Liquidation Value for Multi-Tenant Retail Bldg

[gator01]

In addition to Market Value, the bank would also like a Liquidation Value. They did indicate that most use a percentage of Market Value for their LV, but I am having trouble finding support for it. Any suggestions?

 

[PL1957]

In addition to Market Value, the bank would also like a Liquidation Value. They did indicate that most use a percentage of Market Value for their LV, but I am having trouble finding support for it. Any suggestions?

Survey the market. Ask brokers what the expected discount would be for different exposure/marketing times. Talk to buyer to see what their response would be to a forced sale situation.

 

[rbrienza]

I have done several over the years.

What I have done is call several investors/brokers and ask them what kind of discount and other terms they would need to purchase the property in say 90 days (ask the client how many days they want). Then develop a mean and that is your discount.

 

[PropertyEconomics]

Liquidation Value has a SET marketing period that should be provided to you by your client. Have they done so?

One cannot complete a liquidation valuation if you dont know what the "limited marketing period" of your client is.

 

[Michael S]

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've had brokers tell me that a 90-day liquidation value could be as much as a 50% discount, while a 180-day liquidation value might only be 10-15%, depending on what the typical marketing period for the type of property would be. Even if a typical marketing period might be 6-9 months, the fact that a property is distressed or lender owned means that buyers smell blood in the water. Those with cash can afford to wait until the seller gets a little more desperate.

 

[tsiegel]

In addition to brokers and investors, I also survey all of the auctioneers in my state to see if something similar has sold at auction recently. If not, I can get a sense of a liquidation ratio from them.

One must be somewhat aware of the difference between liquidation value and disposition value. Based on my read from the Dictionary of Real Estate Appraisal, the difference is that liquidation value is a "severely limited future marketing period" while disposition value is simply a "limited future marketing period". The definitions for each state that the client should determine this specified marketing period. The dictionary goes on to state that disposition value will allow for an "adequate marketing effort" while liquidation value will allow for a "limited marketing effort".

I have always treated the limited marketing period associated with liquidation value as almost no marketing period, as in what the property would sell for at auction.

In any case, it makes sense to put the two definitions side by side and make sure you know what the client is asking for (so you can tell them what they are asking for) before you deliver it.

 

[ctapraser]

Liquidation Value has a SET marketing period that should be provided to you by your client. Have they done so?

One cannot complete a liquidation valuation if you dont know what the "limited marketing period" of your client is.

This is a good answer, I have only done residential liquidation. The lender/client should also tell you what type of liquidation value they want as a forced liguidation value will/may differ from an orderly liquidation value. I think you need more (more detail in SOW) info from your client.
Good luck

 

[rrwolfpack]

Just to throw this out there, is there a depreciation schedule for the building? Is there something of that nature you could use that would make the bank happy?

 

[Ken B]

Just to throw this out there, is there a depreciation schedule for the building? Is there something of that nature you could use that would make the bank happy?

How would this apply to the discount for liquidation value?

 

[PL1957]

In addition to brokers and investors, I also survey all of the auctioneers in my state to see if something similar has sold at auction recently. If not, I can get a sense of a liquidation ratio from them.

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.