How Real Estate Appraisals are being affected by COVID 19 - - PowerPoint PPT Presentation

Presented By:

Cliff Hockley, CPM, CCIM –President/Executive Driector Bluestone & Hockley / SVN

How Real Estate Appraisals are being affected by COVID – 19

COVID - 19

Effects of Covid – 19

• Financial Institution Anxiety
• Shift from Standard Real Estate to Business Loans
• PPP Loan and other Federal Loan Focus
• Not lending to Middle and High-Risk applicants
• Requiring Larger Down Payment

Appraisers Helping Lenders

• Parsing lender’s Risk thru Appraisals
• Making adjustments to current Appraisals

APPRAISER’S ROLE

COVID – 19 APPRAISAL ADJUSTMENTS

• Increase CAP rate estimates
• Adjustments to lower values
• Net Operating Income adjustments
• Slowed real estate marketplace
• Deleted the cost approach
• Ignoring relevant near-term sale comps
• Increase the weighting of appraisals

Select cted F Food Gr Groups

COVID – 19 APPRAISAL ADJUSTMENTS

Appraiser A:

• Typically, are adjusting values

downward by 5% due to Covid

• Adjusting values depend on

collected rents over the last two months

• CAP rate deductions to reflect more

conservative adjustments

• A good location will see fewer

adjustments

• Quality of income is considered as

well

APARTMENTS – APPRAISER QUOTES

APARTMENTS – APPRAISER QUOTES

Appraiser B:

• Looking at recent trades in the

marketplace for properties that were in escrow and then had prices reduced - typical price reductions 2% – 4.5%

• Holding at 5% Vacancy for most

properties except for ones with rents at high end and low end of marketplace which seem to have a higher vacancy rate

• There seems to be a flight to quality
• There might be a one-time

adjustment to scheduled rents of up to 10% over six months

Owner user Buildings: Typical SBA Financing

Appraisers A and B indicated no deducts

Hospitality: Value is driven by occupancy

OWNER USER & HOSPITALITY

Appraisers reflect that reductions in actual rent about 70% of the rents have been collected in neighborhood retail centers Reflect significant increases in CAP rates up to 1.5% to reduce value Quality of tenants’ – i.e. local or national make a difference. Many national tenants are not paying rent, and local ones are. Appraisers have not yet figured

• ut how to deal with lease

adjustments where rent is added back in over a period of time, either over the next 6 months or at the end of the lease term. More confusing is that many tenants paid their full rent

• bligations after they received

their PPP Funds Appraisers are looking for feedback from brokers – who really only know that sales of properties have ground to a halt, temporarily

RETAIL BUILDINGS

This depends on property and quality of tenants – National tenants paid their rents Regional tenants had more trouble until PPP funds showed up Appraisers made income and CAP rate adjustments

INDUSTRIAL BUILDINGS

Reflect many of the sale adjustments as retail and industrial buildings

OFFICE BUILDINGS

BOTTOM LINE

CLOSE OR REFINANCE DEALS WITH PROPERTIES THAT ARE WELL TENANTED; WHERE TENANTS HAVE PAID THE RENT OR WITH BUILDINGS THAT ARE OWNER USER.

EXPECT APPRAISAL VALUE DISCOUNTS IN ALL FOOD GROUPS DEPENDING ON RENTAL RECEIPTS GENERATED BUYERS NEED TO EXPECT TO INCREASE THEIR DOWN PAYMENTS BUILDINGS MAY NOT APPRAISE LENDERS MAY WITHDRAW PREVIOUS COMMITMENTS.

A COMPANY THAT OFFERS MORE

www.BluestoneHockley.com

YOUR BLUESTONE & HOCKLEY EXECUTIVE TEAM

Cliff Hockley, CPM, CCIM

President

Jeremy Boardman,

Executive Vice President

Pamela Hill, CMCA, CCM

VP/Director of Community Association Management

Russell White

Director of Residential

Jamie Gingell

Director of Commercial

Questions?