Interpreting the Current Market Properly

DALLAS—A one-time president (in 2014) of the Appraisal Institute and former chair of the institute’s board, Ken P. Wilson knows property valuation. For more than 25 years, he ran the Dallas-based valuation and consulting services firm Wilson Realty Advisors, and before that was a senior appraiser and consultant with Marvin F. Poer & Co. Real Estate Appraisal Services and Coldwell Banker Real Estate Appraisal Services, now CBRE. Yet he also calls on a background that includes risk analysis/underwriting as it relates to structured finance products, and he brings this breadth of experience to the newly created position of managing director of client relations and business development at Joseph J. Blake & Associates.Based at Blake’s Dallas office, Wilson will lead the Melville, NY firm’s US and international expansion. GlobeSt.com spoke with Blake as he takes his new position. An edited version of that conversation appears below.GlobeSt.com: In the current pricing environment, what are some special considerations and challenges in valuating properties? Ken Wilson: One good thing about the current market is that it’s very active; a lot of deals are taking place. So that creates more opportunities for valuation work. At the same time, appraisers need to be careful that they’re seeing the market and interpreting it properly. We recently saw the Federal Reserve raise interest rates, and that is expected to result in an increase in capitalization rates. One thing that appraisers have to deal with is the fact that a lot of the information they’re looking at is historical in nature, especially when they’re trying to research and take advantage of sales in the marketplace. A lot of those sales track back several months—deals typically take a few months or even upwards of a year to close, so the environment that those deals were negotiated in could be very different from what an appraiser is looking at for a current-data valuation.GlobeSt.com: Given the market’s current volatility, do you need to look at the high end of the price spectrum with a particular sensitivity toward the fact that those values may have been the result of the asset being bid up?Wilson: That’s certainly a concern, and in fact there’s a strong debate on it. If it’s a class A property, there may be 20 or 30 offers on it, and they’re all competing against one another, and there’s a tendency to drive up those prices. There’s a difference between market price and market value, and at that point, you have to have a good understanding of what you’re dealing with.Some people would argue that the market price is equivalent to the market value, because that’s what someone was willing to pay. But they may have been part of an investment fund that just really has to place some money, and will get aggressive in going after an asset and potentially impact their return a little.GlobeSt.com: You have been active in this sector for a few real estate cycles. Do you see similarities to previous cycles from the standpoint of determining values?Wilson: One similarity from the last one is that we’re still seeing unprecedented levels of cap rates at the low end. We’re not in the craziness of the last cycle;, when there were no underwriting criteria at all. The joke in the industry was that if you could fog a mirror, you could get a loan. The fall of Wall Street definitely impacted the commercial market. But right now, it’s a little bit measured, and the one thing people have to be concerned with is, how long can we sustain cap rates at these levels?GlobeSt.com: Your background has encompassed a number of disciplines including risk underwriting and asset management. How will you bring these to bear in your new position with Joseph J. Blake?Wilson: I’m familiar with a number of different areas of the real estate community, so I’m able to be conversational with groups of potential clients on these different aspects. Hopefully, this will allow me to get a little closer with them and offer a little insight. But overall, the majority of my background is valuation related, and so in my position with Blake it gives me an opportunity to visit with potential clients and have an understanding of the process. There are people that market appraisal services and many other types of services, but they don’t have a background in that industry and really can’t communicate along the same lines as someone who does have the background.GlobeSt.com: You’ll be responsible for business development. In addition to cultivating new clients, will that also entail cultivating new types of clients?Wilson: It absolutely will. Blake has been around for a long time and has built a clientele, and we won’t be going in other directions to the detriment of the existing clientele. We want to service them and maintain the exiting relationship. But beyond that, there’s a vast number of opportunities for a company like Blake to move into. They have nine offices around the country and they’ve got their managing partners, but there was never one person to focus on bringing in business for the entire company. By creating this new position, it presents an opportunity for an individual to go out and market the entire company and go across many business lines: not only the lending industry, but pension funds, CMBS markets, attorneys for litigation support and tax appeal. So I think it’s a great opportunity, not only for myself but also for the company to become even more successful than they have been in the past.