Article

When do corporations require real estate valuations?

July 26, 2022 4 Minute Read

By Rebecca Plant

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Forbes estimate global real estate to be worth more than $225 trillion. While most is owned by households and real estate investors, as much as 25% of corporate assets are held in real estate. This significant volume of real estate used by businesses for operations, as an inflation hedge or a diversification tool can often be overlooked.

In an environment with abundant M&A activity and an accelerating pace of change, it has never been more important for a company to have a clear understanding of the value of its assets.

Accounting for asset value at cost less straight-line depreciation is the technique most often used by corporates to account for real estate value, but this approach is divorced from the real world dynamics of the property markets. While obtaining a Broker’s Opinion of Value (BOV) report may help in quickly assessing a portfolio’s worth, these simple documents lack sufficient information to be used for much beyond a simple sense check. As regulations change and shareholders become more attuned to the impact of corporate owned real estate, it is becoming increasingly necessary for a company to obtain clear and full valuation advice at regular intervals.

Beyond the need for accurate financial reporting, there are several other circumstances during which it is best practice for companies to obtain clarity on the value of their assets. These include:

Mergers & Acquisitions

Whether acquiring or disposing of a business, it is necessary to obtain a 360-degree view of the company’s value. Understanding the true value of assets owned by the company will allow for informed decision making but can also help to crystalise the identification of efficiencies, open up alternative routes to realising value and support the raising of debt financing. Valuations are often particularly relevant where private equity buyers are involved, as they may often consider releasing value through the disposal of the owned portfolio post-acquisition and could find advantage in information asymmetry around the company’s real estate if not fully understood by the target.

Corporate Strategy Decisions

Changes to the way a corporate operates will often have a knock-on impact on its real estate. If the value of the real estate is not properly understood the consequences of the decision making can be unpredictable.

Raising Capital

Real estate, plant, equipment, and stock can form collateral when a corporate seeks to raise debt. Corporate owned property can often be highly specialised and therefore valuation can be complex and entail additional risk for the lender. Obtaining the right advice is key in this case.

Transferring Business Entities

When transferring assets between related business entities, the asset transfer process needs to ensure that each party is treated as a separate legal entity. To support this, a market value of assets is required to ensure the accounts remain accurate.



 

CBRE Corporate Valuation Services has been built to understand the needs of real estate owning businesses. We tailor our advice to meet the needs of the specific challenge, providing a bespoke product that helps corporates to successfully navigate the dynamic nature of the business landscape.

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