- 20 -
exceeded the average discount observed in registered private
placements by 17.6 percentage points.16 The differential
reported in the Hertzel & Smith study is 13.5 percentage
points.17 Those figures are consistent with the differential
reported in the Bajaj study, 14.09 points.18 The average of
these three figures is approximately 15 percent, which yields a
liquidity premium of 17.6 percent (1/[1 - .15]).19
Using a liquidity premium of 17.6 percent, we arrive at
minority interest discounts of 18.4 percent (.8-percent price-to-
NAV discount less 17.6-percent liquidity premium) for the April
16, 1996, gifts and 16.12 percent (1.48-percent price-to-NAV
premium less 17.6-percent liquidity premium) for the July 2,
1996, gift. Following Dr. Shapiro’s lead, we round these figures
up slightly to a uniform 19-percent minority interest discount
rate, which we shall apply to the real estate component of the
partnership interests.
16 Bajaj et al., “Firm Value and Marketability Discounts,”
27 J. Corp. L. 89, 98 (2001).
17 Id. at 99.
18 Id. at 107.
19 As Dr. Shapiro explains in his expert report: “If an
illiquid security trades at a discount of 7% relative to a liquid
asset, the liquid asset is trading at a premium of about 7.5%
from the illiquid asset [1/(1-7%)].”
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