Forecasting the Discounts of Market Prices from Appraised Values for Real Estate Limited Partnerships

Brad Barber

Real Estate Economics, 1996, vol. 24, issue 4, 471-491

Abstract: A vexing problem for the appraisal industry has been estimating an appropriate discount for the value of real estate limited partnerships (RELPs) relative to their appraised value. This research develops a linear regression model that explains over 80% of the cross‐sectional variation in discounts across 60 RELPs using characteristics of each partnership. Among a holdout sample of 41 RELPs, the model provides forecasts of discounts that are superior to assuming no discount or applying a mean discount to all partnerships. Discounts are greatest for RELPs with low current yields, low leverage and high trading ranges for their market prices.

Date: 1996
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