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Earlier this month FASB relaxed an accounting standard that had become the bane of many lenders and investors existence: mark to market. The reason was that, as most critics contended, there was no active market for many of these securities, thus no way to value them on the books. GlobeSt.com spoke with valuation expert Ross Prindle, a valuation expert with Duff & Phelps, to find what impact this will have for the commercial real estate community.

GlobeSt.com: What impact do you think FASB’s decision will have on the valuation of assets, especially in the Public Private Investment Partnership scheme?

Prindle: Given that FASB has stated that they will be a lot more lenient on valuation of these assets due to fact there is not an active principal market, I think that will lead folks to go back to the way they were marking financial assets before, in a mark-to-model type of approach.

GlobeSt.com: Do you think that will lead to a situation, that some critics say will happen, of assets being valued unrealistically or inappropriately?

Prindle: No, I believe there will still be scrutiny on the market to model to make sure assets are being valued at reasonable levels.

GlobeSt.com: What about real estate backed paper? How big of an impact will this new approach have?

Prindle: I don’t think it will have as big an impact as it will on other assets. For commercial real estate you have to be able to mark your paper looking at the collateral behind it. That requires gathering data to support valuations. So while in theory there is a change and companies will get more leniency there will still be diligence needed and hard data on the collateral that is backing the loan.

GlobeSt.com: One problem in recent months has been that the bid/ask price spread in most assets, including paper, has been too wide for any transactions to take place. Do you think relaxing the mark to market rule will change that dynamic?

Prindle: It’s possible. But the problem has also been a lack of credit and debt to purchase anything. Secondarily it is a factor of the bid/ask spread being so wide. But that is an interesting question. What I think is that the mark to model valuation might already be baked into the ask price. This recent change by FASB gives credence to the reasons why there is no active market and that pricing should be reflective of fair value and not market transactions.

GlobeSt.com: So if that assumption has been baked into sellers’ psyche then we won’t see much of a change?

Prindle: Yes, my short answer is we will still have the bid/ask spread. But the biggest issue is liquidity. When buyers can get credit we will see more transactions take place and then the market can develop comps. That is when the FASB change will help – lenders will have more flexibility in determining what is fair value for them.

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