Goldilocks and the Critical Importance of Time
The most important thing about valuing a fractional interest in real estate is time, specifically, how long will the interest-holder be stuck in its position? Interest holders care less about the current net asset value, and more about its future value. The valuer can use this to solve many issues and conclude the likely period, which is a critical element in such valuations.
The restriction period typically ends when the assets are sold and profits are distributed. This period has profound effects and it is important for the valuer to consider the circumstances that could affect the period.
Two possible dilemmas may occur when matching the model period and the period which discount rates are taken from. One dilemma is when a period seems to be “forever”: partners who intend to hold their assets forever. “Forever” would rely on future generations, which is very difficult to predict. Webb suggests that exceeding 10-15 years creates an invalid model because it is practically impossible to find discount rates that can support longer periods.
The other dilemma is the short term: when a partnership ends and partners do not want to extend. With good facts, a 2-3 year restriction period can be concluded, but short holds are not baked into yield rates.
Intangible Value in Real Estate Partnerships
Intangible value is attributed to the buyer and seller and is typically where the deal will be struck. Since, all transactions are made at investment value, which is based on the buyer’s and seller’s view of the worth of the investment to themselves. Intangible value has to have been present at the time a shared ownership arrangement is entered into. Fractional ownership is created when there are benefits realized by both parties, and these benefits are mainly intangible.
Before the buyout process, it is important to make sure all is set up for success. In order for all parties to agree on a buyout process and pricing mechanisms, it may be necessary to reduce the discount required for exit pricing.
While there are many benefits and detriments to go through before the buyout transaction, the valuer is usually able to interview the parties and figure out what should be considered. In family partnerships, internal trust and confidence is an important intangible element to craft provisions that will benefit future generations.
To learn more click the link: https://www.appraisalinstitute.org/assets/1/7/Valuing_Fractional_Interests_2_0_%20_Handouts.pdf
The Rapid Rise of Real Estate in Transition Planning:
While an enormous amount of real estate is held through partnerships and other ownership structures, future generations will struggle to preserve family legacies unless transitions provide for management and interest-holder buyouts. This places great emphasis on the importance of transition planning. Ways to accomplish this are displayed through this three part article.
Fractional interests are typically created when there are substantial benefits that can be gained. These interests are formed by investing at a premium. This may include pooling resources for purchasing and improving property or splitting the usage of a property. Asset-related transition planning is important and often overlooked by many. While selling problematic assets is typically the solution, it can be hard for partners to all agree. Clarity on the facts and circumstances is essential to foster an agreement between the parties. Webb believes it is important to become proficient at valuing fractional interests in a way that is meaningful to the clients.
To learn more click the link to the Article written by Dennis Webb, is a business and real estate appraiser, former syndicator and engineer. Webb is the principal of Primus Valuations® a specialty valuation and litigation consulting firm with offices in Los Angeles and Denver: https://www.appraisalinstitute.org/assets/1/7/Valuing_Fractional_Interests_2_0_%20_Handouts.pdf
This conference is the premier annual event for real estate valuation professionals to gather for education seminars, dynamic speakers, knowledge sharing, networking, and product and service shopping. In addition to Keynote Speaker, Ryan Leak, a speaker, coach and consultant with expertise in empowering leaders to reclaim a new self-awareness, classes and speakers at this event will explore Fannie Mae policies and initiative updates, how to keep pace with demand, interpret real market data, litigation and arbitration and many more tools that are effective in educating and advancing professionals in the appraisal field.
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Ryan Whitelaw MAI recently attended the 2022 Monterey Bay Appraisal Seminar (MBAS). Ryan moderated the breakout session on “Best Practices using Marshal and Swift”. The 2022 Monterey Bay Appraisal Seminar was sponsored by the Society of Real Estate Appraisers (SREA), The American Society of Appraisers (ASA) and The American Right of way Association (ARWA). The seminar covered topics regarding policy clarifications, appraisal compliance reviews, SB 9, and cost approach, with an opening keynote from Dr. Gerd Welke, and many presentations from experts at different appraisal companies around the country.
To learn more click the link: https://norcal-ai.org/event/2022-monterey-bay-appraisal-seminar-2/
Pacific Appraisers is looking to hire two staff residential appraisers. The positions would be located in the Peninsula (Santa Clara and San Mateo counties) and the Monterey Bay Area (Santa Cruz and Monterey). Interested candidates please email email@example.com . To learn more about Pacific Appraisers visit our website at – www.pacificappraisers.com
We are very happy to announce that Ben Rumsey, MAI has received his Right of Way certification from IRWA. This will help Pacific Appraisers to continue its expansion into non lender appraisal markets.
Pacific Appraisers is looking to hire two staff residential appraisers. The positions would be located in the Central Valley (Fresno, Visalia, Bakersfield) and the Monterey Bay Area. Interested candidates please email firstname.lastname@example.org . To learn more about Pacific Appraisers visit our website at – www.pacificappraisers.com
Ryan Whitelaw MAI and Ben Rumsey MAI from Pacific Appraisers have joined IRWA (International Right Away Association). IRWA has served professionals who acquire, manage and transfer the land rights needed for building and maintaining energy and transportation infrastructure. Click her for more information.
The Pacific Appraisers Team will be attending the 2018 Northern California Appraisal Institute Annual Fall Conference.
Location: South San Francisco Conference Center, South San Francisco
2018 marks the 68th consecutive year that the Northern California Chapter has presented its award-winning Annual Fall Conference.
Fall Conference is the real estate appraisal profession’s longest-running and highest-rated one-day continuing education & networking event on the West Coast. Our conference consistently draws over 250 participants and features the real estate profession’s “most in-the-know” presenters. Our topics will keep you informed of the latest developments that affect your profession, your profitability, your business – your future.
Approved for 6-hours of BREA, Appraisal Institute and SBE training credit; applications for credit from the States of Washington and Oregon have been submitted. Typically ASA, ASFMRA and IRWA offer reciprocal credit for AI approved offerings.
Our 2018 venue offers onsite FREE parking and complimentary shuttle service from BART and Caltrain. Watch for more details when the registration materials become available.
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