Situation
Two owners of commercial property in Connecticut had set up a real estate holding company comprised of multiple commercial properties. When one of the owners passed away, the estate needed a valuation of his 50% ownership of the real estate holding company to settle the estate.
An owner of commercial property in the same town referred them to Lou Pereira, President of Merrimack Business Appraisers.
Merrimack Business Appraisers’ Approach
As is common, the family’s trust and estate attorney knew exactly the steps needed to settle the estate including first securing real estate appraisals of the commercial properties held in the real estate holding company. Note, this holding company had been formed as an S Corp, but the process and valuation process applies for any legal entity, such as LLC, or C Corp.
With the real estate appraisals completed, Pereira could move forward on his valuation of the real estate holding company to incorporate the appraisals as well as other assets on the balance sheet including equipment owned by the entity and accounts for rent collection and investment accounts. Liabilities included any outstanding debt. Pereira completed the valuation of the real estate holding company to then value each owner’s 50% fractional share. As is standard practice, adjustments are then made for lack of control and marketability. As is customary and compliant with IRS review standards, Pereira infers lack of control adjustments for each 50% ownership as neither party has control. Studies are available and leveraged to apply adjustments based on ownership percentages, in this case evenly split at 50%.
The final adjustments for lack of control and marketability were applied and documented to completed the business valuation of each owner’s fractional share.
Valuation Outcome
The business valuation for 50% ownership of the real estate holding company was completed along with detailed documentation of ‘how’ and ‘why’ the valuation was determined to enable the estate to be settled, reflecting the fractional ownership of the real estate holding entity.
When Values Matter.
