Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/206598
the asking price and communicating its need to the seller. Te discount rate is to the overall cost of the asset given the limited number of potential buyers and the property's limited desirability on the open market. An appraisal of a partial-interest property includes these four steps: 1. Appraise the entire property. 2. Multiply the percentage ownership of the partial interest by the value of the entire property, which will equal the value of the partial-interest in the property before applying the discount. 3. Determine the appropriate partial-interest discount to apply. 4. Multiply the appropriate discount percentage by the value of the partial share to arrive at the discounted value of the partial interest in the property. While sellers might balk at the applied discount rate, that discount is necessary for the property to sell, and brokers must convey this to sellers. Te next step is targeting the right buyer. Te most obvious buyer is an owner of another piece of the property. Te other property owners tend to be good targets since they already have a stake in the property and would beneft from owning the entire asset. In addition, if another owner would gain 100 percent ownership with the new purchase, he or she will have an easier time acquiring a loan because the bank would issue the loan on the entire property, making foreclosure possible if the borrower defaults. Buying Partial Interests For the buyer broker, partial-interest properties can be one of the trickiest assets to close on, since few buyers seek out a partial interest. But for unique buyers who want to eventually own a full property — and have the patience to buy in pieces — signifcant discounts are possible. Because partial interests can be so heavily discounted due to their undesirability, they can be opportunities for patient investors to gradually gain full ownership of a property at a substantial savings to what they would pay to buy the whole property at once. As a broker, it's important to keep in mind the regional attitudes toward partial-interest properties. For example, partial-interest sales are rare in Los Angeles, but less unusual in San Francisco, where banks are more willing to grant fnancing. Te opportunity to obtain loans opens the pool from strictly cash buyers to a more diverse market. When faced with selling a partial interest, brokers should seek out professional advice and guidance on how to discount these properties. Discount rates are best defned by past market sales, and despite the infrequency of partial-interest sales, professional appraisers will likely have the most recent market data. Aaron Aftergut is a senior analyst in Integra Realty Resources' Los Angeles office. Contact him at aaftergut@irr.com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com 5REHUW 5REHUW ( /HH &&,0 /HH&&,0 5OHH#VLOYHUSRUWDOFDSLWDOFRP 5OHH#VLOYHUSRUWDOFDSLWDOFRP November | December | 2013 15