One of lenders' most common requests these days is for a broker opinion of value of assets in a loan portfolio, nearing or in distress. Lenders should consider these a "spot check" on the situation, not a hard and fast appraisal that would translate into a completed sale.

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

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

In the last 18 months, market conditions have deteriorated so quickly in some areas and product types that an updated assessment must account for decreased tenant demand and declining rental rates. A broker who knows the product type and market can assess the asset's potential With a market knowledgeable broker, the lender is more likely to obtain current information regarding deals that are in the works or tenants who may be vacating but haven't terminated the lease.

Lenders who are geographically removed from the asset under review may not be aware of changes in the area. That can include new roads, bridges or mass transit, new competitive buildings with better amenities, a business closing nearby, or changing market dynamics.

Access to the asset will strengthen the BOY, since one major component of the evaluation is tenancy. The best information will come from seeing the condition of vacant space, viability of existing tenants and flow of visitors and employees. In addition to visiting the building, the broker can also review the reported tenancy versus what is actually occupied.

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 If the parking lot, landscaping, tenant loading docks, common areas and signage are outdated or neglected, these may be indications of disregard for some of the larger items such as HVAC systems or the roof.

Once the BOV is complete the lender should review the report and compare it to the borrowers claims. If the borrow failed to mention some of the larger issues identified in the report, it may be a sign of other missing information or downplaying of the borrower's ability to resolve the decline in revenue.If the lender forecloses or takes other action that changes ownership control, it will be important to engage the broker who provided the BOV to see what a more thorough review could provide. This is especially true if the broker was unable to gain access to the tenant and vacant spaces. In to day's rapidly changing market, it's imperative that lenders have accurate information to determine the short and long term value of a property. This information helps chart the course for the next step: a decision to work with the current borrower and minimize the losses, take the property back and sell it as is or try to hire a management firm to supervise a repositioning and then sell.

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