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

1. Business Valuation:
Real Estate
Presentation by
Schwartz Heslin Group, Inc. (SHG)

2.  How a business valuation professional
appraises a company can be significantly
impacted by the size of a company’s real
estate holdings

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. 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. Indirectly Related to Real
Estate
But many business models are NOT directly
related to real estate holdings…
In these cases, it is often more useful to
determine the value of the company and the
value of the real estate holdings independently.

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. Gray Areas
 Some companies do not fit into the real estate-
related vs. unrelated dichotomy.
 E.g. a gas station

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. 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. Presented by:
Schwartz Heslin Group
Address: Or visit us on:
8 Airport Park Bvld.
Latham, NY 12110
Phone:
518-586-7733
Web:
www.shggroup.com