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CRE Finance World, Winter 2012

Valuing Appraisals: Evidence from the CMBS Industry will result in reducing bond balances. Of the 400 plus banks that The opinions expressed herein do not necessarily reflect the views of have been closed from the beginning of the financial crisis, the either McKenna Long & Aldridge or Colliers International. proximate cause that crippled many banks’ capital positions and 1Trepp provided a dataset of liquidated loans to support this research and rendered these institutions undercapitalized was often declining all charts in this article rely on Trepp data. Tom Fink, Senior Vice President appraised values on real property loans. In bankruptcy, the position and Managing Director, was particularly helpful during the early stages of secured lenders can be compromised when mortgage balances of the research identifying the data points that could contribute to the exceed an appraised value of the subject property. Confusions outcomes of this study. over definitions of value and property interests to be appraised complicate an already difficult appraisal process. 2Realized losses exceed UPB minus gross proceeds due to additional trust and collection expenses. Later deals provide more detail on these The terms under which CRE finance professionals engage an trust expenses. appraiser and apply the appraisal report should bear in mind the 3Since many specially serviced assets required multiple appraisals over the fallibility and limitations of the end product. No one doubts that ap- course of the loan’s administration, the most recent appraisal was used. praisals provide a critical, indispensable service. But bolded values on the transmittal page of an appraisal report should never sub- 4For presentation purposes, the Y axis is capped at 300%. Of the 2,076 stitute for good real estate business judgment, market knowledge liquidations, 32 exceed 300% AV/GP. and a skeptical analysis. 5Appraised values equaled gross liquidation proceeds in seven instances. Brian Olasov is a Managing Director in the Atlanta and Washington, DC 6The smaller balance category is responsible for $6.5 billion UPB (53% offices of McKenna Long & Aldridge LLP where he works with the firm’s of total UPB) while the larger loan category contributes $5.8 billion. Litigation, Financial Restructuring and Public Finance departments on financial modeling, regulatory issues and complex restructuring. He is frequently engaged as an expert witness in structured finance disputes involving damages, loan underwriting and loan administration issues. Brian sits on the boards of the Commercial Real Estate Finance Council, the Real Estate Investment Advisory Council and the Trigild Advisory Board. KC Conway is a 3rd-generation MAI and Counselor of Real Estate with 27-years of real estate valuation experience as an appraiser, lender, regulator and investor. His experience spans tours of duty with Cushman & Wakefield, Deloitte & Touche, Equitable Real Estate, Prudential, South- Trust Bank, Wells Fargo and the Atlanta and NY Federal Reserve. KC is currently the Executive Managing Director of Real Estate Analytics for Colliers International. CRE Finance World Winter 2012 40


CRE Finance World, Winter 2012
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