Every day now one hears hints of the performance of businesses and economies in 2019, which has become the benchmark for normalcy before Covid and the war in Ukraine. But at this stage, isn’t there a risk that traditional valuation methods that rely on old information will become obsolete?
hat is a riddle I posed to Caroline Kirrane, CFA, MBA, a financial analyst and former central bank economist. She agrees that there is a problem with comparing against historical information, but told me that now more than ever business valuers need to get back to basic principles about how we value things.
Appraisers (and I include real estate and corporate appraisers) need to be aware of the structural changes taking place in markets and economies, Ms Kirrane told me. For example, we have gone from where tangible assets – property and infrastructure – dominated corporate balance sheets to a place where many of the world’s most valuable companies are valued by their intellectual property and goodwill.
Developers and appraisers need to be aware of the impact on their markets of the extraordinary times we are living through. For example, after nearly a decade of free money, interest rates are rising rapidly.
We have a war in Ukraine, an energy crisis and we are talking about a recession. We are now in a post-Covid world, Ms Kirrane told me, and when there are big changes in the markets there are always winners and losers. “We haven’t had inflation to speak of in 12 years,” she said, “that’s a generation of financial managers that hasn’t looked at inflation outside of the textbooks.” However, due to these shifts, developers are now having to reevaluate their markets.
Whilst appraisers at property agencies normally value businesses in the hotel, pub and leisure sectors, Covid has accelerated the shift to ‘turnover rents’ in retail.
Ms Kirrane agreed that there has been a shift in power from landlords to tenants and a move away from an often controversial system of long leases and up-only rent adjustments.
Now developers and landlords need to have a much better understanding of their tenants’ business and cash flow. “Landlords take on more risk,” she told me, taking on some of the traditional bank roles.
Ms Kirrane leads an online workshop on SCSI entitled An introduction to business valuation on November 25, which I recommend.
Stand out from the crowd
In a busy market, it can be difficult to stand out from the crowd, but a surefire way to stand out is to have achieved a standard of excellence that sets the benchmark for your profession.
After a three-year hiatus, the winners of the 2022 KPMG Irish Independent Property Industry Excellence Awards will be announced at a gala dinner at Dublin’s Convention Center on 24 November.
The judges made their decisions in the categories Agency, Investment, Design, Commissioning, Sustainability and Community.
One of the reasons the awards have become the beacon of excellence in the real estate industry is the independence and integrity of the judging process and no sponsor can receive an award.
The awards ceremony, which I have the privilege of co-presenting, is attended by over 1,000 people and the evening is a real networking bonus too. Some tickets may be available at info@propertyexcellenceawards.com.
