Valuing real estate under a joint venture
Apologies if this is the incorrect forum but I thought I'd find people who know this subject well in here.
So Company A owns a huge parcel of land in location X and wants to turn it into a small urban community (with office, commercial and residential spaces). However, A can't develop the land by itself so it enters into a joint venture with Company B, a big real estate developer. B will build roads, drainage systems, etc. In the JV agreement, once they sell the subdivided lots, A gets 40% of the profits while B gets 60%.
I need to value company A using the NAV approach. Should I get the market value of the land and discount it by 40%? Or is my approach to this completely wrong?
Thanks in advance.
Does Company A have multiple assets or a single asset?
From the info you have given thus far your approach makes more sense. Do you have any more information on the development to do accurate projections?
Yes, it has other parcels of land but valuing them is fairly straightforward (market value). So my NAV formula is MV of land bank less net debt.
The only other information I have is that the company plans to sell everything once completed so there's not going to be rental income and such.
Your approach seems logical.
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