A sea change for valuations
Published 01/05/2014 | 02:30
THE property market has been upended by insolvency, and the huge sell-off of property assets by NAMA and the banks has transformed the world of property valuation. There has been a structural change in the operation of the market and valuers, who are experiencing a tsunami of new business, are adapting to the new world.
Historically, most valuations were 'one-off' jobs for bank financing, with a different client for each instruction, and each valuation was for one property only.
The exception was the handful of property funds which needed updated valuations of their portfolio every six months.
Now, however, the client base has changed completely with large repeat instructions coming from banks and more significantly, from the array of funds bidding for the large portfolios hitting the market.
Activity by overseas funds seeking Irish property assets has become a feeding frenzy, and is joined now by Irish investors and the REITS.
Some of the funds prefer to buy property assets directly, usually brought to the market via receivers, whilst other funds are more interested in buying property-backed loan books.
With a steady stream of large portfolios coming to the market, valuers are experiencing a boom in valuation instructions as each potential purchaser needs advice from local experts. The anecdotal evidence is that for every good portfolio coming to the market there are typically 10 interested parties and up to six bidders in every sale.
This activity is great news for estate agents, and some firms were probably saved by the thousands of valuation instructions generated by the original transfer of bank loans to NAMA. However, this surge in instructions is largely limited to the large firms as the overseas funds want the comfort of an international brand name and only these firms have the manpower and systems to handle these very large instructions.
Valuers are telling me that for every portfolio coming on the market they are receiving multiple calls from competing bidders seeking advice, and they can only act for one bidder.
With each bidder requiring valuations, legal and tax advice and sometimes asset management advice, it seems to me that many funds are each incurring costs in the order of €500,000 for each portfolio coming on the market. Valuers' fees have moved away from a percentage of the property value, to a round figure, depending on the numbers of properties and timescale involved.
One result of this competition is a repeat of the dilemma which faced purchasers during the boom years. Valuations rely on the evidence of recent similar deals in the market but in a rapidly rising market, any purchaser hoping to buy at the same price as the last few deals will never buy anything. Valuers must make it clear that they are providing a "snapshot" valuation, which they can stand over in relation to market evidence, but the client must decide what premium to offer in order to buy the portfolio.
A welcome change in the market is the strengthening of the 'red book valuation' for bank lending purposes.
However, for acquisition purposes the numbers of properties, (sometimes thousands in the loan books offered by the banks) makes it impossible to inspect all properties, and frequently there is little or no information available, making it impossible to meet 'red book' standards.
Peter Waller is the head of professional services at DTZ Sherry Fitzgerald and his team of 25 valuers across Ireland have acted for the purchasers of several large commercial and residential portfolios.
He told me that his valuers work increasingly closely with agency colleagues to advise on current values and trends.
For acquisition purposes his valuers are providing 'estimated realisation prices' to clients. Where his client becomes the successful bidder, some of these then require valuations to 'red book' standards, in order to secure bank financing.
With banks back lending again for property and the funds needing regular portfolio valuations, there will be no easing in the pressure on Ireland's valuers.
On Tuesday I addressed the owners and managers of the independent commercial radio stations in Ireland at their AGM in The Gibson Hotel in Dublin's docklands.
The conference was arranged by Learning Waves Skillnet, who are the training partner of the independent radio sector in Ireland.
Project Manager Teresa Hanratty told me that the sector has held its own through the recession and is now seeing the first signs of growth in advertising revenue.
Like many sectors, integration with social media is a top priority.