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Valuation in the courts – do discounts apply to real-estate holding corporations?

Discounts for lack of marketability (DLOM) aren’t unusual when a business or real estate is valued. But what about when a business that holds real estate is valued? Can DLOMs be applied to both the real estate and the corporation? According to the New York court in Giaimo v. Vitale, the answer is yes and that discount should account for built-in gains (BIGs).


Robert Giaimo sued Janet Giaimo Vitale to dissolve two closely held corporations whose assets comprised 19 residential buildings in Manhattan. The lower court was tasked with determining the fair value of the two holding companies. It decided to disallow any DLOM, pointing out that the buildings themselves were quite marketable.

The court of appeals disagreed. It noted that the lower court correctly held that the method of valuing a closely held corporation should include any risk associated with the illiquidity of the shares. But it found the court had erred in determining that the marketability of the corpo­rations’ real property assets was exactly the same as the marketability of the corporations’ shares.

The appellate court acknowledged that some shared factors affected the liquidity of both the real estate and the corporate stock. But it also stated that there were increased costs and risks associated with corporate ownership of the real estate in this case that wouldn’t be present if the real estate was owned outright. Those costs and risks negatively affected how quickly and with what degree of certainty the corporations could be liquidated, and the impact should have been accounted for with a discount.


The court also rejected the plaintiff’s argument that a discount for embedded capital gains taxes can never be included in a fair value calculation. It found that such taxes will affect what a hypothetical willing buyer would pay for the corporate stock.

On the other hand, the court rejected the defendant’s contention that the BIG discount must always be calculated at 100% of the projected tax as of the date of valuation. Some courts have concluded that this method assumes a buyer would immediately sell all of the real estate and realize the full capital gains impact. The Giaimo court concluded that reducing the BIG to present value appropriately adjusts for embedded capital gains taxes that won’t be paid until some point in the future.


The Giaimo decision is a good reminder that the value of a real estate holding corporation isn’t necessarily the same as the value of its assets. An experienced appraiser will look beyond just a corporation’s assets to reach a value conclusion that can hold up in court.

This article was written and published by Dennis Frankeberger, CPA/CFF, CFE 909-597-1100.

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