Commercial Property Portfolio Valuations
Three Things That May Surprise You
Perhaps your journey started with one location, a single investment property, on your quest to become Rich Uncle Pennybags (the Monopoly Man). Over the years, that one became two, then three, then maybe many more. If you have a commercial property portfolio of like-kind assets, such as multiple owned retail locations, or a mixed bag, such as investment properties spanning office buildings, warehouses, and/or special-use properties, you need to understand the value of all your commercial properties as a whole. That process, you might imagine, is simple, especially if you have a portfolio of like properties. Appraise one, multiply by your number of locations and – voila! – you have the value of your portfolio.
If you dust off your Monopoly knowledge, you’ll know, having multiple properties opens up opportunity and value you otherwise may not have (we all have that one family member that built hotels on Boardwalk and bankrupted the family). The same is true with commercial valuations, it is a bit more complex than first meets the eye. Here are three things that might surprise you about commercial property portfolio valuations.
Same but different
Should you ask the Argianas & Associates team to appraise four warehouses all of similar size and function, you might assume all would have a similar value. So, appraise one, then multiply by four to get your portfolio value, right? That is actually seldom the case as we’ve previously discussed. Each individual asset must be valuated separately to account for the many factors that go into determining the value of a single asset.
One of the biggest variants in value between two like properties is location. Is warehouse one situated in an up-and-coming logistics hub right off the highway while warehouse two is in an industrial park that has seen better days? Each individual property’s condition is also a major consideration. Is the roof in need of repair at warehouse three while warehouse four is less than two years old with minimal wear and tear? These are just a couple of the factors that appraisers explore, and why it is so important to determine the value of each individual property to begin setting a value for your portfolio. Note that we said, “begin setting.”
the whole is equal to the sum of its parts…or not
Once we have assigned a value to each of the commercial properties in a portfolio, it simply makes sense to add those numbers together to place a value on the whole. But as we said above, we use those individual property valuations not as an end into themselves but only as a starting point. There are instances when the composition of the mix of properties in a portfolio can add value when viewing them. For instance, if those four warehouses from the example above were spaced geographically in such a way to benefit a large customer or had unique features in each that made them function in a specific way as a group, their collective value should reflect those benefits. Assemblage value and benefits are one of the many reasons it is so important to work with commercial appraisers who have in-depth experience working with commercial property portfolios as well as special-use property portfolios.
Why special-use property experience? Dealing with special-use properties trains an appraiser to dig deeper than just comps (which are often only as good as the person entering in the information at a computer). There is no typical portfolio and as such, a trained appraiser who understands different property types and the impact on property value serves as an essential skill when looking at the sum value of a portfolio. Grasping the highest and best use for an individual property as well as for all assets as a whole requires a high level of not only valuation expertise but also general business acumen and critical thinking. We at Argianas pride ourselves on being able to give that big picture vantage point, the forest from the trees and back.
i have to read how many reports?
The thought of wading through one detailed appraisal report might seem daunting, let alone a report for every property in your portfolio. Even though it is important to view each property individually, a separate report may not be needed for each. The deciding factor will likely be why the valuation was needed in the first place. And that, of course, is tied to the intended user. If the intended user is a CPA, CFO, or REIT looking to help guide internal decisions, a single, full report including supporting tables for each asset is a great alternative. For other needs, such as financing, trust and insurance needs, you might indeed need a full report for each property. During the discovery process and as part of the engagement letter, a good appraiser should give guidance on best practice. Regardless of the scope of the assignment, any commercial property portfolio appraisal should adhere to USPAP, Appraisal Institute Ethics Standards, and Financial Institutions Reform, Recovery And Enforcement Act (FIRREA) regulations if the portfolio is related to Bank Financing/Federally Regulated Transaction.
Ready to begin the commercial property portfolio appraisal process? Contact our experts at Argianas & Associates. We have over 30 years of experience and would love to create an accurate, all-inclusive portfolio appraisal for you. Call or email us to learn more about how our services can satisfy your valuation needs. Join our mailing list to receive our e-newsletter featuring case studies, industry events, and news.