As institutional investors reassess portfolios and adjust asset allocations, they are also spurring fresh demand for appraisal and risk management services.
The growing interest is creating new reporting demands and an increased need for valuation services, Eric Durden, newly appointed head of value and risk advisory in JLL's value and risk advisory business, told GlobeSt.com.
As the CRE market begins to stabilize, price discovery becomes important as investors consider acquisitions and lenders consider whether an appraisal justifies a loan, noted Becci Curry, another recent hire who is global head of strategy and quality management within the same business.
Like Durden, she was brought in from CBRE. "One of the ways you see demand from an evaluation perspective is through growth of the market and also through decline in the market," she told us.
In addition, following the gyrations of the real estate market in recent years, including a period where it virtually stalled because of high interest rates, many market participants are anxious to establish some sense of what is currently happening and how their portfolio is doing, based on data and real-time insights. Banks, for example, might want to know if their debt service coverage ratios are still in line with where they should be, loan-to-value ratios and other factors, Curry said.
"We are living in a world that's full of change and that affects values and properties," Durden noted. "It is not a function of one particular event. The value to clients is being able to utilize real time information and leverage the amount of data the company has at its disposal to help clients evaluate their options."
"Appraisals are a single point in time," Curry added. "We have a lot of data and a lot of relationships with various people in the industry who are market participants where you get a sense not just about what is happening today but what people think is going to happen in the future if you're thinking about a five or 10-year hold. Before investing in a property, what do you think about the risk profile going forward?"
Investors who currently own property face other questions about future risks and how to mitigate them.
Having access to comparable data and transactions that have occurred, as well as real-time sentiment sector-level expertise, is key for valuers, Durden noted.
Demand for appraisals comes from institutional investors who have reporting requirements that require evaluations, lenders who need to understand the collateral they are lending against or seek asset monitoring and developers who may need a fundamental market analysis of a project they are planning. That would include figuring out the current supply, demand drivers, population growth, the existing pipeline and other factors that might affect demand.
Both lenders and developers often want an extra set of eyes on an asset to check its value as collateral or an investment, Curry noted.
She said people also seek advice on maturity and higher interest rates when loans mature and refinancing is required. "That's something I always have to consider, especially after you've had such a long, low-interest rate environment for such a long time."
Climate risk and building resiliency are top of mind in some regions. Another risk is rising costs when leases are not written to account for them. Insurance expenses and spiking utility costs are other considerations.
"We had maybe the benefit a decade ago of what felt like a fairly stable market with low interest rates, and now I think for many it's just sort of navigating what you could be missing and what you need to consider, and some of that confidence comes from knowing what to expect," Durden said.
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