Commercial Real Estate Finance

Posts Tagged ‘valuation’

Today we’re excited to feature our first guest post from our friends at Integra Realty Resources! From their IRR on Real Estate blog, here is IRR Managing Director Jim Andrews to discuss the complex, ever-changing world of real estate valuation. Many thanks to the IRR Blog and Jim Andrews for the contribution!

Why Consistent International Valuation Standards Are Essential

There’s no shortage of valuation standards today, such as the Royal Institution of Chartered Surveyors (RICS) “Red Book,” the Uniform Standards of Professional Appraisal Practice (USPAP), and the International Valuation Standards (IVS), to name a few. Use of these standards varies by country and based on the clients’ needs. But the real property and business valuation community is increasingly boiling down these rules into a more consistent set of standards as the members of these organizations collaborate in defining the guidelines for appraisals.

I spoke about this topic [last November] at the RICS Summit of the Americas on a panel discussion I helped spearhead, titled “Comparison of Valuation Standards and Movement to Globalization.” Joining me were current and former committee members of the organizations that produce the various standards, such as RICS, the Appraisal Foundation, the Appraisal Institute of Canada, and the International Valuation Standards Committee (IVSC).

Everyone on the panel expressed interest in having a more consistent set of standards. We delved into the reasoning more deeply, and I wanted to share it with you.

1. Enhance the reputation of the profession and promote its usefulness around the world. 

Currently, the U.S. uses Generally Accepted Accounting Practices (GAAP) as its set accounting principles. Nearly every other significantly developed country has already adopted the International Financial Reporting Standards (IFRS). The U.S. still hasn’t moved toward total adoption of the IFRS measures, but it has begun integrating IFRS with GAAP. An established set of consistent standards would help in appraising assets and liabilities for financial reporting, especially for companies that control assets in various countries and work across national borders. For valuations for other purposes, the reputation of the profession would be enhanced if the clients could expect consistency in valuation reporting internationally.

2. Simplify the appraisal process.

USPAP is the accepted set of standards for valuation in the U.S. But if a member of RICS is performing the appraisal, it should also comply with RICS standards, which differ in subtle ways. In the Caribbean, I work across U.S. and British territories, which typically require different standards, as well as Dutch, French, and Latin American islands where there are generally no nationally accepted standards. A single set of standards and guidance notes would enable appraisers to produce a credible valuation with a similar report structure regardless of membership or the location of the asset to be valued. Read the rest of this entry »

In the world of commercial real estate, property appraisers are beginning to receive a great deal of attention for their work and accuracy, and the attention isn’t especially positive. Much like the credit-rating professionals before them, appraisers are being singled-out as potential culprits in the drastic devaluations that rocked the real estate world in 2008-2009.

A study by members of Collier’s International and law firm McKenna Long & Aldridge has brought to light some startling discrepancies between the valuations and eventual sale prices of many properties. The study focused on properties backed by securitized bonds that were foreclosed on and liquidated.  A New York Times article explains,

In general, appraisals overvalued the properties, the study found. Of the 2,076 properties it examined, 64 percent were appraised at values that exceeded the sale price, by a total of $1.4 billion, while 35.5 percent were appraised at less than the sale price, by a total of $661 million.

Read the rest of this entry »

Last week, members of Llenrock Group joined industry executives from throughout the Mid-Atlantic region in the quarterly meeting of the Philadelphia Real Estate Council. The meeting focused on the subject of valuation, an often-complex process made even more difficult by the market volatility we’ve been seeing on a global scale.

There are numerous factors to consider in the valuation of an asset–from the appraiser to the lender to the particular market and submarket–and that’s before we even talk about the property itself. All of these external issues are worth considering (and I plan to explore them in the future), but for now, I want to look at some insights the members of PREC had on the buildings themselves.

Read the rest of this entry »

Commercial Real Estate Week in Review for the week of March 26th to April 1st

- NAREIT Holds Event Focused on Sustainability’s Place in the Real Estate Market.

- Will the “Aerotropolis” be the Next Real Estate Goldmine?

- Homburg REIT Acquires  50% of Scotia Centre in Calgary Canada.

- Felcor Lodging Trust Purchases Morgans and Royalton Hotels in Downtown NYC. Read the rest of this entry »

In times like these, savvy real estate owners all sing a similar tune.  Why build when you can buy for half the cost (or at least significantly below replacement cost)?  And this is a good question.  Yet despite the cyclical nature of real estate, land is bought and sold at all times during the cycle. And this got us to thinking.  If an asset like land, which by nature does not produce income, can continue to change hands, then what are the real drivers of modeling a land deal? How speculative is it really?

That got us thinking even more (we try not to think too much… it makes us tired) about other similar markets for assets of a speculatively priced nature.  Fine art is one particular commodity/asset class that comes to mind. So let’s examine the similarities and differences between pricing for raw land in the realm of real estate, and the pricing of fine art in the world of the aristocrat. Read the rest of this entry »