Question
January 17, 1992
BY FAX
Premerger Notification Office
Bureau of Competition, Room 303
Federal Trade Commission
Washington, D.C. 20580
Attention: Richard B. Smith, Esquire
Re: (redacted)
Gentlemen:
On behalf of our client, (redacted), I expect very soon to make a Hart-Scott-Rodino filing in connection with the Partnerships acquisition on December 30, 1991 of an undivided 15% interest as tenant in common in the land and buildings constituting (redacted). The (redacted) will make this filing solely as an Acquired Person after having made a good faith determination that the value of its undivided 15% interest as a tenant in common in the (redacted) is worth less than $15,000,000. The purpose of this letter is to explain the bases for that determination.
The (redacted) is aware that (redacted) will make a contemporaneous filing, in connection with the same transaction, as both an Acquiring and Acquired Person and, in its filing, will state that the value of the entire Project is approximately $129,000,000. The (redacted) does not know the basis on which (redacted) has concluded that the value of the (redacted) is $129,000,000. The (redacted) believes that the value of its 15% undivided interest as tenant in common in the Project is worth less than $15,000,000 for the following reasons:
(1)It is a well known and accepted fact in the real estate industry that the value of a minority interest in a real estate investment is always substantially less (by a factor of 25% to 40%) than its proportionate share of the value of the whole. The diminution in value of a minority interest results from two factors: first, the difficulty in selling a minority interest because the number of potential buyers of a minority interest is less than the number of potential buyers for the whole project; and, second, the owner of a minority interest (as is true of the (redacted) undivided 15% interest as tenant in common in the (redacted)) does not have the right to participate in, or to control, the management of the investment. Finally, even if (redacted)s estimate that the value of the entire (redacted) is $129 million is correct, the value of the (redacted) undivided 15% interest is less than $15 million, when the traditional 25 percent discount for the value of minority holdings in real estate projects is applied.
(2)The current assessed value of the (redacted) for real estate tax purposes, which according to (redacted) is required to be (redacted) of fair market value, is (redacted). During 1991, (redacted) joined with the (redacted) in successfully challenging an initial real estate tax assessment for the (redacted) of more than (redacted). Furthermore, in Section 13 of the (redacted), the (redacted) and (redacted) agreed for federal income tax reporting purposes to value the (redacted) at its assessed value for real estate tax purposes.
Based upon these considerations and its detailed knowledge of the relevant real estate market, the (redacted) has made a good faith determination that the fair market value of its minority interest in the Project will be less than $15 million.
If you have any questions or comments concerning the determination that I have described, please call either me or my partner, (redacted).
Very truly yours,
(redacted)