What’s the current value of my owner-occupied industrial building? In these unprecedented economic times that question has become harder and harder to pin point for both industrial real estate brokers and commercial appraisers. In speaking with commercial appraisers the constant theme is “we just don’t have enough current data to answer that question”. In other words, not enough buildings have sold recently for appraisers to compare current sales against historic sales. Intuitively, however, both commercial brokers and appraisers will tell you that values are lower today then at their peak 2007, and in fact lower then they were last Fall.
In the “hay day”, answering the question, “what is my building worth?” was almost as easy as answering “whatever you ask”. But times have changed and now more due diligence is necessary. In fact, if your goal is to sell your building in 2009 it’s even more critical to hire a specialist, such as a Certified Commercial Investment Member (CCIM), who has the experience and the understanding of today’s market dynamics.
It’s true that we live in a market driven economy and the value of all property is worth whatever the market bears, but leading into the abnormally high values experienced through 2007 were a couple factors that created the perfect storm. Simplistically speaking, while the economy grew stronger prodded by historically low Fed Fund Rates, many lenders, at the same time, relaxed their underwriting standards. Interest rates dropped, loan-to-value percentages increased and in many cases buyers were offered non-recourse loans. nhà công nghiệp The market fed on itself. As sale prices increased it became easier then ever for some lenders to find sale comparables that supported their loan values. The easier access to capital allowed Buyers to accept paying above value prices. After all it was still less expensive then building a building.
Then came the sub prime fiasco followed by the credit freeze. The economy has slowed to recessionary levels and lending standards have tightened to previous years. Down payments are higher, interest rates have increased, non-recourse loans are harder to find, and comparable sales data is more scrutinized. All have impacted the demand for industrial buildings; what a buyer is willing to pay; and consequently building values. Building values are also being threatened by the supply side. As demand decreases supply will increase. Sellers will also likely start competing with lender owned properties as foreclosures increase. Both will place downward pressure on values. If you are considering selling this year, here are a few ideas to consider:
1.Manage your expectations. Question your broker if he/she is telling you that your building’s value is based on 2-year-old comparables. There may be a logical reason, but the last thing you want is to be sitting on an overpriced property in today’s market.
2.Take a hard look at every deal. I recently saw an owner not willing to negotiate an offer, and then accept a significantly less offer from the same Buyer two months later. Listen to your broker he is your adviser.
3.Consider leasing your building. Try and lease your building for a few years to cover monthly expenses. Make sure it is a short term and do not give options. At the end of the term you can decided if it is the right time to sell or to renegotiate your lease.
4.Hold off on selling. If you do not have to sell, hold off until the economy improves. After all, it is only a paper loss until you sell it. Be aware though, that no one has a crystal ball that says when values will climb again.
5.Reduce operating expenses and increase efficiencies. If you decide to postpone selling focus on reducing your building’s real estate tax and insurance premium. Additionally, look at increasing your building’s efficiencies, for example upgrade your lighting. These will all increase value in the future.
6.Team up with your broker. It is in your best interest if your broker understands the motivation, amount of debt, and any other issues that may affect the advice that he/she can provide.
7.Lastly, communicate with your lender. If you are having problems making your monthly payments, talk with your lender. The last thing they want to do right now is to take the property back.