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Partial and Fractional Interest Valuation

As the Internal Revenue Service intensifies efforts to limit discounts on partial interest valuations, attorneys, CPAs and trust officers are seeking experts who can provide valuations with empirical data and objective analysis in discounting net asset value for lack of control and marketability. Our Partial Interest Valuation Service team is equipped to provide a comprehensive array of services in this highly-specialized business segment.

About


The Partial Interest Valuation Services is available to clients requiring partial or fractional ownership interest valuations based on objective analyses of empirical data. Valuations are typically needed to support estate tax filings for minority interests in family trusts or family limited partnerships. However, we also provide valuation services to assist in a variety of estate planning issues as well as for support in partner buy-outs and disputes, mergers and acquisitions and litigation. Our professionals offer significant industry experience and are trained to effectively communicate our findings to our clients, their auditors, legal team and regulatory authorities.

 

Our methodology considers in great detail the income-producing capability of the entity with respect to the returns and multiples of alternative investments, including publicly-traded limited partnerships. Value is based on the perception of future benefits, and this must consider the nature of the assets, their risk profile, existing cash flow and historical distributions, leverage and the prospects for appreciation. It is also impacted by the liquidation horizon of the ownership entity, as well as the size of the ownership interest being appraised. Reliable conclusions can be reached via both the market and Income approaches to value by carefully analyzing each of these issues.

 

Sample Assignments


Valued a 25% non-controlling interest in a limited liability company owning interests in four properties held by four separate entities; one property as a tenant-in-common and one property as the sole owner. The interest appraised was subordinate to a preferred return in favor of the managing member that resulted in a very high discount to net asset value.

 

Retrospective valuation of a 36% Tenant-in-Common interest. Ownership was complicated by the lack of any management agreement between the owners and the fact that the only other investor (the manager) was represented by a limited partnership that owns other properties.

 

Valued a 1.0% interest in an LLC that owns five real property assets, including an office building, two self-storage properties and two commercial properties. The properties are each held by a single-asset LLC. The company has an average leverage ratio of 49%. The lower risk profile of the properties was generally offset by the higher debt ratio in determining the final discounts to net asset value.

 

Provided a valuation of a 33% interest held as Tenants-in-Common in a vacant commercial buildings located in a large city. The fact that the property had been vacant for many years, was in disrepair and that there was no management agreement for the entity resulted in higher discounts to net asset value.

 

CBRE valued an 11% interest held by a family trust in an LLC managed by a regional investment company. The primary assets of the LLC were two average-quality industrial “R&D” buildings located in Silicon Valley. The valuation was complicated by the fact that the LLC was leveraged to 82% and that one of the buildings was vacant. CBRE’s research revealed that the tenant in the occupied building, whose lease was set to expire about one year from the date of value, would not be renewing. With dismal market conditions at the time, an extraordinarily high discount to net asset value was reasonably supported.

 

Provided a valuation of an economic interest in the General Partner of an LP that was to be secured by a Warrant. As the Warrant was to convey the economic interest only, this was a non-controlling interest. Additionally, it was subordinate to a number of partner preferred returns and participations. The sole asset of the LP was a senior housing community that was primarily funded by HUD and Medi-Cal subsidies. The project was subject to a near-term loan expiration and with income increasing only at the rate of expenses, the refinance risk resulted in a significant discount to net asset value.

Related Services

With more than 690 experienced professionals in 90+ offices nationwide, Valuation & Advisory Services (VAS) provides high-quality valuations and consulting services to help clients make the right business decisions.
CBRE offers an appraisal platform for financial institutions ranging from stand-alone community banks to multi-bank/multi-state financial institutions that do not want the high expense of an internal group.

Our Professionals

Thomas B. McDonnell
President
Valuation and Advisory Services
+1 312 233 8669
+1 312 233 8660