|
Posted by Paul Michael Brown on January 6, 2007, 4:06 pm
In 2003 I inherited an interest in a limited partnership that was formed
about 20 years ago to build a nursing home in Florida. The operation has
been generally profitable over the years, and distributions to the limited
partners have been regular. But there was a time in the mid 90s when the
general partner decided he wanted to be a high tech venture capital guy.
(Didn't everybody back then?) He leased the nursing home to a national
chain that later went bankrupt and distributions ceased for about two
years.
The general partner is back in control now, and distributions are once
again regular. I'd say that the limited partners have gotten distributions
18 out of the 20 years, and the amount has increased. I am comforted by
the fact the general partner has long experience in the real estate
business (both generally and in nursing homes). It also gives me a warm
and fuzzy that several of the general partners' relatives are limited
partners.
I'm trying to put a value on this for purposes of the "private equity"
portion of my asset allocation.
Shares in limited partnership never change hands, so there are no "comps."
As an alternative, I figure the value should be some multiple of the
annual distribution. Am I correct? Or are there other facts to consider?
Spent a fruitless hour on Google trying to find the average return on
capital for nursing homes. Is that even the right metric? I did find some
data on the average return on private equity, but the definition of
"private equity" is so flexible the average returns vary from about 10
percent to 20 percent or more.
Using the SWAG (scientific wild-ass guess) method, I've been using a 13
pecent rate of return -- mostly because I've read that private equity
generally returns more than the broad stock market indices. This gives me
a multiple of 7.69. But I'm no Frank Carlucci and I'm worried I'm missing
something.
Can anybody help me achieve greater precision?
|
|
Posted by John A. Weeks III on January 6, 2007, 5:44 pm
pmb@his.com (Paul Michael Brown) wrote:
> I'm trying to put a value on this for purposes of the "private equity"
> portion of my asset allocation.
The value is the sum total of the present value of all future
payments that you receive, perhaps multiplied by a factor to
compensate for future risk of the payments stopping. If the
payments are expected to be the same in future years, you can
use the present value of a future annuity formula. If the
payments are not equal, then you likely will want to set up
a spreadsheet, estimate the payments, compute the present value,
and then sum the present values. The longer you go out, the
less impact each payment has, so the sum will start to level
off as you go further into the future.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
|
| Similar Threads | Posted | | K-1 form for limited partnership | October 8, 2007, 3:53 pm |
| Limited Partnership Question | September 28, 2008, 7:12 am |
| Market value of partnership interest | October 24, 2007, 8:18 am |
| Real Estate | September 2, 2007, 2:23 pm |
| Real Estate vs. Stocks | May 19, 2007, 10:26 am |
| real estate taxes - re-appraisal | March 23, 2008, 5:50 am |
| Real Estate - Selling to Nephew? | June 12, 2008, 7:07 pm |
| Question About a 1031 Real Estate Transaction | October 26, 2006, 5:03 am |
| Income producing real estate - enlighten me!!! | January 9, 2007, 12:22 am |
| bank exposure to real estate loans | July 2, 2007, 8:17 am |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap