Karl Finkelstein on Using Tech and History to Overcome Current Hurdles to Appraisals
August 4, 2020
By: Paul Bubny, Connect Commercial Real Estate with Karl Finkelstein, Valbridge Property Advisors
As with many aspects of commercial real estate, the COVID-19 pandemic and the imposition of stay-at-home orders presented considerable hurdles to conducting appraisals. After all, much of an appraiser’s evaluation is based on first-hand, onsite observation.
However, for CRE professionals surmounting hurdles is all in a day’s work, and the team at Valbridge Property Advisors found ways to get the job done. Here, senior managing director Karl P. Finkelstein shares insights into the challenges and solutions faced in conducting appraisals in the current environment.
Q: The current limits on an appraiser’s ability to visit a development site would seem to be a hurdle to completing an appraisal. How much of an obstacle is it really, and how does it compare to other challenges of the current environment?
A: This is property specific. For example, for a multi-tenant retail center, the latest rent roll and an exterior inspection may give the appraiser all the information he needs as to condition, true vacancy, etc.
For an owner-occupied medical office, an interior inspection really tells us the story. The same can be said for multi-family, although usually only a sampling of apartments is required.
The hurdle isn’t insurmountable, as many clients are allowing property appraisers to use owner supplied videos or Zoom type, real time inspections. In reality, it’s just one of many new challenges in the current environment. However, technology is helping to overcome many of these new “curve balls” being thrown.
Q: What are some of the other hurdles in terms of completing an appraisal of a development (e.g., fewer comps, difficulty in projecting future values in the current uncertain environment)?
A: Current data is probably the biggest we see. By nature, appraisers rely on data points from the past – there is no real time crystal ball, so to speak. That is a hindrance in the current pandemic. When the economy was forced into an immediate shutdown, things happened so quickly that the market was frozen. There was zero data to go by – in the first few weeks of March and into April. Transactions are beginning to take place across the country again, but not ample supply as in 2019 and Q1 2020.
Q: How do Valbridge appraisers overcome these hurdles?
A: History is a great reference for us. Understanding how markets responded in the past is helpful, but more importantly, how does that apply to today’s crisis? The effects from Covid, and the forced shut down, are unprecedented. So at Valbridge, we are bringing all the technology we have to bear. We rely on Moody’s analytics; our proprietary database that goes back over 40 years; custom designed wholly owned AVM solutions, and good old-fashioned market research to get as close to having a crystal ball as possible. Using historical data, coupled with real time market participant interviews gives our team the best tools to help our clients during this time.
Q: Are there lessons learned in prior downturns that can be applied here, and are there lessons from the current one that could be applied in the future?
A: For us, the biggest lesson learned is relying on real time technology. Whether proprietary (AVM, Database) or through strategic partnerships (Moody’s) – technology will form the basis for our analyses for future downturns and unexpected crisis.
Q: What is lost in being unable (or less able) to perform onsite appraisals–and what aspects of an appraisal aren’t affected significantly?
A: One of the more crucial aspects of the process, a first-hand look at the property, is at risk with the current Covid Situation. Additionally, in person interviews with the owner / manager / broke are difficult to conduct.
But there are also no issues with research in regards to connecting with market participants, using email, phone, etc…Finally, using tech tools requires not in person visits.
Q: Is the limitation on conducting in-person, on-site appraisals an issue more from the standpoint of actually performing the appraisal or more from the standpoint of the client’s confidence and comfort level?
A: It depends on the client, but generally it’s the comfort level for BOTH the appraiser and the client. Do we really understand the current situation with the property? True vacancy, deferred maintenance issues, etc… If those concerns can be addressed, then I feel both parties would have a higher comfort level.
Q: The pandemic and stay-at-home orders forced many businesses to quickly ramp up on working and communication techniques (e.g., Zoom calls) they hadn’t had to use before. Did the Valbridge team encounter a similarly steep learning curve, or was adapting fairly seamless?
A: For us, closer to seamless, but not without some initial hiccups. Like the rest of the world, we jumped head first into Zoom and Microsoft Teams. Luckily, our leadership team was set up remotely to begin with. Our offices, and VPA Corporate leadership, have been operating remotely and cloud-based since inception. So we do feel like we were fortunate in that respect. We have gone so far as to feature weekly Guest Speaker Series using Zoom and Microsoft teams, taking the concept of an office staff meeting to the next level.