AI Leaders Hear Sobering CRE Assessment by Experts

Appraisal Institute President Jim Amorin, MAI, SRA, and AI CEO Fred Grubbe were among more than 120 real estate leaders who heard a sobering reality check on the state of commercial real estate last Wednesday during a day-long program hosted by the Federal Reserve Bank of Atlanta.

At “Debate and Confirm: State of CRE,” 20 leading industry experts from across the U.S. gave a candid assessment of the current conditions for each commercial real estate type and the challenges ahead for banks with CRE portfolios. Attendees included representatives of interagency bank regulatory entities, senior management from national, regional and community banks, and chief appraisers and leaders in the CRE industry.

Noting that capital is expensive and in short supply, speakers said that the largest CRE challenges lie ahead of the banks and are not behind them. They also noted that CRE problems include valuations and delays in loss recognition by banks with their CRE loans.

Leaders speaking at the event also said that the "supply wheel" is still spinning and that demand is in steep decline, that a labor market recovery is necessary for a CRE recovery to occur and that the country’s geographic markets face differing conditions.

Panelists said that for capital to return to CRE, loss recognition must occur, adding that time is the crucial element for a recovery. They also noted that appraisals and methodologies need to acknowledge a declining market that has insufficient cash.

A key thought expressed was that banks are not recognizing value losses, and regulators and investors are hungry for real analysis by valuation professionals with skills and experience. Speakers noted that regulators are frustrated with weak, incompetent appraisal work by minimally credentialed appraisers who lack the analytical skills or experience to perform valuations in a declining market and don't know how to develop a capitalization rate when there are few or no comparable sales. They said that this is a time for MAI-designated appraisers to step up and distinguish professional appraisal work by capably assisting banks, investors and regulators.

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