Much attention has been paid to the devastating effects of the COVID-19 pandemic on income, unemployment and cash flow for businesses. But new research from Trepp takes an eye opening look at what the shutdown of many businesses may do to the worth of commercial real estate.
In a five-page report, the consulting firm takes a deep dive into how appraisals are calculated. It raises more questions than it answers. But it signals dramatic changes ahead.
"Market value is representative of a transaction where no exceptional factors influence the parties (buyers, sellers, lenders)," Trepp reported. "The concepts of market value as previously defined do not contemplate how short-term occupancy and revenue declines caused by external forces, beyond the control of the owner/property manager, should be treated by the appraiser. Until the pandemic surfaced, many commercial real estate property sectors were pacing above their previous year's performance metrics. Employment and other market-level indicators such as interest rates and the availability of financing were favorable and readily available across all major metros in the United States."
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