Multiple Fractional Ownership Interests Within An Assemblage

[Smiller23]

Good day everyone!

Long time reader, first time poster here. The insight I have found in these forums has helped me immensely in the past, and given a recent inquiry, I figured this would be the spot to hunt for some advice.

I recently was asked to quote for an appraisal regarding an assemblage of 9 vacant land parcels (under Highest and Best Use) having good commercial development utility for estate purposes. However, the individual lots within the assemblage have different fractional ownership interests amongst them (3 parcels are at 33.33% and the remaining 6 lots are at 12.50%). The lots are interspersed rather than grouped together, and provide different levels of utility to the overall assemblage.

I have valued partial interests for IRS purposes and whatnot in the past, and feel confident in that regard. However, my experience has been applying only one partial interest to the fee simple value. Is there a way to approach multiple partial interests within an assemblage to be valued without reinventing the wheel? Am I overthinking this? Any guidance or advice on how to approach this would be very much appreciated; I know there are minds here that are far more brilliant than I can claim to be!

 

[Howard Klahr]

I know this will sound trite, but what is the intended use and who is the intended user?
Are you valuing the whole or the individual partial interests? And if individual, are you valuing each separately as standalone interests or will partial interests of separate parcels that have common ownership be valued together?

 

[Smiller23]

The Client is the executrix of the owner's estate (retro as of DoD) for estate purposes, with an individual value per parcel requested. It would be much simpler if I could group the lots with the same ownership interests together, but because of the nature of the assemblage (parcels are interspersed, not abutting, and have different levels of utility), the parcels are inextricably linked to one another under HBU.

 

[Terrel L. Shields]

Well, sounds like an issue, I'd value the whole, allocate the percentage, then a discount (likely?) for partial interest. I've seen some sell at 25% discount, but varies and finding those sales is probably going to require a lot of calls to commercial brokers to see if they know any partial interest sales

 

[Sid Holderly]

Like Terrel or a single estate narrative with the reconciliation looking more like a spreadsheet with each lot listed and discounted. I have completed a couple like this for estate attorneys. The other partial interest owners are likely buyers to settle the estate so the attorney needs to know the values of each interest.

 

[hastalavista]

Are these properties generating any income now?

 

[Gobears81]

Well, sounds like an issue, I'd value the whole, allocate the percentage, then a discount (likely?) for partial interest. I've seen some sell at 25% discount, but varies and finding those sales is probably going to require a lot of calls to commercial brokers to see if they know any partial interest sales

Like Terrel or a single estate narrative with the reconciliation looking more like a spreadsheet with each lot listed and discounted. I have completed a couple like this for estate attorneys. The other partial interest owners are likely buyers to settle the estate so the attorney needs to know the values of each interest.

Would you refer to the allocated values of the individual parcels as a contributory value as part of the whole for this intended use?

 

[Sid Holderly]

It depends on what the attorney wants.

 

[leasedfee]

the parcels are inextricably linked to one another under HBU.

How so?
You have two things going on:
1) Partial interests of each parcel. This would use standard partial interest discounting techniques to value.

2) Assemblage: 9 separate parcels with the possibility of an assemblage as H&BU. This is a hypothetical condition. There is no guarantee, far from it actually, that the parties will come together or that an individual will be able to form the assemblage. All it takes is one or two recalcitrant individuals and the deal stagnates. This is further compounded as it is a monopsony ("a market situation in which there is only one buyer") for each of the 9 parcels. Yes, the assembled hypothetical parcel can easily be valued. The only truth is this: Assembled Value > Land1 + Land2 + Land3 + . . . . + Land9. Thus the individual parcels can't really be valued under the assumption of assemblage; it'd be merely a guess. They can only be valued based on their independent smaller parcel H&BU.

Once I was valuing a large assemblage, being done by an MAI. He explained to me that there are two strategies: either be upfront with all groups of landowners and act like a symphony conductor to get them to agree to do the deal. Inevitable even after they agree, some will balk and want to drop out. Alternatively, you Assemble in secret parcel by parcel, and inevitably gossip will rat the assembler out. All it takes is one holdout for the assemblage to be impossible or useless. A large perpetual institution like a university or hospital can make this work as they outlive the owners and sooner or later will get their hands on the desired parcels.

 

[Howard Klahr]

the parcels are inextricably linked to one another under HBU.

While the parcels may have a H&BU of future assemblage with adjoining properties, your intended use necessitates valuation of each parcel on an individual, stand-alone basis irrespective of the adjoining parcels. Also, is the H&BU of assemblage based on current market dynamics or those as of the retrospective date of value? If it is based on the retro factors, then why have the properties not been assembled during the time interval i.e. what was the impediment?