Recent Valuation & Litigation Projects (Continued)


Appraisal Economics Inc. has completed a valuation of a wind park located in the Midwestern United States. The wind park consists of approximately 100 wind turbines with a combined electrical generating capacity of about 150 megawatts, the equivalent of providing clean energy to over 50,000 homes. The assets include the towers, foundations, blades, rotors, generators, and power converters. Electricity is generated and sold to the local power grid via a long-term power purchase agreement, which provides enough revenue to help recoup the substantial cost of construction. Appraisal Economics was engaged by the local taxing authority to estimate the fair market value of the wind park for litigation support related to property taxes.

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Appraisal Economics Inc. has determined the fair market values of two minority, non-controlling membership interests in a leading cosmetics company that develops and markets skin care products. Part of our analysis required the valuation of the preferred equity of a related entity. The income and market approaches were utilized to determine the company’s total equity value, and Monte Carlo simulations were used to allocate the total equity value among eight different equity classes including the preferred membership interest. Appraisal Economics applied appropriate lack of control and lack of marketability discounts to the pro rata values and determined the fair market values of the two interests for gift and estate tax purposes.

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Appraisal Economics has provided litigation support to attorneys representing a Michigan taxing authority regarding wind farms and tax incentives. Specifically, we considered whether the availability of specific tax incentives necessarily indicates that the value of the property is less than its cost, which would indicate that economic obsolescence exists. Typically, newly constructed wind farms receive federal incentives for renewable energy such as the (i) Production Tax Credit; (ii) Investment Tax Credit; and (iii) Section 1603 Cash Grants. Wind farms typically also benefit from state-level renewable portfolio standards (RPS) that require utilities to purchase a minimum percentage of electricity from renewable sources, generally at higher rates than hydrocarbon-based sources of energy. The federal incentives and the terms of the power purchase agreement must therefore be examined in tandem to identify whether economic obsolescence exists immediately upon completion of construction. Any reduction to the value of the property affects the taxes assessed on the property, and is therefore of significant importance to both the taxpayer that owns the property and the taxing authority.

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Appraisal Economics Inc. has conducted a valuation of an interest in a limited liability company that holds approximately three dozen limited partnership interests in hedge funds and private equity funds, among other illiquid assets. This engagement for a former cabinet-level advisor to the President of the United States was performed for tax planning purposes. Our scope of work included valuing each hedge fund interest and each private equity interest, and marking to market other assets such as an unsecured promissory note due from an individual. Limited partnership interests in hedge funds and private equity funds are generally non-controlling and illiquid, and may require the application of discounts for lack of control and discounts for lack of marketability to determine the fair market value. Selecting credible discounts requires understanding both the economic structure and the legal rights and restrictions of these types of closely held investments.

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