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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Appraisal Economics Inc. has determined the fair value of an outperformance plan (OPP) granted to employees of a real estate investment trust (REIT). This OPP grants employees shares of the company’s publicly traded common stock based on the achievement of certain absolute and relative performance hurdles at the end of the performance period. These market-based performance conditions are intended to align the goals of the employee grantees with shareholders. In addition to the absolute and relative performance hurdles, which are based on the company’s and peer group companies’ total shareholder return (TSR) adjusted for dividends, the plan also has a complex acceleration feature. Under the acceleration feature, grantees can earn and receive shares of the company’s common stock on earlier dates (before the end of the performance period) if the company has already achieved the maximum absolute or relative TSR target. In addition to determining the fair value of outperformance plan grants, Appraisal Economics Inc. also performs quarterly computations to estimate the numbers of shares that will be awarded under the plan.

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Appraisal Economics Inc. has performed a valuation of long-term incentive plan units (LTIP Units) for one of the largest publicly traded real estate investment trusts (REITs). The LTIP Units were granted to employees as equity based compensation and were designed to align the interests of the grantees with company stockholders. The grants have market-based vesting conditions, whereby the LTIP Units will only vest into shares of the company’s common stock if certain total return to shareholder (TRS) targets are met. TRS is a measure of the company’s stock price performance that includes dividends. The LTIP Units have both absolute targets, based on the company’s own TRS performance, and relative targets, based on the company’s TRS performance compared to a peer group of over 100 companies. Our valuation of the LTIP Units accounted for all of these features.

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Appraisal Economics Inc. has conducted a valuation of carried interest of a private equity firm for litigation support purposes. This high profile case was tried in Federal District Court and involved, among other things, the defendant’s First Amendment rights and allegations against the third largest pension fund in the United States. In addition to determining the value of the carried interest for several private equity funds, we determined the value of the management company and the general partner entities, and damages for lost compensation and lost management fees.

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Appraisal Economics Inc. has conducted a purchase price allocation of a utility-scale solar operator in New Jersey. Electricity is generated and sold to the local power utility under a long-term power purchase agreement. A private equity firm acquired the company that owns and operates the facility, and hired Appraisal Economics to allocate the purchase price among the financial, tangible, and intangible assets of the company, including the real property, machinery and equipment (solar panels, inverters, and mounting hardware), a power purchase agreement, and goodwill.

Please click for more information about the valuation of power plants and renewable energy facilities, our work for private equity firms, and our experience with purchase price allocations, or to Contact Us.

Appraisal Economics valued the legal rights to harness the flow of wind on a large tract of high plains acreage in the western United States. So-called “wind rights” permit the holder to generate renewable electricity by converting kinetic energy into electrical energy, which is sold in the wholesale utility market. Wind is one of the fastest growing sources of electricity in the United States, due in part to state mandates regarding the proportion of electricity generated from renewable energy sources such as wind, solar, hydro, geothermal, and biomass, which are cleaner than traditional hydrocarbon-based energy sources. To value the wind rights, we used the income approach, which requires projecting future cash flows, allocating the total cash flows between the tangible real property and the intangible wind rights, and discounting to present value the cash flows that accrue to the owner of the wind rights. The results of our valuation were used by our client for tax purposes.

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Appraisal Economics Inc. has conducted a purchase price allocation for a manufacturer of highly engineered building products. A private equity firm and a pension fund acquired the building materials manufacturer for total consideration in excess of $1 billion. The company operates several highly automated facilities across North America that produce a variety of synthetic building materials designed to replace wood, metal, and other traditional materials for both commercial and residential use. The company has some of the leading brands of synthetic decking, siding, railing, and pavers. Appraisal Economics allocated the purchase price among the financial, tangible, and intangible assets of the company. The assets included real property in two countries, machinery and equipment, leasehold interests, proprietary technology, trademarks, customer relationships, and goodwill. Once goodwill is placed on the balance sheet due to acquisition, it is tested at least annually for impairment.

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Appraisal Economics has valued equity interests in a joint venture between a petroleum company and a private equity firm. The joint venture owns and operates various interests in oil and gas wells in the Bakken Formation. Located in the Williston Basin, which encompasses North Dakota and Montana in the U.S. and parts of Saskatchewan and Manitoba in Canada, this formation of shale, siltstone, and sandstone has emerged as an important region for U.S. oil and gas production. The joint venture explores, drills, and produces oil and gas from tracts of property operated under non-operating working interests (“NOWIs”) and overriding royalty interests (“ORRIs”). NOWIs do not operate the oil and gas wells, but are responsible for their share of the drilling and production costs. ORRIs are similar to royalty interests in mineral ownership but are limited by the term of the lease. When the lease expires, all rights to the minerals revert to the landowner. ORRIs do not bear the cost of drilling or production. Our client has a portfolio of NOWIs and ORRIs in shale formations such as the Bakken. Appraisal Economics has been engaged for several years to value partnership interests in this joint venture.

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Appraisal Economics Inc. has conducted an analysis of fractional interests in real estate located in the southern United States. The fractional interests were held as tenants-in-common. Tenant-in-common interests are held by two or more owners each having an undivided interest. In this type of ownership, the interests are not necessarily equal in size and no one owner has unilateral control of the property. Accordingly, each tenant effectively holds a non-controlling and illiquid interest in the underlying real estate. Appraisal Economics applied appropriate lack of control and lack of marketability discounts to the pro rata values of the tenant-in-common interests and determined the fair market values of the interests for estate tax purposes.

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