Private Placement Real Estate Valuation

Journal of Business Valuation and Economic Loss Analysis (Forthcoming)

17 Pages Posted: 15 Nov 2013  

Tim Husson

Securities and Exchange Commission

Craig J. McCann

Securities Litigation and Consulting Group

Eddie O'Neal

Securities Litigation and Consulting Group

Carmen Taveras

Securities Litigation and Consulting Group

Date Written: November 12, 2013

Abstract

As a result of the Securities and Exchange Commission's relaxation of its prohibition against the marketing of private placements, investors will soon be exposed to a broad array of syndicated commercial real estate investments. Private placement commercial real estate investments are illiquid and so cannot be easily valued by reference to frequent transactions in the same asset in active markets.

We have reviewed over 200 syndicated commercial real estate private placement memorandums and find that virtually all include projected cash flows. This study explains how investors and their advisors can use these projections to develop estimates of investment value. We determine a lower bound for discount rates applicable to the cash flows derived from commercial real estate and apply the methodology to an actual commercial real estate private placement investment. Our findings suggest significant overvaluation by commercial real estate private placement investment sponsors even when using conservative estimates of discount rates.

Keywords: real estate, private placements, valuation, discounted cash flow, tenants-in-common

Suggested Citation

Husson, Tim and McCann, Craig J. and O'Neal, Eddie and Taveras, Carmen, Private Placement Real Estate Valuation (November 12, 2013). Journal of Business Valuation and Economic Loss Analysis (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2353442

Tim Husson

Securities and Exchange Commission ( email )

100 F Street, NE
Washington, DC Washington, DC 20549
United States
202-551-6803 (Phone)

Craig J. McCann

Securities Litigation and Consulting Group ( email )

3998 Fair Ridge Drive, Suite 250
Fairfax, VA 22033
United States

Eddie O'Neal

Securities Litigation and Consulting Group ( email )

3998 Fair Ridge Drive, Suite 250
Fairfax, VA 22033
United States
3366558718 (Phone)

HOME PAGE: http://www.slcg.com

Carmen Taveras (Contact Author)

Securities Litigation and Consulting Group ( email )

3998 Fair Ridge Drive, Suite 250
Fairfax, VA 22033
United States

Paper statistics

Downloads
93
Rank
230,982
Abstract Views
473