What is Net Asset Value (NAV) and why does it matter?

Posted by Elyssa Marcus Sr. Associate, Fund Management on October 28, 2020
Jamestown Invest

The Net Asset Value (NAV) per share is commonly used to estimate the market value of a fund and its shares as of a specific date, and can be used to set a purchase price per share or a redemption price per share.

As an investor in any fund, it is important to understand the concept of NAV or value per share and be aware of the value of your share holdings over the life of your investment as it ultimately affects the value of your own personal net worth.

NAV is a simple equation: the total value of assets minus the total value of liabilities. It is then divided by the number of shares outstanding to arrive at NAV per share.

For example, a real estate fund’s assets may comprise the value of the real estate, cash, and accounts receivable, and liabilities generally include the value of outstanding mortgage or debt proceeds, accounts payable, accruals for fees (such as asset management fees or incentive performance fees), and any redemptions outstanding. A fund may have other investments that factor in, as well.

The fund’s NAV can be evaluated as frequently as daily for most exchange traded funds (meaning, listed on stock exchange marketplaces), but most non-exchange traded funds calculate NAV on a quarterly basis.

While exchange-traded investment funds will use the closing market prices at the end of each trading day to calculate the fund’s NAV, non-traded funds have different processes whereby the fund will calculate the value of each financial component (i.e. investments or entities owned) within the fund in order to arrive at the fund’s total NAV. In such cases, funds can utilize third-party valuation experts to value some or all of its investment positions, or may estimate values based on internal market-guided assumptions.


NAV vs. Purchase Price
While NAV per share is said to be the value of the fund’s shares, the price paid for its shares can be different in some cases. For newly issued shares such as in an IPO (initial public offering), funds can set a starting price, price floor, or price ceiling that is not necessarily based on value. A price floor or ceiling can stabilize the range of prices paid by shareholders, so that investors who purchase before or after the fund has “ramped up” (said differently, fully capitalized or stabilized) are not unreasonably advantaged or disadvantaged.


Using Jamestown Invest 1, LLC as an example to illustrate the concept, Jamestown Invest usually calculates the NAV following the end of each quarter. When new shares are being sold during the offering period (meaning, the fund is not fully capitalized yet), the NAV per share is used to set the purchase price, where the purchase price is either $10.00 per share, or equal to NAV per share if greater than $10.00. Following the NAV calculation, the per share NAV and purchase price is announced usually at the beginning of each fiscal quarter. Other funds will have different metrics upon which they base the purchase price.


NAV vs. Redemption Price
Funds also use NAV as a basis for establishing the price at which an investor may request a redemption from the fund. To the extent the redemption request is granted, the fund will buy back the investor’s shares, most often using NAV less a surcharge to repurchase the shares. Using NAV as a basis for redemptions is ideal for both investors and the fund, as it allows the investor to exit at approximately the current market value, and the common surcharge or (also referred to as a “liquidity premium”) retained by the fund may be used to cover administrative costs of the redemption and prevent dilution of existing shareholders.


Jamestown Invest 1, LLC’s Valuation Process
Our internal valuation process reflects several components, as described in our Offering Circular’s section, Description of our Common Shares—Valuation Policies. Here’s a basic rundown of those components:
1. Estimated values of our commercial real estate assets and investments, which may be valued by our in-house real estate professionals or by third-party appraisers
2. The price of liquid assets, including third-party market quotes where available
3. Other assets and liabilities valued at book value, including fees paid to our manager or its affiliates
4. Accruals of our periodic distributions
5. Estimated accruals of our operating revenues and expenses

While our goal is to provide a reasonable estimate of the market value of our shares on a quarterly basis and in accordance with GAAP accounting (Generally Accepted Accounting Principles), it is important to remember that, as with any commercial real estate valuation process, the conclusions reached are based on a number of judgments, assumptions, and opinions about future events that may or may not prove to be correct. Although we evaluate and provide our NAV per share on a quarterly basis, it is important to note that the value of the fund may fluctuate daily and the published NAV per share may not reflect the precise amount that may be paid for an investor’s shares in a market transaction.


Jamestown Invest 1, LLC’s Minimum Investment Amount
The per share purchase price for the Jamestown Invest 1, LLC fund is currently $10.00 (as of October 8, 2020). With a minimum purchase of 250 shares, the minimum investment is relatively low at $2,500. Traditionally, the higher cost of investing in commercial real estate has limited opportunities to high net worth individuals and institutions. Jamestown Invest’s low minimum investment allows almost any American individual to take advantage of commercial real estate investing opportunities, with some suitability requirements.


Why It Matters
Understanding the NAV is important as an investor because it represents the value of your share holdings in the investment and indicates how your investment has performed to-date -- has it gained in value or declined compared to what you purchased it at? After all, the NAV of your holdings is a component of your own net worth.

Investing in Jamestown Invest 1, LLC’s common shares is speculative and involves substantial risks. The Risk Factors section of the offering circular contains a detailed discussion of risks that should be considered before you invest. These risks include, but are not limited to, illiquidity, complete loss of invested capital, limited operating history, conflicts of interest, blind pool risk, and any public health emergency. In addition to the foregoing risks, the adverse economic effects of the COVID-19 pandemic are unknown and could materially impact this investment. Further, there is no assurance that Jamestown Invest 1, LLC will be able to achieve its investment objectives or to access targeted investments like those identified.

Educational Communication
The views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein.

Not Advice
This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.

Performance Not Guaranteed
Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance.

Risk of Loss
All securities involve a high degree of risk and may result in partial or total loss of your investment.

Liquidity Not Guaranteed
Because of the illiquid nature of our shares, you should purchase our shares only as a long-term investment and be prepared to hold them for an indefinite period of time.

Elyssa Marcus Sr. Associate, Fund Management

Posted by Elyssa Marcus Sr. Associate, Fund Management

Elyssa Marcus is a Senior Associate of Fund Management and Asset Management at Jamestown. Her responsibilities include the Jamestown Invest digital investment platform and One Times Square in New York. Ms. Marcus joined Jamestown in 2015 as an Analyst on the Premier Property Fund, Jamestown’s open-end core-plus investment fund invested across major U.S. markets. She assumed an additional role in asset management in 2017 where she has focused on a variety of asset classes in San Francisco and New York. Ms. Marcus earned a Bachelor of Business Administration in Finance and Real Estate from Goizueta Business School at Emory University.