Industry News

It arrives every year at this time, ushered in with silver bells and stores full of new toys. But there’s a big difference between celebrating the holiday season and upholding its generally recognized ethical and performance standards.

So, before you hang an oversized stocking from the mantel, haul out the holly, slice up the fruitcake, or place a single present under the tree, please acquaint yourself with the current Definitions, Standards Rules, Elf Advisory Opinions, and FAQs found in the newly released Uniform Standards of Christmas Appraisal Practice (USCAP). 

This very unofficial addendum to the Uniform Standards of Professional Appraisal Practice (USPAP) applies through the end of the year. However, despite USCAP’s limited scope, violations can bring some unhappy penalties: candy-cane fines, lumps of coal, or even a place on the naughty list. More importantly, failure to comply with USCAP could trigger an across-the-board decline in Christmas spirit: fewer carolers, more “bah, humbug”-ers, and widespread Krampus sightings, even by children who aren’t misbehaving. 

Now, you may be asking: “Who developed these standards, what do they require, and how are they enforced?” All good questions.

The Congressionally authorized Christmas Appraisal Foundation (CAF), a consortium of the jolliest old elves from North America working in consultation with the North Pole’s resident experts, is responsible for the development of USCAP. The CAF’s purpose is to offer guidelines (in a gingerbread framework) of common terms and procedures for developing, assessing, and reporting cheer during the holiday season, roughly defined as Thanksgiving through New Year’s Day. That said, extending these parameters in either direction is in keeping with the generally accepted principle of Joy to the World.

USCAP covers a broad range of topics, from suitable apparel for holiday gatherings to appropriate gift-giving practices and feasting protocols. Moreover, they are descriptive, not prescriptive. The elves who have issued these Advisory Opinions have taken into account that  Christmas traditions vary widely from region to region. 

For example, paper bag luminarias line the walkways of the Southwest while New Englanders gleefully wrap strings of LED lights around snow-laden firs. Some holiday tables feature a stuffed goose; others serve up clove-studded hams. Whatever the case, USCAP does not endorse one set of traditions over another. They only require that appraisers correctly utilize methods recognized by and acceptable to all stakeholders, holidayers, and holidayees. 

We recommend you pour yourself a generous serving of eggnog and follow this link to familiarize yourself with this important document. We’d like to think that your holidays will be merrier and brighter having done so. Merry Christmas and Happy Holidays from everyone here at LPA!

Trust is an essential ingredient of any commercial real estate (CRE) appraisal report. At LPA, we believe our clients deserve to work with appraisers whose property type expertise, analytical acumen, and knowledge of the latest industry trends are only exceeded by their commitment to principled conduct. 

For that reason, we invest heavily in our people’s continuing education and professional development. Many of the leaders of our 8 Texas locations have earned certifications and designations that attest to their honesty, sincerity, transparency, and credibility. 

But what do acronyms like MAI and AI-GRS actually mean? More importantly, how do they translate into added value for anyone in the market for CRE appraisal services?

Keep reading to learn more.

Licenses, Certifications, and Designations: What’s the Difference?

First, we need to draw a distinction between licenses, certifications, and designations. 

Licenses are essentially permits to practice a trade or profession. They are administered by government agencies, most commonly at the state level. Licensing credentials are not always transferable from state to state. But nearly every state in the U.S. offers some form of reciprocity to real estate appraisers. Under the terms of reciprocity, a licensed appraiser in one state can apply for the equivalent license in another state.

In Texas, The Texas Appraiser Licensing & Certification Board (TALCB) provides education and licensing services, as well as enforcement of state and federal laws governing appraisals of residential and commercial properties. Certified General Appraisers are licensed to appraise all types of real property in Texas regardless of that property’s complexity or transaction value. They are also authorized to appraise both federally related and non-federally related transactions. 

To become a Certified General Appraiser in the state of Texas, applicants must:

• Hold at least a Bachelor’s degree.
• Complete a course of study approved by the Appraiser Qualification Board.
• Acquire 3,000 hours of appraisal experience. Half of these hours must involve work on non-residential properties. (The TALCB handles licenses and certifications for residential appraisers differently.)
• Pass a license exam.
• Meet the TALCB’s standards for honesty, trustworthiness, and integrity.

Certified General Appraisers must renew their licenses every two years. Renewal requires additional professional education: the completion of least 28 hours of appraiser continuing education (ACE) courses from approved providers. These 28 hours must include a seven-hour course covering updates to the Uniform Standards of Professional Appraisal Practice (USPAP).

Certifications, like licenses, offer proof of a professional’s qualifications. Unlike licenses, certifications are issued by non-governmental organizations (NGOs) and institutions. Consequently, they are voluntary and not required for practice. 

If licenses and certifications attest to a professional’s core competencies, designations denote that a professional has chosen to deepen their expertise or hone a particular job skill to a fine point. 

Designations are typically available only to dues-paying members of professional associations who agree to meet a set of requirements. These requirements almost always include a robust educational component. As Mark Arvé, Managing Director of LPA Dallas, observes, “Designations are the outcome of a sustained intellectual curiosity blended with peer-reviewed professional experience that yields a demonstrated professional proficiency. In a sea of potential appraisal vendors, it’s reassuring to know that a designated professional will invest in each project to ensure the most credible assignment results.”

For this reason, designations tend to convey more authority — and carry more weight — than certifications. In the commercial real estate appraiser profession, the two most prominent of those designations are the MAI and AI-GRS. Being a licensed Certified General Appraiser is one of the first qualifications for applying for either. As Chellie Hoover, Managing Director of LPA El Paso, puts it: “If you want a job, get your state license. If you want a career, get your MAI designation.” 

MAI

The Appraisal Institute is the largest association of real estate appraisers in the world. Its MAI designation is considered the “gold standard” within the profession by many banks, lenders, investors, and developers. As LPA President and CEO Mark Lowery explains, “The MAI is like the CPA of commercial appraisal. It’s not required, but it’s hugely impactful. For me, it’s been imperative to success. LPA would not be where it is today had I not obtained the MAI designation prior to launching the firm.”

The MAI is held in such high esteem for several reasons.

• The MAI’s education requirements, which include comprehensive exams and an (optional) thesis or dissertation, are nearly as rigorous as those in any Ph.D. program.
• The MAI is reserved for valuation professionals who can demonstrate a wide range of expertise. That range of expertise includes commercial, industrial, agricultural, and residential properties, plus professional services beyond standard appraisal reports.
• All MAI-designated appraisers must be of strong moral character and pledge to uphold the Appraisal Institute Code of Professional Ethics and Standards of Professional Practice. In fact, “MAI” stands for “Member, Appraisal Institute.”
• To retain their MAI designation, appraisers must stay up to date on industry trends and best practices. 

Given the thousands of hours of education credits and specialized experience appraisers must accrue to earn the MAI designation, it takes the majority of candidates years to do so. The MAI is therefore more than a credential. It is a commitment only those with a rare passion for inspecting properties, providing opinions of value, writing reports, and advising clients on their CRE investments are likely to keep.

Clients seeking appraisals for projects that involve complex financing or interstate commerce must often secure the services of an MAI-designated valuation professional out of necessity. However, whether the project requires the oversight of an MAI-designated appraiser or not, their opinions are always highly regarded. According to Chellie, “The MAI designation helped me to level the playing field, especially working in a male-dominated profession.”

AI-GRS

The AI-GRS designation is also offered by The Appraisal Institute. It is reserved for valuation professionals who provide real estate appraisal reviews. (The “GRS” stands for “General Review Specialist.”) 

USPAP defines an appraisal review as “the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.” In some instances, an appraisal reviewer will simply offer a “second opinion,” or assurances as to the credibility and accuracy of an existing opinion of value. Most appraisal reviews are requested by lenders, investors, or buyers looking to minimize their exposure to risk. Appraisal review is an important part of the due diligence process for such transactions. However, attorneys may solicit appraisal reviews to support litigation. Because right of way and eminent domain (ROW/ED) projects can lead to legal disputes, the AI-GRS designation is highly sought after, both by appraisers who specialize in these areas and condemning authorities. 

Even attorneys who do not request a formal appraisal review may wish to call an appraiser with an AI-GRS designation as a witness. “Speaking from the standpoint of providing expert testimony, we as testifying appraisers are requested to provide our qualifications, credentials, and experience to the commissioner or jury panel to provide support that we are indeed qualified to provide testimony as an expert witness,” says Will Snider, Director, LPA Fort Worth. “As part of that support, we will refer to designations and certifications (i.e., MAI, SR/WA, R/W-AC, etc.) achieved and provide a short statement about the steps involved in obtaining them. Taking these extra steps to become more of an expert in your field will assist in qualifying yourself before a jury.”

Candidates for the AI-GRS designation must meet many of the same requirements as candidates for the MAI designation. However, they do not have to satisfy a “Demonstration of Knowledge Requirement,” which can take the form of a research project, a peer-reviewed publication, or a dissertation (among other options). Instead, AI-GRS candidates must accrue at least 1,000 hours of appraisal review experience and 4,500 hours of professional experience overall.

Designations Not Specific to the Appraisal Practice

To further enhance their professional standing, some appraisers may also choose to earn designations that testify to the comprehensiveness of their commercial real estate expertise. Some of the more notable of these include the CCIM, the MRICS, and several designations administered by the International Right of WayIRWA).

Professionals who have earned the CCIM are recognized thought leaders in commercial real estate investing. CCIM-level expertise in market and financial analysis can be extremely valuable for clients seeking appraisals of complex properties.

The MRICS designation is administered by the Royal Institution of Chartered Surveyors (RICS), a professional organization founded in the United Kingdom over 150 years ago. In the commercial real estate field, the MRICS is understood to be equivalent to the MAI. Appraisers working internationally, or on large-scale, multinational infrastructure projects such as ports, may benefit the most from being able to present an MRICS designation.

IRWA offers both a certification specific to right-of-way appraisal — the R/W-AC — and a tiered program for generalists in the field. The RWA (Right of Way Agent) is the first level of achievement in this program, followed by the RWP (Right of Way Professional) and the SR/WA (Senior Right of Way Professional). Only professionals who hold a Bachelor’s degree in an approved discipline, have at least five years of relevant experience, and can prepare appraisals for ROW/ED purposes qualify for this prestigious designation.

Eleven of LPA’s valuation experts have earned an MAI or AI-GRS designation, and four of them hold both. Our practice leaders in ROW/ED have earned designations from IRWA, including the SR/WA. You can learn more about these accomplished appraisers, their areas of specialization, and their commitment to upholding their profession’s best practices and highest ethical standards by visiting the “Meet the Team” section of our website. 

In June 2022, the national inflation rate inched past 9 percent. That’s more than seven points above the Federal Reserve’s (Fed’s) target rate. Although prices for some consumer products seem to have plateaued or dropped, Kiplinger forecasts that high inflation will carry over into 2023. Kiplinger also predicts that an economic slowdown will lower the inflation rate to 3.5 percent by the end of next year. 

Whatever happens over the next several months, inflation has already sent shockwaves through the commercial real estate (CRE) landscape. For CRE stakeholders, inflation isn’t a matter of “if.” It’s one of “for how long, and to what extent.”

For this article, we asked our appraisal experts to discuss how the CRE market tends to respond to inflationary conditions and place today’s record-breaking inflation in a historical context. We also asked them to answer the most pressing questions they’ve received from brokers, lenders, landlords, and investors about inflation and commercial property values. Keep reading to access their unique insights.

 

Inflation and Commercial Real Estate: The Conventional Wisdom

Investors have traditionally considered CRE a solid hedge against inflation. Rents are sensitive to inflation, meaning income from short-term leases almost always rises as prices of other goods and services do. Many long-term rentals often include escalator clauses linked to the consumer price index (CPI). Consequently, CRE is usually capable of producing a reliable income stream whose value is not eroded by price spikes. 

That said, markets are complex. Inflation’s effect on real property values and operating income will vary depending on which economic forces are driving it. For example, inflation caused by economic growth translates into rising rents and low vacancy rates, which is good for almost all property types. On the other hand, steep increases in the cost of raw goods, energy, or wages can reduce a company’s production capacity. As employers cut jobs to control their expenses, the economy can slip into recession. Under these conditions, property owners can expect increased vacancies, making it difficult to pass their rising costs on to tenants. 

Although property values tend to increase in proportion to inflation, these are extraordinary times. Historical data from The Great Inflation (1965-1982) may not provide much guidance. We are dealing with a different economy, different monetary policies, and the lasting effects of a once-in-a-century pandemic. 

On a more positive note, if a recession does occur due to inflation, a solid foundation already exists for the economy’s eventual recovery. The consensus among most economists is that 2022 is fundamentally unlike 2009, when a broken banking system, excessive risk-taking, and high levels of personal debt precipitated The Great Recession. 

Inflation and CRE: Frequently Asked Questions (FAQ)

How Can Inflation Impact CRE Supply and Demand?

Inflation can reduce future CRE inventory. The main culprits here are rising construction costs, such as labor and building materials like concrete, and more expensive financing. (As we’ll see, higher interest rates are among the Fed’s favorite inflation-fighting tools.) Developers may even halt work on new projects entirely, buying time to determine whether they’re still financially viable. 

Of course, any slowdown in new construction places a premium on existing properties. This is certainly the case in the multi-family sector right now. Rents have been keeping pace with the CPI, and the national occupancy rate is hovering around 96 percent. In fact, because inflation is driving up both home prices and mortgage rates, it’s simultaneously cooling the housing market and stoking demand for rental units. 

How Do Policies Intended to Control Inflation Affect CRE Values?

In March of this year, the Fed began introducing a series of interest rate hikes that have since pushed the short-term lending rate up by 2 percent. Indications are that more increases are coming. How borrowers respond remains to be determined, but signs point to at least a modest drop in transaction volumes, and more so where pandemic-distressed asset classes, such as office and retail, are concerned.

Interest rates can affect any given commercial property’s value, but supply and demand, income potential, and operating costs are just as meaningful. Monetary policies indirectly affect all these variables. Deals generate much of the data that CRE appraisers rely upon to form reasonable opinions of value, but experienced valuation experts know how to make use of all available sources of information when the clouds start to outnumber the market’s silver linings. 

How Exactly Do Commercial Real Estate Prices Factor into Appraisals and Valuations?

Sales data from recently sold comparable properties gives commercial appraisers insight into the current market. As noted, however, comparative market analysis (CMA) is only part of a comprehensive appraisal. Appraisers also research net operating income (NOI), capitalization rates (cap rates), vacancies, property history, and depreciation, weighing these and other data points to arrive at an accurate value.

How Can Inflation Affect an Appraiser’s Ability to Perform Comparative Market Analysis?

In inflationary periods, real estate values can change rapidly as wary buyers pull back demand. Comparative market data (comps) may be outdated before an appraisal report is completed. That’s one of the reasons why LPA is committed to 100-percent on-time delivery — a commitment we can meet with our state-of-the-art technology and access to rich data. We base our analyses on the most current data and deliver those analyses so that you can act quickly on that time-sensitive information.

How Does Inflation Affect Cap Rates?

Following interest rates, cap rates generally rise as property values increase. Re-pricing rents on multi-family, self-storage, and other properties with short-term leases to keep pace with inflation can increase NOI and help compress cap rates. 

Does Inflation Make One Valuation Method More Useful than Another? How Do Appraisers Adjust Their Methodology Under Inflationary Conditions?

As Mitchell Austin, Senior Managing Director at LPA Dallas, explains, the best appraisers draw on their experience and knowledge of local markets to determine the most appropriate valuation method, or combination of methods, to use. This is true no matter what the inflation rate might be. “For example, during times of inflation brought on by supply chain shortages, we tend to see some obsolescence in new construction until pricing of market transactions can catch up with rising construction costs,” he says. “Most market participants would prefer to acquire an existing property that fits their needs rather than incur the time and effort of new construction. Until construction becomes cost/time prohibitive, market transactions will remain below the cost approach.” 

The best appraisers also understand that inflation can affect every asset type differently. Currently, existing industrial and multi-family properties are experiencing near-full occupancy rates and rising rents (although Q3 2022 results suggest demand may be easing off). These properties are better positioned to hold their value as the reliable stream of income they generate may make higher borrowing costs more acceptable. 

That may not be the case for office properties still sitting half-empty due to the widespread adoption of remote work. Upscale amenities are becoming more desirable as businesses seek to give their people more incentives to return to their pre-pandemic work habits. When appraising this asset class, highest and best-use valuations may be more relevant than in the past. 

Which Property Types Are Most At-Risk Because of Inflation? 

Properties with long-term leases, such as large retail complexes or warehouses, are the most vulnerable. Built-in rent increases of 2 or 3 percent may have been safe bets at one time, but these properties will experience declining returns as the inflation rate rises beyond contracted increases. 

New developments may also prove risky as materials and labor make building more costly, requiring more financing at higher interest rates. 

Which Property Types Might Actually Benefit from Inflationary Conditions?

Existing properties subject to short-term leases — multi-family, mobile home parks, self-storage, hospitality — can generate reliable streams of revenue that keep up with inflation. Provided the overall economy and employment remain strong, landlords may pass increased costs on to their tenants. Also, as the cost of borrowing rises, current CRE holdings are locked into lower interest rates, giving them an advantage over new acquisitions.

To connect with any of LPA’s commercial real estate market and appraisal experts, contact any of our 8 Texas locations today.

Despite widespread anxiety over near-record inflation, commercial real estate in Texas continues to be one of the engines driving the state’s humming economy. To understand why, it’s important to understand the unprecedented confluence of factors making Texas such an attractive market for builders, developers, and investors.

• In 2021, more than 60 corporations moved their headquarters to Texas. (Source: YTexas.com)
• 2019 marked the “seventh year in a row that Texas attracted more than 500,000 new residents from out of state.” (Source: Texas REALTORS)
• “Texas led the South region in 2021 with $114.13 billion in construction starts, a 7% increase” over 2020. (Source: Dodge Data & Analytics)
• Texas continues to be among the national leaders in industrial, retail, and office occupancy rates. (Source: Federal Reserve Bank of Dallas/CoStar)

LPA’s CRE valuation experts in Dallas, Fort Worth, Austin, Houston, San Antonio, Lubbock, Corpus Christi, and El Paso have extensive firsthand knowledge of these trends. Thanks to the breadth and depth of their expertise, they also have unique insights into how these trends are impacting commercial properties of nearly every type. 

In this article, LPA’s appraisers discuss three “niche” asset classes that CRE stakeholders in Texas should be watching as closely as distribution centers, co-working spaces, and townhomes.

1) Self-storage

According to Brian Bormann (LPA San Antonio), “wherever there’s a major influx of population” in Texas, self-storage facilities are in high demand. 

“The housing market in Texas is very competitive, as many people are relocating to major metro areas within the state for either work or personal reasons,” he explains. “At the same time, many people in the older generations are downsizing from single-family residences to apartments or townhouses. If you’re moving from a house to an apartment, you’re likely going to need some offsite storage.” 

Self-storage facilities are evolving to attract these new tenants. “We’re seeing a transition away from older metal buildings and a concentration of facilities in industrial areas of town,” Brian observes. 

However, the growing demand for self-storage isn’t limited to Texas’ big metros: DFW, Austin, San Antonio, and Houston. “We’re seeing it in surrounding areas, too,” Brian explains. “Tenants want convenience, so self-storage facilities are moving closer to them. The buildings themselves are now also often constructed of higher-quality materials. Developers are making an effort to integrate them into these more residential neighborhoods. For example, by giving them masonry facades and making them look almost like any other retail establishment from a street view.”

Despite the increasing importance of location, quality of construction, and amenity mix, the variables that have traditionally determined any given self-storage facility’s market value still apply. Primary among those variables are square footage, unit density, and income stream. Further, as Brian points out, “no two self-storage properties are ever the same.”

“One facility might be 100-percent standard, non-climate-controlled while another might offer a variety of standard and climate-controlled units. Some of the newer facilities are exclusively climate-controlled,” he says. “Some offer long-term parking for boats and RVs, and others might contain units that deviate from the standard unit mix (5’ X 5’, 10’ X 10’, 10’ X 20’, etc.). These unique unit sizes can present market research challenges. And most facilities consist of multiple buildings. Site inspections might involve anything from eight to 10 structures to one or two.”

However difficult it may be to arrive at a reasonable opinion of value for a self-storage facility, Brian welcomes the challenge. “It’s always fun to digest the unit mix of a self-storage property and then see what you can find,” he acknowledges. “Ultimately, the more knowledge I have of a specific property type, the better my analysis will be.”

 

2) RV and mobile home parks

Asked if there’s one thing CRE stakeholders should know about the state of RV and mobile home parks in Texas, Kelsey Regan (LPA Dallas) responds: “These properties have changed dramatically over the years. Many newer mobile home parks are just as nice as unit housing.”

To understand what’s behind this upgrade, Kelsey says it’s important to consider the lifestyle choices more and more Texans are making. “You have both Baby Boomers and Millennials downsizing. You have people working remotely, from anywhere, because of the pandemic. And you have more and more tourists coming to and traveling within Texas,” she observes. “So you have a lot of people looking for high-quality manufactured housing, both on a permanent and temporary basis. They’re finding it in RV and mobile home parks.”

Investors have taken notice too. “Since 2020, I’ve probably appraised 20 proposed RV/mobile home parks, if not more, and cap rates are on a steady decline,” she reveals. “M&A activity has something to do with this. We’re seeing big developers acquire RV parks and convert them into mobile home parks or investment-grade RV parks. At one of the developments I most recently appraised, individual units were going for more $90,000. When I started focusing on this property type two years ago, similar units were priced around $50,000.”

What other factors affect the value of RV and mobile home parks? Not surprisingly, seasonality and location top the list. “RV parks along the Gulf Coast count on the winter months to drive occupancy,” she explains. “Here in North Texas, though, owners and operators are more concerned with renting out the most units month over month. So you really have to understand where you are on the map when assessing these properties. That means you also have understand the surrounding infrastructure: for instance, interstate highways, or state and national recreation areas.” 

Because long-term stays are a major revenue generator for many RV and mobile home park owners and operators, Kelsey says taking an income approach is critical to arriving at a reasonable opinion of value. “Luckily, I also appraise a lot a lot of large shopping centers. Between that and this specialization, I’ve really been able to hone my skills in that area.” She adds: “I’ve also learned a lot from having to work out the complexities of each RV or mobile home park’s FF&E. Do they have vending machines onsite? Laundry rooms? That sort of thing.” 

Looking ahead, Kelsey sees the potential for more growth in this sector. “There’s more and more interest in tiny homes,” she notes. “It’ll be interesting to see if some mobile home park owners start placing tiny homes on their pads. Tony homes are more permanent structures that offer extra benefits to tenants, like better weatherization and energy-efficiency. But they still offer a lot of the benefits of mobile homes, like a smaller footprint. Tiny homes could open up whole new adaptive reuse possibilities for these properties.”

 

3) Gas stations and convenience stores

Texas has long been celebrated for its wide-open spaces. And, despite the urbanization that’s radically altering the state’s landscape, it’s still home to approximately 600,000 acres of undeveloped land. But that also means that long drives — and frequent stops to gas up — are a fact of life for nearly every Texan.

According to the U.S. Energy Information Administration, there are over 11,000 gas stations and convenience stores (C-stores) that sell gasoline in Texas. According to the U.S. Census Bureau, those gas stations and C-stores will earn nearly $40 billion in revenue in 2022. In other words,  gas stations and C-stores are an outsized presence within the state’s retail markets. 

For Morgan Pavloske (LPA Houston), certain nuances make these properties stand out even more. “Convenience stores / gas stations are technically retail establishments, but they’re very different from any other retail business because of their smaller building size, fuel pumps, and FF&E,” she says. “Their property values are very sensitive to land-to-building ratio as well as square-footage adjustments. Shelf space matters just like in any general retail store, but you also have to factor in how many vehicles the C-stores can serve at any one time.”

Who owns an individual gas station can also make a big difference in terms of determining its value. “If you are appraising an owner-occupied C-store, rather than a franchise like 7-11, you have to consider both FF&E and business value,” she notes. “In the Houston market, owner-occupied c-stores are a lot more prevalent than in a market like Dallas-Fort Worth; however, you are starting to see more of the Absolute Net leased properties pop up. Because I appraise both kinds of convenience stores / gas stations, I quickly learned how to analyze profit and loss statements and conclude an allocation to going concern / intangible business value.” 

Additionally, Morgan has learned that age of construction is another factor that often influences property values. “The Absolute Net leased properties, like the 7-11s, are usually proposed deals. But the owner-occupied C-stores are usually acquisitions or refinances of older properties.” 

However, in Morgan’s experience, the richest source of valuable information about convenience stores / gas stations isn’t always to be found in financial disclosures or transaction databases. “There’s a story with every C-store,” she explains. “The more familiar you get with this market, the more it seems like everybody knows everybody else. So it is imperative to learn about each property’s history. For example, an owner-occupied C-store transaction may be a non-arm’s length transaction, which adds a lot of context to the purchase price. So I always try to establish a rapport with the property owner and gather as much business intelligence as I can. I think that’s probably a best practice anyone in this profession should follow regardless of which property type they’re appraising.”

Conclusion:

It takes special skills and dedication to keep pace with the rapidly evolving nature of CRE in Texas. Properties that were “under the radar” 3 months ago may be the focus of considerable attention tomorrow. To navigate a market this volatile, you need more information than you would typically get from an Automated Valuation Model (AVM). You need the kind of insights you can only get from multiple points of view. The best appraisers appreciate as much — and provide that perspective.

 

Do you have a unique or unusual commercial real estate appraisal need? LPA can help. We cover all property types, from the more widely known to those that require additional attention and assessment. And, no matter your needs, we’ll deliver accurate reporting on-time, every time. To begin working with one of our valuation experts today, contact us at one of our 8 Texas locations.

No matter how you choose to measure success, commercial real estate (CRE) has more than rebounded from the initial shock delivered by the pandemic.

• According to the Mortgage Bankers Association (MBA), commercial real estate mortgage loan origination exceeded $890 billion in 2021. That record-setting total represents year-over-year (YOY) growth of 45 percent.
• For 17 straight months (June 2020 through March 2022), Real Capital Analytics (RCA) has reported increases across its Commercial Property Price Indices (CCPI). Moreover, the CCPI is up more than 17 percent so far in 2022.
• The Dodge Construction Network reports that in two of 2021’s top three markets — Dallas and Miami — new commercial and multifamily building starts were up by an average of 55 percent over 2020. And, through Q1 2022, nonresidential building starts are up 26 percent over Q1 2021.

These numbers are good news for brokers, investors, lenders, and landlords, but they may be even better news for appraisers. Demand for CRE valuation services has never been higher, and the need for new talent in the field will only increase over the next 3 to 5 years.

Although career opportunities abound for CRE appraisers, especially those whose geographic competency encompasses the Sunbelt, the profession is not necessarily well-understood, either outside or within our industry. That’s why we invited three LPA Team members to shed some light on what it’s actually like to research, inspect, and produce comprehensive reports about the market value of commercial properties.

Specifically, we’ve asked Brent Elliott (Senior Managing Director, Houston), Anthony Osburn (Director; Dallas), and Nicole Storm (Associate; Lubbock) to talk about the skills that have helped them thrive here at LPA.

1) Curiosity

According to Nicole, the first lesson of CRE appraisal is that “nothing is boring.” In fact, Nicole’s experience has been one of constantly expanding her comfort zone. “With any commercial property, there’s always more information to gather and analyze than appears on the surface,” she says. “I’ve tried to leverage that fact to grow in my role. My advice to anyone starting out in this field would be to take on every different property type or ‘unusual’ report that comes your way. That’s the best way to learn how to ask the right questions and delve into the complexities that come with certain properties.”

For Brent, staying curious has meant keeping his antennae up. Beyond staying current on broader economic trends, he says, “slowing down to listen” is also essential. “My job is to deliver highly informed opinions about commercial property values. When I listen to as many different stakeholders and consider as many different points of view as I can, I almost always discover additional information I otherwise wouldn’t have been aware of.”

2) Flexibility and Tenacity

Asked to describe his days and the tasks that come with it, Anthony says the keyword is “fluidity.” He adds: “You have to be able to pivot. The path to an appraisal report is anything but linear. With every appraisal, there are so many nuances to examine. Any one of those nuances can be deep, too. You really have to dig to get some data or to extract its optimal value.”

Nicole concurs. “Sometimes, in my preliminary research, I’ll find myself thinking, ‘How in the world will I find any data to support this?’ But I keep searching, combing through the fine details, and collaborating with the other experts in my office. Those reports take a lot of problem-solving, but the good feeling I get when I turn them in on time makes it all worth it.”

Finally, Brent emphasizes that open-mindedness is an underappreciated aspect of resilience. “Occasionally, I have to remind junior appraisers that, although you need to own the hard work that goes into the appraisal, there’s no reason to get your pride wrapped up in it. We are here to provide our professional opinion, so the more facts that you can gather, the better supported your conclusions will be.”

3) Outstanding Time-Management Skills

CRE appraisers live by many commandments, but two items in particular top any list of the profession’s best practices.

1. Make your deadlines.
2. Always keep your calendar up-to-date. As Brent notes, “We don’t spend all of our time sitting in front of a computer. We spend just as much time in the field, so we need to be smart about the travel choices we make.”

“Hitting due dates is huge in the appraisal profession,” Nicole affirms. “As a goal-oriented worker, I love having due dates and knowing what I need to do within a specific time frame.”

Anthony adds that “from the initial bidding process to sharing our professional opinion with the client, we have just a few weeks to complete our market research, perform property inspections, pull comps, and write and edit our reports. We can’t take any of those steps in the process lightly if we want to deliver our work on time — and our goal is to do that 100 percent of the time.”

4) Excellent Communication Skills

Appraising commercial properties is not just a matter of crunching numbers. It is, as Brent says, “very much a people business.” The most accomplished CRE valuation experts understand that they must expand their expertise into the realm of soft skills. “In this profession, you have to know how to talk to various industry stakeholders,” says Anthony. “You have to know their preferred communication channels and styles. The better communicator you are, the more opportunities you’ll find to advance in your career.”

Nicole agrees. In her experience, “you can be the smartest or most diligent person in the office, but if you can’t communicate with property contacts, brokers, lenders, or your own team, you’re going to find doing your job is much more difficult than it should be.”

Despite having met the profession’s gold standard by earning his MAI Designation from the Appraisal Institute, Brent admits that “communicating the support for my opinions in an effective manner has been the skill I continue to hone and work on every day.”

5) A Love of Learning and a Drive to Grow

For Anthony, Brent, and Nicole, every day they work in appraisal is an education. Based on their comments, they wouldn’t have it any other way.

“Teamwork is one of the Core Values everyone at LPA upholds,” Nicole points out. “And I’ve definitely benefitted from everyone working hard to stay hungry, humble, and smart. Knowing that there are people who expect more of you and are there to help you achieve your goals has provided great motivation for someone like me who’s just starting out in the industry.”

But what about more formal education? According to Anthony and Brent, having the desire and discipline to complete all the credit hours required to add acronyms like AI-GRS, MAI, and SRPA to your business card is only half of the equation. “Those efforts don’t mean much if you don’t work in a culture that values lifelong learning and continuous improvement,” Anthony explains. “With the help of LPA, I’ve been able to become a state-certified appraiser, and I’m currently working toward getting my MAI designation.”

Brent’s experience has been very similar. “During my nine years at LPA, I’ve been able to obtain my state certification and MAI. Now I’m working towards other appraisal designations,” he says. But he also reminds us that securing these designations is not an end in itself. “They give me additional tools to perform my job at a higher level. The better I do my job, the more marketable skills I develop, and the more value I create for our clients.”

Building a Career in CRE Valuation

The appraisal profession is full of opportunities for young professionals, provided they have matching interests and aptitudes. However, the best opportunities to be seized are in those work environments where ethics are not only preached but also practiced.

At LPA, we invest in a principle-driven culture and the people who bring it to life. We strongly support the development of all the traits CRE valuation professionals need to succeed. Powered by dynamic professionals like Anthony, Brent, and Nicole, we’ve experienced exponential growth in the 12 years since our founding. In the last four years alone, our organization has almost tripled in size, extending our service area beyond Dallas, Houston, and San Antonio by opening new offices in Corpus Christi, Fort Worth, Lubbock, and El Paso.