The Covid-19 Pandemic has caused turmoil for property owners, tenants, lenders, managers and assessors. The initial issues will be between the owners, tenants and lenders. These issues may require valuation expertise for bankruptcies, negotiations, write-downs and consideration of force majeure clauses. It can be expected that many assessments will be appealed, certainly for the 2021 tax year and possibly in the 2020 year, depending on the stance of state and local governments.
Already, Mr. Steele has been collecting and analyzing data on the impact of the Pandemic. For example, some hotel owners are projecting that revenues will not return to pre-Pandemic levels for five years. The valuation methodology should incorporate discounted cash flow analysis to allow for the gradual ramp-up of net operating income from early distressed levels to a stabilized level. Essentially, hotels are not stabilized assets anymore and their intangible business asset value has declined precipitously. Similar issues will be found in retail properties, particularly restaurants. Mr. Steele has completed an appraisal of a private school since the Pandemic started. As part of the appraisal, he considered the impact of the Great Recession on the prices of school properties relative to their prices prior to the financial meltdown. Similar analyses can be applied to retail and industrial properties. Much of the recovery in values will be determined by the ability of space users to pay rent or purchase the properties. Not-for-profit entities are likely to be hurt very badly, which, of course, influences the prices they can afford to pay for properties. Restauranteurs also can be expected to experience substantial business failures, which, in turn, will trickle through the values of restaurant properties. Since this has happened before on a widespread level, an answer can be found through an analysis of the relevant data. Viable regional malls may require an analysis similar to hotels, although the impact of their closures on their tenants is not yet known.
National Realty Counselors is well-positioned to address the complex issues relating to the Covid-19 Pandemic. Mr. Steele, as an experienced appraiser, Counselor of Real Estate and expert witness, can assist clients in settling many complex questions that arise from this crisis. For example, Force Majeure clauses in leases may allow for termination of the agreements. This could, in turn, trigger defaults on financing or other agreements. It will be necessary to have a credible witness who is able to testify on the impact on the value of a property in such a circumstance when there is litigation in bankruptcy court or other restructuring arrangement.