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J.L. Pierson & Co. LLC Business Valuation


Valuation engagements involving interests in partnerships or corporations holding real property, or valuations of fractional interests in real property, both generally involve 2 stages. In the first stage, a real estate appraiser values the property in fee, i.e. as is, but without any debt. The second stage involves a business appraiser, who is engaged to determine appropriate discounts applicable to the particular facts and circumstances of the investment. JLP&Co.LLC has worked with many real estate owners and their appraisers over the years.

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Typical Case No. One

Several professionals entered into a partnership agreement for the purpose of developing a large - several hundred apartments - project in an area of the country with few investment grade rental properties. JLP&Co.LLC got involved well before the necessary local zoning approvals would be decided upon by the town; thus the value of the project was still very low, but was expected to increase substantially as approvals for development would likely be obtained, albeit at which level and how fast no one could predict. A real estate appraisal was obtained. We performed a study of the appropriate discounts for lack of control and lack of marketability of one of the gentlemen's interest in the partnership. Such study would be attached to a gift tax return, as the interest was to be gifted to a trust. This allowed the potential appreciation of the property to avoid estate taxation.


Typical Case No. Two:

For the owner of a diverse portfolio of fractional real property investments, we determined what discounts would be available for lack of marketability and control should he wish to transfer these holdings to an estate/gift tax saving mechanism. In this case a family limited partnership [FLP] was being considered. We helped the investor obtain real estate appraisers to substantiate values and prepare credible files. We assessed the credibility of the real estate appraiser chosen by the client and valued complex limited interests.

Typical Case No. Three:

An estate owned a number of income producing real estate properties in common with related parties. For the trustees, we valued such interests and justified a range of fractional real estate discounts of 20-50%. Physical partition was not a remedy option because of the developed character of this urban real estate. The wide range of discounts is due to the fact that, while some properties paid all owners a superb and secure dividend, other did not, and/or were the subject of litigation between the joint owners. Such fractional real estate interest discounts are, of course, separate and distinct from entity discounts for lack-of-marketability and lack of control applicable to, for example, limited interests in partnerships which, in turn, own real property. For information on the latter discounts, click here to review our page on pass-through entities such as family limited partnerships ["FLPs/FLLCs".]

Typical Case No. Four:

When properties are held through a "regular" corporation because of a large number of shareholders, consideration should be paid to the "BIG" capital gains, i.e. the Built-In Gains which are now thankfully taxed at lower rates than operating income. For the estate of a shareholder in such a C corporation with an extensive portfolio of real estate properties, we determined the appropriate level of the BIG, and thus suggested a discount from pro-rata value after LOC and LOM discounts.

Click here for an article in VALUE ADDED on appraising fractional real estate interests.

We have never advertised a book on this web site, but an exception will be made for this late 2004 text ! The Webb book "Valuing Undivided Interests in Real Property: Partnerships and Cotenancies" covers not only the valuation of partnerships holding real estate, but also fractional real estate valuations in a multi-discipline approach. It thoroughly combines the bodies of knowledge of both real estate appraisal and business valuation. Information about the important book can be found on the following link: Click here. Then search for Webb, the author's name.

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Business Valuation: NY, NJ, CT, etc.

P.O. Box 2392
Darien, CT 06820-0392, U.S.A.
Voice: (203) 325-2703
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Revised -- 11/26/09