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Asset Financing

The value of property, whether an assembled group of assets such as an operating hotel or a single piece of equipment, and its ability to transact in the marketplace are often contingent on the ability of buyers to obtain financing.  Financing deals need to be closely scrutinized to ensure that the interests of all parties are protected. 

American Appraisal’s experience includes valuations performed for private equity firms regarding buyers and owner/operators seeking private financing, as well as lenders that are required to comply with various regulations including the US federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). 

In addition to valuations for initial financing , if a loan becomes nonperforming, financiers may need to evaluate the specific collateral and determine a course of action - whether they should foreclose and sell the asset outright, or if the market is anticipated to improve, take actions such as hiring a management firm to manage the leasing and operation of the foreclosed property. 

Furthermore, for loan monitoring purposes, American Appraisal can efficiently provide a range of services, some of which can be completed from our offices. We can estimate general magnitudes of value, as well as the impact on values when considering alternative time frames to effect a transaction. Our services include:

  • Market studies, sampling and preliminary calculations
  • Market value (under a normal exposure period)
  • Forced liquidation (under various accelerated exposure periods)

We can also assist in reviewing options and offers received.

Whatever the scenario, the determination of an appropriate value is critical.  Clients turn to American Appraisal for independent, objective opinions for the value of collateral.

What We Do
American Appraisal’s collateral financing valuation services assist potential financiers by estimating the value of a specific holding as of a specific date for possible loan collateral and loan monitoring.

Our valuation of collateral considers the three approaches to value: income capitalization, sales comparison and cost.  We estimate the value of the identified interest in the property as if offered for sale in the open market considering its highest and best use. 

The first step in valuations for financing is to understand what will be collateralized: 

  • If an enterprise fails, what asset(s) or assembled group of assets will the financier receive?
  • Will certain intangible or tangible assets, such as working capital, no longer be available upon default of a loan or sale of the subject? 
  • Will a subsequent buyer have to incur additional operating expenses or an additional contribution of certain assets, such as initial working capital, to sustain a reasonably achievable income stream from the collateralized assets? 

American Appraisal considers these issues in the overall valuation of the collateral.

For financing purposes, we estimate the most likely current value of the collateralized asset or assembled group of assets from the perspective of the pool of third-party buyers.  What will the collateral bring in the open market between a willing buyer and a willing seller?  American Appraisal considers these key factors:

  • The buyer pool for the subject collateral (i.e., users, investors, speculators or entrepreneurs)
  • The purchasing power of the buyer pool
  • The required time to complete a transaction 

In a market-value analysis, it is important to value the collateralized asset or entity from the the perspective of the pool of most probable, alternative buyers.  American Appraisal develops a realistic highest and best use analysis considering the legally permissible, physically possible and economically viable uses that apply.

When estimating the market value of a going concern (such as a hotel) for financing purposes, in addition to developing the value of the operating entity, we consider the contributory market value of the various asset categories such as:

  • Land
  • Real property improvements
  • Personal property
  • Intangibles

The identification of the contributory value of these asset categories to the value of an economically justified going concern allows a loan officer/underwriter to more realistically understand the risk level associated with a potential loan. For instance, if 50% of the entity’s going-concern value is represented by the land associated with it, the risk may be lower; therefore, a higher loan-to-value ratio may be appropriate, versus a scenario where 50% of the entity’s going-concern value is associated with goodwill or other intangible assets.

The valuation of the underlying individual assets also takes into account their individual highest and best uses.  Such an analysis may result in an asset’s continued use (justified from an economic perspective) or liquidation for an alternate use.  For instance, if excess land is associated with an operating entity, it is identified as such and valued separately.  In no instance should the value of any asset be lower than its value in a piecemeal liquidation.  Presenting the contributory economic value of the various assets as they relate to the market value of the going concern allows the lender to make a more reliable analysis of the risks. 

American Appraisal presents its conclusions in a clear, concise report, providing the lender market background to consider the amount of risk and an appropriate loan-to-value ratio after taking into account factors such as the level of value covered by relatively less risky asset categories, often the tangible assets.American Appraisal also provides valuation analyses considering downside scenarios. In situations where a going concern may be very specialized, the buyer pool for a going concern may be so small and/or financiers so few that it is difficult to gauge overall risk, and in particular, downside risk.  In short, how would the assets be used if the business failed and no identifiable buyer pool could be identified from within the same business segment that could logically purchase the subject?  Such value-level analysis is performed in a downside scenario, and can assist the lender and others in determining the appropriate loan-to-value ratio. 

When considering the terms and conditions of a proposed or existing loan, lenders may be concerned about the impact of changing general economic conditions on the value of the collateral base over the life of a loan. If the anticipated economic outlook changes substantially from that of the initial valuation, American Appraisal can assist financiers by completing a limited-scope valuation update for loan monitoring purposes. 

To ensure that the interests of all parties are protected, American Appraisal will typically:

  1. Obtain a specific identification of the assets to be collateralized.
  2. Identify the probable buyer pool for the collateralized assets. 
  3. Estimate the current market value of the assets, considering their highest and best use.
  4. If appropriate, allocate the market value of the assembled assets market value to the asset categories involved by estimating the contributory value of each asset category, such as land, real property improvements, personal property, working capital and identifiable intangible assets, in addition to reporting of any residual goodwill.
  5. Summarize the anticipated trends in the specific industry and economy over the anticipated term of the loan.
  6. If warranted, complete a “gone dark” analysis and/or disposition analysis in order to gauge the downside risk of assets that are unique or highly specialized in their nature, are thinly traded or operate in a market sector that is highly volatile from an economic perspective.
  7. Perform periodic limited-scope valuations for loan monitoring purposes when requested.

When considering foreclosure, it is important to recognize that specific holdings can be distressed for a variety of reasons. Therefore, financiers have reacted in a number of ways, including:

  • Renegotiating the financing terms
  • Foreclosing and holding the property through use of outside management
  • Foreclosing and selling the property outright

Some of the criteria considered by financiers in making their decisions include:

  • The quality of the borrower
  • Feasibility of possible selective foreclosure if a property is part of a portfolio that is otherwise performing
  • Whether the borrower can pledge additional collateral
  • Whether the financier wishes to have an equity position in the property
  • Prospects for the market to improve or deteriorate further

American Appraisal’s valuations of distressed holdings carefully consider the facts and circumstances of each individual property, its highest and best use and its most probable buyer pool.  Doing so helps ensure the property’s value is not understated or overstated.

Experience
Some of American Appraisal’s experience in providing services involving asset financing includes valuation of:

  • Partially completed US oceanfront resort
  • Various US food processing facilities and equipment
  • Various buildings associated with a European office of a worldwide chemical company
  • Airport under construction in the Maldives
  • Proposed resort development in Belize
  • 400 boxcars under construction
  • Major hotel in Kosovo
  • Two major operating resorts in the Maldives

Why American Appraisal?
American Appraisal consultants possess expertise in valuing holdings appropriately considering their highest and best use in the context of the probable buyer pool.  The highest and best use of a holding could dictate that it is valued as an assembled group of assets, or that it is valued under a piecemeal liquidation scenario.  The marketplace dictates which scenario is appropriate. Our comprehensive analyses consider the market forces, both global and domestic, that affect values. Our extensive due diligence ensures a high level of accuracy in our value conclusions.

Whether valuing a large portfolio or complex properties for possible financing or loan monitoring purposes, our objective valuation analyses and reporting are tailored to our clients' needs. 

Clients have direct access to appropriate American Appraisal consultants worldwide with general and local industry knowledge.  Our senior staff includes qualified expert witnesses.

Consultants at American Appraisal have diverse educational backgrounds (including engineering, real estate and accounting/finance) and diverse professional backgrounds. Consultants hold various professional designations (MAI, ASA, CMI, CFA, P.E. and MRICS) as well as state- and country-specific licenses and certifications, and undergo frequent continuing education courses involving real property, personal property, intangible assets and going concerns.

Our consultants utilize major income, transaction and cost analysis software programs. We conduct extensive research and our proprietary databases are international in design and content.  Our global footprint ensures that local insights and accurate market data are incorporated into our valuation analyses. 

As a multiservice provider with a significant history of client service, American Appraisal provides clients an array of cost-effective, timely and efficient services for a variety of purposes for any specific holding throughout its entire life or ownership cycle.

Client Quotes

"American Appraisal assisted Severstal North America in securing Department of Energy financing related to their Dearborn, Michigan operations."

Director - Corporate Accounting
Serverstal North America

 

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