sir. 20 Q. How so? 21 A. Well, in the last 15 years, I guess 22 you're speaking of? 7391 1 Q. Yes. 2 A. That's a big question, also. Where do 3 you start? Have they evolved? Yes. How? Well, 4 let me talk about the late Eighties and early 5 Nineties. In the late Eighties, there became a 6 question about feasibility and more market studies 7 than we had ever seen in the early Eighties and 8 certainly more than the Seventies. And then by 9 the early Nineties, everybody knew they didn't 10 need a market study because there wasn't any 11 demand for a few years there anyway. So, all the 12 market study people went away. They were out of 13 business. And appraisers were left to try to do 14 their own marketing research without any help from 15 anyone. And here we are today with some new 16 construction but a strong requirement for market 17 studies and competition. And the appraisal 18 reports have evolved to more streamline reports, 19 typically away from the long, narrative reports 20 the last couple of years. 21 Q. Is there a reason for that? 22 A. I just think too much paperwork. More 7392 1 people today seem to want to get to the point. 2 Q. In the mid-1980s, was there any 3 confusion or misunderstandings in the appraisal 4 industry as to what Memorandum R-41B required of 5 fee appraisers? 6 A. Yes, sir, there was. 7 Q. Could you explain that? 8 A. It's hard to explain because I have a 9 hard time remembering in the first place. I think 10 the main confusion -- the question was what was 11 wanted or what was required. And that if there 12 was a market study done, to what extent did you go 13 to. And those were the questions, the main 14 questions. A lot of this has just evolved with 15 the appraisal industry? What is a comparable 16 sale? Is it cash or cash equivalent or is it 17 financed terms or what have you? But that's why 18 the Federal Home Loan Bank Board and the 19 government was doing seminars, to try to clear the 20 air as to what they were requiring. 21 Q. Do you recall that Memorandum R-41B 22 required that appraisal reports be totally 7393 1 self-contained? 2 A. They may have required that. 3 Q. You don't recall? 4 A. Not offhand. There were a lot of 5 regulations after R-41B and R-41C that -- and 6 R-41B just went away. And there were so many new 7 ones in the late Eighties that people pretty much 8 forgot about R-41B. 9 Q. Can we have A11129, please? 10 Mr. Dugger, this is a copy of Memorandum R-41B 11 with an effective date of March 12, 1982. I 12 believe it's also been introduced in this 13 proceeding under Exhibit No. T7760. 14 Were you familiar with this regulation 15 in 1985 and 1986? 16 A. I'm sure I was -- had read this, yes. 17 Q. I just want to point you out to one 18 sentence in it. And if you look on the second 19 page, under the header "appraisal procedures," it 20 states, "Specifically, each appraisal report must, 21 one, be totally self-contained so that, (a), it is 22 a useful tool for prudent underwriting REO and/or 7394 1 LTF decisions." 2 Do you see that? 3 A. Yes, sir. 4 Q. As a practicing fee appraiser in 1985 5 and 1986, was it perfectly clear to you what was 6 meant by that requirement? 7 A. I don't think it was perfectly clear, 8 no, sir. The question -- you asked the question a 9 while ago what is self-contained, about 10 self-contained; and I wasn't perfectly clear, no, 11 sir. 12 Q. Is one reason you went to the course or 13 seminar to learn more about what that might mean? 14 A. Yes, sir. 15 Q. And is there some element of 16 subjectiveness in that requirement? 17 A. I think there is. 18 Q. Could you turn to Exhibit T7143? This 19 is your firm's February 12th, 1986 appraisal 20 report on the Park 410 property, correct? 21 A. That's correct. 22 Q. Once again, this is an as-is appraisal 7395 1 of raw land. Right? 2 A. Yes, sir, that's correct. 3 Q. Do you recall why your firm didn't 4 provide its client with an as-developed appraisal 5 report? 6 A. At this point? 7 Q. Yes. 8 A. No, sir. 9 Q. Do you know if it was ever requested of 10 your firm that it provide an as-developed 11 appraisal report? 12 A. At this particular time, I don't think 13 it was. We did an as-developed on other 14 occasions, but I don't recall any reason why we 15 didn't do it and it was asked for at this time. 16 Q. Again, for the record, who was your 17 client for purposes of this project? 18 A. Again, the Park 410 Joint Venture. 19 Q. Do you recall receiving any undue 20 pressure from David Graham or anyone else at 21 United to arrive at a certain value conclusion? 22 A. No, sir. Not undue pressure that I can 7396 1 remember. 2 Q. If you could turn to Page Roman Numeral 3 III. It refers to the Park 410 property in the 4 second paragraph as being strategically located 5 and talks about several roads and several other 6 projects. 7 Could you just explain to the Court 8 what was meant by that paragraph? 9 A. Well, first, strategically located, I 10 don't see that actually in there. 11 Q. In the first sentence, "The appraised 12 property is strategically located approximately 13 10 miles northwest of San Antonio" and then it 14 goes on. 15 A. I think "strategically" would be 16 appropriate because of the corner location of the 17 Westside Freeway and 410. As I mentioned before, 18 there are not that many arteries or proposed 19 freeways leading off of 410 in that part of the 20 city. This was the one that opened up that part 21 of the city to traffic. And it would be a highly 22 identified location. 7397 1 Q. What do you mean by "highly 2 identified"? 3 A. If you told somebody today, you know, 4 "I want to meet you at the corner of 151 and 410 5 at the Wal-Mart," they would know where you were 6 talking about. 7 Q. So, the fact that the property is 8 located on the corner makes it more attractive to 9 potential buyers of the land? 10 A. Well, potential buyers that are going 11 to do a little higher-profile type development. 12 Q. And is that fact reflected in land 13 prices? 14 A. Yes, sir, I believe so. 15 Q. Towards the bottom of the page or at 16 the bottom of the page, your report certifies that 17 it has been prepared in an attempt to conform to 18 the standards of the American Institute of Real 19 Estate Appraisers and the regulations set forth in 20 Federal Home Loan Bank Board Memorandum R-41B. 21 Your earlier appraisal of four months 22 earlier didn't have the words "in an attempt" in 7398 1 that certification. 2 Did that have any significance? 3 A. We were attempting to conform because 4 there was still some gray areas in what R-41B was. 5 Q. And were you making that attempt in 6 good faith? 7 A. Absolutely. 8 Q. The next page, in the middle of the 9 center paragraph, it states as a point of your 10 methodology that, open quote, "All expenses 11 necessary to develop and market the appraised 12 property were deducted from gross sales proceeds 13 during the period in which they were expected to 14 occur." 15 Do you see that? 16 A. Yes, sir. 17 Q. Does that signify that in arriving at a 18 value conclusion you deducted or backed out 19 development costs? 20 A. I believe that we did back out 21 development costs to get to the raw land value, 22 and other costs. 7399 1 Q. And if you were doing an as-developed 2 appraisal, you would not back out those costs? 3 A. That's correct. 4 Q. If you'd turn about three more pages 5 ahead to Roman Numeral VI, there is a map of the 6 Park 410 West property as well as the rest of the 7 San Antonio. 8 Do you see that? 9 A. Yes. 10 Q. There are some dots near Park 410 West 11 that signify various other developments. 12 A. Yes, sir. 13 Q. Do you have any understanding as to why 14 those properties are noted on this map? 15 A. This is probably out of a marketing 16 brochure of some kind, and they would be major 17 development projects in this quadrant of the city. 18 Q. Would the fact that there were other 19 major development projects in that quadrant of the 20 city have any impact on land values of Park 410? 21 A. Yes, sir. 22 Q. Could you explain? 7400 1 A. Well, it identifies, again, the area. 2 And it -- a lot of these are long-standing. Some 3 of these are newer developments. And typically 4 if, you've got good quality major developments in 5 the area, it's typically a positive feature. 6 Q. Could you explain why it would be a 7 positive feature to have other developments 8 nearby? 9 A. Complementing uses typically enhance 10 value. 11 Q. It's difficult to read on this map, but 12 there are two large black squares underneath 13 Highway 90 West that I believe signify Kelly and 14 Lackland Air Force bases. 15 A. Yes, sir. 16 Q. Was the proximity of Kelly and Lackland 17 Air Force bases at all relevant to your analysis 18 of the value of this property? 19 A. Well, in San Antonio, it's always 20 relevant because they were the largest employers, 21 particularly Kelly. 22 Q. Is San Antonio something of a military 7401 1 town? 2 A. Yes. There is five military 3 installations in the city, major ones. The other 4 one you see outside of 410 is a -- I don't know 5 what they call that. It's a storage depot. There 6 is not really people employed there, but it's a 7 storage depot and silos and different things 8 stored on a couple thousand acres there. 9 Q. Would you turn to Page 4 of your actual 10 report? It has the Bates No. LD000162. 11 A. Yes, sir. 12 Q. You site at the top of that page a 13 publication by the name of MegaTrends. Could you 14 explain the significance of that? 15 A. Well, MegaTrends was a book that came 16 out in the mid-Eighties and it identified growth 17 areas of the country, and San Antonio was 18 included. And San Antonio had never been included 19 in anything like this before, I guess. And so, 20 everybody was real proud of it and everybody 21 talked about it for a while. It was just a part 22 of the market. It was the evolving market for the 7402 1 city. 2 Q. Did San Antonio undergo substantial 3 growth in the late 1970s and early 1980s? 4 A. Yes, sir, it did. 5 Q. And why was that? 6 A. That's a good question. I think part 7 of it is the climate, the location: Three 8 interstate highways, cheap labor, inexpensive 9 place to live. Probably a lot of retirement, more 10 than we even had prior to that. And our 11 industries, like Texas industries was growing, the 12 local folks' industries were growing, along with 13 the rest of the sunbelt area. 14 Q. Why would you put that kind of 15 information in an appraisal report for a property 16 like Park 410? 17 A. Well, it's something that was being 18 talked about. Anything that's relevant to the 19 local market, a property like this might be 20 developed on a regional or national basis. 21 Certainly buyers of parts of Park 410 are national 22 credit or regional credit buyers that would 7403 1 consider this as a positive factor. 2 Q. I note on the bottom of that page that 3 it refers to San Antonio as the nation's tenth 4 largest city. Was that correct as of 1985? 5 A. I think that was correct. That wasn't 6 metropolitan area, but that's city limits. I 7 believe that was correct. 8 Q. San Antonio was one of the larger 9 metropolises in the country? 10 A. Not metropolitan area. It was like 11 No. 33 in the metro area. But city itself, within 12 the city limits, it was a large city. Still is. 13 Q. Page 10 of your report. Do the figures 14 in Column 3, total employment of Table 2, reflect 15 a steady growth in the labor force in San Antonio 16 during the early 1980s? 17 A. Yes, sir, it does. 18 Q. Page 12. Was the South Texas Medical 19 Center located anywhere near Park 410? 20 A. It was in the same general quadrant. 21 It was probably about 7 miles away. 22 Q. Did the location of that medical center 7404 1 and the other entities listed on this chart 2 influence the property values of Park 410? 3 A. All of these would, to some extent, 4 some more than others. A lot of these are a good 5 distance away, 8 or 10 miles away. But some of 6 them are close by. The closest one would be 7 Southwest Research Institute, which is across Loop 8 410. 9 Q. That was right across -- immediately 10 across Loop 410 towards downtown from Park 410? 11 A. Yes, sir. 12 Q. And how would that affect the property 13 values in Park 410? 14 A. Well, it would identify the area as an 15 area that has potential for biomedical research of 16 some kind or some sort of technology. It's been 17 there a long time. 18 Q. Have all of the entities -- were all of 19 the entities listed on Table 4 in that quadrant of 20 the city for a long time before 1985? 21 A. No, sir. Some of these are not in this 22 quadrant of the city. 7405 1 Q. Okay. Had all of them been in the 2 San Antonio area for a long time? 3 A. Yes, sir. 4 Q. Okay. 5 A. Some of these are not headquartered in 6 San Antonio, but they have -- like Kmart or Handy 7 Andy -- well, Handy Andy is, but they are still 8 big employers. 9 Q. Page 31, you reference the Ingram Park 10 Mall. Was there any -- why is that in this 11 report? 12 A. Well, Ingram Park Mall is the largest 13 concentration of shopping in this trade area of 14 Park 410. It's north of the property 2 miles or 15 something in that vicinity. And it's a 16 well-identified project. 17 Q. And did the fact that there was that 18 other competition out there hurt property values 19 for Park 410? 20 A. No. I think it probably helped 21 property values. 22 Q. Why? 7406 1 A. Because it brought shoppers to the 2 area. Before Ingram Park, there wasn't a regional 3 mall there. 4 Q. Page 33. Was your -- I note in the 5 middle of the page here that, open quote -- you 6 say, open quote, "An estimated 3 million visitors 7 are expected to pass through the facility's gates 8 annually." 9 Do you see that sentence? 10 A. Yes, sir. 11 Q. And what facility is referenced in that 12 sentence? 13 A. Talking about Sea World. 14 Q. Was that the best estimate available to 15 you at the time when you compiled this report? 16 A. Yes. That probably came from Sea World 17 and the City. 18 Q. Did you feel that that estimate was 19 reasonable? 20 A. At the time, I did. 21 Q. Did that estimate later prove to be 22 disappointing? 7407 1 A. I believe it did. 2 Q. When did you learn that? 3 A. Oh, probably a year or two after it 4 opened. 5 Q. Would the presence of 3 million 6 visitors a year have any effect on that 7 neighborhood by way of property values? 8 A. Yes, it would. 9 Q. Could you explain that for the Court? 10 A. Again, it would bring people into the 11 area to visit Sea World who -- some of those 12 people may be looking for a place to spend the 13 night or a place to eat or a place to shop, a 14 place to park their RV. It brings people into the 15 area. When people are brought into the area, it 16 typically enhances the development potential of an 17 area. 18 THE COURT: How much more do you have, 19 Mr. Dueffert? 20 MR. DUEFFERT: I cannot finish before 21 the lunch break. So, if this is a good time -- 22 THE COURT: All right. We'll adjourn 7408 1 until 1:30. 2 3 (Luncheon recess taken at 12:09 p.m.) 4 5 THE COURT: Be seated, please. We'll 6 be back on the record. 7 Mr. Dueffert, you may continue with 8 your cross-examination. 9 MR. DUEFFERT: Thank you, Your Honor. 10 For the record, we are still on Exhibit T1743, 11 which is the Love & Dugger February 12th, 1986 12 appraisal of the Park 410 property. 13 (1:35 p.m.) 14 Q. (BY MR. DUEFFERT) Turn to Page 35, 15 Mr. Dugger. See at the second line that you again 16 anticipate construction of access roads between 17 Loop 410 and 1604? Do you see that? 18 A. Yes, sir. 19 Q. I think you told Mr. Schwartz that for 20 purposes of that appraisal, you were assuming the 21 construction of those access roads, correct? 22 A. In this appraisal, we assumed they 7409 1 would be built. 2 Q. Okay. And is assuming that they would 3 be built anything different than reflecting the 4 fact that market values in the area had risen 5 because the market was assuming that the access 6 roads would be built? 7 A. Well, I don't think it was necessarily 8 assumed because there were a lot of plans by the 9 Highway Department, and I see here the H.B. Zachry 10 Company apparently got the contract to do it. But 11 all these things happened at the same time and 12 values anticipate things that are reality or will 13 happen. 14 Q. And for you to give a fair appraisal of 15 the Park 410 property, is it accurate to say that 16 you are bound to reflect what the market is 17 anticipating? 18 A. Yes, sir, that's what -- we try to 19 interpret the market. 20 Q. Did you assume that the main lanes of 21 the expressway would be put in? 22 A. No, sir, I don't believe we did at that 7410 1 time. It says "The Highway Department approved 2 the low bid by H.B. Zachry to construct five miles 3 of access roads between 410 and 1604." 4 Q. And am I correct in thinking that the 5 access roads, all by themselves, would appear to 6 be a four-lane divided highway with a large 7 median? 8 A. Yes. 9 Q. Farther down on that page, you talk 10 about other transportation improvement projects 11 regarding other primary arterials, including 12 Culebra, Potranco, and some other roads. 13 Do you see that? 14 A. Yes, that's correct. 15 Q. Were those other arterials significant 16 to the valuation of Park 410? 17 A. Somewhat significant. Some of these -- 18 now, Potranco Road adjoins the subject property. 19 Some of the other arteries were within, oh, 2 or 3 20 miles of the property and they have some general 21 nominal effect on the -- that area of the city. 22 Q. Potranco Road abutted the Park 410 7411 1 property on the northeast, northwest? 2 A. Northwest. 3 Q. And that was a significant road? 4 A. A significant what? 5 Q. Road. 6 A. I wouldn't say it's highly significant. 7 It's a secondary arterial. 8 Q. You called it a primary arterial in 9 this report, correct? 10 A. Well, if I did, I guess that's what I 11 called it. 12 Q. Would that be a fair characterization? 13 A. I guess so. 14 Q. Page 37. Mr. Schwartz asked you about 15 your trips to San Diego and to Orlando. 16 Do you recall that? 17 A. Yes. 18 Q. Is there a reason why this document 19 refers to the trip to San Diego but you didn't 20 refer to the trip to Orlando in the appraisal 21 report? 22 A. The trip to Orlando actually was made 7412 1 specifically for another development that we were 2 doing, and I can't even remember which one it was. 3 We wanted to understand more for the west side of 4 the City what the effect of these theme parks 5 would have on the city. And it could be that the 6 information that came out of Orlando -- actually, 7 they had more information that came out of 8 San Diego. We worked -- Don Canaday from the 9 office actually made that trip. I didn't make the 10 trip to Orlando. He met with Harcourt, Devanivich 11 or whatever their name is, the publisher's office 12 over in Orlando. And they had a lot of 13 information maybe on San Diego because it was a 14 more mature park. 15 Q. You state later on that page, open 16 quote, "Based on the above information, the Sea 17 World facility will, when completed, have a 18 significant and long-lasting impact on the area's 19 population base. Employment opportunities, 20 commercial land usage pattern, and overall 21 development character." 22 Do you see that? 7413 1 A. Yes, sir. 2 Q. Did you believe that in good faith when 3 you wrote this report? 4 A. Yes, sir. 5 Q. One more question on the aerial 6 photograph which, for the record, I will identify 7 as being marked but not admitted as Exhibit B3851. 8 There is a facility right across the expressway 9 from Sea World called Hyatt Regency Hill Country 10 Resort. 11 Do you see that? 12 A. Yes, sir. 13 Q. Are you familiar with that facility? 14 A. Yes, sir, I am. 15 Q. What is it? 16 A. It's a destination resort, golf course. 17 They have kind of created their own stream or 18 river in there. It's a lot of corporate traffic 19 there for seminars and conferences. It's a 20 low-rise two- or three-story hotel building. 21 Q. And when you say "a destination 22 resort," what do you mean? 7414 1 A. Well, you come to that resort. You 2 don't need to go anywhere else. They have a lot 3 of entertainment and recreation on site. You 4 don't necessarily have to go anywhere else to be 5 entertained. 6 Q. Do you believe that the construction of 7 Sea World had anything to do with the locating of 8 that resort at that place? 9 A. I would think it had something to do 10 with it. 11 Q. Do you know when it opened? 12 A. The Hyatt Resort, not specifically. I 13 think it was the late Eighties. 14 Q. Farther down on Page 37, you state "The 15 Park 410 West site and surrounding study area has 16 become one of San Antonio's primary growth areas 17 during the past several years." 18 Was it your understanding at the time 19 that the area of San Antonio in which Park 410 was 20 locating was growing faster than other areas in 21 San Antonio? 22 A. Was it my understanding? 7415 1 Q. Was that your understanding? 2 A. Yes, sir. Faster than some. 3 Q. Was it one of the primary growth areas 4 in San Antonio at that time? 5 A. Yes, sir. 6 Q. And then the next sentence, it states, 7 "The demographic characteristics and development 8 activity that has taken place over the past 15 9 years is expected to continue at similar rates for 10 the remaining 1980s and 1990s." 11 Do you see that? 12 A. Yes. 13 Q. Was that a good faith prediction on 14 your part? 15 A. Yes, sir, it was. 16 Q. And on what kind of information did you 17 base that prediction? 18 A. Well, we went back and -- if you see -- 19 look in this report and you see the population 20 growth over a long period of time from the 21 seventies, I know. Whether we went back to the 22 Sixties, I can't remember. We also worked with 7416 1 the City of San Antonio Long-range Planning 2 Department and projections on forecast of 3 population growth and where it's going to occur. 4 Q. And on Page 38, you conclude with a 5 paragraph that states, "The location of 6 100-million-dollar Sea World aquatic theme park on 7 a 500-acre tract within the Westover Hills 8 development will provide a further impetus to 9 growth and development activity, as will 10 construction of the Westside Expressway. These 11 market features, coupled with a fledgling 12 high-tech industry that has evolved in this area, 13 combined to make the Park 410 West area and the 14 surrounding region one of the most dynamic growth 15 sectors in the San Antonio metropolitan area." 16 Do you see that? 17 A. Yes, sir. 18 Q. Was that a reasonable statement to make 19 at the time? 20 A. I think at the time, it was. 21 Q. And do you feel that your firm had done 22 adequate research to make that statement? 7417 1 A. Yes, sir. If you'll notice in the 2 report, there is a lot of information on 3 population growth, family in connection with, 4 pricing of housing in the area, how it changed in 5 the area. Keeping in mind that there were other 6 areas of growth, but this was certainly one of the 7 more dynamic areas. 8 Q. Turn to Page 47, please. On Pages 47 9 to 50, you include -- actually, 47 to 49, you 10 include information regarding a number of other 11 mixed-use developments in the Park 410 area, 12 correct? 13 A. That's correct. 14 Q. And Mr. Schwartz asked you about those 15 developments, correct? 16 A. Yes, sir. 17 Q. Why did you seek out the information 18 that's presented in that table? 19 A. Well, this shows a lot of things. It 20 shows the trend of development in the immediate 21 area. In some cases, it shows absorption of land. 22 In some cases, it shows diversity of development 7418 1 types in the general area. It shows competition. 2 It shows a history of the area and projected 3 growth and absorption because some -- in some 4 cases, there were projects under development at 5 the time in these various projects. 6 Q. Did you take that information into 7 account as you arrived at your final value 8 conclusion? 9 A. Yes, sir. 10 Q. And you put that information in your 11 report? 12 A. Here it is on these pages. 13 Q. Page 50. Page 50 contains a table 14 entitled "Comparative Analysis of 24-hour Traffic 15 Counts in Project Study Area." 16 Do you see that? 17 A. Yes, sir. 18 Q. Among these -- are these all corners, 19 intersections? 20 A. I'd have to look. Let me see. I 21 believe they are. 22 Q. Okay. Which of them would be the most 7419 1 significant to your valuation of Park 410? 2 A. Well, it would probably be between two 3 of these because we don't have any intersection 4 where there is a recorded traffic count, unless 5 I'm missing something, at the subject property 6 location. But we are south of the Culebra 410 7 intersection and we're north of Loop 410 or 8 Marbach intersection. 9 Q. Is it accurate that the Loop 410 and 10 Culebra intersection increased in traffic counts 11 between 1980 and 1984 from 13,000 to 28,000 12 vehicles every 24 hours? 13 A. Yes, sir. 14 Q. And that was a percentage increase of 15 115 percent? 16 A. That's correct. 17 Q. What accounted for that increase in 18 traffic counts? 19 A. Primarily, the development of large 20 residential areas called the Great Northwest. If 21 you look on Culebra -- you can see Culebra there 22 toward the top of the map. A lot of those homes 7420 1 were built in the early Eighties north of Culebra. 2 Q. And that construction took place before 3 Sea World was even announced, correct? 4 A. Some of it. Not all of it. 5 Q. And some of it continued thereafter. 6 Right? 7 A. That's correct. 8 Q. Is anything on this -- traffic counts 9 were also rising between 1980 and 1984 at the Loop 10 410 and Marbach Road intersection, correct? 11 A. Yes, sir, they were. 12 Q. Paragraph 6 -- I'm sorry. Page 60. As 13 you prepared this appraisal report, did you review 14 the ownership history of the property? 15 A. Yes, sir, we did. 16 Q. And you presented in this report the -- 17 your findings? 18 A. Yes, sir. 19 Q. Did you find anything in the ownership 20 history that wasn't a bona fide third-party 21 transaction? 22 A. We researched what we could from deed 7421 1 records and publications. As far as we know, 2 everything was bona fide. 3 Q. If you had uncovered any contrary 4 information, you would have put that in this 5 report, correct? 6 A. Yes, sir. 7 Q. Page 61 states there was a substantial 8 increase in the selling price of the appraised 9 property from the August 1983 sale to the 10 March 1985 sale. 11 Do you see that? 12 A. Yes, sir. 13 Q. Then the paragraph -- and this is at 14 the bottom of the page. It continues. "Although 15 some of this increase in value was due to 16 reclaiming much of the flood plain land, a major 17 factor influencing the increase in value was the 18 development activity in the area of the appraised 19 property. The increase in values attributable in 20 part to, one, the recent completion of the nearby 21 Advanced Micro Devices plant." 22 What was that and why was it 7422 1 significant? 2 A. Well, the Advanced Micro Devices plant 3 is on the Northcross land that's about a half a 4 mile or less north, northeast of the property. As 5 we talked later or earlier, it was a high-tech 6 industry that had chosen to locate in the area, 7 and it was a new plant that employed quite a few 8 people. 9 Q. Then it says "Two, the location of the 10 proposed Westside Expressway" -- which I think we 11 also discussed -- "and, three, the extensive 12 mixed-use commercial development available in the 13 adjoining Westlakes project." 14 Was it your view that the existence of 15 the adjoining Westlakes project and the mixed-use 16 commercial development located there would 17 positively influence the value of the Park 410 18 property? 19 A. Well, even though it's competition and 20 it's a lot of competition because it's a lot of 21 acres in Westlakes, we felt like it sort of framed 22 the property because it's south and we had 7423 1 development to the north, even though it's not a 2 lot of adjoining development, but it was a large 3 development south of the property. So, we're in 4 between the development that's farther north and 5 Westlakes, which is south. 6 Q. What was your -- and if you want to 7 refer to the following page and going up until 8 Page 65, what was your highest and best use 9 conclusion for the Park 410 property? You might 10 want to, in particular, look at the bottom 11 paragraph on Page 63. 12 A. We say in the middle of that paragraph, 13 "It is our opinion the highest and best use of the 14 appraised property is for mixed-use commercial 15 development, including intense land utilization 16 along 410 and Westside Freeway incorporating 17 retail, office and lodging facilities together 18 with free-standing supporting development such as 19 restaurants, financial institutions." 20 And then No. 2, "Service center, light 21 industrial, and distribution for the midsection of 22 the property and multi-family residential along 7424 1 Potranco Road and along major interior arteries." 2 That was our conclusion. 3 Q. And was that conclusion reached in good 4 faith? 5 A. Yes. 6 Q. Did you ever consider whether their -- 7 upon development of the property might be just too 8 much traffic in that neighborhood to turn it into 9 a mixed-use commercial development? 10 A. That there may be too much traffic? 11 Q. Yes. 12 A. No. 13 Q. Why do you react in that way? 14 A. Well, this area had low traffic count 15 compared to other areas of intense development. 16 San Antonio -- and there are other areas that had 17 much more traffic where development had not been 18 stymied. 19 Q. So, the presence of lots of traffic 20 doesn't necessarily stymie development? 21 A. It can to a certain point, but I don't 22 think San Antonio had reached that point at that 7425 1 time. 2 Q. And you took that into your -- factored 3 that into your analysis as you prepared this 4 report? 5 A. Yes. I guess we did, along with a lot 6 of other things. 7 Q. Did you -- go to Page 67, please. In 8 the middle paragraph, you discuss larger tracts of 9 land that are in rural areas or areas on the 10 fringe of development activity. 11 Do you see that? 12 A. Yes. 13 Q. For development property like Park 410, 14 is it heard to find good comparables than it would 15 be, say, for single-family housing? 16 A. Not necessarily. Not at that time. 17 There was a lot of development land that was 18 selling and very good locations. There was lots 19 of sales. 20 Q. So, you felt you had access to good 21 comparables? 22 A. We had all the comparables there were. 7426 1 Q. And you used appropriate ones in this 2 report, correct? 3 A. The most appropriate that we could 4 find. 5 Q. If you could turn right after 6 Page 113 -- actually, the number's repeated later 7 and is easier to read at Page 120. 8 A. Okay. 9 Q. The second paragraph on that page, it 10 states that "The total undiscounted retail gross 11 sale proceeds from the sale of the 38 developed 12 tracts is estimated to be $123,691,975. 13 Do you see that? 14 A. Yes, sir. 15 Q. What is the significance of the retail 16 figure set forth there? 17 A. It tells what we anticipated the 18 individual tracts, 38 tracts, to cumulative total 19 in sales over a period of five years or five and a 20 half, whatever we used. 21 Q. And then that number is not discounted 22 back to present value? 7427 1 A. It's discounted on a semester basis, on 2 a six-month basis, because those sales occur at 3 different times. Some occur the first six months. 4 Some occur the last six months of the projection 5 period. You don't discount that total number. 6 Q. But you discount the components of it? 7 A. Portions of it. 8 Q. And then down below, it sets forth a 9 market data approach valuation for the property of 10 $46,560,000. 11 Do you see that? 12 A. Yes, sir. 13 Q. Okay. Now, that is an as-is number for 14 the land. Right? 15 A. Yes, sir, as is the developmental 16 approach. 17 Q. Both of those numbers, including the 18 48,100,000-dollar figure for the developmental 19 approach? 20 A. Yes, sir, that's correct. 21 Q. They are both as-is? 22 A. That's correct. 7428 1 Q. And this 123-million-dollar number that 2 we just discussed, that is an as-developed number 3 assuming retail sales. Right? It's not an as-is 4 number in any fashion, correct? 5 A. That's the cumulative total of 38 sales 6 with infrastructure in place. 7 Q. What is the difference between the 8 market data approach and the developmental 9 approach? 10 A. Number wise, looks like about a million 11 and a half. 12 Q. And why is there a difference? 13 A. Well, they are standing on their own 14 and one is used to check the other one. And you 15 wouldn't expect them to be exactly the same. 16 Q. Could you explain how one is used to 17 check the other one? 18 A. Well, primarily, the developmental 19 approach, as we talked about earlier, is used to 20 check your sales. A lot of times, you don't even 21 use a developmental approach if you have good 22 sales. In this case, it's such a -- this is an 7429 1 important appraisal. And we felt like since the 2 property was proposed for development, that we 3 would do a developmental approach to see, at the 4 value of around $46 million, if it made sense to 5 go forward with the development. 6 Q. Were the valuations contained on 7 Pages 120 and 121, your final conclusions, were 8 those also offered in good faith? 9 A. Yes, sir, they were. 10 Q. And looking at this report as a whole, 11 was this your firm's best good faith effort at 12 compiling a document that complied with Memorandum 13 R-41B? 14 A. It was our best effort. 15 Q. Could we have Exhibit A10332, please? 16 Sir, do you recall that your firm prepared 17 supplemental market value appraisal of the 18 Park 410 property in June 1987? 19 A. Yes, sir. 20 Q. And is this a copy of your supplemental 21 market value appraisal? 22 A. Yes, sir, it appears to be. 7430 1 MR. DUEFFERT: Move the introduction of 2 Exhibit A10332. 3 MR. SCHWARTZ: No objection, Your 4 Honor. 5 THE COURT: Received. 6 Q. (BY MR. DUEFFERT) Do you know or 7 recall why this appraisal was prepared? 8 A. I don't recall specifically why it was 9 requested, other than I think some of the 10 infrastructure had been put in place at the time. 11 This was a year and a half, basically, after the 12 early or late 1995, early 1996 appraisal had been 13 completed. And -- 14 MR. RINALDI: '95? 15 THE WITNESS: I'm sorry. I keep going 16 to current. 1985, 1986 appraisal had been 17 completed. 18 Q. (BY MR. DUEFFERT) And so, this 19 document updated the 1986 appraisal? 20 A. I think it updated it, yes. I think it 21 did. I'd have to look at this. I haven't looked 22 at this in a long time. 7431 1 Q. Do you recall if one of the reasons for 2 preparing the document had something to do with 3 taxes? 4 A. I don't recall. 5 Q. Is this an as-is valuation of the 6 Park 410 property effective May 25, 1987? 7 A. Let me look at this and study it just a 8 minute. It says "as is" on Page 1 of the report. 9 Q. And if you look at the end of the 10 report itself before the certificate, did you 11 reach a value conclusion of $53,500,000 for the 12 Park 410 property as of that date? 13 A. Yes, sir, I did. 14 Q. If you look on Page 2 of the report 15 itself, the second full paragraph begins, open 16 quote, "Since the date of the original appraisal, 17 the access roads of the Westside Expressway have 18 been opened between Loop 410 and Loop 1604." 19 Do you see that? 20 A. Yes, sir, that's right. 21 Q. Does that refresh your recollection 22 that by the summer of 1987, the four lanes of 7432 1 access roads, indeed, had opened between the outer 2 loop and the inner loop in San Antonio? 3 A. That's what it says. I guess that's 4 what had happened. 5 Q. It later says in that paragraph "The 6 opening of Sea World is expected in May 1988." 7 Does that refresh your recollection as 8 to the expected date for Sea World's opening? 9 A. Yes. 10 Q. Who was your client for that appraisal? 11 A. It's addressed to Lee Ferris, Park 410 12 West Investors Limited. 13 Q. Does it indicate that it is in 14 compliance with Memorandum R-41B or Memorandum 15 R-41C? 16 A. Not that I can find in the report. 17 This is a supplement to the other report we just 18 talked about. The two are considered, typically, 19 together. 20 Q. Do you know if the 1987 appraisal 21 report was ever provided to United? 22 A. No, sir, I don't know. 7433 1 Q. Would you turn to Exhibit T7142? This 2 is your September 1988 appraisal report on the 3 Park 410 property? 4 A. Yes, sir, that's correct. 5 Q. And this time, your client is who? 6 A. This is Jeff Seidman, United Savings. 7 Q. Do you have any recollection of the 8 circumstances under which United Savings became 9 your client? 10 A. No, sir. I really don't. This report 11 is signed -- I didn't -- I probably was aware of 12 this. I didn't work on it day to day with 13 Mr. Schulz or Mr. Swantner, who prepared this. 14 Q. Mr. Schwartz asked you about the value 15 estimate set forth at Pages Roman Numeral V and 16 the following page of the report, the cover 17 letter. Do you see those? 18 A. IV and V? 19 Q. Yes. Roman Numeral little IV and then 20 the signature line on the next page. 21 A. Yes. 22 Q. Were those value conclusions again 7434 1 generated in good faith by your firm? 2 A. Yes, sir. These were -- this is the 3 investment value that was -- we talked about 4 earlier, not necessarily market value, but they 5 were generated in good faith. 6 Q. Just a couple more questions on this 7 document. Could you turn to Page 10? It states 8 at the top, second sentence, "However, the 9 following industries are definitively basic to the 10 San Antonio economy." And point one is tourism 11 and conventions. 12 Could you explain the significance of 13 tourism and conventions to the San Antonio economy 14 of the 1980s? 15 A. Well, basic industry is an industry 16 that brings an income from elsewhere. And so, you 17 have lots of tourists and conventions coming to 18 town. Tourism has been -- and conventions have 19 been very important since 1968 in San Antonio. 20 They weren't necessarily before that time. And 21 it's a growing industry with the river walk and 22 the zoo and the missions and Sea World and 7435 1 everything that we have there. 2 Q. By "the missions," you're referring, 3 among others, to Alamo? 4 A. Yes. Alamo is one of the five 5 missions, I believe. 6 Q. What happened in 1968? 7 A. In 1968, the fair. And San Antonio 8 really didn't have much of a -- we had no 9 convention business to speak of other than 10 statewide convention until 1968. When we had the 11 fair, they improved the river. They built the 12 first hotel that had been built in downtown 13 San Antonio in, like, 40 years and part of the 14 River Walk was improved. 15 Q. No. 2, the military. I think we've 16 already discussed a little bit about the fact that 17 there were military bases in San Antonio that were 18 significant, correct? 19 A. Yes, sir. 20 Q. And there were three others besides 21 Lackland and Kelly, correct? 22 A. Yes, sir. 7436 1 Q. Which were those? 2 A. You've got Brook, which is aerospace 3 training on the southeast part of the city. 4 You've got Fort Sam Houston, which is in the 5 northeast part of the city inside the loop, and 6 you have Randolph Air Force Base out in Universal 7 City about 20 miles or 18 miles northeast of 8 downtown. 9 Q. No. 3, health services, why do you 10 refer to health services? 11 A. Well, San Antonio had a growing medical 12 community since the early Sixties, primarily in 13 the South Texas Medical Center area and the 14 northwest part of the city in downtown. We get -- 15 we're not as big as Houston, but it's a large 16 medical community. 17 Q. And is there any significance to the 18 fourth item, varied industries related to major 19 private companies? 20 A. Well, San Antonio, until recently, has 21 been a city of small industries that are locally 22 owned. In the last 10 years, we've seen a lot of 7437 1 those industries sell out to national concerns. 2 But we have a wide variety of industries, like 3 fabrication with low wages. Fabrication, 4 clothing, assembly. I think Levi Strauss has had 5 a plant there. Faro Manufacturing, I think at one 6 time did. Just a variety of different industries 7 that any city is going to have but with particular 8 emphasis on low wages and -- rather than the 9 highly-paid technology industry, even though it 10 was coming about, to some extent, in San Antonio 11 in the late Eighties. 12 Q. As of the mid-Eighties, did trade with 13 Mexico have any significance to the San Antonio 14 economy? 15 A. Trade with Mexico had significance for 16 a long time. In the mid-Eighties, though, they 17 had had a major devaluation, which always affects 18 trade tremendously. And they -- that devaluation, 19 I think, was 1982. It took a while to recover 20 from that devaluation because it was a massive 21 one. 22 Q. All in all, as of 1985 or 1986, was it 7438 1 your view that San Antonio had a more diversified 2 economy than Houston? 3 A. Not necessarily. I'm not that familiar 4 with the Houston economy, other than what it was 5 perceived to be back at that time. 6 Q. What was it perceived to be back at 7 that time? 8 A. Oil and gas and medical. But Houston's 9 economy is so much larger than our economy. I do 10 not know the economy, the base of the economy that 11 well over here to compare the two. 12 Q. Page 30. Does the last paragraph of 13 that page reflect that Sea World opened in 14 May 1988? 15 A. Yes, sir, it does. 16 Q. And does that paragraph reflect that 17 Sea World was, indeed, having a significant impact 18 on the surrounding area? 19 A. Yes, sir, it does. 20 MR. DUEFFERT: One moment, Your Honor. 21 Your Honor, I have no further questions 22 for this witness. 7439 1 THE COURT: Thank you. Do any of the 2 other respondents have any? 3 MR. BLANKENSTEIN: No questions, Your 4 Honor. 5 MR. EISENHART: I have no questions, 6 Your Honor. 7 MR. KEETON: None, Your Honor. 8 THE COURT: Redirect? 9 MR. SCHWARTZ: Yes, Your Honor. Could 10 we have a short break? 11 THE COURT: We'll take a short recess. 12 13 (A short break was taken 14 at 2:12 p.m.) 15 16 THE COURT: Be seated, please. We'll 17 be back on the record. Mr. Schwartz, redirect? 18 MR. SCHWARTZ: Thank you, Your Honor. 19 20 21 22 7440 1 2 REDIRECT-EXAMINATION 3 4 (2:35 p.m.) 5 Q. (BY MR. SCHWARTZ) Mr. Dugger, there 6 has been considerable testimony throughout the day 7 using "assumption" in connection with the 8 appraisal. 9 Do you recall that being bandied about? 10 A. Yes. 11 Q. In the context of an appraisal, what is 12 an assumption? 13 A. Assumption is a projection of something 14 that you think will happen. In an appraisal, I've 15 always considered it -- if it's a projection, it 16 needs to be something that is reasonable and 17 reflects what the market would think about that 18 particular item. 19 Q. Okay. I'm going to ask you some 20 questions about assumptions a little bit. There 21 were a couple of things that Mr. Dueffert 22 questioned you about and I'd like to get a little 7441 1 bit further explanation on. You mentioned, if you 2 remember, when he questioned you about when -- if 3 you were asked to work on an appraisal in another 4 city and would you feel qualified to do that on 5 your own. And I believe your testimony was that 6 you would seek out a local appraiser to assist 7 you. 8 Do you recall that testimony? 9 A. Yes. Local appraiser or other 10 professionals. 11 Q. Okay. Could you give us a little bit 12 further explanation as to why that's important, to 13 have someone local? 14 A. Well, it's just the local touch, the 15 local input on the perception of things in that 16 particular community. If you live in a community, 17 there is a lot of things that are unwritten and -- 18 but perceived. And I think it's important to 19 understand what the perception is locally from 20 somebody that's been there on a day-to-day basis. 21 Q. Do you think that the assistance of a 22 local appraiser or other appraisal professional 7442 1 increases the accuracy of an appraisal for 2 property? 3 A. I think it depends on the property. If 4 it's a property that you've got a lot of data on 5 that you can gather yourself on a small property 6 in another town, sometimes you can get that 7 information. But almost always, appraisers rely 8 on other appraisers and land planners and 9 engineers in those particular cities. And I think 10 it does increase the accuracy. 11 Q. Mr. Dueffert also asked you some 12 questions about an appraisal being self-contained. 13 I think he showed you a copy of Memorandum R-41B. 14 Do you recall that? 15 A. Yes, sir. 16 Q. Are you familiar with AIREA, A-I-R-E-A, 17 American Institute of Real Estate Appraisers? 18 A. No, sir. 19 Q. We also looked at a map of -- or a 20 photograph of Park 410 and the surrounding area 21 today. 22 Are you familiar -- you live in 7443 1 San Antonio. Right? 2 A. Yes, sir. 3 Q. Are you familiar with Park 410 as it is 4 today? 5 A. Somewhat. I haven't appraised it 6 again. I'm familiar with the general area. 7 Q. Do you know what's on the Park 410 8 property now? 9 A. I'm not sure anything is on it. I 10 think it's mostly undeveloped land with some of 11 the infrastructure or much of the infrastructure 12 in place. 13 Q. So, you don't know if any of tracts 14 have ever sold? 15 A. No, sir, I don't. I've never appraised 16 it again. 17 Q. Okay. In connection with -- there was 18 also some testimony, I believe, concerning 19 absorption periods? 20 A. Yes, sir. 21 Q. What's the significance of absorption 22 periods? 7444 1 A. Well, absorption periods are 2 particularly important when you're doing a 3 developmental approach to value to check your 4 sales comparison approach to find out how quickly 5 the land is being bought and developed to create 6 sales. And what you do is you check the 7 competition and find out what type of absorption 8 rate that they have, you know, in the general 9 area. 10 Q. And if absorption rates extend for a 11 longer period of time than the appraiser assumed 12 when the appraiser made the assumption, what does 13 that do to the valuation of the property? 14 A. The longer the absorption period, the 15 lower the value. 16 Q. What assumptions did you use for 17 setting the assumption period in Exhibit 7143, 18 which was the February 12th, 1986 appraisal? 19 A. Well, without looking at it, I think I 20 can remember most of that. The assumption that we 21 used, I believe, was a five- or 22 five-and-a-half-year sellout of the tracts. And 7445 1 we projected everything on a six-month basis. And 2 we projected that parts of the tract would sell at 3 different times. It wouldn't be a steady X number 4 of sales for every six months, that you would 5 probably -- as a prudent developer, you would 6 maybe develop some of the interior tracts first 7 and sell those off for residential or, I'm sorry, 8 multi-family development and then you would maybe 9 save some of your better corners and your frontage 10 to last and sell that off toward the end of the 11 project, create your backup, and then sell off the 12 frontage. 13 Q. Depending on the period in which a 14 particular tract sells, does that affect the price 15 for the tract? 16 A. Yes, sir. If you assume that the -- or 17 understand the market's increasing or decreasing 18 and pricing. In other words, you can project a 19 price by today's sales; but certainly if the 20 prices change, it will affect the value. 21 Q. So, if you move, say, an expected sale 22 from one period to the next period in an assumed 7446 1 appreciation market, then would that increase the 2 value of the overall property? 3 A. Well, if you're increasing the price 4 more than the discount because of time, it would 5 increase the value. 6 Q. Okay. When you are performing an 7 appraisal for a client, do you try to see that the 8 appraisal conforms to the needs of your client? 9 A. Yes, sir. Not the value. Excuse me. 10 Not the value. 11 Q. No. 12 A. But the format that the report is 13 presented in. 14 Q. Okay. Was it common practice or 15 practice that you had heard of in the mid-1980s 16 for lenders to pressure appraisers to come up with 17 a particular number? 18 A. Well, it depends on the lender 19 sometimes. 20 Q. Had you heard of that happening? 21 A. I had heard of it happening. It never 22 bothered me much. 7447 1 Q. Do your business records reflect a 2 proposed number that the lender was asking you to 3 attempt to reach? 4 A. Yes, sir. 5 Q. Is that that 75-million-dollar number? 6 A. Yes, sir. 7 Q. I think you also testified about some 8 R-41B seminar that you attended? 9 A. Yes, sir. 10 Q. Did that seminar help to clarify your 11 understanding of R-41B? 12 A. To some extent. 13 Q. You also talked about your visit to 14 San Diego, I think, and Mr. Canaday's visit to 15 Orlando. And you said that San Diego was a much 16 more mature park. 17 What does that mean? 18 A. Well, the San Diego park had been 19 around longer. It was first Sea World, I believe, 20 and it had been in existence probably 12, 15 years 21 or maybe longer at the time that this appraisal 22 was made. Whereas the Orlando park, I believe, 7448 1 was a newer park. And I did not go to San Diego 2 specifically to talk to the developer at that 3 time, even though I had been to Sea World there a 4 number of years prior to that. But Mr. Canaday 5 did go to Orlando. 6 Q. What's the significance in arriving at 7 an appraised value of property for a property in 8 San Antonio located near a proposed Sea World park 9 as compared to a park in San Diego that was more 10 mature? 11 A. Well, that's why we went to Orlando. 12 Because around the Orlando park, as I understand 13 it, there is a lot of vacant land that hadn't 14 developed. We wanted to see how it was being 15 developed after Sea World opened and first was 16 announced and then opened. Whereas San Diego, it 17 was an older park and the area around it was 18 mature, more so than Orlando, as I understand it, 19 and you didn't see the changes in land usage quite 20 as much as you did in Orlando. 21 Q. So, what's the significance of that 22 information to you in preparing your appraisal? 7449 1 A. Well, we were in an area with a lot of 2 vacant land. I say "we." Sea World was in 3 San Antonio. 4 Q. In San Antonio? 5 A. And I mean, thousands of acres around 6 it of undeveloped land. And we wanted to see a 7 similar situation in the country, and we thought 8 the most similar one we would see would probably 9 be Orlando. 10 Q. And so, what adjustment did you make 11 for the difference between Orlando versus 12 San Antonio? 13 A. We really didn't make a specific 14 adjustment other than -- the reason for going 15 there was to see what had developed around the 16 park. And we came home and said, "It looks like 17 some of these uses could probably develop around 18 the San Antonio Sea World park." 19 Q. Was that an assumption that you were 20 making? 21 A. Yes, sir. 22 Q. Okay. Would -- would you pull out 7450 1 Exhibit 7143, which is the February 12th, 1986 2 appraisal? And would you turn to Page 2 of the -- 3 it's Page 2 of the report. Bates No. O00160. Up 4 at the top, there is a description of property 5 rights appraised. 6 Do you see that? 7 A. Yes, sir. 8 Q. And in the second sentence, you say "No 9 consideration is given to liens or encumbrances, 10 if any." 11 What does that mean? 12 A. That would be any kind of real estate 13 liens on the property. Encumbrances would deal 14 with financial encumbrances. Certainly we 15 recognize any flood areas or drainage problems, 16 but that's what that refers to. 17 Q. But if there were liens or other 18 encumbrances, would that lower the value of the 19 property? 20 A. It might lower the value of the equity, 21 but we didn't consider -- we were appraising this 22 property as if lien-free, if you want to use those 7451 1 terms. 2 Q. Okay. So, that was an assumption that 3 you were making, that the property was lien-free? 4 A. It always is on all appraisals. 5 Q. Would you turn to Page 21? And in the 6 bottom of the first paragraph there at the top, 7 the last sentence says, "One of the latest 8 innovations is that of developing the 9 San Antonio/Austin corridor to bring high 10 technology, electronics, and biomedical 11 corporations to a 75-mile stretch of Interstate 12 Highway 35 which separates San Antonio from the 13 state capital." 14 Do you see that? 15 A. Yes, sir, I do. 16 Q. Is that near Park 410? 17 A. No, sir. That's really on the other 18 side of town. That's northeast San Antonio going 19 out to New Braunfels and San Marcos and Austin. 20 Q. And other than your visit to San Diego 21 or conversations that you or Mr. Canaday had with 22 Harcourt Devanivich, what studies did you rely on 7452 1 for your predictions or assumptions regarding the 2 impact Sea World and perhaps electronics industry, 3 the computer industry, would have on Park 410? 4 A. Well, one that I -- we relied on is, I 5 think, Tremar which is a -- they are a research 6 company in San Antonio or they were at that time. 7 I'm not sure if they exist today. Fairly 8 well-known research firm. They had supplied us 9 some information on population and income levels. 10 And at the time, we also had our own research firm 11 that did internal research. And so, we relied on 12 that. That was within our own firm. And those 13 people did not do appraisals. They did nothing 14 but research. And we relied on a lot of things. 15 I mean, from the Chamber of Commerce and from the 16 City, from the Economic Development Foundation and 17 all the different professionals that you have that 18 you always rely on anything when you're making an 19 appraisal. 20 Q. Did you include -- there was a market 21 study of Park 410 property done by a company -- by 22 Tremar. 7453 1 Have you seen that report? 2 A. Yes, sir. I'm sure I have seen it. 3 I'm not -- can't remember it that well. 4 Q. I believe it was Exhibit 7127, off the 5 top of my head, and I believe this has already 6 been admitted. 7 Is this the Tremar study that you're 8 referring to? 9 A. It's hard to remember, but this -- 10 certainly if this is in the files of Gulf 11 Management, I would imagine they provided this to 12 us. I don't remember seeing this in the files, 13 but I have probably seen that study before. 14 Q. Did you include aspects of what's 15 contained in the Tremar study in your overall 16 appraisal or consideration? 17 A. I think we probably did, yes. We knew 18 the Tremar people and who they were and knew they 19 had good data. 20 Q. Would you turn to Page 23 of the 21 appraisal, Exhibit 7143? In the summary section, 22 it says in the second sentence of the first 7454 1 paragraph, "The economic, demographic, and 2 business growth trends that were established 3 during the 1970s and early to mid-1980s are 4 expected to continue throughout the remaining 5 decade and well into the 1990s." 6 What did you rely on for that 7 assumption? 8 A. It was mostly historical growth and new 9 employers in the city. The San Antonio area has 10 never gone to the highs or the lows that of some 11 of the other cities in Texas have. And we 12 anticipated a steady growth throughout the decade 13 and into the Nineties just based on studies by 14 others and studies that we had made ourself. 15 Q. And is that -- so, is that an 16 assumption that you're making in this report, that 17 that's going to continue? 18 A. Yes. 19 Q. Would you turn to Page 25? And there 20 is a discussion there about demographic and 21 economic trends at the bottom of the page. 22 A. Yes. 7455 1 Q. And it continues on for some additional 2 pages about specific types of trends. 3 Do you see that? 4 A. Yes, sir. 5 Q. Do these trends apply with equal or 6 greater force to the other surrounding some 7 13,000 acres? 8 A. You mean 13,000 acres of -- 9 Q. Surrounding Park 410 in that area. 10 A. You're asking do they apply to the 11 13,000 acres, also? 12 Q. Yes. 13 A. Yes. 14 Q. On Page 29 -- well, before we go there, 15 I believe you testified during Mr. Dueffert's 16 examination about -- that the types of jobs that 17 were being created at the time were clerical and 18 related to retail sales? 19 A. Well, types of jobs in San Antonio in 20 general are diverse; but they have typically not 21 been as high income as some of the dense 22 technology areas such as Austin or San Jose or 7456 1 someplace like that. 2 Q. Okay. On Page 29 of your report, in 3 the first full paragraph, you describe some 4 selected occupational category. And you say 5 "Those individuals in the technical/sales and 6 administrative support fields." 7 What kind of jobs are those? 8 A. "Administrative support," sounds like 9 this should be secretarial-type jobs to me. 10 Q. And technical sales? 11 A. Sales reps. "Technical" could be 12 supports for engineering firms or in the medical 13 industry or whatever. 14 Q. Okay. And then you go on -- further on 15 in the page to describe the Ingram Park Mall and 16 the retail trade industry in that area surrounding 17 Park 410. Right? 18 A. Yes, that's correct. 19 Q. Okay. And what kind of jobs would 20 those types of entities create? 21 A. Well, a mall and the surrounding 22 development system is usually going to call for a 7457 1 lot of clerks and people to work at restaurants, 2 pretty much minimum wage type jobs. 3 Q. Would you turn to Page 31? There is a 4 discussion there on Page 31 regarding commercial 5 development activity. 6 Do you see that? 7 A. Yes, sir. 8 Q. And down towards the bottom of the 9 page, in the middle of that paragraph, you see it 10 says "Since 1980" -- 11 A. Yes. 12 Q. -- "an estimated 52 retail centers 13 totaling nearly 3 million square feet have been 14 constructed. During the first and second quarter 15 of 1985, approximately 600,000 square feet was 16 under construction." 17 A. Yes, sir. 18 Q. And they on the next page, you point 19 out that the survey also indicated at the top of 20 the page that the northwest sector had the second 21 highest absorption rate of retail spaces in 1984 22 of 495,690 square feet; is that right? 7458 1 A. Yes, sir, that's correct. 2 Q. So, does that mean that the absorption 3 is less than what was already under construction 4 in '85? 5 A. Yes, sir. 6 Q. Okay. In -- I assume in doing an 7 appraisal like this, using the developmental 8 approach, a lot of the valuation is based on 9 assumptions; is that right? 10 A. Yes, sir, it is, particularly on your 11 projections of pricing and when it's going to 12 sell. 13 Q. And if an assumption doesn't turn out 14 as you predict, does that have an effect on the 15 valuation? 16 A. Yes, sir, it would. 17 Q. On Page 32, at the bottom of the page, 18 there's discussion of an additional 115,000 square 19 feet. 20 Do you see that in the 21 second-to-the-last paragraph at the end of that 22 paragraph on Page 32? 7459 1 A. Yes, I do. 2 Q. "An additional 115,000 square feet was 3 under construction during the first quarter of 4 1985." This is regarding office industrial park 5 projects? 6 A. Yes. 7 Q. An estimated 23 other industrial office 8 parks of a smaller nature are also located 9 throughout the project study area. Right? 10 A. Yes, that's correct. 11 Q. Does there reach a point where supply 12 becomes oversupply? 13 A. It can certainly. 14 Q. How does that happen? 15 A. Too much built and not enough tenants 16 or users. 17 Q. And is it a critical assumption to the 18 appraised value that that point does not -- is not 19 reached? 20 A. Well, there is some -- you know, your 21 average absorption -- I'm sorry. Your average 22 occupancy has to be maintained at some relatively 7460 1 healthy level coupled with fair rents to justify 2 new construction. And supply and demand are very 3 seldom in balance in real estate. They are almost 4 never in balance. And so, you work with this all 5 the time and do the best you can in making 6 projections on absorption, rentals, and occupancy. 7 Q. When you provide an appraisal to a 8 lender or to a borrower or client, do you make any 9 guarantees that these assumptions are going to 10 come true? 11 A. No. 12 Q. Would you turn to Page 41? On Table 7 13 there, there is a discussion of population growth 14 trends? 15 A. Yes, sir. 16 Q. And down at the bottom, it lists as 17 sources 1980 US Bureau of the Census, National 18 Planning Data Corporation, and Love & Dugger Real 19 Estate Consultants and Appraisers. 20 What specifically did Love & Dugger 21 provide in connection with this raw data? 22 A. We probably put it in an organized 7461 1 manner, but we didn't -- I don't know whether we 2 went out and confirmed all this. We may have 3 gotten it from several sources: National Planning 4 and the Census Bureau. 5 Q. And is the same true for the charts on 6 Page 42 and 43 and 44? 7 A. I would think that's true. It's been a 8 long time so it's hard to remember. 9 Q. Okay. Would you turn to Page 70? 10 A. Yes, sir. 11 Q. On that page, you state "To locate 12 sales comparable in size and development potential 13 to the appraised property, our sales research was 14 expanded to include the entire north quadrant of 15 Bexar County." 16 Do you see that? 17 A. Yes, sir. 18 Q. What's the size of the entire north 19 quadrant of Bexar County? 20 A. Well, the northern quadrant would be -- 21 if you really divided it into north and south, 22 it's half a county. 7462 1 Q. So, it's the City of San Antonio up 2 through the -- to the border of the metropolitan 3 statistical area? 4 A. Consider that the dividing line is 5 Highway 90, which runs east west through the 6 city -- actually, 90 is probably a little bit 7 south of the midpoint. But this property -- the 8 Park 410 property has been considered northwest. 9 And so, we dealt with the northern quadrant. The 10 characteristics of the southern quadrant of the 11 city are quite different. It has not been a 12 growth area and would not be really comparable to 13 the area that we're talking about today. 14 Q. On Page OW015314, there is a map. 15 A. Okay. 16 Q. It's labeled "study area boundaries." 17 Could you describe what the north quadrant of the 18 city would be, based on the map? 19 A. Let's see. Is this after the summary 20 of comparable land sales? 21 Q. It's Page 39 of the actual appraisal 22 report. 7463 1 A. Okay. I'm sorry. 39. Okay. This is 2 the study area boundaries. And this would be the 3 area that's most similar to the area of the 4 subject property, and the subject property is 5 included in this area. It would be in the 6 southeastern portion of this area. This is just 7 an area that's considered sort of the west, 8 northwest part of the city. 9 Q. So, this is smaller than the north 10 quadrant of the city? 11 A. Yes, sir. The northern quadrant would 12 be many times that size. 13 Q. Now, considering the north quadrant of 14 the city, you said that there was a difference in 15 sales rates between the north and the south 16 quadrants? 17 A. Yes, sir. 18 Q. Did the -- did the sales in the north 19 quadrant in the early 1980s skyrocket, 20 specifically the northern part of San Antonio? 21 A. Well, it depends on what you call 22 "skyrocket." There certainly was a lot of 7464 1 appreciation and land trading going on in the 2 northern and northwestern, northeast, all over the 3 city. But not in the southern portion very much. 4 Q. But in the northern -- in the -- 5 specifically in the northern quadrant, in the 6 early 1980s, perhaps even into the late 1970s, was 7 there incredible price increase speculation in 8 that area? 9 A. Yes, sir. Particularly in the early 10 Eighties. 11 Q. And if you would, turn to Page 85. 12 That's your discussion of comparable land sales. 13 Do you see that? 14 A. Yes. 15 Q. The discussion of comparable land 16 sales, does that include land sales in other parts 17 of San Antonio? 18 A. Other parts of San Antonio but where 19 the characteristics of the neighborhood is 20 somewhat similar to the subject property 21 neighborhood. But this would be north central, 22 some of north central, some of northwest out 7465 1 Interstate 10, wherever we could get comparable 2 locations. 3 Q. And also some in the north quadrant? 4 A. Yes, sir. All of these sales would be 5 considered in the northern quadrant, as the 6 subject property would be considered in the 7 northern quadrant. 8 Q. In the middle paragraph, you point out, 9 "Active land speculation and substantial increase 10 in the price of vacant land was evident in 1983." 11 Do you see that? 12 A. Yes, sir. 13 Q. And then it goes on, "Prices for large, 14 well-located sites generally advanced in a range 15 of 20 to 30 percent annually during 1983. A rate 16 of increase of 24 percent per year or 2 percent 17 per month was selected as the appropriate time 18 adjustment for 1983." 19 What does that mean? 20 A. That means if you have a sale that 21 occurred in the first part of '83 and you're 22 trying to compare it to the Park 410 property, 7466 1 that for that one year, you would adjust it up 2 24 percent in pricing for that one year, in 1983. 3 Q. Is a 24 percent per year increase 4 speculative? 5 A. It's probably actual. I don't know 6 that you'd call it speculative. It's high by 7 today's standards anyway. We had an active 8 market. 9 Q. And in some of your comparables that 10 you discuss -- I believe they start on Page 88. 11 You've got Sales No. 1, and I think there are 12 about 12 or so? 13 A. Yes, sir. 14 Q. You make upward adjustments of those 15 comparables. Right? 16 A. I make upward time adjustments. Not 17 all the adjustments are upward, though. 18 Q. Okay. For Sale No. -- for -- I'm 19 sorry. On Page 90, Sale -- Sale No. 2 is 20 described as an upward adjustment of 50 percent. 21 Why does that -- why do you make that 22 assumption? 7467 1 A. Let's see. Sale No. 2? 2 Q. Right. It starts on Page 89 and moves 3 up to the top of Page 90. And on the top of 4 Page 90, there is a sentence that reads "An upward 5 adjustment of 50 cents or 85 cents per square foot 6 is indicated for this factor." 7 A. Okay. Let's see. Let me read through 8 this, if you don't mind. What you're talking 9 about is the location adjustment here, an upward 10 adjustment of 50 percent? 11 Q. That's exactly correct. 12 A. Okay. This is a property that's 13 outside of the outer loop, Loop 1604, 2 miles 14 outside of the outer loop. There was very little 15 development at that time outside of the outer 16 loop, and it was our judgment that land pricing in 17 that area, if it happened at the same time, would 18 be a large differential from Loop 410 pricing 19 where our property is located. 20 Q. And so, 50 percent was an assumption 21 that you made to increase the -- 22 A. Well, you make an assumption, but you 7468 1 make it on sales of properties that you can use 2 matched pairs if you have them. There are perfect 3 sales that sold at one location versus another 4 location. When you isolate the differences, it 5 would be location. We don't typically have 6 perfect matched pairs in the real estate industry, 7 but this is our best judgment on how the price 8 would be adjusted for location. 9 Q. And then Sale No. 3, 142 acres -- and 10 that one also is a 50 percent upward adjustment on 11 Page 91 in the center of that paragraph. 12 A. Right. 13 Q. Now, what did you base that assumption 14 on? 15 A. Well, I think that property is very 16 close to Sale No. 3 that we just talked about. It 17 also was a couple of miles outside of the outer 18 loop in north central San Antonio along US Highway 19 281. Just an area of lesser intensity of 20 development. 21 Q. And Page 92, Sale No. 5 refers to an 22 upward adjustment in the middle of that page of 7469 1 60 percent? 2 A. Right. 3 Q. What's that based on? 4 A. This is an area -- 1604, that's the 5 outer loop and Bandera Road. And that is an area 6 with very little development, almost none at that 7 time. It's a far-out location. It would not be 8 as good a location as these two other sales we 9 talked about. So, we made a little bit more 10 positive adjustment. Our location is far 11 superior. 12 Q. And Sale No. 6 on Page 93, in the 13 center of the page you describe a 50 percent 14 adjustment for the location there; is that right? 15 A. Yes, sir. 16 Q. And what's the basis for that? 17 A. That's on Loop 1604, which is the outer 18 loop in the northeast part of town. It's -- it's 19 a secondary corner location on Loop 1604, and the 20 location is just not as close in as the Park 410 21 property. 22 Q. And on Page 94, there is an assumption 7470 1 there of 50 percent increase or $1.20 per square 2 foot upward adjustment for Sale No. 7; is that 3 right? 4 A. Yes, sir. 5 Q. And what's the basis for the location 6 assumption there? 7 A. This is a property, I think, that's 8 very close to the sale we just talked about on 9 Redlin Road and 1604. Just not as good a 10 location. There is very little development around 11 these properties. 12 Q. And are these assumptions, these 13 location assumptions, made to adjust for what I 14 think you called the premier location of Park 410? 15 A. I wouldn't call it the premier 16 location. Park 410 is a good location. I mean, 17 if -- what does "premier" mean? In San Antonio, 18 it would probably mean the best commercial area in 19 the city. And it wouldn't be this location, but 20 it would be -- this would be a good location. 21 Q. And so, these location adjustments are 22 assumptions that you're making that these prices 7471 1 would increase to be comparable to the sale of 2 Park 410? 3 A. Well, it's adjusting the sale to the 4 subject property. 5 Q. Okay. So -- I guess I don't understand 6 how it all plays together. You have properties 7 that are located in nearby areas but not close 8 enough to give an actual comparable. And so, you 9 make adjustments to the -- 10 A. Well, if we had a 400-acre sales 11 surrounding the subject property and they are all 12 recent, we wouldn't have to make location 13 adjustments. But we did have a lot of sales of 14 big acreage in San Antonio about this time in '83 15 and '84 and '85. And we worked with those large 16 acreage sales and adjusted them for location when 17 it was necessary. Some of these sales were better 18 location than the subject property. And in those 19 cases, we adjusted downward. But a lot of these 20 sales were farther-out locations without Loop 410 21 frontage, and we adjusted upward. 22 Q. And were these location assumptions, 7472 1 were you also taking into consideration the impact 2 of the Westside Expressway? 3 A. Yes, sir, and Sea World and everything 4 else around it. 5 Q. And so, is the reason that the prices 6 are adjusted upwards on the properties that we've 7 discussed based on the assumption that the 8 location -- that the location of Park 410 is near 9 Loop 410 and the Westside Expressway? 10 A. Well, it's not near. It's on 410 at 11 the proposed Westside Freeway location. 12 Q. Okay. Was the assumption, though, 13 that -- the reason that you made the upward 14 adjustment was because of the expectation that the 15 expressway would be built; is that right? 16 A. That's part of the reasoning, yes. 17 Q. Would you turn to Page 112? Down at 18 the bottom of the page, there is a paragraph 19 that's -- the second sentence reads "It is assumed 20 that land prices of Tracts 1 through 37 will 21 continue to increase at a 9 percent annual rate 22 during the five-and-one-half-year or 11-semester 7473 1 sellout period of the appraised project." 2 What was the basis for a 9 percent 3 annual rate of increase? 4 A. Well, we had just come off of some 5 years of some very substantial value increases in 6 the range of, I think, 12 to 24 percent. And we 7 were -- but we saw the increased price slowing 8 down in '85 compared to '84 and '83. And this was 9 our best judgment on what land values would do. 10 These were years of fairly substantial inflation, 11 interest rates. It was our estimate as to what 12 price would do for the next five and a half years. 13 Q. Well, would high interest rates affect 14 land sales? 15 A. It could. 16 Q. How? 17 A. It could affect it negatively if they 18 are too high. However, a lot of land sales or a 19 lot of land sales have occurred during periods of 20 high interest rates. 21 Q. And during all of the time that you -- 22 during all of the appraisals that you worked on 7474 1 for Park 410, were you ever able to reach an 2 appraised value of $88 million as developed? 3 A. No, sir. 4 Q. Were you ever able to reach an 5 appraised value of $75 million? 6 A. No, sir. 7 Q. Were you ever able to reach an 8 appraised value of $70 million? 9 A. No, sir. 10 MR. SCHWARTZ: I have nothing further. 11 Thank you, sir. 12 THE COURT: Do you have some recross? 13 MR. DUEFFERT: I have a little bit, 14 Your Honor. 15 THE COURT: Mr. Dueffert. 16 17 18 RECROSS-EXAMINATION 19 20 (3:16 p.m.) 21 Q. (BY MR. DUEFFERT) Mr. Dugger, did you 22 ever try to generate any as-developed appraisal of 7475 1 the Park 410 property in late 1985 or early 1986? 2 A. I think we -- yes, we did do an 3 appraisal assuming that the infrastructure was in. 4 Q. Assuming that all of the infrastructure 5 was in? 6 A. Yes, I believe so. 7 Q. Have we seen that document today? 8 A. I think so. 9 Q. Could you point it out to me? 10 A. Let's see. It may take a little while 11 to go through these. Now, you say "me." It may 12 be -- have been someone in the firm. 13 Q. Among any of the documents we've seen 14 today. 15 A. There is one that was in 1988, and on 16 the cover page, it says "The as-developed market 17 value estimate of 312 acres of net sellable 18 acreage." 19 Q. Okay. Looking back at your 1986 20 appraisal, however, I think it's dated 21 February 1986. 22 A. Yes. 7476 1 Q. Was that a complete as-developed 2 appraisal of the property? 3 A. No. The one that we've been talking 4 about the last 30 minutes? 5 Q. Correct. 6 A. No. That was the land. Just the land 7 as it was before the development. 8 Q. Why didn't you prepare an as-developed 9 appraisal on the property? 10 A. At that point, I wasn't asked to do 11 that. 12 Q. If you're going to prepare an appraisal 13 in connection with a development loan, were you 14 required by R-41B to assume that all construction 15 had, in fact, been put in place? 16 A. I don't believe so. 17 Q. Could we have Exhibit A11131, please? 18 Sorry if I misspoke. It's A11131. 19 Does this appear to be seminar 20 materials by the American Institute of Real Estate 21 Appraisers regarding R-41B? 22 A. Yes, sir, it does. 7477 1 Q. I'd like you to take a look at Pages 9 2 and 10 of the seminar materials. Paragraph G at 3 the bottom of Page 9 begins, open quote, 4 "Appraisals must focus on the point of highest 5 risk to the lender. The appraiser must assume the 6 project is completed today, that the certificate 7 of occupancy is available, and except for 8 market-demonstrated levels of presales or 9 preleases, the project must undergo the expense of 10 selloff or rent-up. The assumed sale must take 11 place between the owner and one buyer, i.e., a 12 wholesale, not retail, transaction." 13 If you look at the next page, Paragraph 14 H reads, "The appraisal demands a wholesale as-is 15 value, not a retail value realized when 16 performance is eventually achieved. The question 17 to be addressed under R-41B is, open quote, 'As of 18 the date of completion and based on competent 19 market support, at what price would the property 20 most likely sell for cash (or its equivalent) to a 21 single buyer?'" close quote. 22 Do you see that text? 7478 1 A. Yes. 2 Q. Did your February 1986 appraisal on the 3 Park 410 property assume that the project was 4 completed? 5 A. No, it didn't. 6 Q. When Mr. Schwartz points to the notes 7 of your colleague and points to the passage 8 "$75 million needed," do you know if that refers 9 to an as-is or an as-developed value? 10 A. Since they had talked with us about 11 appraising the property as it was, not developed, 12 because we didn't know whether it was going to be 13 a development loan at that time because they had 14 asked us to appraise the property as it was at 15 that point. I assumed it meant the $75 million is 16 as it was raw land. That's my assumption. 17 Q. You don't know? 18 A. That's what I understand. 19 Q. From just looking at the note? 20 A. And talking with Gerald Schulz when it 21 happened. 22 Q. I'm sorry. Could you explain? 7479 1 A. Well, he went out and met with them or 2 talked with them on the phone or whatever he did. 3 I think it was on the phone. Or maybe he met with 4 the man and he came back and said, "We're 5 appraising the property, the land, and here's the 6 notes. They say they need $75 million. And 7 here's the other things that we asked for. Here's 8 the things we're going to talk about, and here's 9 what we need to do." 10 Q. Did you solicit information regarding 11 the proposed development loan? 12 A. No, sir, because I don't think that was 13 what we were asked to do at that time. 14 Q. You weren't preparing your appraisal in 15 connection with the solicitation of a development 16 loan. Right? 17 A. We did it for the Park 410 Group, and 18 they could have used it however they wanted to. 19 Q. Your client wasn't United? 20 A. I don't believe it was. 21 Q. In the mid-Eighties, was it at all 22 uncommon for clients and appraisers, at the 7480 1 outset, to talk about value conclusions that would 2 be needed to make a transaction work? 3 A. I think it's always been that case. 4 Q. It's still that case today? 5 A. Sure. Hasn't changed. 6 Q. Why would that communication take 7 place? 8 A. This is the real world. People have an 9 agenda, whether it's estate planning or whether 10 it's a loan or condemnation or what have you. 11 Q. Is there any reason you, as an 12 appraiser, would want to know that information? 13 A. No. We don't solicit that information. 14 It's typically given free. 15 Q. And you used your best judgment anyway. 16 Right? 17 A. Yes. 18 Q. And in preparing the reports that we've 19 looked at today, you and your firm exercised your 20 best judgment available on the basis of 21 information available at that time? 22 A. Yes, sir, that's correct. 7481 1 Q. Mr. Schwartz led you through, both this 2 morning and this afternoon, a lot of factors in 3 your appraisal report. Absorption rates and 4 appreciation rates and discount rates and 5 comparables. Right? 6 A. Yes. 7 Q. With regard to the assumptions he asked 8 you about, did you or your firm adopt the most 9 reasonable ones, in your judgment? 10 A. In our opinion, we did, yes, sir. 11 Q. With regard to all the other factors, 12 did you -- appreciation, absorption, comparables, 13 all of the questions, did you take that into 14 consideration in reaching your final value 15 conclusions? 16 A. Yes, sir, we did. 17 Q. Do you recall if he brought to your 18 attention any factor that you hadn't considered at 19 the time? 20 A. There are probably other factors we 21 considered, also, but a lot of them had been 22 mentioned today. 7482 1 Q. And you had other material in your work 2 file that we don't even have before us. Right? 3 A. Yes, sir. 4 MR. DUEFFERT: One moment, please. 5 I have no further questions. 6 THE COURT: Are you through, 7 Mr. Schwartz? 8 MR. KEETON: Your Honor, I have a few 9 questions. 10 THE COURT: Mr. Keeton. 11 12 CROSS-EXAMINATION 13 14 (3:26 p.m.) 15 Q. (BY MR. KEETON) Mr. Dugger, the 16 concept of making a location adjustment to a sale 17 in order to compare it to the subject property is 18 not unique to your firm or you, is it? 19 A. No, sir, it's not. 20 Q. It's used routinely by real estate 21 appraisers. Right? 22 A. That's correct. 7483 1 Q. Same question with respect to making a 2 time adjustment for a sale that occurred in an 3 earlier time when there had been appreciation in 4 the interim. That type of adjustment is routinely 5 made. Right? 6 A. Yes, sir, that's correct. 7 Q. And as to how much adjustment you make 8 in those instances, that's the appraiser's 9 judgment based on his years of experience. Right? 10 A. And on the market factors and 11 information that you have, yes, sir. 12 Q. Everything you've got? 13 A. Yes, sir. 14 Q. It's not something, though, you look up 15 in a book so that each appraiser will make the 16 same adjustment, is it? 17 A. That's correct. 18 Q. Different appraisers may come to 19 significantly different values based on their 20 judgment. Right? 21 A. Yes, sir, they may. 22 Q. And you were asked why you assumed a 7484 1 9 percent increase for the five or five and a half 2 years that you assumed the absorption rate. 3 Did I understand your answer to be that 4 you were coming out of a period where there had 5 been a good deal more appreciation than that in 6 the prior years? 7 A. Yes, sir, we were. 8 Q. So, you were trying to use what you 9 considered to be a conservative number? 10 A. Well, a reasonable number for that many 11 years ahead of us. 12 Q. In point of fact, it didn't work out 13 that way, did it? 14 A. No, it didn't. 15 Q. But your crystal ball wasn't any better 16 than anybody else's. Right? 17 A. That's right. 18 Q. In those -- on those occasions where 19 you have appraised property in a different town or 20 somewhere other than San Antonio, do you always 21 show the person that you consulted with or 22 counseled with as part of your appraisal, or is 7485 1 that just something that you have in your mind 2 when you're making your appraisal? 3 A. Under new requirements with the 4 Appraisal Institute, I think you have to do that 5 when they contributed significantly to the data 6 and the conclusions. 7 Q. How about back in '84 and '85? 8 A. I can't remember. It depends, I think, 9 on how much. If you go by and get a sale from 10 somebody and go out and see it, one sale, you may 11 not do that. If it's somebody that really helped 12 you with a conclusion, you would probably 13 recognize them. 14 Q. So, the fact, certainly back 15 particularly in the mid-Eighties, that other 16 persons are not given credit or cited as a 17 reference in an appraisal doesn't mean that an 18 appraiser may not have counseled with somebody 19 else? 20 A. That's correct. 21 MR. KEETON: Thank you. 22 THE COURT: Do you have another 7486 1 question, Mr. Schwartz? 2 MR. SCHWARTZ: Yes, Your Honor, I do. 3 Thank you. 4 5 REDIRECT-EXAMINATION 6 7 (3:29 p.m.) 8 Q. (BY MR. SCHWARTZ) Mr. Dugger, 9 Mr. Dueffert showed you some -- a supplemental 10 market value appraisal that was Exhibit A10332. 11 Do you recall that? 12 A. Let me find it. 13 Q. It's dated June 25th, 1987. 14 A. Yes, sir. 15 Q. For an appraisal that was a 16 supplemental appraisal for June of 1987, did you 17 account for the Tax Reform Act of 1986? 18 A. Well, it was -- it would be recognized 19 in absorption of land and pricing. 20 Q. And in the 1988 appraisal that we 21 looked at earlier, Exhibit T1742 -- that was the 22 one that was, I believe, to Mr. Seidman -- did 7487 1 that also reflect the impact of the Tax Act? 2 A. It probably didn't specifically talk 3 about the reform bill, but this is -- everybody 4 was aware of it, and it was reflected in pricing 5 and asking pricing and projections by everybody in 6 the real estate business. 7 Q. Okay. And Mr. Dueffert also showed you 8 some pages from -- some comments from the R-41B 9 seminar materials, Exhibit A11131. 10 Do you recall that? 11 A. Yes, sir. 12 Q. It's this document. 13 A. Right. 14 Q. Would you open that up to Page 9? And 15 also open up Exhibit T17 -- I'm sorry -- 7143, 16 which is your February 12th, 1986 appraisal to 17 Page IV. 18 A. This is the, again, Exhibit T7143? 19 Q. That's the February 12th, 1986 20 appraisal? 21 A. Yes. 22 Q. And on Page IV, which is Bates stamped 7488 1 OW015269, do you see that? In the AIREA seminar 2 materials under Paragraph F, it says "The date of 3 value is always current or past, never future. 4 The appraiser may supply forecasts of value trend, 5 but the value conclusion must represent present 6 value, even though value is the present worth of 7 future benefits." 8 Do you see that? 9 A. Uh-huh. (Witness nods head 10 affirmatively.) 11 Q. In the central -- in the center 12 paragraph on Page IV of Exhibit 7143, is that what 13 you did? 14 A. Let's see here. The center paragraph. 15 We're talking about the developmental approach? 16 Q. That's correct, sir. 17 A. Well, we're trying to get back to a 18 present value by projecting future pricing. 19 Q. And so, what's listed in Paragraph F, 20 is that what you did in this Exhibit 7143? 21 A. The date of appraisal here is 22 December 31st, 1985. I think that's what we did. 7489 1 Q. Okay. 2 MR. SCHWARTZ: Thank you very much. 3 MR. DUEFFERT: I just have about two 4 questions. 5 6 7 RECROSS-EXAMINATION 8 9 (3:32 p.m.) 10 Q. (BY MR. DUEFFERT) You mentioned the 11 Tax Reform Act of 1986. 12 Was that a significant factor in the 13 changes of prices of land in San Antonio at the 14 time? 15 A. You know, it's real hard to tell at 16 that time because the market was slowing about 17 that time. 18 Are you talking about '86? 19 Q. '86 and later. 20 A. Certainly, it was to some extent. It 21 was hard to measure, though, because the market 22 was slowing down. And it's hard to measure the 7490 1 effect of the Tax Act. 2 MR. DUEFFERT: I think we have nothing 3 further for this witness. 4 THE COURT: All right. Thank you, 5 Mr. Dugger. You may step down. Do you have time 6 to have another witness? 7 MR. SCHWARTZ: Yes, Your Honor. We 8 have another witness. I believe he's downstairs. 9 And if you'll give us just a minute, we'll go get 10 him and bring him back up. 11 THE COURT: All right. We'll take a 12 short recess. 13 14 (A short break was taken 15 at 3:34 p.m.) 16 17 THE COURT: Be seated, please. We'll 18 be back on the record. 19 Mr. Schwartz, you have another witness? 20 MR. SCHWARTZ: Yes, Your Honor, we do. 21 The Office of Thrift Supervision calls as our next 22 witness Mr. Charles White. 7491 1 2 CHARLES WHITE, 3 4 called as a witness and having been first duly 5 sworn, testified as follows: 6 7 THE COURT: Please be seated. 8 9 EXAMINATION 10 11 Q. (BY MR. SCHWARTZ) Good afternoon, 12 Mr. White. 13 Would you state your full name for the 14 record? 15 A. Charles William White. 16 Q. And where do you live? 17 A. 7919 Summit Circle, San Antonio, Texas. 18 Q. How long have you lived in San Antonio? 19 A. About 16 years. 16 years, I guess. 20 Q. So, since about 1980? 21 A. Yeah. 1980. 22 Q. And where did you live prior to that? 7492 1 A. Tucson, Arizona. 2 Q. And what is your current occupation? 3 A. I'm a property manager and also have a 4 Texas real estate license. 5 Q. Prior to your current job, what was 6 your prior job? 7 A. Property management. 8 Q. Why don't you give us a little bit of 9 your employment background. 10 A. Well, in -- before I moved to San 11 Antonio, I was a project manager for a 12 construction company. We built sun-dried adobe 13 homes in Tucson. And then after that, moved to 14 San Antonio. Then went to Pakistan to do some 15 research and development of a model village there. 16 Q. What did that entail? 17 A. That included the design and I guess 18 you'd call it due diligence of a model village in 19 Ahmed Pur, Pakistan. 20 Q. How long did you work on that project? 21 A. About a year and a half. 22 Q. What was your role there? 7493 1 A. I was the -- basically the manager of 2 the project. I was responsible for the design of 3 the facility and the site selection and the 4 initial site work on the site. 5 Q. And after that year and a half, you 6 returned to the United States? 7 A. Yes, here in San Antonio. 8 Q. And what did you do then? 9 A. I went to work for a company called 10 Insha Company that was a development -- property 11 management and development company. 12 Q. How do you spell that, Insha? 13 A. I-N-S-H-A. 14 Q. And what kind of work did you do for 15 them? 16 A. I was project manager and technical 17 consultant, I guess. 18 Q. And what kind of project did you work 19 on for them, for Insha Company? 20 A. Well, it would be acquisitions of 21 properties, pre-development work, and then 22 development work in real estate. Well, one of the 7494 1 major projects, I guess, was Crown Meadows, which 2 is on Culebra Road in San Antonio, about 100 3 acres. 4 Q. And following your employment with 5 Insha Company, where did you work? 6 A. I then went to work for Gulf Management 7 Resources. They were based out of Dallas. And 8 eventually I ended up running the San Antonio 9 office. 10 Q. You just mentioned Gulf Management 11 Resources. What is Gulf Management Resources? 12 A. It's a property management and 13 development company or was. 14 Q. Going -- backing up a little bit, you 15 mentioned -- I think you said after college you 16 started working in building sun-dried adobe 17 housing? 18 A. Uh-huh. (Witness nods head 19 affirmatively.) 20 Q. Do you have a college degree? 21 A. Yes. 22 Q. What's that? 7495 1 A. Bachelor's of art. 2 Q. And do you have any other post-graduate 3 training? 4 A. I have some graduate work in urban 5 planning. 6 Q. What is that? What is urban planning? 7 A. Urban planning is the -- I guess the 8 science of planning, you know, for cities and 9 infrastructure and those kinds of concerns. 10 Q. Where did you take those courses? 11 A. Some of those were at the University of 12 Arizona in Tucson, and then there were a couple of 13 classes in Austin. 14 Q. Now, you started to explain what GMR 15 was. Would you continue with that? 16 A. Well, I'd characterize it as a property 17 management and development company. What we would 18 do is buy real estate, either hold it and sell it 19 or develop it for later resale. 20 Q. And in the 1986 time frame, who owned 21 Gulf Management Resources? By the way, are you 22 okay with my using "GMR" as an abbreviation for 7496 1 Gulf Management Resources? 2 A. Sure. 3 Q. Who owned GMR in the 1986 time frame? 4 A. They were primarily offshore people 5 from the Middle East, some European investors, but 6 most of them were from the Middle East. 7 Q. And what exactly was your function with 8 GMR? 9 A. Well, I would be in charge of all 10 technical matters with relationship to a property. 11 Initially, in items of acquisition, it would be 12 due diligence. Subsequent to purchase, it would 13 be development of the property. And then after 14 development, I would be involved in the marketing 15 and sale. 16 Q. Now, you said that GMR was comprised 17 primarily of European and Middle Eastern 18 interests? 19 A. Yes. 20 Q. Did GMR just go into a city and start a 21 development, or what did they do before they would 22 actually start something? 7497 1 A. Well, most of the activity at that time 2 was centered in Texas. They had interest in -- 3 some interests here in Houston, some in Dallas, 4 some in San Antonio. At that time, their way of 5 proceeding would be to evaluate a property, 6 syndicate equity required. These investors 7 preferred to have local people or local investors 8 along side of them so that each deal would be 9 structured a little differently, depending upon 10 who wanted to invest money in that deal. And the 11 local investor and sometimes the folks offshore 12 would participate in various degrees, depending 13 upon how they felt about it. 14 Q. So, a local investor provided some 15 sense of comfort to the foreign investors -- 16 A. Yeah. They would always -- 17 Q. -- with regard to a development? 18 A. Sort of -- not really a requirement; 19 but always, in every deal, they felt more 20 comfortable having a local investor that would 21 have his money in the deal alongside with them. 22 It was sort of their way of keeping tabs from 7498 1 another angle on a manager. The view being that 2 if they had a local person who had money in the 3 deal that at least they could be assured that they 4 were looking out for the piece of property from 5 the investors' angle. 6 Q. That was their hope; is that right? 7 A. Yes. 8 Q. Now, did -- how did they come into 9 San Antonio? GMR. 10 A. Well, at the time I went to work for 11 them, they had a few assets here already under 12 management, some hotel properties in downtown 13 San Antonio and some other various land/properties 14 in the city. 15 Q. You mentioned a project earlier called 16 Crown Meadows. I think -- is that the project off 17 of Culebra Road? 18 A. Yes, uh-huh. 19 Q. And how are you familiar with the Crown 20 Meadows project? 21 A. Well, I was project manager for that 22 project. Not at its beginning, but I took over 7499 1 about in the middle of the construction, I guess 2 you'd say. 3 Q. And when you say "project manager," 4 what is that? 5 A. Well, that's a detail person that takes 6 care of all the details that are required for the 7 development of the project: Coordinating 8 engineers and other professionals, working with 9 the contractors that are putting in the streets 10 and sewers, working with utility companies, 11 working with the marketing people. 12 Q. Do you also work with the lenders, the 13 financing? 14 A. Of course, the lenders and any loans 15 that had to be coordinated and managed. And then, 16 of course, reporting to the investors. 17 Q. And how large a project was the Culebra 18 Road project: Crown Meadows? 19 A. I think it was right at 100 acres. 20 Q. And where was it located? 21 A. In northwest San Antonio on Culebra 22 Road, just off of Loop 410. 7500 1 Q. Why don't you describe generally what 2 the development plan for the Crown Meadows project 3 was. 4 A. Well, it was an acquisition of a 5 subdivision program. We acquired the property. 6 We divided it then into smaller acreages for the 7 end user, put in the streets, put in the 8 infrastructure, the streets and the roads. Well, 9 there was a lot of -- there was some earth moving 10 involved, bringing some property out of the flood 11 plain. 12 Q. Landscaping? 13 A. Some landscaping, yes. 14 Q. And when was the Culebra Road Crown 15 Meadows project being developed? 16 A. That would be the early Eighties. '81, 17 '82, maybe '83. Somewhere in there. 18 Q. Did GMR do the whole project on its 19 own? 20 A. No. 21 Q. Who was GMR's partner? 22 A. Well, that would be Insha Company. At 7501 1 that time, I was working for Insha Company, and 2 they were the local, on-the-ground people. And 3 then GMR also had investors in the deal. 4 Q. So, Insha Company was a local San Diego 5 developer? 6 A. San Antonio. 7 Q. I'm sorry. San Antonio. I've got 8 San Diego in my mind. 9 San Antonio developer? 10 A. Yes, uh-huh. 11 Q. Who was the principal of the Insha 12 Group, Insha Company? 13 A. That was a fellow by the name of Omar 14 BenHalim. 15 Q. And what happened with the Crown 16 Meadows project? 17 A. It was tremendously successful. The 18 property was -- after we had -- well, some of the 19 property was even sold before we had the 20 development done. But I think all of the parcels 21 sold within a very short time period, within a 22 matter of months. 7502 1 Q. Now, you're familiar with the Park 410 2 project in San Antonio? 3 A. Yes. 4 Q. And how are you familiar with that? 5 A. Well, after I worked -- went to work 6 for Gulf Management Resources, I was involved with 7 Gulf Management Resources when the purchase of the 8 property was contemplated. So, I guess, I was 9 involved with the project since its very 10 beginning. 11 Q. And when was -- when you say "the very 12 beginning," when is that? 13 A. That would be -- I'd have to look and 14 be sure when things really started. But it would 15 be 1984 time frame when things began. 16 Q. Okay. Now, you mentioned that you were 17 involved with Park 410 with GMR. What was your 18 specific role in the Park 410 project? What was 19 your job? 20 A. I was project manager. 21 Q. And so, are those the same kinds of 22 duties that you described earlier that you 7503 1 performed on the Crown Meadows project? 2 A. Yes. I'd be -- in the acquisition 3 stage, I'd be responsible for due diligence and 4 all technical matters. And then as we moved 5 through the project, take on the various different 6 roles in terms of the details of what had to be 7 done. 8 Q. So, on the -- as project manager, would 9 you work on, say, loan requests? 10 A. Oh, yes. Loan requests, loan pro 11 formas. Any lender requirements would all be part 12 of what I'd have to prepare. 13 Q. And as well as information related to 14 the closing of deals? 15 A. Oh, yeah. Marketing and deal points on 16 closing -- are you talking about the closing of 17 the purchase or the resale? 18 Q. Both. 19 A. I guess -- my answer, I guess, would be 20 both. 21 Q. Okay. Do you know how GMR learned 22 about the Park 410 property? 7504 1 A. Through our broker. 2 Q. And who was that? 3 A. John Grieshaber. 4 Q. You say "our broker," who's "our"? 5 GMR? 6 A. GMR. 7 Q. What were GMR's intentions in 8 connection with Park 410 when they first got 9 involved with it? 10 A. Well, it was intended to be sort of a 11 grownup Crown Meadows. We had just done -- or GMR 12 and Insha Company had just completed a very 13 successful developmental scenario in Crown 14 Meadows, and the thought was this would be 15 similar, the same thing, only bigger. 16 Q. Did GMR contact Mr. BenHalim to be 17 their local developer on the Park 410 property? 18 A. No. By that time, Insha Company had 19 gone out of business, and I don't think -- well, 20 if Mr. BenHalim was in town, I don't think he was 21 actually approached ever on that. 22 Q. Did GMR have financing at this point in 7505 1 time for the development of Park 410? 2 MR. DUEFFERT: At what point, Your 3 Honor? 4 Q. (BY MR. SCHWARTZ) This is when you 5 first got involved with Park 410. You said it was 6 1984. 7 Did you have financing at that point 8 for the development of the project? 9 A. Oh, no. 10 Q. Now, you said that GMR did not contact 11 Mr. BenHalim. 12 Did GMR contact others -- other 13 developers in San Antonio to be their local 14 developer? 15 A. Yeah. There were a series of contacts 16 made to find other investors to go along with the 17 GMR investors. 18 Q. Do you recall who they were? 19 A. Oh, I won't be able to name names. 20 Q. About how many were there, if you 21 recall the number? 22 A. Well, it was -- I mean, you know, sort 7506 1 of everybody and anybody who knew anybody would 2 bring up a name and they would be talked to to see 3 if there was any interest, being the brokers at 4 Grieshaber or other people involved with the 5 project. 6 Q. So, were there, say, fewer than ten 7 names that were on the short list, if you will? 8 A. Yeah. Certainly fewer than ten. 9 Q. Do you recall the name Stanley 10 Rosenberg as being one of those names? 11 A. Well, Stanley wasn't initially on the 12 list, but -- 13 Q. Why not? 14 A. Well, basically, because of his -- I 15 guess his reputation. 16 Q. What do you mean by that? 17 A. Well, it was -- you always had to be 18 careful in dealing with Stanley because you 19 never -- he always had to be in control of the 20 project, and you had to be careful that you didn't 21 get bit. 22 Q. What do you mean, "bit"? 7507 1 A. Well, even though you were in a joint 2 venture relationship, there was not always a level 3 playing field. So, particularly, if you're 4 putting your investors in bed with somebody else 5 and in doing that, you're giving up control, 6 Stanley would only operate in control of the 7 project. You'd lose -- you always had to be 8 careful. 9 Q. Okay. So, GMR has a short list of less 10 than ten names, one of which is not Stanley 11 Rosenberg. Did they contact all of those 12 individuals to be their local developer? 13 A. Yeah. Over a period of a few weeks to 14 a month, all those people were contacted. 15 Q. And were any of them interested in 16 becoming the local developer? 17 A. No. 18 Q. So, what happened next? 19 A. Well, subsequently, Stanley was 20 approached, and he was interested. 21 Q. Who approached Mr. Rosenberg? 22 A. It would have probably been Mr. Gindy. 7508 1 Q. And what was Mr. Gindy's role? 2 A. He was Gulf Management's attorney. 3 Q. Exhibit -- I think it's A10259. It's 4 admitted at Tab 635. Mr. White, do you recognize 5 this document? 6 A. Yes. 7 Q. What is it? 8 A. It's Gulf Management's investment 9 presentation on Park 410 West. 10 Q. And what's the date on it? I think 11 it's on the second page in. 12 A. February 19, 1985. 13 Q. Would you turn to Page 9? 14 MS. KOPP: What exhibit are you looking 15 at? 16 MR. SCHWARTZ: A10259. 17 MR. BLANKENSTEIN: Can you describe it? 18 THE COURT: It's T7049. 19 MR. SCHWARTZ: T7049. T7049 is the "T" 20 number for it. Excuse me for just a moment. Do 21 you have it? Okay. 22 Q. (BY MR. SCHWARTZ) I'm sorry. I asked 7509 1 you to turn to Page 9. 2 MR. DUEFFERT: Mr. Schwartz, I don't 3 think we have it. 4 THE COURT: Hold it a minute until 5 we've got it. 6 MR. SCHWARTZ: I believe it was 7 admitted during Mr. Graham's testimony. 8 MR. DUEFFERT: I think we now have it, 9 Your Honor. 10 THE COURT: All right. You may 11 proceed, Mr. Schwartz. 12 MR. SCHWARTZ: Thank you. 13 Q. (BY MR. SCHWARTZ) Now, at the bottom 14 of the page, under Paragraph 1.2.8 is a discussion 15 regarding the Northwest Freeway. 16 Do you see that? 17 A. Yes. 18 Q. The language there goes on to say "It 19 is expected that contracts for access road 20 construction will be let in 1986. Opening of the 21 freeway estimated to be five to seven years away." 22 Was that GMR's speculation at the time, 7510 1 that the contracts for access roads would be let 2 and the freeway would automatically be built 3 within the five- to seven-year period following 4 that? 5 MR. DUEFFERT: Object to the word 6 "speculation." 7 THE COURT: Did you ask him whether 8 that was speculation? 9 MR. SCHWARTZ: Whether that was their 10 speculation, that's correct. 11 THE COURT: All right. Well, if he 12 doesn't like that word, you can use something 13 else. 14 MR. SCHWARTZ: All right. 15 Q. (BY MR. SCHWARTZ) Assumption. 16 A. Well, the -- I guess there would be two 17 parts here. I mean, at this time, the 18 construction of that freeway was really in two 19 parts, one which was the access roads. And the 20 way that was to be financed was that the adjacent 21 property owners adjacent to where the freeway was 22 going to be built would pay for the construction 7511 1 of the access roads that abutted their property. 2 The -- for doing that, the commitment of the State 3 was that when the car counts reached a certain 4 threshold -- and I don't recall what number that 5 is -- but when they reached a certain threshold, 6 then the State would initiate the construction of 7 the main lanes on the freeway. 8 So, I would say -- well, I guess to 9 answer the question directly, it was -- it was 10 speculation that the access roads would be built 11 shortly. But that was pretty clear that that was 12 going to be happening at that time. In terms of 13 how soon till the main lanes got constructed, I 14 guess you'd have to say that that was speculation. 15 I mean, certainly the State had made no 16 representations as to the time frame. It was our 17 assumption that the development going on in the 18 area with Sea World going in over there and all of 19 the activity that was being talked about in the 20 westplex, that five to seven years was a 21 reasonable target at that time for construction of 22 the main lanes. 7512 1 Q. So, that would put -- five to seven 2 years would put freeway construction at 1990 to 3 1992; is that right? 4 A. Yes, uh-huh. 5 Q. Okay. Would you turn to Page 13? 6 A. Okay. 7 Q. There is a list there of calculations 8 in Paragraph 1.4.3 for costs and sales and profit. 9 Do you see that? 10 A. Uh-huh. (Witness nods head 11 affirmatively.) 12 Q. Now, at this point in time, the total 13 costs of the Park 410 project, including land, 14 land-related, infrastructure, general and 15 administrative, and financing are listed at 16 $64,832,000; is that right? 17 A. Yes, that's correct. 18 Q. Is that what the expectation was at 19 that point in time? 20 A. Yeah. These were numbers that I, you 21 know, generated for this investment presentation. 22 Q. Okay. Now, in that category, what 7513 1 is -- what is infrastructure? 2 A. Well, this would be for roads, sewers, 3 electrical, probably some engineering services. 4 By "infrastructure," you know, it's meant that's 5 what the basic construction that's needed in a 6 subdivision in order to provide it with the basic 7 services needed. 8 Q. Would it include some landscaping? 9 A. Yes, generally. 10 Q. And the entry for financing is 11 $12,627,000. What was that figure representative 12 of? 13 A. Well, that would be interest on the 14 proposed loan. 15 Q. So, the total cost -- the total amount 16 is $64,832,000. Now, what do you get for that 17 money? Do you understand the question? 18 A. Well, you basically get -- instead of 19 raw land, you end up with a developed piece of 20 property that is in smaller lots for the end user. 21 Q. The next item down -- listed is sales. 22 And gross proceeds are listed at $114,731,000. 7514 1 What does that figure represent? 2 A. Well, that -- as it says, that's the 3 estimated gross sales proceeds from the sale of 4 the property, in lots, over time. 5 Q. And then the last item on the page is 6 profit. And the net proceeds less costs comes to 7 a net profit of $42,442,000; is that right? 8 A. Correct. 9 Q. Okay. Would you turn to Pages 23 and 10 24? 11 A. Okay. 12 Q. Okay. There is a discussion -- I guess 13 it's Section 5, reward analysis. 14 A. Uh-huh. 15 Q. Could you explain how that works on 16 that page and the next page, how you reach those 17 calculations? 18 A. Well, this -- you have to bear in mind 19 now that this is a presentation that's going to 20 investors. And we're also in the process at the 21 same time of trying to define the entire deal 22 structure. 7515 1 So, what we're doing here is saying, 2 "Out of that profit, where will this money end 3 up -- in whose pocket will this money end up?" 4 Q. On Page 24, you have "return of 5 investment -- "return on investment," and then 6 you've got a figure of 133 percent return on 7 investment yearly in Paragraph 5.3.1. And in 8 5.3.2, a return on investment yearly of 9 55 percent. 10 How are those numbers calculated? 11 A. Well, this is a -- what you do here is 12 we're taking the amount of equity that's been 13 contributed to the project by the investors and 14 then the profit, and you divide that and you end 15 up with your return on the investment. So, those 16 are just an expression, a percentage expression on 17 what kind of return you could expect to receive. 18 Q. And with a return on investment of 19 133 percent or 55 percent -- well, first of all, 20 why are there two different numbers there? One's 21 133 percent and one's 55 percent. 22 A. Well, this is a -- this is a memorandum 7516 1 that we are trying to syndicate. That's why it 2 says "partners of New Co." "New Co." meaning 3 yet-to-be-named entity. But as, I guess, 4 expressed on the previous page, there is going to 5 be a lender involved. 6 Q. That's up at the top? 7 A. Which is a calculation of the top 8 amount. 9 Q. Okay. That's at -- on Page 23 at the 10 top in Paragraph 5.2.1 -- 11 A. Correct. 12 Q. -- where you're referring? 13 A. Right. 14 Q. Okay. 15 A. So, what you have here is a difference 16 between the return on investment that could be 17 expected by the partners of New Co. versus the 18 overall property return on investment. 19 Q. So, then, the -- do the two numbers on 20 Page 24, the 133 percent and the 55 percent, 21 represent profit to two different groups of 22 investors? 7517 1 A. Well, the partners of New Co. would be 2 a part of the development equity investors. One 3 group's bigger than the other, but the development 4 equity investors would include New Co., the way I 5 read it. 6 Q. What would the overall developer's 7 profit -- what was the overall developer's profit 8 estimated to be at this point in time, expressed 9 as a percentage? 10 A. Well, overall, it would be the 11 55 percent number. 12 Q. Did GMR expect that that would be a 13 sufficient incentive to attract investors? 14 A. Oh, yeah. Certainly. 15 Q. Would you turn to Page 16, back to Page 16 16? 17 A. Back to 16? 18 Q. Yes, sir. 19 A. The map? 20 Q. No, sir. Page 16 of the investment 21 presentation that has a Bates stamp down at the 22 bottom of CNO86217. Is that not on your copy? 7518 1 A. 6217? Okay. Page 16? 2 Q. Yes. 3 A. Okay. 4 Q. Up at the top there, Paragraph 1.6.2 5 lists some potential uses for the Park 410 6 property. 7 A. Uh-huh. 8 Q. It lists retail, multi-family, office, 9 office showroom, R&D, hotel, restaurant and 10 related supportive activity such as service 11 stations. 12 Do you see that? 13 A. Uh-huh. (Witness nods head 14 affirmatively.) 15 Q. At the time, were those what the joint 16 venture's proposed uses for the Park 410 property 17 were? 18 A. Yeah. It was designed to be a 19 mixed-use development, and you'd have these 20 various eventual land uses. 21 Q. And so, were the joint venturers 22 planning at that time, the 1985 time period, to 7519 1 sell some of the sites for R&D or high-tech firm 2 office parks? 3 A. Yes, certainly. 4 Q. Would you now turn to Appendix F in the 5 document, which is Bates stamped, actually, up at 6 the top CNO86319? And that appendix goes on -- 7 A. Wait a minute. I'm not sure I'm with 8 you. This is -- 9 MR. SCHWARTZ: Your Honor, may I 10 approach the witness? 11 THE COURT: Yes, you may. 12 Q. (BY MR. SCHWARTZ) And then it 13 continues on Page 86319, 2021, and 22. Do you see 14 those? 15 A. Uh-huh. (Witness nods head 16 affirmatively.) 17 Q. Now, it's called -- up in the upper 18 left corner, it's called a pro forma. What is a 19 pro forma? 20 A. Pro forma is a financial analysis that 21 seeks to understand how a property will perform 22 given a set of assumptions. 7520 1 Q. Okay. I'd like to walk through this 2 and understand how -- first of all, did you create 3 this? 4 A. Yes. 5 Q. And how did you create it? 6 A. On Lotus 1, 2, 3. 7 Q. That's a software package? 8 A. Yes. 9 Q. All right. At the top on the left 10 side, there is a description for -- of costs for 11 land acquisition costs and then a series of costs 12 related to land acquisition. That's moving down 13 on that left-hand column; is that correct? 14 A. Uh-huh. (Witness nods head 15 affirmatively.) 16 Q. And then below that is a description 17 labeled "infrastructure"? 18 A. Uh-huh. 19 Q. With a -- 20 THE COURT: Would you speak up, please, 21 sir? 22 THE WITNESS: Yes. Sorry. 7521 1 Q. (BY MR. SCHWARTZ) For the record, you 2 need to respond verbally. "Uh-huh" is not -- they 3 are not going to be able to pick it up. It's hard 4 to spell. 5 Under "infrastructure," there are some 6 associated costs underneath that, as well; is that 7 right? 8 A. Yes. 9 Q. And then under that is a description 10 for general and administrative items. And then 11 finally financing? 12 A. Yes. 13 Q. And then across -- moving across the 14 top of the page, the next column is "budget." And 15 then there is a column of numbers beneath "budget" 16 corresponding to different items -- different cost 17 items under the description column. 18 What do those numbers represent? 19 A. Well, under the "budget" item, that 20 represents the amount of money that we were 21 allocating at this time to each of those 22 categories. 7522 1 Q. And -- okay. Then you continue across 2 the page, and it looks like "first six-month, 3 second six-month, third" -- all the way through 4 "tenth six-month." 5 What do those columns represent? 6 A. Well, those columns represent what we 7 would anticipate spending on those line items over 8 time. 9 Q. And so, where a number appears under a 10 particular six-month period column, is that when 11 you expected that that expenditure would occur? 12 A. That's correct. 13 Q. And then moving all the way across, 14 there is a total column on the right edge of the 15 paper. 16 What does that represent? 17 A. Well, that's the total amount for that 18 line item, and it should correspond to the budget 19 item, which is the first column. It was a way of 20 cross checking to make sure that everything added 21 up correctly. 22 Q. So, for the total land acquisition 7523 1 costs, the total for the first category of entries 2 is 42 million -- am I reading it in millions; is 3 that right? 4 A. Yes. Well, it's represented here in 5 thousands, but this would be 42,700,000 for a 6 total land acquisition cost. 7 Q. And going back to Page 13 of this 8 exhibit that we looked at earlier, is that -- 9 A. Okay. 10 Q. Okay. Is that where that $42,700,000 11 comes from under "land" and "land related"? 12 A. Yes, that's correct. 13 Q. So, it corresponds to the spreadsheet 14 at Appendix F; is that correct? 15 A. Correct. 16 Q. Why don't you hold that page, because 17 we're going to be identifying the other numbers, 18 as well. Under "infrastructure" on Appendix F 19 there is a listing of $6 and a half million? 20 A. That's correct. 21 Q. And then back on Page 13, it's 22 representing $6 and a half million there; is that 7524 1 right? 2 A. That's correct. 3 Q. So, that again corresponds with the 4 spreadsheet? 5 A. That's correct. 6 Q. Is the same true for general and 7 administrative expenses and financing? 8 A. Yes. 9 Q. Now, the next page of the spreadsheet 10 has some additional -- a variety of entries. I 11 assume they fall under the same categories as the 12 first page. There's just not -- it's just a 13 continuation of the first page? 14 A. Yes, that's correct. This is probably 15 originally a computer printout so that this 16 actually was one page at one time. 17 Q. Okay. On the next two pages of the 18 spreadsheet, the chart's a little bit different. 19 And there, you've got a column for -- the extreme 20 left-hand column is labeled "phase/tract." And 21 then "use," moving across the top, and then 22 "acres, square footage," and then "sales rate 7525 1 PSF." 2 Is that per square foot? 3 A. That's correct. 4 Q. And then "sales value"? What is sales 5 value? 6 A. That would be the square footage times 7 the sales rate per square foot. 8 Q. And what is that? Why is that an 9 important number to know? 10 A. Because that is the -- that would be 11 the estimated value of that tract at the start of 12 this pro forma. 13 Q. Okay. Continuing across, there is a 14 P-E-R. What is that? 15 A. That is the period in which that tract 16 was anticipated that that tract would sell. 17 Q. And then it continues across. "Third 18 six-month, fourth six-month," through seventh 19 six-month. And then "Phase 3" and then finally a 20 "total" column. 21 What was the Phase 3? 22 A. Well, Phase 3 was the large corner 7526 1 tract on the property at the intersection of 410 2 and the new 151 freeway. 3 Q. That was the proposed freeway. Right? 4 A. Yes. 5 Q. Now, as a whole, what does this chart 6 represent? And this chart also seems to continue 7 on to the next page. What does this chart 8 represent? 9 A. Well, this is a schedule to get to the 10 total gross sales proceeds anticipated in the 11 project. 12 Q. Looking up at the upper left-hand 13 corner of the spreadsheet, looking at CNO86321, it 14 appears to read January 11, 1985. 15 Do you see that? 16 A. Yes. 17 Q. Is that when this spread sheet would 18 have been created? 19 A. That's correct. 20 Q. So, looking at the total sales for the 21 entire project, where would that number be found, 22 gross sales? 7527 1 A. That would be on this Page 6321, the 2 very bottom right-hand number. 3 Q. And what is that number? 4 A. 114,731,000. 5 Q. So, is that where that number came from 6 that we saw on Page 13? 7 A. That's correct. 8 Q. All right. So, then, as of 9 January 11th, 1985, was it the estimation of GMR 10 in their investment presentation that the total 11 gross sales proceeds for Park 410 would be 12 $114,731,000? 13 A. That's correct. 14 Q. And then there is a net proceeds 15 calculation on the next page? 16 A. Uh-huh. (Witness nods head 17 affirmatively.) 18 Q. And that also corresponds with what we 19 saw on Page 13? 20 A. Well, it's close. It must be a 21 rounding in here. One of them is 17274 and the 22 other is 273. It must be a rounding. But that 7528 1 number would have come from the spreadsheet. 2 Q. Okay. Now, you testified that you 3 created the spreadsheet using Lotus 1, 2, 3? 4 A. Uh-huh. (Witness nods head 5 affirmatively.) 6 Q. What is Lotus 1, 2, 3? 7 MR. DUEFFERT: Asked and answered. 8 THE COURT: Denied. 9 THE WITNESS: What does that mean? 10 Q. (BY MR. SCHWARTZ) What is Lotus 1, 2, 11 3? 12 A. It's a spreadsheet program for 13 financial calculations promulgated by the Lotus 14 Company. 15 Q. How does it work? 16 A. Well, it works -- it's sort of like 17 magic. You plug in the numbers and it does all 18 the hard work for you. 19 Q. Well, that's an interesting comment, 20 "sort of like magic." If you -- did you have any 21 special training in Lotus 1, 2, 3 or how did you 22 become familiar with it? 7529 1 A. Well, at the time, I was in the league 2 with a bunch of attorneys and accountants, and 3 they could do all this on their napkins and I 4 wasn't quick enough. So, I went out and bought a 5 computer and learned how to do it. 6 Q. And so, you learned Lotus 1, 2, 3. And 7 how does it reach the numbers? Describe the 8 program. What do you see on your computer screen? 9 A. Well, there is a set of formulas that 10 you establish in each of these columns. And then 11 as you plug in the numbers in those columns, the 12 formulas will calculate and recalculate your 13 numbers every time you make a change. 14 Q. Every time you make a change. So -- 15 A. So you don't have to hand crank -- used 16 to be that when they went through this, they would 17 have to hand crank these numbers out each time. 18 The magic of this was that every time you changed 19 the number, you could just push a little button on 20 the computer and it would make all those 21 calculations. 22 Q. Like magic? 7530 1 A. Just like magic. 2 Q. And so, for -- so, for any particular 3 number, you could change a formula and the number 4 and all corresponding places where the information 5 derived from that number would change elsewhere in 6 the spreadsheet? Is that how it works? 7 MR. DUEFFERT: Your Honor, I just have 8 to object to this. This is deadly and I don't 9 know where it's going and I don't understand the 10 relevance. And this man obviously isn't an expert 11 in computer science. 12 MR. SCHWARTZ: Your Honor, it's 13 extremely relevant to our position in the case, as 14 will become apparent through Mr. White's testimony 15 later on. It's important for the tribunal to have 16 an understanding of how Lotus works and that, as 17 Mr. White testified, it's like magic, that you 18 just plug in numbers and they change. I'd like to 19 continue with this. I'm almost through with this 20 description. But we are going to be walking 21 through these spreadsheets to some depth and a 22 variety of them over a period of time to show how 7531 1 the numbers changed. 2 THE COURT: Well, I can see how it 3 would be relevant where these numbers came from. 4 But if you change one, mathematically, the others 5 change. I'm not sure we have to know all of that. 6 MR. DUEFFERT: Your Honor, I think my 7 point is there is undoubtedly some relevance to 8 budgets in this case. However, the workings of 9 Lotus 1, 2, 3 and whether or not this witness is 10 qualified to testify about that, I think, is 11 inappropriate. 12 MR. SCHWARTZ: Well, Mr. White -- 13 THE COURT: All right. I'll deny the 14 objection. You say you only have a few more 15 questions on this? 16 MR. SCHWARTZ: Regarding Lotus 1, 2, 3, 17 yes. 18 THE COURT: All right. 19 Q. (BY MR. SCHWARTZ) Were you the only 20 person at GMR who had familiarity with Lotus 1, 2, 21 3? 22 A. Yes. 7532 1 Q. And were you the person who used the 2 spreadsheet, the Lotus 1, 2, 3 software, to make 3 all of the calculations that were utilized in 4 the -- in GMR's management of the project? 5 A. Yes. 6 Q. This initial presentation is dated 7 February 19th, 1985; is that correct? 8 A. Well, no. The spreadsheet is dated the 9 11th. 10 Q. Right. But -- 11 A. You mean the memorandum? 12 Q. No. The investment presentation, the 13 first page of the entire exhibit. Actually, the 14 second page. February 19th? 15 MR. DUEFFERT: Your Honor, on that 16 point, I would like to note that the exhibit's out 17 of Bates number order, that the page that 18 Mr. Schwartz has referred to actually has a 19 different Bates number than the rest of the 20 package, the second page. 21 MR. SCHWARTZ: I'm sorry? I'm looking 22 at OW012756. 7533 1 MR. DUEFFERT: Yes. Nothing else in 2 the document has an "OW" number. Everything else 3 has a "CN" number. And I believe that this is a 4 mixed-up exhibit. 5 MR. SCHWARTZ: Was this how it is in 6 the -- this was an admitted exhibit. 7 MR. DUEFFERT: Yes. At the time, I did 8 not object to this particular page because it 9 seemed silly; but if you're going to be asking 10 questions about this one page -- 11 MR. SCHWARTZ: Well, let's turn to the 12 next page. 13 MR. DUEFFERT: Okay. So long as you 14 ask about the next page -- 15 MR. SCHWARTZ: All right. Very well, 16 Mr. Dueffert. 17 MR. DUEFFERT: However, we would ask 18 that you remove the extraneous page from the 19 exhibit as marked, Your Honor. 20 THE COURT: Is it identical except for 21 the OW0 stamp? 22 MR. SCHWARTZ: I think. So, there is 7534 1 an "RE" exhibit number at the top. But the 2 purpose of my question, not to belabor this, is 3 just to ask him what the date of the document is. 4 That's the only purpose of my question. 5 MR. DUEFFERT: But my objection isn't 6 frivolous. We have gone through this document and 7 compared it with an "RE" exhibit that carries this 8 "OW" number, and we've discovered that the two 9 actually are different documents in some respects. 10 So, we have no objection to the exhibit 11 marked T7049, but we do think it will create 12 confusion in the record if that is at all equated 13 with Exhibit RE13. 14 THE COURT: Well, the document is in as 15 is. And if there are discrepancies, we'll have to 16 deal with them. I'm going to leave it be as it's 17 been introduced. You can make a record as to 18 what's wrong with it. 19 Q. (BY MR. SCHWARTZ) What is the date of 20 the investment presentation? 21 A. February 19, 1985. 22 Q. Exhibit 7014. Mr. White, do you 7535 1 recognize Exhibit 7014? 2 A. Yes. 3 Q. What is it? 4 A. This is the first -- I believe this is 5 the first cut of a business plan and agreement 6 between the prospective members of the -- what 7 became the developmental entity. 8 Q. The joint venture? 9 A. The joint venture. 10 Q. Okay. And there is a signature line 11 there on this draft for "SR." Is that Stanley 12 Rosenberg? 13 A. Yes. 14 Q. The first paragraph on the first page 15 says, "The business plan for Park 410 West Joint 16 Venture is to utilize the first six months after 17 formation of the Park 410 West Joint Venture to 18 arrange and close a mutually-acceptable 19 development financing package." 20 Do you see that? 21 A. Uh-huh. (Witness nods head 22 affirmatively.) 7536 1 Q. And it goes on to -- 2 A. I mean yes, excuse me. 3 Q. And then it goes on to refer to a 4 possible exception of 83, more or less, acres on 5 the corner. Right? 6 A. Yes. 7 Q. Was it your understanding in around 8 March of 1985 that that was the intention of the 9 joint venturers, the original intention of the 10 joint venturers, to obtain financing within the 11 first six months? 12 A. Yes, certainly. 13 MR. SCHWARTZ: Your Honor, we move 14 admission of Exhibit T7014. 15 MR. DUEFFERT: No objection so as long 16 as the record is clear that this is an unsigned 17 version. 18 THE COURT: It's unsigned. So, that 19 should be obvious. Proceed. 20 Q. (BY MR. SCHWARTZ) Now, do you recall 21 when the joint venture was formed? 22 A. It would be -- I couldn't tell you 7537 1 exactly, but it would be a couple months from this 2 date, I would think. Soon after this date. 3 Q. Did you receive -- there is a reference 4 at the top in the corner that's a handwritten 5 note. It says "copies to." 6 Did you receive a copy of this? 7 A. Yes. 8 Q. And if you look at the -- 9 MR. DUEFFERT: Mr. Schwartz, what 10 document are you referring to? 11 MR. SCHWARTZ: 7019. Your Honor, we 12 move the admission of Exhibit T7019. 13 MR. DUEFFERT: No objection. 14 THE COURT: Received. 15 Q. (BY MR. SCHWARTZ) If you look at the 16 first and second line of the text of the letter, 17 does that refresh your recollection as to when the 18 Park 410 West Joint Venture was formed? 19 A. Yeah. It must be March 3rd, 1985. 20 Q. Now, the business plan we looked at 21 earlier, the draft of it, you testified, I 22 believe, that that was -- it was the intention of 7538 1 the joint venturers to obtain financing within six 2 months after formation of the joint venture. 3 Did you actively seek financing during 4 this period? 5 A. Yes. 6 Q. Did you also look at the possibility of 7 just selling the property without developing it? 8 A. Not seriously. 9 Q. Exhibit 7331. Do you recognize this 10 exhibit, 7331? 11 A. Yes. 12 Q. There is some handwriting on the first 13 page. Is that yours? 14 A. Yes. 15 MR. SCHWARTZ: Your Honor, we move the 16 admission of Exhibit T7331. 17 MR. DUEFFERT: No objection. 18 THE COURT: Received. 19 Q. (BY MR. SCHWARTZ) The memorandum 20 that's the last two pages of the exhibit, did you 21 write that? 22 A. Yes. 7539 1 Q. And what was the purpose of creating 2 this document? 3 A. Well, this was -- the purpose of this 4 would be to generate a snapshot of where I 5 anticipated things would be if a sale was -- of 6 the entire asset was generated in October of '85. 7 THE COURT: Mr. Schwartz, how many 8 pages are supposed to be in this? 9 MR. SCHWARTZ: There are a total of 10 three pages to the exhibit, Your Honor. 11 THE COURT: You've made reference to a 12 memorandum? 13 MR. SCHWARTZ: The second and third 14 page -- the second page says "to, from, re," and 15 "date." And I'm referring to that as a 16 memorandum. 17 THE COURT: All right. Thank you. 18 Q. (BY MR. SCHWARTZ) Mr. White, was this 19 a memorandum that you wrote? 20 A. Yes. 21 Q. Okay. And it says "From CW." Is that 22 you? 7540 1 A. Yes. Charles White. 2 Q. And "NS," who's NS? 3 A. Noel Simpson. 4 Q. And who was Noel Simpson? 5 A. He was the chief -- he was the CEO of 6 Gulf Management Resources. 7 Q. Now, in the memorandum, there appear to 8 be two profit analyses. 9 Do you see those? There's two 10 different prices. 11 A. Yes. 12 Q. How were those calculated? 13 A. Well, you'll see there on the first 14 page of the memorandum under 3.1 looking at a 15 sales price on $3.25 cents per square foot versus 16 another analysis in 3.2, which is on the next 17 page, of $3.50 per square foot. 18 Q. And this is for a sale of the property 19 undeveloped; is that right? 20 A. Yes. 21 Q. Did you pursue selling the property raw 22 like this at this point in time? 7541 1 A. Not seriously. 2 Q. Exhibit 7053. If you turn to the third 3 page, I think it's easier to read because of the 4 hole punching. Can you help identify what this 5 spreadsheet is? Or actually, what the fourth page 6 of the exhibit is, the third page of the 7 spreadsheet. 8 Can you identify what this document is? 9 A. This would be the budget, the joint 10 venture budget. 11 Q. For a period of time covering 1985 to 12 1987? 13 A. Through March of '87. 14 Q. Okay. Did you create this spreadsheet? 15 A. Yes. I would have created it. 16 MR. SCHWARTZ: Your Honor, we move the 17 admission of Exhibit T7053. 18 MR. DUEFFERT: Your Honor, we don't 19 have an objection to the admission of the 20 three-page spreadsheet that Mr. White has just 21 identified. However, there are some attachments 22 to the document that don't appear to have any 7542 1 relationship to it and don't bear a Bates number. 2 Before the entire exhibit is admitted, we'd like a 3 foundation on that. 4 Q. (BY MR. SCHWARTZ) Mr. White -- 5 THE COURT: Are you referring to 6 Exhibit C -- 7 Q. (BY MR. SCHWARTZ) Mr. White, do you 8 recognize the last two pages of this exhibit? 9 A. Yes. 10 Q. And are the calculations that are 11 entered there for those budget items based on 12 numbers that you generated? 13 A. Yes. 14 Q. And do you recognize the initials down 15 at the bottom of the page, both pages? 16 A. Yes. 17 MR. SCHWARTZ: Your Honor, we'd move 18 the admission of Exhibit T7053. 19 THE COURT: Received. Whose initials 20 are those? 21 THE WITNESS: That would be -- the "NS" 22 is Noel Simpson. And there's John Grieshaber, and 7543 1 "SDR" is Stanley Dave Rosenberg. 2 Q. (BY MR. SCHWARTZ) And do the initials 3 there indicate their approval of this budget, to 4 your knowledge? 5 A. To my knowledge, it would. I mean, it 6 would indicate that they have seen it and approved 7 it, yes. 8 Q. Do you have any -- can you think of any 9 other reason why they would have put their 10 initials on it? 11 A. No. 12 Q. All three of them? 13 A. No, I didn't. 14 Q. There are a few items on the Exhibit C 15 attachment that we're looking at that I wanted to 16 ask you about. For market study fees and 17 expenses -- that's about the seventh item down, I 18 think. 19 A. Yes. 20 Q. $18,500. What was that for? 21 A. That was for a market study of the 22 property and its immediate area to explore the 7544 1 marketability and the sales opportunities in the 2 area. 3 Q. Was this a study performed by the 4 Tremar Group, or was this another study? 5 A. Yes. No, this would be the Tremar 6 study. 7 Q. Okay. And "management fees" is listed 8 down at the bottom there, towards the bottom, the 9 fourth one up. 10 What was that for? 11 A. Those would be the management fees 12 going to the manager of the entity, which would be 13 Gulf Management Resources. 14 Q. And so, the 100,000-dollar entry there 15 as "total," does that represent two years' worth 16 of management fees? 17 A. Yes. 18 Q. Would you look back at the spreadsheet 19 now, to the first page of the spreadsheet? And 20 there is an entry on the twelfth line down labeled 21 "market study." 22 Do you see that? 7545 1 A. Yes. 2 Q. And then for July of 1985, is it 3 $18,500? 4 A. Yes. 5 Q. Is that reflective of that Tremar -- 6 what was paid for the Tremar study? 7 A. Yes. That would be when I anticipated 8 having to spend that money. 9 Q. And under "management fees" further 10 down, it's got 18 -- the 18th line down, it lists 11 12,500 every third month -- 12 A. Correct. 13 Q. -- on the next two pages? 14 A. That's right. 15 Q. Up towards the top on the first page is 16 a "Westside Expressway C-O-N-T-R." 17 Is that contribution? 18 A. Yes. 19 Q. And then there is no entry on the first 20 page. But on the second page or March of 1986, 21 there is an entry of $400,000. 22 Do you see that? 7546 1 A. Yes. 2 Q. What was that for? 3 A. Well, I think, as I indicated earlier, 4 the Westside Expressway, which is now 151 in 5 San Antonio, the way the deal got done with the 6 State was they -- the adjacent property owners to 7 the proposed right-of-way would both contribute 8 the necessary right-of-way and the cost of 9 constructing the access roads immediately abutting 10 their property. 11 Q. And this pro forma doesn't appear to 12 have a date on it, but the exhibit -- the 13 attachment to it, the last two pages, say "as 14 amended March 29th, 1985." 15 Do you recall if that was around the 16 time that you created the spreadsheet? 17 A. Well, just looking at the numbers and 18 how they match up, the spreadsheet was used in 19 preparing this exhibit. 20 Q. Is that "yes"? 21 A. Yes. 22 MR. SCHWARTZ: Just a moment, Your 7547 1 Honor. 2 THE COURT: Would this be a good to him 3 to adjourn, Mr. Schwartz? 4 MR. SCHWARTZ: Yes, Your Honor, it 5 would. 6 THE COURT: We'll adjourn until 7 9:00 o'clock tomorrow. 8 9 (Whereupon at 5:03 p.m. 10 the proceedings were recessed.) 11 12 13 14 15 16 17 18 19 20 21 22 7548 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Marcy Clark, the undersigned Certified 5 Shorthand Reporter in and for the State of Texas, 6 certify that the facts stated in the foregoing 7 pages are true and correct to the best of my ability. 8 I further certify that I am neither 9 attorney nor counsel for, related to nor employed 10 by, any of the parties to the action in which this 11 testimony was taken and, further, I am not a 12 relative or employee of any counsel employed by 13 the parties hereto, or financially interested in 14 the action. 15 SUBSCRIBED AND SWORN TO under my hand 16 and seal of office on this the 17th day of 17 November, 1997. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-97 21 22 7549 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Shauna Foreman, the undersigned 5 Certified Shorthand Reporter in and for the 6 State of Texas, certify that the facts stated 7 in the foregoing pages are true and correct 8 to the best of my ability. 9 I further certify that I am neither 10 attorney nor counsel for, related to nor employed 11 by, any of the parties to the action in which this 12 testimony was taken and, further, I am not a 13 relative or employee of any counsel employed by 14 the parties hereto, or financially interested in 15 the action. 16 SUBSCRIBED AND SWORN TO under my hand 17 and seal of office on this the 17th day of 18 November, 1997. 19 _____________________________ SHAUNA FOREMAN, CSR 20 Certified Shorthand Reporter In and for the State of Texas 21 Certification No. 3786 Expiration Date: 12-31-98 22