Discounts for a noncontrolling and nonmarketable interest in a real estate entity are the focus of a recent article by Russell T. Glazer (Gettry Marcus CPA, PC) in the New York Law Journal. The article examines the differences in the analysis by a real estate appraiser versus a business valuation expert.
The article points out an important distinction: Ownership of a real estate entity does not represent ownership of the underlying assets. The real estate appraiser is typically asked to value a 100% interest in the real estate without any limitations on control or marketability. In some cases, the interest includes certain rights of property use, possession, disposition, and so on. But a noncontrolling ownership interest in an entity that owns real estate has no such rights. For these interests, discounts for lack of control (DLOC) can be 20% or more, and the discount for lack of marketability (DLOM) can be 35% or more, according to the article. Therefore, the value of the noncontrolling interest in the entity may be about 50% of the entity’s net asset value.
Special report: There are unique challenges to valuing a business that owns its real estate, so BVR has prepared a special report, Valuing Companies with Real Estate: Appraisal Experts Untangle the Issues. It explores the interaction between real property value and business value for going-concern properties.
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