Hi everyone,
I was tasked with coming up with an indicative valuation or share price for a family-owned company (on my mom's side), as some members are contemplating a sale of their stake. The company in question owns a parcel of land which it rents portions of it out to a few tenants (biggest tenant is a busing company; rest are franchise owners of small convenience stores). The operation is fairly simple as they effectively just collect rental income. There's no other operation that is booked in said company.
What is the most appropriate valuation method that should be applied here? Would it just be a simple DCF of projected cash flows, or do we take the appraised value of the land as the valuation in this case (since it is biggest asset the company owns)?
Happy to hear people's thoughts on this.
it's just plain land? or it has also buildings on it (as you talk about franchises). You could also do the sq footage on the land to see how much would it value compared to the market on a sq foot basis, but I think different land depending on zone/etc. has different value, so an appraisal may be more helpful.
Said that, I would do land appraisal + DCF on remaining CFs from rents + some TV to consider that land tends to increase in value steadily. If you also have authorizations on the land, meaning that absent those you can't do certain things on it (such as buildings, etc.), then you would also add a premium on the price based on how costly/hard is to get it.
Probably some RE guys will give a more technical answer like gross rent multiplier/occupancy adjustments, etc.
"do we take the appraised value of the land as the valuation in this case (since it is biggest asset the company owns)?"
Depends, do you want to minimize the sale price (minimize the cost for you to purchase the for sale stake)? If so, get another appraisal and tell the appraiser you aren't paying him until he gives you a valuation of $xxx (low valuation) and purchase the other party's share of land at a discount to the market.
Appraisals aren't an actual fair market value. They're pretty much worthless and are just used as a check in the box. You can make an appraisal say whatever you want.
Yup this is true. They just make sure that a property isn’t way overvalued. I recently acquired a property for $1.255mm and I know for a fact from the selling agent that the next highest bid was $1.1250 (which is why I bid only $5k more). There were over 20 bids for the property and the appraiser appraised it at $1.125mm…
If the land use is just rentals why is this not just a cap rate valuation?
Not sure the market but in an infill market with the right zoning, the true value is future development potential. That’s why you see parking lots and big box stores in NYC sell at crazy low cap rates. An 80k SF Costco with 5 acres of parking isn’t being valued based on its current income stream.
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