Real Estate and Business Valuations

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Why a business' real estate holdings may distort the value of an enterprise.

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Real Estate and Business Valuations

  1. 1. Business Valuation:Real Estate Presentation by Schwartz Heslin Group, Inc. (SHG)
  2. 2.  How a business valuation professional appraises a company can be significantly impacted by the size of a company’s real estate holdings
  3. 3.  For simplicity’s sake, we will identify two, mutually exclusive types of businesses:  Companies whose productive capabilities are inherently tied to real estate  Companies whose productive capabilities are independent of real estate
  4. 4. Directly Related to Real Estate Some business models are inherently tied to real estate. E.g.  Amusement parks  Farming operations  Real estate management firms Their revenue generating capabilities are tied to the land.
  5. 5. Indirectly Related to RealEstateBut many business models are NOT directlyrelated to real estate holdings…In these cases, it is often more useful todetermine the value of the company and thevalue of the real estate holdings independently.
  6. 6. Why Independent Valuations? The future earning potential of the company and the future earning potential of the real estate are separate A prospective buyer wants to know the income potential of the BUSINESS not the REAL ESTATE
  7. 7. Gray Areas Some companies do not fit into the real estate- related vs. unrelated dichotomy.  E.g. a gas station
  8. 8. All Together Real Estate value + Business value = Total enterprise value  These should be prepared separately by experienced professionals when:  A company holds significant valuable real estate assets on its books AND  When these real estate holdings are only indirectly related to the core competency of the company
  9. 9. Business Owners Your real estate may not be an integral part of your business  Buyers will often look for earnings potential in the enterprise  They often do not want a business valuation skewed by the value of large real estate holdings
  10. 10. Presented by: Schwartz Heslin GroupAddress: Or visit us on: 8 Airport Park Bvld. Latham, NY 12110Phone: 518-586-7733 Web: www.shggroup.com

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