One of lenders' most common requests these days is for a brokeropinion of value of assets in a loan portfolio, nearing or indistress. Lenders should consider these a "spot check" on thesituation, not a hard and fast appraisal that would translate intoa completed sale.

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A BOV should be requested when the original appraisal valuationis more than two years old, as lenders should have an updatedestimate of value due to market conditions. The best use of thisinformation is to determine what the asset's value is relative tothe outstanding debt and to estimate the property's cash flowcompared to the required debt service.

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The difficulty for the lender and broker in this situation is tohave the BOV done under the radar of the current owner so thebroker can make an independent evaluation, unfettered by theborrower's input. The BOV is not a full appraisal, which shouldstill be completed in the case of a change in control

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In the last 18 months, market conditions have deteriorated soquickly in some areas and product types that an updated assessmentmust account for decreased tenant demand and declining rentalrates. A broker who knows the product type and market can assessthe asset's potential With a market knowledgeable broker, thelender is more likely to obtain current information regarding dealsthat are in the works or tenants who may be vacating but haven'tterminated the lease.

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Lenders who are geographically removed from the asset underreview may not be aware of changes in the area. That can includenew roads, bridges or mass transit, new competitive buildings withbetter amenities, a business closing nearby, or changing marketdynamics.

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Access to the asset will strengthen the BOY, since one majorcomponent of the evaluation is tenancy. The best information willcome from seeing the condition of vacant space, viability ofexisting tenants and flow of visitors and employees. In addition tovisiting the building, the broker can also review the reportedtenancy versus what is actually occupied.

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A complete review of the physical condition of the exterior isalso important to the evaluation. If the parking lot, landscaping,tenant loading docks, common areas and signage are outdated orneglected, these may be indications of disregard for some of thelarger items such as HVAC systems or the roof.

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Once the BOV is complete the lender should review the report andcompare it to the borrowers claims. If the borrow failed to mentionsome of the larger issues identified in the report, it may be asign of other missing information or downplaying of the borrower'sability to resolve the decline in revenue.If the lender foreclosesor takes other action that changes ownership control, it will beimportant to engage the broker who provided the BOV to see what amore thorough review could provide. This is especially true if thebroker was unable to gain access to the tenant and vacant spaces.In to day's rapidly changing market, it's imperative that lendershave accurate information to determine the short and long termvalue of a property. This information helps chart the course forthe next step: a decision to work with the current borrower andminimize the losses, take the property back and sell it as is ortry to hire a management firm to supervise a repositioning and thensell.


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