Blogger's note: This was orginally published in the 8.18.10 print version of BiS- Business in Savannah weekly business journal.
In short, compared to 3 or 4 years ago, it’s probably worth less. Brilliant analysis I know, but gaining an accurate picture of today’s value is challenging. A sluggish market has resulted in few comparable sales while national data shows values have dropped 30-40% from 2007 peaks. Some commercial lenders have continued the “extend and pretend” mentality, but the short sales and bankruptcies that have occurred further confuse the value question.
Presently, lenders have loaded down commercial appraisers with “collateral evaluation” across the board. This is to address FDIC scrutiny and get a handle on where financial risks potentially lie for the next 12 to 24 months. Combine this with the active re-financing market, and you’ve got a backlog for appraisal work.
As a commercial broker, lenders and private owners have engaged our firm to do BOV’s, “Broker Opinion of Value.” They are not to be relied on for an “official” value for a loan. However, some lenders use them in lieu of more expensive appraisals or if they have questions that require a quick decision. In example, they might use a BOV to help determine market value on a delinquent property for a potential short sale. I often include it as free service to clients as part of a listing assignment. Lenders pay $400-$500 or more, depending on the complexity. A BOV can usually be completed within a week and includes 3 of more comparable sales, active listings and feedback on market conditions.
It’s Worth What?!
A scenario happening around the US and Savannah: a national lender farms out bulk appraisal work to the lowest bidder who, with no local knowledge, tries to provide an accurate appraisal. I have clients whose lender hired an out of town appraiser. He spent the night, had a nice meal at Paula’s, found some comps (which they often get from local commercial agents anyway) and tried to determine a value. Having an unbiased opinion is important, but it doesn’t trump a local perspective that might prove to be more accurate.
BOV’s can be helpful to a property owner who wants to challenge a lender’s appraisal. If you disagree with the appraiser’s value, at a minimum, share it with a commercial agent or another appraiser to look for any glaring issues.
Quarterly Sales Price Trends
Per CoStar’s Commercial Repeat-Sales Indices for the second quarter, the 10 largest US markets (this includes Atlanta) saw an uptick in sale prices for Office (6.2%) and Industrial (2%) with a drop in Retail sales prices (17%). The remainder of the country had sale prices soften across all product types. In the Southern US, the only sector seeing a positive sales price increase was Apartments, which increased 1%. Industrial dropped .5%, Office dropped 5.8% and Retail dropped 7%.
Distressed sales as a percentage of sales volume was the highest for hospitality at 35%, then multifamily at 28%, office at 22%, retail at almost 20% and industrial at about 17%.
Rex Benton is Savannah Commercial Real Estate agent with NAI Savannah, the commercial division of Mopper-Stapen, Realtors and is a contributing columnist for "BiS-Business In Savannah" weekly business publication. www.naisavannah.com 912.358.5600 Office Retail Industrial Investment Real Estate
Nice one.. Looking forward for more information.
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