Liquidation Value for Multi-Tenant Retail Bldg

[PropertyEconomics]

90 or 180 days is typical for the liquidation value. 90 Days is very short. Once you take into account a bare minimum of due dilligence and other typical closing activities (survey, appraisal, etc.) that 90 days means 45-60 days to actually market the property. Back off a few weeks for negotiation and time for a broker to prepare marketing materials and all of the sudden you may only have a month or less to actually market it. In that sort of situation you're almost certainly limited to all cash buyers who are going to expect to get a good deal.

I believe the marketing period of 90 days is a full marketing period of 90 days. As written above, there appears to be a misunderstanding. Negotiation occurs AFTER marketing as does due diligence and closing ... a closing may not occur for 180 days after a marketing period of 90 days, but I do not believe the client requesting a liquidation value considering a marketing period of 90 days is actually telling an appraiser to value the property using a 30 day period ....

The goal to my understanding is to have an "offer" for purchase during the 90 days ... closing can occur outside the marketing period.

Further clarification must be undertaken with the client but I think this post is not correct in the understanding of "marketing period".

 

[Michael S]

I believe the marketing period of 90 days is a full marketing period of 90 days. As written above, there appears to be a misunderstanding. Negotiation occurs AFTER marketing as does due diligence and closing ... a closing may not occur for 180 days after a marketing period of 90 days, but I do not believe the client requesting a liquidation value considering a marketing period of 90 days is actually telling an appraiser to value the property using a 30 day period ....

The goal to my understanding is to have an "offer" for purchase during the 90 days ... closing can occur outside the marketing period.

Further clarification must be undertaken with the client but I think this post is not correct in the understanding of "marketing period".

The definition we have used for liquidation value in the past says in part: "Consummation of a sale within a severely limited future marketing period under current actual market conditions for the property interest appraised" and "a limited marketing effort is made and a limited time allowed for completion of a sale"

If the client asks for a 90 day liquidation value then that means they want to have a closed sale by the end of 90 days. When measuring marketing period or exposure period I have always gone from the day the property went on the market (typically through LoopNet, CoStar, MLS, etc.) until the closing date. I believe that is consistent with the definition of exposure time in USPAP, and marketing period is simply a forward looking version of that same concept.

If you're under extreme compulsion to sell (FDIC breathing down your neck to increase capital reserves for instance) then identifying a buyer in 30 or 90 days does you no good if they require an additional 180 days to line up financing and close.

 

[PropertyEconomics]

The definition we have used for liquidation value in the past says in part: "Consummation of a sale within a severely limited future marketing period under current actual market conditions for the property interest appraised" and "a limited marketing effort is made and a limited time allowed for completion of a sale"

If the client asks for a 90 day liquidation value then that means they want to have a closed sale by the end of 90 days. When measuring marketing period or exposure period I have always gone from the day the property went on the market (typically through LoopNet, CoStar, MLS, etc.) until the closing date. I believe that is consistent with the definition of exposure time in USPAP, and marketing period is simply a forward looking version of that same concept.

If you're under extreme compulsion to sell (FDIC breathing down your neck to increase capital reserves for instance) then identifying a buyer in 30 or 90 days does you no good if they require an additional 180 days to line up financing and close.

Consummation of a sale, typically does not mean closed. I would check with your clients moving forward as I believe you have a misunderstanding of what they are asking for .. some properties cannot close in 90 days ... its just simply impossible to do the due diligence ... we just see the definitions as being different and frankly I have never seen the definition include completion of the sale ...

We just see the meanings of the assignment differently based on my understandings of Liquidation Value.

 

[sputnam]

Expand all your search parameters. It's reasonable to assume that on a percentage basis, the difference in price between similar properties that sold in 90 days versus 180 days (or whatever) would be about the same now as in 2005 (again, or whatever). Same thing for distance or if the pair are current and local, but very dissimilar to the subject. The old appraiser once told me...."Base it on something. Doesn't have to be something good, it just has to be something."

 

[Ken B]

FWIW, when I ask brokers questions regarding an appropriate discount for estimating liquidation value, I'm in the same group as Michael. I make it clear that the goal is to close within the allotted time with little to no time for due diligence. Obviously, some property may require a longer due diligence period than others during a normal course of business. Obviously, such property requires a greater discount to overcome risk associated with lack of thorough due diligence.

 

[tsiegel]

The price attained at auction is not necessarily indicative of a liquidation value. Auctions are increasingly being used as a marketing vehicle, resulting in prices that equal, if not exceeding, those from traditional marketing. You really have to be careful using auction sales.

This is absolutely correct. I didn't mean to imply that all auction sales were representative of liquidation value. However, certainly some are. In my experience, while it is not exactly scientific, auctioneers tend to have a pretty good handle on liquidation ratios for various property types. If they direct you toward a particular sale, they will be able to tell you if the auction was well attended by a reasonable representation of the likely buyers for that property, what type of marketing efforts were made, the general response and activity during the marketing period and so on. My point was that just surveying brokers and investors would leave a hole in the research, in my opinion.

 

[DWiley]

Remember that in a Summary Appraisal Report or a Self-Contained Appraisal Report the report content must include the applicable definition of value and a citation of the source for the definition. This is a common omission.

 

[PropertyEconomics]

Remember that in a Summary Appraisal Report or a Self-Contained Appraisal Report the report content must include the applicable definition of value and a citation of the source for the definition. This is a common omission.

Danny I am curious, can the definition of liquidation value be that of the "client"? ie they provide the definition, perhaps their own, the conditions of which the property must be appraised? This could be a non published definition (which could include considering a closed transaction within 90 days of the effective date of valuation) to which the appraiser must appraise the property providing reference to the client as the source of the definition?

 

[Terrel L. Shields]

IMHO, the "liquidation" value of less fungible properties like commercial buildings is auction pricing. I can think of few other instances were the sale of such buildings are readily picked up in the market on short notice. The auction forces the vultures to either participate in the process or back off. They cannot sit on the fence waiting for a lower price.

Whirlpool closed their plant in Ft. Smith, AR months ago. They announced they had a deal to sell the plant. In fact, they didn't. It fell thru according to the news last night. Thus I think the first thing you want to do if find what auctions are going for similar properties.

If an auction price is equal or exceeding the "local" asking price, then Liquidation value = market value.

I just saw a large ranch liquidate via Williams & Williams. Despite their advertising to the opposite, it has taken over 2 months to get the deals to close, some were rejected as too low (it was not an absolute auction) and clearly the properties sold well below the average of the first 3,000 acres that sold via conventional Realtor over the past year. It is not always a painless process.

 

[tsiegel]

IMHO, the "liquidation" value of less fungible properties like commercial buildings is auction pricing. I can think of few other instances were the sale of such buildings are readily picked up in the market on short notice. The auction forces the vultures to either participate in the process or back off. They cannot sit on the fence waiting for a lower price.

I have to disagree with this as a blanket statement. I have seen several instances where a property was sold at auction with a starting bid that was very low, but the auction was well attended by a large portion of the likely buyers for the property type and was then bid up to something more reflective of market value. In these cases, the auction date was set well in advance of the start of the marketing efforts and heavy duty emphasis was put into the marketing efforts by the auctioneer. This is an example (as PL1957 rightfully pointed out) of an auction being utilized as a marketing vehicle rather than as a means to "liquidate" the property assets. As I clarified in an earlier response, one certainly needs to ask the right questions of the auctioneer to determine how closely the transaction characteristics and eventual sale price reflected the definition of market value.