Inilah Alasan Mengapa Rasul Memerintahkan Padamkan Lampu Saat Tidur Pada Malam Hari yang Telah Dibuktikan Oleh Ilmu Pengetahuan Modern
The other day, I was having a conversation with an acquaintance over valuations of empty buildings, mostly commercial type real estate, and the challenges with appraisals, and the new rules for fair-value accounting. Indeed, the underlining question really is; What is Something Really Worth These Days; and sometimes the answer may well be; Who Knows?
And in this discussion we didn't really get into the whole challenge of "determining the value of a security in the open market when there aren't any buyers in that market?" But what if that security is backed by real estate, still we have a problem, as without buyers for the security or the assets within, there is no intrinsic value, and the concept of something being worth whatever someone will pay for it, kind of gets thrown out the window. But on income property, you could go 'X-times' monthly gross income? Is that what you do?
My acquaintance noted that "for income property, you are correct in determining its fair value. However, this becomes even more of a challenge if the income property is vacant and is therefore not generating any income. In that case, the property would need to be assessed by an independent third-party and the loss in fair value would come directly out of consolidated income."
Now then, moving this conversation around the planet to another continent, consider if you will some of the challenges with the Chinese properties, all the real estate speculation, the dummy hollow municipal vehicles, and banks holding those assets? What a mess, and many of the banks involved in the financing went public to cover potential losses from all this, but that just adds another layer of challenges to the future.
Okay let's come back to the USA and consider all those darn GM factory buildings empty, there was an interesting piece on this in Investor's Business Daily and one in the WSJ on this - what a disaster, reminds me of the rust-belt area outside of Chicago, or the old Steel Mills, mines, etc, closed, and half-built projects like Dubai Buildings, housing tracts, industrial facilities, BK'd ethanol refineries, airports, etc - can you see all the challenges with fair-value assessments? Who is to say what that stuff is worth, a bankruptcy court?
And think of all those BRAC properties w/superfund issues or donated to local cities, counties. Or many of those old rail lines closed w/slivers and pieces of properties running through all sorts of areas BLM land, cities, enterprise zones, collapsed industrial areas, etc. What's it all worth, it's both an asset and a liability for the owners with the numbers on both sides of that often quite high.
When evaluating it seems that everyone is busy looking at previous case law, case studies, examples, previous deals, and only a few are true experts or even smart enough to get it, or even get close to any reality, and everyone seems to hedge their bets based on their own interests, risk adversity, but to get the deal done there has to be some give somewhere, sometimes, and with crisis there is opportunity, risk/reward. It's a tough job you have, but it's needed, and it takes experience too.
In the car wash industry, we often had operators separate the land from the car wash business model, two separate businesses, but not everyone evaluates that way - most look at such a model evaluate what's best for their interests - buyer's banks, seller's bank, insurance, buyers, sellers. If you are the bank you see it different than the operator, land owner, etc.
Then in the franchise business we dealt with master leases in some cases on top of that, now throw in a temporary drought, car wash shut down for two-years, what's the deal worth now? Level and demolish the car wash and sell it to McDonalds if the corner is decent, or wait and operate the car wash when level 1 drought returns, or the drought ends?
I've always admired the Public Storage model, and how they worked the business cycles, waiting for the land to appreciate, while it pays for itself. I've also thought the folks like Trump and Trammell Crow strategies are alarming and shrewd.
Not long ago, I recall a Downtown LA building which sold to the South Koreans, and everyone was overjoyed in the commercial real estate space there because finally something in the area had sold in the area (in 2-years) to help give a basis of just how bad the commercial real estate market was or wasn't in Los Angeles. Having that reference point was crucial for the market.
Still, things get complicated very fast, and most of the time it's somewhere between a crap-shoot and a shot in the dark. Which brings me to my final point; No matter what you determine something to be worth, you cannot realize that amount until someone is willing to pay you for it.
Lance Winslow is the Founder of the Online Think Tank, a diverse group of achievers, experts, innovators, entrepreneurs, thinkers, futurists, academics, dreamers, leaders, and general all around brilliant minds. Lance Winslow hopes you've enjoyed today's discussion and topic. http://www.WorldThinkTank.net - Have an important subject to discuss, contact Lance Winslow.
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