Commercial Valuation Demand in a Covid-19 World


27 Oct
27Oct

Getting the right valuation is essential in the real estate industry. This is why it is of utmost importance to get the right value during and after this global pandemic.
There are some factors to consider before providing an estimate for it to be clear and fair to everyone concerned so that we can all bounce back together and make better processes and protocols should anything like this happen again in the future.

The primary reporting options in the valuation space are:

  • Broker Price Opinions
  • Evaluations
  • Appraisals

After analyzing the Great Recession, post 9/11, Dot-Com Bust, Real Estate Crash of 1990, market corrections of the 1970s and 1980s and the Great Depression, we concluded that the Real Estate Crash of 1990 is the most analogous prior period because it was very widespread, there were no bailouts and overall it took five to seven years for the real estate industry to recover.

Recession Recovery Timeline

Exhibit 1, NCREIF

Most stay-at-home orders identify financial, brokerage and appraisal as essential workers. A series of temporary policy shifts by the government-sponsored enterprises and lender programs to accommodate COVID-19 safety concerns by allowing exterior-only appraisals and desktop appraisals in lieu of on-site inspections.
A NCREIF comparison in macro terms, of both the magnitude and duration on the most recent “Great Recession” (2008/09):

Great Recession Recovery Timeline

Exhibit 2, NCREIF

In this timeline, when comparing real estate value loss and recovery times to other financial indexes, on a macro level, real estate was a much more stable (“sustainable”) asset when compared to the S+P 500 and REIT stock prices. Real estate withstood a macro and significant 10-25% value loss and endured a seven-year recovery. REIT stock pricing had to withstand a +-70% value loss and required an added 12 months to recover. S+P Stocks withstood +-45-50% value erosion but recovered faster (in +-6 years).
Based on key historic real estate metrics, it would appear that the real estate industry is facing a minimum five-to-seven-year recovery period. When metrics outside of real estate (specifically, unemployment) are viewed, a longer time period can be expected. Only the Great Depression rivals the current situation in terms of unemployment. During that era, unemployment ranged between 15-25%...for a decade. Today, Covid-19 is pushing unemployment to the +15% level now, with further increases to come. Will that level remain that high, for that long? Likely not.

Conclusion
Since the effect of Covid-19 on industries cannot be reversed any time soon, what we can do is to be more proactive in the future. History does like to repeat itself and we’ll be wiser in the next steps we’ll be taking moving forward.
Hopefully, when all these have reverted to normal, we will have better planning and will invest in things that will be more resilient and ready should anything as this pandemic comes again.
You should not be intimidated by Big Data or the concept of tackling it. Getting services like Enriched Data who utilize the CAR System will create a clearer understanding of what your business can do to grow and thrive amidst any political unrest or natural disasters. Knowing realtime and practical data will get you further than any speculation “professionals” offer. With this system, you know that you’ll be looking at the relevant national data you need to help you plan for a solid and fruitful future.

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