How to value interest in real estate limited partnership?

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?

Reply to
Paul Michael Brown
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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-

Reply to
John A. Weeks III

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