Appraisal Economics Inc. has determined the fair value of an outperformance plan (OPP) granted to employees of a large publicly-traded real estate investment trust (REIT), which owns thousands of industrial buildings in the United States and internationally. This OPP grants employees shares of the company’s common stock based on the achievement of certain relative performance hurdles at the end of the performance period. These market-based performance conditions are intended to align the incentives of the employee grantees with shareholders. Participants in the plan can earn an outperformance pool, paid in restricted shares of the Company’s common stock, based on the Company’s total return to shareholders (TRS) performance compared to that of a real estate index. We also compute a discount for lack of marketability for the award, to account for the post-vesting lock-up applicable to shares earned under the outperformance plan.

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Appraisal Economics Inc. has provided expert witness testimony at a binding arbitration hearing in New York. One of two general partners in a limited partnership died, and the value of the interest was disputed between the remaining general partner and the estate of the deceased general partner. The partnership owns a long-term leasehold interest in commercial real estate. As the partnership is a holding entity, we used the net asset value approach, in which we marked the partnership’s assets and liabilities to fair market value and computed the value that would be received by a holder of the interest upon the sale of the property and liquidation of the partnership. We also used the income approach, in which we calculated the present value of the projected future cash flows to the subject interest if the partnership was continued. Our analysis also involved selecting appropriate discounts for lack of control and lack of marketability that were supported by our consideration of the rights, restrictions, and other factors specified in the partnership agreement.

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Appraisal Economics Inc. has completed a valuation of over a dozen natural gas turbines located throughout the United States. The assets are owned by a publicly traded power company with a market capitalization of over $200 billion, and each unit is capable of generating between 23 megawatts and 55 megawatts of electricity. The natural gas turbines are part of a lease pool used by electricity generators that require backup units when their primary turbines are undergoing repair. Appraisal Economics was engaged to estimate the fair market value of the assets for financing purposes.

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Appraisal Economics Inc. has valued the tangible and intangible assets of a pet food manufacturer acquired as part of a private equity roll-up. The acquired company sells baked pet treat products to wholesale pet food distributors, manufacturers, and retailers across the United States. The company operates a 200,000-square foot facility with multiple independent production and packaging lines. The acquisition involved a complex series of direct and indirect transactions of equity interests by another pet food company that was previously acquired by the private equity firm. Appraisal Economics was engaged to allocate the aggregate purchase price among the financial, tangible, and intangible assets of the company, including the real property, machinery and equipment, trade name, non-compete agreement, customer relationships, and goodwill.

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Appraisal Economics Inc. valued a non-controlling interest in a holding company that owns a minority interest in a privately held international conglomerate that is headquartered in Russia. The operating company has several dozen subsidiaries in Europe and Asia that specialize in oil and gas, construction, telecommunications, and finance. Our valuation included analyzing the recent sale between third parties of shares of common stock in the underlying operating company. To determine the current value of the operating company’s common stock, we adjusted for changes in the company’s financial performance, industry and economic conditions, and currency exchange rates. The concluded value of the interest in the holding company that owns the conglomerate’s shares reflected incremental discounts for lack of control and lack of marketability. Our valuation was used for gift and estate tax planning purposes.

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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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Appraisal Economics Inc. has conducted a valuation of an interest in a holding company that owns limited partnership interests in hedge funds, managed futures funds, and private equity funds, and direct investments in two private companies. Our engagement consisted of valuing each hedge fund interest, managed futures fund interest, private equity fund interest, and valuing the investments in the private companies. Then we valued the interest in the holding company for tax purposes. Interests in alternative investments and holding companies 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 the economic structure, legal rights and restrictions, and nature of the markets for these types of privately held investments.

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