Evaluation Of Partial Interest In Commercial Properties?

[Michael P Jacobs MAI]

Thinking through the fundamentals, why would the buying-in partner pay more than market for an entitled parcel? Aside from the doc stamps legal issues, they'd be on the hook for negative equity if the project went south. Interesting, though - I just ran into several of these on large urban apartment projects and was surprised to see such a recent thread. In my cases the land was acquired by the selling-partner in the fallout from the condominium market collapse. So, they had a lot of cash and bought approved projects low, holding several years without doing much. Over the last few years they've sold 50% interests to developers and the projects have either been completed immediately or are in-process as apartments (changed from condos). I'm having trouble piercing the partner's bubbles to get down to the original underwriting, but superficially at least there doesn't appear to be much difference between the prorated value of 100% whole. There's no telling what else went on (they're not talkin') so these aren't the most reliable comparables. Besides, I can't make a career out of the research and it's not really necessary within the scope of this particular appraisal (just a peripheral observation). I haven't read the most recent literature, but from what I recall you'd need inside knowledge to really understand conditions of sale which could be market, above or below. Generally, as long as you aren't hanging your entire opinion on one of these, it would be evidence of value.

 

[PL1957]

There is a huge amount of literature on partial interests on the BV side. Lots of resources, lots of references. Lots of potential pitfalls. If you develop the expertise, it's a great niche. Good luck.