Neither Fish nor Fowl
Valuation Challenges ….. for Real Estate Centered Enterprises

Business enterprises that are typically location dependent and operate out of purpose-built operational real estate are challenging to analyze for both business appraisers and for real estate appraisers. Both reflect characteristics that are closely aligned with business valuation, while simultaneously being subject to other characteristics deeply dependent upon the real estate, make these assignments challenging.

Examples include:

The business enterprise types listed above are commonly referred to by a number of terms that denote the interdependence of the business, and the real property out of which it operates:

• Real Estate-Centered Enterprises (RECE’s)
• Real Property Going Concerns
• Real Estate Centered Businesses
• Location-Dependent Businesses

The Nexus of Business and Real Estate Valuation Skillsets

Fundamentally, the value of real estate is primarily derived from its utility, or use. Which is why highest and best use is such a central premise in real estate appraisal.

For these types of special purpose properties, market participants focus on the income generating capacity of the property, which is primarily related to the business revenues rather than rent. It is business revenues that support not only the real estate, but also any investment in machinery and equipment, or FF&E, as well as business value and any needed licenses. In fact, it is business revenues that primarily determine a sustainable rental rate that supports the real estate value.

It is for this reason that business valuation skills are so useful in the valuation these property types. However, in order to comply with the Uniform Standards of Professional Appraisal Practice (USPAP) business valuation skills alone are not enough.

• Valuation of the real property usually requires consideration of their contribution to the whole enterprise.


• Allocation is the most appropriate way of valuing the real estate, personal property and equipment, as well as the business value, for these types of properties, rather than separate “Value in Exchange” opinions.


• Attempts to appraise the real estate component only, the equipment alone, or the business, without analyzing the whole can often yield misleading results.


• Allocations of value IS an appraisal of each component. Allocating a value for the business requires that the appraiser at least meet minimum competency requirements in business valuation. Similarly, allocating a value to machinery, equipment or FF&E is also considered a separate appraisal of those items and requires competency.