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be comparable to the partnership in certain respects, he
concluded that to be conservative he would apply this more
favorable 8.5-percent minority interest discount to the
partnership interests.
Dr. Shapiro’s study on holding companies is not in evidence.
The minimal description of it in his testimony provides an
inadequate basis for us to rely upon it in determining the
appropriate minority interest discount here.
We agree with Dr. Shapiro that, in order to derive a
minority interest discount factor from REIT price-to-NAV data,
one must account for the liquidity premium inherent in REIT data
prices. See McCord v. Commissioner, 120 T.C. at 385. In
quantifying that liquidity premium, however, we hesitate to rely
on a single academic study–-particularly one that Dr. Shapiro did
not participate in preparing and could not elaborate upon first
hand. We therefore seek common ground between the Bajaj study
and similar studies (the Wruck study and the Hertzel & Smith
study)15 cited therein.
According to the Bajaj study, the Wruck study found that the
average discount observed in unregistered private placements
15 Wruck, “Equity Ownership Concentration and Firm Value:
Evidence from Private Equity Financings”, 23 J. Fin. Econ. 3
(1989); Hertzel & Smith, “Market Discounts and Shareholder Gains
for Placing Equity Privately”, 48 J. Fin. 459 (1993). We discuss
such “private placement” studies more fully in the context of the
marketability discount.
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