I have a 20% carried interest in a real estate development project. Conservative assumptions are that the project will distribute an additional $30M over the next 4 years, thus my un-discounted interest is worth approximately $6M. For personal reasons, I am considering selling my interest to my partners. What would be the appropriate discount rate to use in determining the present value of my interest given the following:
- Of the $30M, approximately $20M has already been realized and is Cash on the Balance Sheet.
- The remaining $10M is very low risk.
- It is very likely that the remaining project life will be less than 4 years.
- My partners who would be purchasing my interest have complete control over the timing of the $30M distributions.
My thought is that the discount rate should be very near that of treasury bills because of the low-risk profile of the distributions and the fact that my partners have complete control over the timing of these distributions.
I appreciate any thoughts on this. Thank you.