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Reassessing models

How commercial real estate appraisals work in the age of COVID-19

The COVID-19 pandemic and its unprecedented impact on commercial real estate is forcing appraisers to reevaluate business practices and adopt new guidelines and procedures when valuing commercial real estate assets.

Appraisers often rely on historical financial information, current transactional data, and investor input when projecting market rental rates, return expectations and sale prices. Today’s shelter-in-place restrictions have caused a dramatic drop in deal volume and rental collection rates in the New York/New Jersey metro markets. Investor outlooks range from bleak to opportunistic based on property type, tenant quality, and location. Little is known about the future impacts of the current crisis, but appraisers can meet today’s valuation challenges by remaining in constant contact with market participants.

Understanding market sentiment is key to providing the objective, data-driven appraisals market makers rely upon.

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Commercial appraisals are still taking place in New Jersey, even as the pandemic continues. However, the business is highly segmented. We’ve seen a decrease in orders for financing appraisals, but assignments for new-development projects, which have a longer time horizon, have increased significantly. Since the true effects of COVID-19 aren’t yet evident—we’ll learn more when second quarter statistics are released—we expect lenders will require appraisers to perform a “lookback” in three to six months to reestablish values.

But there are new challenges facing appraisers due to COVID-19. First, interior property inspections are rare. Appraisers are concerned about their own safety and possibly unwittingly spreading the virus. Also, property owners often restrict interior access out of concern for their tenants, particularly in multifamily properties. Without an interior inspection, appraisers are left relying on statements from building owners and property managers regarding a building’s condition, level of deterioration and occupancy levels.

Second, there’s little deal activity taking place. The economic and market data available is largely pre-COVID-19 and may not be an indicator of future performance. Nobody knows what’s going to happen, but we do expect certain types of properties, such as retail and hotels, will be impacted heavily.

So we’re leveraging some old methods, while adopting some new ones to complete an appraisal today.

Analyzing trends

While the market “buffers” and we wait for the April 2020 numbers, we can examine past trends and adjust our risk profiles accordingly. For example, office demand was already declining in many markets as a result of hoteling and remote working environments. Many tenants preferred open workspaces to private offices, thus shrinking the amount of square feet needed to support company operations. Now, however, to comply with social distancing rules, we expect the demand for office space to modestly increase despite remote working trends. Many tenants we have surveyed now believe creativity, task focus and staff camaraderie is enhanced by a balanced mix of private offices and common work floors.

When valuing retail properties, we examine the type and financial strength of existing tenants. For example, the value of a mall largely depends on the strength of its anchor, and with some department stores now teetering on the edge of bankruptcy, that’s having a negative effect on mall valuations.


To assess the current and anticipated impacts of COVID-19, Integra Realty Resources recently interviewed thousands of market participants across the country such as developers, property managers, owners, investors, mortgage brokers, real estate brokers and lenders. This survey, conducted between

March 31 and May 1, provides details on how the pandemic is affecting each of these stakeholders, whether projects have been stopped – and if so, when they are projected to restart, whether rent collections have been impacted, debt position, deal flow and more. This is real-time, objective information that shows us what the parties are thinking and allows us to determine the impact of the virus on commercial real estate values.

Alternative metrics

We’ve started using cutting-edge tracking software, such as comprehensive foot traffic measurement, to help appraise retail properties. Of course, this tool has limited usefulness now in states like New Jersey, where most retail stores remain closed for the time being. However, tracking online ordering, pickup and delivery are more relevant than ever.

Current opportunities

During these uncertain times, appraisers are needed—perhaps more than ever. For example, we’ve seen an uptick in the number of clients calling to take advantage of this pause in the market and plan strategies for their assets. Owners are looking for honest opinions on the value of their properties and what the future may bring. They’re making key decisions based on the information we’re providing, such as gifting properties to heirs for estate-planning purposes.

In addition, commercial property owners may decide to file tax appeals to reduce their property taxes due to the impact of COVID-19. It’s not too late. The state Supreme Court extended the deadline from April 1 to the later of May 1, 2020 or 30 days after a determination by the governor that the COVID-19 State of Emergency has ended. We are already receiving calls from clients seeking valuations for tax appeals, and we expect this to continue.

Together with Integra’s National COVID-19 Response Team, we look forward to sharing actionable insight on probable current and future real estate impacts as a result of the pandemic, plus best practices so we can continue to learn from each other as we move forward toward a new normal.

Paul Beisser is senior managing director of the Northern New Jersey office of Integra Realty Resources. He provides litigation support and trial consulting in connection with property matters, including tax appeals, eminent domain, bankruptcy, matrimonial and environmental contamination. Arthur Linfante is managing director of Integra’s Northern New Jersey office. He has extensive experience in asset valuation and advisory functions.

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