- 31 -
Next, respondent’s experts considered whether discounts
(either for lack of marketability or for minority interest, or
both) were appropriate. Initially, the experts did not believe a
discount for lack of marketability was appropriate at the joint
venture level. Subsequently, they concluded that a 10-percent lack
of marketability discount was appropriate, stating:
The chief asset of Powhatan Associates is the
inventory and land to be developed for time shares, and
ample allowance for lack of marketability was taken into
account for that asset, both in the projections of income
and in the application of a relatively large discount
rate. There is judicial precedent for this judgment not
to duplicate discounts already taken.
The experts further concluded that at the joint venture level only
a relatively small discount (5 percent) for a minority interest was
appropriate, stating:
The history of the joint venture displays a careful
attention to conservative development: inventory was kept
low, and areas were built in clusters close to one
another and the amenities, to allow for maximum use of
the residual acreage should the time share development
slow or cease. This history was taken into account in
the real estate appraiser’s finding of fair market value
of the time share property. There is no reason that
these practices should change if another entity stepped
into the shoes of WVI as administrator of the project.
The exit provisions of the joint venture agreement
provide for a purchase (by the other venturers) of a
selling venturer’s interest at fair market value or at
the price offered by a bona fide third party. A
purchaser of a 1/3 interest might have the opportunity to
purchase the entire entity under those exit provisions.
We apply a 5% discount for the WVI minority interest to
account for the risk that a purchaser of 1/3 interest
might be invited to purchase all of the venture but be
unwilling to do so, thus cancelling the 1/3 interest
purchase. Because of the profitability of the venture to
the other two “partners”, this scenario is unlikely.
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011