I am a limited partner in a large ($100 milllion) partnership.  I own
1% of the shares.  The partnership owns commercial and residential
property.  I receive $600 a month. I want to sell my shares.  I could
sell to other partners of course, but that's a fairly small pool and I
have not been offered what I consider a fair price.  How do I
determine an asking price?  I have been told that market value equals
seven years' worth of distribution, which in this case would be
$50,000.  Is that correct?  Further, once I have settled on an asking
price, how do I go about looking for a buyer outside the partnership? 
Are there brokers for this sort of thing?  How do I locate them?

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Clarification of Question by ernie48-ga on 14 Sep 2005 20:55 PDT

This is a two-part question.  The first part is:  what is the process
that I use to value my shares?  The second part is:  how do go about
selling those shares?  Is there a clearing-house for partnerships? 
Are there brokers for this sort of thing?  How much do they charge? 
How does one find them?

---

Clarification of Question by ernie48-ga on 16 Sep 2005 12:09 PDT

Well, I made an itty-bitty typo in my original question.  The property
is worth 10 million, not 100 million.  Is my face red?

Thanks, Myoarin.  I didn?t realize the difference between ?comments?
and ?answers.?  I apologize to Daniel for my snippy response.

These are both perceptive comments. I wish I COULD find out more but
unfortunately, I have no leverage in this partnership, either personal
or legal.  The original partnership was formed in the 30s by CC as a
resort.  He sold 49% of the shares to about 30 investors and kept the
rest for himself.  In the late 80s, CC?s children formed a limited
partnership.  When he died, the property--which had gained value over
the years--was converted to other commercial purposes.  I and my wife
inherited our shares from in-laws.

You are right about the limited partners being ?kept in the dark.? 
There is little communication from the general partners.  Their
position seems to be roughly:  ?Here?s your monthly distribution.
Don?t ask questions. Take it or leave it.?  We are especially out of
the loop since we are not only outside-the-family latecomers but also
out-of-state.  The only thing the general partners provide the limited
partners is a yearly K-1:  no balance sheets, profit & loss statements
or any other financial  information.  I  don?t think they?re under
legal obligation to provide anything else.  Of course, from their
point of view, there is little reason to share information.  In
fairness, they seem to have done an excellent job of developing the
property

Obviously I would be delighted if my share was worth substantially
more than the distributions imply but I have no idea how to go about
getting information to make that calculation.  As I said, the general
partners provide no financial information.  Short of a lawsuit
(costly), I don?t see how to get that.

You ask:  ?Where does the estimated value of the property come from?? 
Good question.  One of the general partners gave me that figure.  I
have no idea how he arrived at it.  This was the value of the property
about five years ago.  When I asked him if that was  ?market?
(liquidation) value, he said yes.  (He also told me the value of our
shares was $100,000 (one hundred thousand).

You ask:  ?What does the partnership agreement say about disposing of
shares??  I have a copy and it says nothing.  The process of selling
the shares is left to one?s imagination, I guess.

You say:  ?The property is actually worth its value minus the cost of
the loans.?  Yes, that?s certainly true. That does lower the
property?s market value, although I don?t think it?s heavily in debt.

Thanks to you too, Frde-ga.  It had never occurred to me that the
distribution might not reflect actual earnings.

As I said, the partnership agreement is a comfy arrangement between
the general partners that leaves the limited partners in the cold. 
The general partners are all lawyers and I doubt that it is a hasty or
unconsidered document.  It?s good to know that the Uniform Commercial
Code applies here, but my interest is in selling the shares, not in
litigation.  If I am unable to find buyers except within the circle of
partners then I have little or no leverage.  How do I go about finding
other buyers?  Look in the yellow pages?

Thanks to all f yr advice so far.
Ernie

The investment is only worth what a willing buyer will pay for it.  In
this instance they are making an investment that pays $7,200 a year in
interest.  Plus they would have to factor in the risk they are taking
and the value of the property in the partnership.  At $50,000 the
return is slightly less than
15%.  At $72,000 the return is 10%.  I would imagine that any investor would want 
at least a 10-15% return, if not 20%. (at 20% the value would be less than $40,000)

If you own 1% of a $100,000,000 fund your value is $1,000,000.  A
$7,200 return amounts to less than 1% on the 1,000,000.  Bottom line
is get an accountant that specializes in this type of partnership to
estimate a value for you.

Saying that the investment is only worth what an investor will pay is
self-evident and no answer at all.  Telling me to get an accountant
who specializes in "this type of partnership" is like saying "see a
doctor."  I hope you are not expecting to get paided for unhelpful
generalities.

Ernie,
None of the postings in the comment section are an "answer", which can
only be posted by a GA-Researcher.  Their user names appear in blue,
underlined.

You speak of a partnership but also mention shares.  To you know what
the partnership agreement or the bylaws of the company says about
disposing of equity interests?  The Uniform Commercial Code also deals
with this subject.

Apparently the partnership primarily owns and rents property.  Where
does the $100 million figure come from:  the balance sheet?  If so,
this represents historical purchase prices less depreciation.  If the
value of properties owned as increased  - a significant possibility - 
the partnership's assets could be much greater, very much greater if
the properties have been held for several or even many years.  If you
know the properties, it is possible to find out what similar
properties have recently.

It is not unusual for minor partners to be left in the dark about the
potential market value of a closely held company, and also for
distributions to be kept low to suggest to them that their interest is
not of much value.

I expect that company also has some debt to finance all that property,
so you probably do not have a 1% interest in $100 million, but the
liquidation value of the property could potentially make your small
interest worth much more than a multiple of the annual distribution. 
But you are probably not in a position to have any influence on the
operations, i.e., to call for higher distributions or sale of
property, and nor would anyone buying your interest.

However, the partnership agreement or bylaws in conjunction with the
Uniform Commercial Code MAY define a more equitable settlement.

In my opinion (and I have been down that road), Daniel is right, only
an accountant can help you understand what your interest is worth, and
only a lawyer with experience* in closely held partnerships and
companies can tell you what possibilities you have to get the maximum
value.
If there are other small shareholders, they may be interested
cooperating with you on this.

*And that is definitely not all of them, though many will say that
they will be pleased to research the matter for you.

I wish you luck, Myoarin

Something does not add up here.

In the UK one generally expects a 10% gross return on rental - about 8% nett

1% of $100m should generate about $80,000 - not $7,200
- even halving those figures don't add up

MyOarIn astutely pointed out that the property might be leveraged, in
which case your 'income shortfall' could well be paying the interest
and most likely paying back the capital - in which case the annual
income bears little relation to the true value of your shareholding.

Any purchaser of your 1% would want to run their eyes over a detailed
list of the assets, liabilities and operating expenses of the
enterprize
- I would be particularly interested in the operating expenses
- but I have a suspicious mind

@Ernie48

If the overall fund is worth $10m then 1% of it is worth $100,000
- so the general partner did give a straight answer 5 years ago

From the UK rental market one would expect to get $10,000 pa gross
- so $7,200 nett as a distribution is not that unreasonable

The 7 year multiplier does not sound right to me, or rather it sounds
like a low ball price.

My suspicion is that the best purchaser would be someone already in
the fund, or possibly the fund itself - I'm not sure about the legal
aspects of share buybacks in your jurisdiction.

In short, if the nett assets are currently worth $10m (liquidation
value), then your share is worth at tops $100,000 - probably really
$75,000 is a reasonable target.

One thing to consider is that you would be hard pressed to get a yield
of 10% with the prospect of capital gain.

I'm relieved that my suspicions have been to some extent put at rest.

Ernie,
Your typo is actually a little reassuring, making the other figures
sound more realistic and friendly.
Your perception of the situation agrees entirely with mine (no expert,
but in a similar position), also in that limited partners have no call
on financial information.  There is a possibility that this must be
registered somewhere, somewhere you could gain access to it.
 
Perhaps if you post a new question asking if and how it is able to
find financial data on an LLC (or whatever form the company has) and
tell in what state and county it is registered, a researcher will be
able to help you.

I will be so bold as to says:  there is no market for your shares
outside the group of other partners; who would want to buy into that
situation?

The fatalistic attitude:  Don't look a gifthorse in the mouth.

This is not much help, perhaps just consolation that you do understand
the situation correctly.
Good luck, Myoarin.