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Asset Purchase, Sale or Lease

Economic forces of all types can cause owners, potential buyers, lessees and financiers to periodically reconsider their positions regarding specific property. 

In economic downturns, for example, an owner may consider:

  • Consolidation, and the resultant sale of excess or underutilized real property holdings and/or excess equipment
  • Finding a subtenant to use leased space no longer needed by the tenant
  • Licensing or leasing intellectual property

Also in down markets, investors and speculators may be interested in adding to their portfolios. Financiers may need to evaluate specific collateral and determine whether they should foreclose and sell the asset outright or, if the market is anticipated to improve, use the services of a management firm to manage the leasing of foreclosed property. 

When the economy is improving, market participants may need to expand operations and purchase or lease additional assets. 

If the need for or required timing of a potential transaction is unclear, American Appraisal can provide a range of services, some of which can be completed from our offices, and estimate values considering alternative time frames to effect a transaction, including:

  • Market studies, sampling and preliminary calculations
  • Market value (under a normal exposure period)
  • Fair value for financial reporting
  • Fair rental and sale/leaseback analyses
  • Forced liquidation (under various accelerated exposure periods)
  • Option and offer analyses

In any of these scenarios, the determination of an appropriate price or rental rate is critical.  Clients turn to American Appraisal for independent, objective opinions of the value of assets involved in sale or leasing transactions.

What We Do
We estimate the value of a holding for possible purchase, sale or lease considering its highest and best use and likely timing of a transaction.  In this process, we consider the property’s likely pool of buyers/lessees as well as their purchasing power.

In distressed markets, the purchasing power of the buyer pool and the necessary timing of a deal can be critical.  Arriving at a specific value for a property should include consideration of a realistic cash flow analysis, comparable transactions that have occurred demonstrating the amounts at which similar holdings are being sold, as well as the property's depreciated replacement cost to gauge the barrier to entry by future market competition. This applies whether we are reviewing the value associated with a single piece of equipment or analyzing a complex real-property-related going concern, such as a hotel, racetrack, refinery, nursing home or the like.

In the case of complex real property holdings, we typically estimate the value of the assembled group of assets as a single economic unit.  A tangible-asset-intensive going concern typically includes elements of real, personal and intangible assets.  Valuation of such economic units often includes the application and reconciliation of all three basic appraisal approaches (income, sales comparison and cost).

Even within a specific market with consistent physical and functional use attributes, there may be stratification of value levels due to a holding’s income characteristics, which include:

  • Occupancy/utilization levels
  • The nature of the existing tenants/operators
  • The potential pool of tenants/operators

When estimating market rent within market environments that have leasing activity, our analyses consider the rental income and the accompanying conditions and restrictions indicated by lease agreements for comparable space. 

Within market environments that lack leasing activity, our analyses estimate market rent by applying a market return on the value of the property involved.  To estimate market value, we consider the three approaches to value: income, sales comparison and cost.  The market rent estimated for the property also considers and clearly defines conditions and restrictions to be in effect during the lease term, including:

  • The specific duration of the lease
  • Renewal options (if any)  
  • Responsibilities regarding payment of various expenses during the duration of the lease
  • Periodic rent escalations (if any)
  • Use restrictions (if any)

Financing remains relatively tight but available for most well-occupied/operated holdings.  Financing is thin for second-tier assets, slow in the CMBS realm and almost nonexistent for land developments.  With financing tight, equity players can be a factor; however, their capital structure will likely reflect a higher required rate of return when referencing capitalization and discount rates. This can be especially true when the holding in question needs to be transacted quickly (i.e., distressed).

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 

Criteria considered by financiers in making their decisions include the quality of the borrower as well as:

  • Feasibility of possible selective foreclosure when 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 further deteriorate

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 will help to ensure that the property’s value is not understated or overstated, allowing potential buyers and sellers to make confident, logical decisions.

Experience
American Appraisal’s experience in providing services to assist in the possible purchase, sale or lease of assets includes:

  • Valuations for major REITs regarding portfolios of properties for bulk sale transfers
  • Analysis of several medical offices in Illinois to determine market rents
  • Valuation of an operating horse racetrack in the southern United States for possible sale
  • Valuation of a major integrated pharmaceutical manufacturing facility for sale on the open market as an assembled group of real and personal property assets
  • Estimation of fair market rent for two rehabilitation hospitals to assist in lease negotiations 
  • Estimation of fair rental values for a major US document management company’s excess office space
  • Valuation analysis for a major healthcare provider for a potential lease swap 
  • Valuations for a semiconductor manufacturer regarding a purchase price allocation in which certain assets (such as various in Japan) are being held for sale
  • Fair market rent estimate for oceanfront tidelands used by major gaming companies
  • Estimation of the fair rental value of various US courthouses
  • The valuation of a hospital in Nashville for acquisition purposes

Why American Appraisal?
Due to the large-scale, portfolio or complex nature of the holdings typically involved, our objective work efforts and our reporting to clients are tailored.  Our clients have direct access to appropriate consultants worldwide with industry and service knowhow, and 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

"... your team completed the report [early].  The effort on your part is what helps to build a successful and valuable business relationship."

Director, Real Estate Services
Merck & Co., Inc.

"The team was very responsive and did a great job."

Chief Operating Officer
Doctors Medical Center of Modesto

"We appreciate the fast accommodation of our needs.  Thank you!"

Risk Analyst
ConAgra Foods, Inc

"I found the American Appraisal staff members working on our project to be extremely knowledgeable, professional, and thorough. I appreciate the quality of their work and report."

Recycling Specialist
City of MIlwaukee, WI

 

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