The new commercial property valuation paradigm: from periodic to continuous

Blog Post, by FUEL Enterprises

In the commercial real estate industry, property valuation typically happens after someone has expressed interest in a building and the clock is ticking. One reason is that property valuation is time-consuming if you don’t have the right tools. Therefore, commercial property professionals typically undertake valuations only when a property is in play and a transaction seems imminent.

Yet, having a current property valuation in hand can be invaluable at different stages of the property investment lifecycle. After all, commercial properties aren’t static and neither are the entities that own or invest in them. Numerous situations can arise in which a current valuation is essential—which is why having the right valuation tool is so important.

The following are some examples of what can happen that impact property value.

Ownership changes: It’s not unusual for ownership entities to merge or undergo reorganization, requiring new documentation pertaining to the transfer a property or portfolio. Or, a property may be part of a 1031 exchange, which requires a valuation and also entails a change of ownership. With or without an actual ownership change, an investment entity may choose to review its portfolio to identify potential properties for sale or exchange, sometimes on a speedy timetable.
Financial requirements: Economic conditions can change, triggering a need or opportunity to refinance a property to reduce the cost of capital or extract equity. Or, a property may be used as collateral for the sale of mortgages, bonds or other securities for which valuation is essential.
Legal and tax changes: A property may potentially become embroiled in a legal proceeding, such as a, contract or partnership dispute, or eminent domain proceedings. For instance, an owner or investor may need to advise a zoning board or a court about the impact of a proposed zoning change, ruling or public policy. Valuation also may be required to determine gift or inheritance tax liabilities or to settle an estate.
Investment management: Marketing costs, incentives, developer profits, rebates and other issues can affect property value over time. Staying aware of a property’s valuation enables you to anticipate changes in value that may affect lender or investor requirements. For instance, you may suddenly be required to purchase lender’s insurance, which may affect the return on investment on a property. Conversely, a property that has gained value reduces lender risk, which creates an opportunity to reduce your cost of capital.
Ongoing investment advisory: If a property is part of a corporate portfolio, valuation will be needed to support corporate mergers and stock issuance or liquidation considerations. Valuation also can help determine the feasibility of a property renovation or expansion, or a change in ‘highest and best use’ for a property.

Where FUEL Comes In

Valuation tools that integrate real-time data such as FUEL Valuation can be used for continuous valuation so that current information is always at your fingertips. Whether it’s opportunity knocking, or a potential threat to an investment, having fast access to an accurate, current valuation is always an advantage.

FUEL Enterprises develops cloud-based, data-driven software for commercial real estate. Our flagship product, FUEL Valuation, is the leading next generation solution for valuation and cash flow forecasting. Start your free trial now.

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March 8th, 2019|Blog|
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