Banks hire appraisal firms because they want an opinion of value. Why? The majority of banks in today’s banking climate, even when they identify themselves as an asset based lending group, they are, in fact, effectively cash flow lenders. The assets, as collateral, are important, but the focus of the lender is on the borrower’s ability to service their debt and not necessarily on the actual value of the underlying collateral.
Special Asset Groups within banks hire appraisers for a different purpose. They hire because the possibility of actually liquidating the underlying collateral has increased significantly and now the bank needs to truly understand the value of the collateral as a priority of the then existing lending relationship.
It is no longer an ABL theoretical exercise but rather a practical exercise of what may happen.
For this reason, regardless of the group within the bank and regardless of the overall size percentage of the lending relationship the M&E represents, it is important to engage a firm that is actively trading, selling, buying, and auctioning the types of assets being appraised as collateral because when it is time to sell it is time for them to prove their values. You can’t compare values if one firm does the appraisal and one does the auction.
Loeb recently completed a sale of a group of equipment previously appraised for several years. Two things occurred. The sale substantiated the prior opinion of value and also, because of that sale, we were then engaged to appraise other equipment in the same industry. Actual sale results are the best basis for a real world opinion of value.
There are many firms that produce reports that look great, but they are not actively trading those assets.
A firm that engages in performing inventory appraisals may not be the right firm to perform an M&E valuation and visa versa. Hire an expert in the area that an opinion of value is needed. It is challenging to be an expert in everything.
The right firm for your engagement is the firm that openly specializes in certain fields and doesn’t perform appraisals in others. The Loeb difference is our day-to-day involvement in the marketplace which is critical when it comes to true asset valuations. As an active participant in the market from multiple disciplines, our appraisals are based on actual transactions of buying, selling, financing, and auctioning industrial assets applying real world analysis to our approach.