BURNTISLAND II, LLC V. FALKLAND, LLC (Supreme Court, New York County)

BurntIsland II, LLC (“BurntIsland II”) is the surviving entity of a merger with BurntIsland I, LLC (“BurntIsland I”) on June 30, 2016.  Falkland, LLC (“Falkland”) has a 4.5% interest in BurntIsland I for which the value is to be determined.

BurntIsland II argues that Falkland’s 4.5% interest as of June 30, 2016 was $330,000.  This amount is based on the appraisal report of Cushman & Wakefield (“C&W”) dated September 26, 2016.  C&W utilized the Income Capitalization Approach based upon gross rent of $901,000, operating expenses of $37,030, capitalization rate of 5% and discount for lack of marketability (“DLOM”) of 20% in its valuation of Falklands 4.5% interest.

Falkland provided the court with two valuation appraisals.  The first appraisal was prepared by CBRE-Valuation & Advisory Services (“CBRE”).  CBRE valued Falkland’s 4.5% interest at $538,626 by using gross rent of $901,000, operating expenses of $44,577, capitalization rate of $4.25% and applied no DLOM. The second appraisal provided by Falkland was prepared by Metropolitan Valuation Services (“MVS”) and valued Falkland’s 4.5% interest at $579,126.  MVS utilized gross rental income of $955,060, operating expenses of $5,000, capitalization rate of 4.5% and no DLOM.  Further, Falkland retained expert Kevin Vannucci who opined that a reasonable DLOM range would be 0% to 6.9%.

Based on the evidence submitted and expert testimony, the court determined the value of Falkland’s 4.5% interest to be $422,483.  The court determined gross rental income of $901,000 and operating expenses of $25,000.  The court also utilized a capitalization rate determined by averaging the three capitalization rates provided in the expert reports.  Finally, the court determined a DLOM of 16% was proper for  Falkland’s ownership interest.