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Private Placement Real Estate Valuation

Author

Listed:
  • Husson Tim
  • McCann Craig
  • O’Neal Edward
  • Taveras Carmen

    (Securities Litigation and Consulting Group, Inc., 3998 Fair Ridge Drive, Suite 250, Fairfax, VA 22033, USA)

Abstract

As a result of the Securities and Exchange Commission’s relaxation of its prohibition against the marketing of private placements, investors will soon be exposed to a broad array of syndicated commercial real estate investments. Private placement commercial real estate investments are illiquid and so cannot be easily valued by reference to frequent transactions in the same asset in active markets. We have reviewed over 200 syndicated commercial real estate private placement memorandums and find that virtually all include projected cash flows. This study explains how investors and their advisors can use these projections to develop estimates of investment value. We determine a lower bound for discount rates applicable to the cash flows derived from commercial real estate and apply the methodology to an actual commercial real estate private placement investment. Our findings suggest significant overvaluation by commercial real estate private placement investment sponsors even when using conservative estimates of discount rates.

Suggested Citation

  • Husson Tim & McCann Craig & O’Neal Edward & Taveras Carmen, 2014. "Private Placement Real Estate Valuation," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 9(1), pages 1-18, January.
    • Handle: RePEc:bpj:jbvela:v:9:y:2014:i:1:p:18:n:2
    DOI: 10.1515/jbvela-2013-0015
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    References listed on IDEAS

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    1. David Ling & Milena Petrova, 2008. "Avoiding Taxes at Any Cost: The Economics of Tax-Deferred Real Estate Exchanges," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 367-404, May.
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