What is Net Asset Value (NAV) and Why Does it Matter?

February 11, 2022
15 minutes

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.

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. Following the NAV calculation, the per share NAV and purchase price is announced usually at the beginning of each fiscal quarter.

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 Valuation Process

Our internal valuation process reflects several components, as described in the offering materials with respect to each investment. 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 a 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.



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.

by Jamestown Invest

Jamestown Invest is a direct-to-consumer platform, connecting U.S. individuals directly with real estate managed by Jamestown.

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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.

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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.

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