Real Estate Value in the Total

Company real estate can go through many cycles. The Buy/Build phase is not necessarily a simple process, but it is straightforward. Feasibility is measured by company needs, operating costs, tax incentives, market conditions, and a host of other factors. Valuation is a key part of this for recording the new asset on the books, financing, or other well-known factors.

The Disposition phase typically occurs with the sale of the business and involves all owned and leased real estate to be transferred. This phase may also occur due to sale of a single asset because of consolidation, competitive markets, aging of the asset, and the like. Depending on the expertise of a third-party broker, a valuation for the seller may involve a broker's opinion or technique other than a formal appraisal.

This paper addresses the internal planning, or in-between, phases.

WHAT THIS MEANS TO YOU

If companies do not have the proper internal planning elements, they may face the following risks:

THE INTERNAL PHASES

Although real estate is an immovable asset, its value fluctuates frequently due to various market influences. Once acquired, the real estate is added to the company's financial reporting and subsequent improvements and betterments are depreciated over the life of the assets.

While it is crucial to consider accounting and tax implications, knowing the value of the owned real estate in the internal phases may be integral to key decisions.

The analysis for any of these internal phases is complex and involves establishing business priorities that may impact many other aspects of the building. This may include operating costs, taxes (property and income), and geographic market area. The suggestion here is that Fair Market Value of the real estate should be one of the major considerations in your internal planning process.

Depending on the investment of your real property portfolio, monitoring your real estate is critical. The periodic updating of your real estate values can provide a true benefit in your internal decision process.

SUGGESTED STEPS

  1. Review your current owned and leased real estate portfolios to determine if the information is complete and current.
  2. Review the locations of your local taxation governance to insure that your owned property is correctly identified, thus minimizing any possible property tax exposure.
  3. Include a valuation consultant to discuss the proper valuation for the real property investment or disposition considerations if your internal planning involves possible acquisition of new real estate, or possible disposition of owned or leased locations.

It is important that you utilize a recognized valuation consultant. Designations and licensing is of paramount importance as most lenders/reviewers require that the appraiser has an Appraisal Institute (MAI) designation. Furthermore, approximately 46 of the state governments require that the appraiser is professionally licensed within their state.

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