Friday, January 20, 2023

German Property Portfolio Valuation


Four story commercial property in downtown Hannover 

The actual valuation assignment was to appraise a one-half ownership interest in four rental properties in the cities of Hannover and Kiel in Germany. These were multifamily, mixed use and one retail property. 

These interests were inherited by a U.S. citizen, but the other half owner is German. 

To value a partial interest, one has to discount for an owner’s lack of liquidity, lack of control, lack of marketability and lack of mortgage financing. 

Finding comparable sales is extremely difficult, especially in a country of such strict privacy laws as Germany, and because only about one out of about every 500 property sales in western capitalist societies are of fractional interests. 

The ultimate intended user of the appraisal was the Internal Revenue Service, so the appraisal report had to be an English language report done by an IRS “qualified appraiser” who prepares an appraisal report compliant with USPAP, the Uniform Standards of Professional Appraisal Practice. Much of my international work is this kind – inheritances, gifts and the increase in tax basis to spouses of decedents. 

I used a technique known as “factor-based fractional discounting”, a technique developed by the Appraisal Institute, in which individual value factors are quantified and discounted, such as asset risk, profitability, condition, liquidity, diversification, size of interest, lack of control, quality of management and growth potential. I also had to do this method in my last jobs in Korea and Mexico as well as one of the French properties I handled in 2017.

The trip to Germany took place during the New Year Holiday, and it rained every day I was there.  I bought a raincoat of the German fashion name "Camp David", no relationship to the U.S. President's weekend white house. Here I am displaying it.

I finished the trip in the charming city of Hamburg. Perhaps John F. Kennedy would have said "Ich bin ein Hamburger!"


Lucy Carvin said...

I found your article on "German Property Portfolio Valuation" to be a fascinating read. As someone who is interested in the real estate market, I appreciate the insights and information you provided about the German property market.

As someone who is currently studying English, I found the language in your article to be clear and easy to understand. It's not often that I come across technical topics that are explained so clearly in English, so I appreciate your attention to detail in that regard. english assignment help

dillon said...

I've found your blog interesting. We've become intrigued by Panama, partly through your good friend IL (where all is rainbows and unicorns) and some friends who part time there. Where things are pretty much good but not always great. They have recommended NOT buying. Even though Ronan has yet another great deal coming up in just a few days, with a 150% upside in only five years!!!!!! Or we can rent a nice condo for about $1500/month all in and not sweat all the legal chaos and potential 100% downside in five years. We're likely to dump our IL subscription when it next renews. We have enough ads for the things we might really need, like insurance.

As an aside, many of your older articles, like your two on Ronan, have become safe harbors for spammers and scammers.

Vernon Martin, MSRE, CFE said...

Thank you for alerting me to the growing spam problem. From now on I will be moderating comments "hands-on".

MCA Loans said...

It is essential to consult with professional experts who specialize in property valuation services. Their in-depth knowledge and experience in the German real estate market will ensure a comprehensive and precise assessment of your property portfolio's value.

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