Real Estate Purchase Price Allocation (ASC 805)
Institutional Purchase Accounting for Real Property Acquisitions
Serving REITs, Pension Funds, Insurance Companies & Institutional Investors Nationwide
Overview
Institutional real estate acquisitions require disciplined purchase accounting under ASC 805 and fair value measurement under ASC 820. Following ASU 2017‑01, most real estate transactions are classified as asset acquisitions, not business combinations.
US Valuation provides specialized Real Estate Purchase Price Allocation (PPA) services for institutional buyers, allocating acquisition consideration among land, buildings, site improvements, tangible personal property, lease‑related intangibles, and assumed debt in full compliance with GAAP.
Our practice integrates appraisal discipline, transaction valuation methodology, and infrastructure‑level cost segregation expertise to deliver allocations that are:
- GAAP‑compliant and audit‑defensible
- Consistent with market participant behavior
- Aligned with downstream depreciation and amortization reporting
When Real Estate Purchase Price Allocation Is Required
Real estate PPAs are required when an acquiring entity prepares financial statements under GAAP and:
- Acquires a controlling interest in real property assets
- Completes a portfolio, platform, or single‑asset acquisition
- Assumes in‑place leases, tenant improvements, or property‑level debt
Under ASU 2017‑01 asset acquisition guidance:
- Goodwill is generally not recognized
- Bargain purchase gains are not recognized
- Direct acquisition costs are capitalized
Total consideration must be allocated on a relative fair value basis in accordance with ASC 805‑50 and ASC 820.
Institutional Real Estate Requires a Different Valuation Framework
Institutional buyers acquire more than land and improvements. They acquire a complex bundle of economic rights, including:
- In‑place lease contracts
- Above‑ and below‑market rent positions
- Tenant origination cost assets (TI and leasing commissions)
- Favorable or unfavorable assumed financing
To isolate these components, the underlying real estate must first be valued as if vacant, separating physical assets from contractual lease economics.
Our methodology reflects how market participants price institutional transactions — not template‑based accounting allocations.
Cost Segregation vs. Real Estate Purchase Price Allocation (Critical Distinction)
Although cost segregation and real estate purchase price allocation may analyze overlapping physical assets, they are fundamentally different disciplines and are not interchangeable.
Cost segregation is a tax‑driven, engineering‑based depreciation study focused on accelerating recovery of existing assets based on physical condition and remaining useful life.
Real estate purchase price allocation is a GAAP‑driven fair value allocation process that requires:
- Classification of the transaction as an asset acquisition or business combination
- Determination of total consideration and assumed liabilities
- As‑vacant valuation of land and improvements
- Identification and separate measurement of lease‑related intangibles
- Fair value measurement of assumed debt under ASC 820
Because of these additional steps, cost segregation results cannot be used as a substitute for purchase price allocation. Direct application of cost segregation outputs to financial reporting frequently produces misstated building values, omitted lease intangibles, and audit exposure.
Valuation Framework – Tangible Assets
Land
Land is valued using sales comparison, abstraction methods, and residual capitalization where appropriate.
Building (As‑Vacant)
The building is valued on an as‑vacant basis, excluding any contribution from in‑place leases.
Methodologies include:
Cost Approach
Replacement Cost New less physical, functional, and external depreciation
Income Approach – “Go‑Dark” Analysis
Discounted cash flow assuming initial vacancy and lease‑up to stabilized occupancy
Land and site values are deducted to isolate the contributory value of the building. Cost and income approaches are reconciled to determine final as‑vacant building value.
Site Improvements & Furniture, Fixtures, and Equipment (FF&E)
Valued using the Cost Approach with:
- Replacement cost from industry data
- Depreciation for physical deterioration, functional obsolescence, and external obsolescence
- Age‑life and condition‑based analysis
Unamortized Origination Costs (Tenant Improvements & Leasing Commissions)
Represents the cost‑avoidance benefit associated with acquiring in‑place leases, based on market TI allowances, market leasing commissions, and remaining lease term weighting.
Valuation Framework – Identifiable Intangible Assets
Lease‑Related Intangibles
Above / Below‑Market Leases
Present value of rent differentials over remaining lease terms
Leases In‑Place
Present value of forgone rent and absorption costs avoided by acquiring stabilized occupancy
Tenant Relationships (Selective Cases)
Present value of renewal economics adjusted for probability and market turnover
Contractual & Financing Intangibles
Favorable / Unfavorable Debt
Fair value of assumed financing relative to current market rates under ASC 820
Service and Purchase Contracts
Valued when contractual terms differ materially from market
Recognition of Goodwill and Bargain Purchase Gains
In business combinations, residual consideration is recognized as goodwill under ASC 805. In asset acquisitions, goodwill and bargain purchase gains are not recognized.
US Valuation applies transaction‑specific analysis to ensure proper classification and reporting.
Integration with Cost Segregation and Tax Reporting
US Valuation is one of the few firms nationally with deep expertise in both real estate purchase price allocation and engineering‑based cost segregation.
This integration ensures:
- Consistent land abstraction
- Consistent building and site basis
- Proper separation of lease intangibles and origination cost assets
- Alignment between GAAP reporting and tax depreciation
- Reduced audit friction and permanent basis risk
Many accounting‑only PPAs and third‑party cost segregation studies create inconsistent asset bases that later require restatement or correction.
Typical Engagements
We regularly perform real estate PPAs for:
- REIT portfolio acquisitions
- Pension fund and insurance company investments
- Institutional joint ventures and recapitalizations
- Office, multifamily, industrial, retail, and mixed‑use platforms
- Multi‑asset and phased acquisitions
Why Real Estate Purchase Price Allocation Requires Senior Multidisciplinary Judgment
Although real estate purchase price allocation is governed by accounting standards, no professional license or credential is legally required to perform this work.
In practice, institutional‑grade real estate PPA requires analytical capability far beyond formal credentialing. The work sits at the intersection of appraisal theory, lease economics, fair value measurement, transaction accounting, and infrastructure‑level asset analysis. Errors in any one discipline can distort land and building bases, omit lease‑related intangibles, misstate assumed debt, and create audit exposure — and those errors are often permanent.
My Financial Valuation operates in this space because our principal qualifications span the disciplines required to execute real estate PPA at an institutional level:
- Certified General Appraiser (CGA) — appraisal‑disciplined land and building valuation, as‑vacant analysis, and market participant modeling
- CCIM (Certified Commercial Investment Member) — site economics, income modeling, lease structures, and institutional investment analysis
- CVA (Certified Valuation Analyst) — transaction valuation discipline supporting ASC 805 allocation and audit defensibility
- ASA (Accredited Senior Appraiser) — multi‑disciplinary valuation across real property, tangible personal property, and identifiable intangible assets
This combination is exceptionally rare in the U.S. market.
Most cost segregation firms lack GAAP purchase accounting expertise.
Most accounting PPA firms lack appraisal discipline, lease‑intangible modeling, and infrastructure‑level asset analysis.
Real estate purchase price allocation sits above both — requiring integrated judgment across physical assets, lease economics, contractual rights, financing structures, and enterprise valuation theory.
Why My Financial Valuation
Clients engage US Valuation when:
- Transactions are material and institutional‑grade
- Audit defensibility is critical
- Lease and debt structures are complex
- Integration with cost segregation matters
Our background in appraisal, enterprise valuation, and infrastructure cost segregation allows us to deliver allocations that reflect economic reality, not accounting shortcuts.
Begin with a Technical Consultation
We offer an initial technical consultation to assess:
- Transaction classification (asset vs. business acquisition)
- Allocation scope and complexity
- Lease and debt intangible exposure
- Integration with tax depreciation strategy