ValuATION IMPACT OF COVID-19
The World Health Organization declared the Coronavirus (COVID-19) a global pandemic on March 11, 2020, causing significant uncertainty in national and local markets. As more American communities “shelter in place” and practice social distancing, local and national economics are expected to experience real contractions. As of the current date, there is insufficient data to determine the magnitude or duration of the economic impact. However, the expectation is that the pandemic will be contained within months and economics will recover as people return to production and consumption. We will continue to monitor the market as revenues, occupancies, capitalization rates and values may change more rapidly than under normal market conditions.
The most recent data does not appear to reflect the impact of post COVID-19 sales. We expect certain sub-market sectors such as restaurants, entertainment and hospitality to be harder hit than others. As market changes are reflected in the marketplace, we will report those changes.
From the Appraisal Institute April 17, 2020 "Valuation Impacts of COVID-19" webnar. The following is from the commercial retail sector by Grant Griffin, MAI.
The Good News
The Bad News
Non-credit retail is now among the lease desirable assets for lender second to hotels.
CMBS and life cos are out. Banks are more restrictive.
20%-50% of retail tenants paid rent in April.
30% of small business paid no rent or mortgage payments while 20% made a partial payment.
Owners are budgeting 3-4 months lost rent (including April) for non-credit tenants which are closed or not paying rent.
Renewal probabilities have declined in the short-term.
On average, market rents have probably declined to levels seen 1 to 2 years ago.
10% to 40% or restaurants are projected to not reopen.
In 2019, 70% of QSR traffic was via drive-thru, delivery or carry-out. QSR will bounce back quickly but investors will closely watch store sales.
Casual dining will be hit the hardest.
Expect very little activity in the short-term.
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Why NationalCapRates.com?
There are a number of good sources for commercial property capitalization rates. As appraisers we believe that local sales are typically the best place to start. As a support source we found ourself wading through reams of pdf reports looking for the best data to fit the property. We wanted something that we could quickly (say in under 60 seconds) log-in track-down and cut-and-paste to our reports. Not finding it, we decided to build our own. While technologically not possible just a few short years ago, today it is. So we went out and assembled a team to gather the data and develop a point-and-click distribution method, all at a reasonable cost.
Methodology - the Blended Caculated Cap Rate
The data collection process starts with actual sales. This is then combined with surveys of investors, brokers, lenders and appraisers from various qualified sources deemed to be reliable that are formulated into an average for general reference use. Once the baseline numbers are established, we calculate an adjustment for property class and local markets to arrive at a Blended Calculated Capitalization Rate. Most of charts are updated quarterly although some of the data (primarily from the sales analytical side) is update more often. Not every type of sales is available for every market every month. Thus we have created a formula that takes into account baseline sales and survey data and adjusted it to reflect historical differences between property classes and locational differences between various cities.
>These numbers are updated to reflect, as best we can, an accurate representation of the where the cap rate is, or as calculated, what is should be. Think of this as sort of a Marshall Valuation Services for Capitalization Rates where baseline numbers are first established and then adjustments are made to the quality/class and location. This information is intended to give you an overall picture of the market. Each property is unique and must be viewed on it’s own individual features. Each community is different with sub-markets that can be vastly different. Judgments about the class of a property need to be made on a property-by-property basis by properly trained individuals. A great source to find a professional in your area is to search the Appraisal Institute directory. This web site does not and cannot attempt to identify the appropriate cap rate for a particular property. That is a task best left to trained and licensed individuals. What we do is provide a tool of what we believe is accurate and reliable information to help in the process. In our experiences, the best source for Capitalization Rates is from local sales of similar properties, individually identified and adjusted to the specifics of a property. This information is intended only to provide an overview of the market and perhaps offer secondary support to your primary findings.
