There’s an opportunity for appraisers with developers and investors to be a canary in the CRE coal mine.
The buyer’s due diligence journey could START with an appraisal rather than at the end.
No guess work. No wasted time. No wasted money.
This can help the valuation industry move from being a “have to have” versus “want to have” product.
This will elevate appraisers to trusted advisors.
We can better safeguard our clients with better projections, analyzing other market levers beyond just comps.
But we need new teachings, new products.
Broader Topics to Consider
Inflationary operating expenses eroding cash flow, declining rent growth, unstable insurance industry (like Florida), imbalance of expenses and rent growth, absent NOI growth, record consumer debt, wave of maturing loans, rising technical defaults not meeting DCR covenants, delinquencies by small business, huge federal debt, increases in concessions, employment and job growth trends, defaults due to maturities, loan threshold metrics requiring more equity on existing loans, Fed’s monetary policy, market stress effects with 150 basis cap rate increases, supply/demand trends driven by social changes, run worst-case/best-case DCF scenarios, tenant interviews to gauge renewals, present value subject cap ex costs, etc.
Seeing the Unseen
The canary in the coal mine is valuable because it’s sensitive to danger.
Appraisers have that same sensitivity. They’re trained to see the unseen, to spot the tiny cracks that could become massive issues.
They look at the market and see beyond the surface, recognizing patterns and anomalies that could spell trouble.
Appraisers are master interpreters of that data.
They facilitate deal structure, especially from the ground-up.
The Art of Early Warning
What happens when a canary stops singing? The miners know it’s time to act.
Similarly, when an appraiser raises a red flag, it’s a signal to their client. It’s time to reassess, understand the assumptions behind the cap rates and the discount rates.
This isn’t just about avoiding disasters; it’s about building trust as a sophisticated advisor.
Ultimately a valuation at the beginning of the buyer’s journey will protect the client’s bottom line.
The Bigger Picture
We often forget the importance of early warnings. We get caught up in the big moves, the dramatic shifts.
But it’s the small, consistent signals that often make the biggest difference.
Appraisers provide those signals, day in and day out, ensuring that the client stays on course.
In the end, the story of the canary in the coal mine is a story about early detection and the value of listening to those who see what others don’t.
Image a miner’s life depending on a 0.5 ounce canary to signal danger.
That’s a “have to have” value prop.
Let’s be canaries.
