I recently attended a dinner and was privileged to hear a CEO of a major company in Hawaii speak about current trends. This is a company that is very conservative and has thousands of employees here in Hawaii.
One of the main points I took away from his speech was that it used to be imperative that we write 5-year and 10-year plans. While we may still do these today, his comment was in regards to the speed of information. Even with an organization as large as theirs, they have to be flexible. He said they were focused on continually making decisions on current information and relaying and understanding large amounts of data. He said he will sometimes make a wrong decision, but it’s better to continue to update their plan to support and serve their customer base than to sit back and evaluate every 12-60 months.
You may ask, what does this have to do with appraisals in commercial real estate? One of the biggest issues for our team this year has been current appraisals of properties. It is clear to us that prices have risen on many assets for 2010 versus 2009. We find that appraisers are often using data that is 6-9 months old to value properties. While we have a long line of buyers willing to pay where the market is and where the market seems to be going, every once in a while the appraisers step in and suggest a much lower value.
Recently, what we have found helpful is sharing our most current information with appraisers, including bidding characteristics, depth of the market, and the motivation of equity investors. In addition, we’ve noticed that the same market conditions are happening on the mainland. Because we have been sharing this data throughout our offices, we can share the transactional information, including cap rates and depth of the market, with local appraisers so they are able to get a global perspective on what investors are looking at today.
If you conduct an appraisal for your property in today’s market, be cautious, sit down with the appraiser at the beginning of the process to understand what the expectations are, and make decisions on the most current information.