Cushman & Wakeﬁeld
he accounting, appraisal and financial report-ing worlds have come under scrutiny this yearas property values fall, sales slow and accountingmethodologies shift. As cap rates continue to rise andunderlying property fundamentals continue to erode,these pressures will only intensify.Marius Andreasen, Director & Financial ReportingPractice Leader of Cushman & Wakeﬁeld described thecurrent state of the industry by saying, “We’re leavinga period in which there was virtually no risk premiumpriced into commercial real estate relative to alterna-tive, ﬁxed income investments. While the increasedavailability of data over the past decade may havesomewhat mitigated risk by reducing some informa-tion asymmetries, as a by-product of this ‘credit crisis’ we will likely be moving back to a period of risk premi-ums which appropriately price the risk associated withcommercial real estate.” Adding to the confusion and volatility is the imple-mentation last year of a new accounting standard,FAS 157, which establishes a framework for measur-ing fair value and expands disclosures about fair valuemeasurements. Te standard impacts companies thatare required or permitted to apply fair value measure-ments. Te new rule has been criticized by those whosay it is forcing ﬁnancial and other institutions to priceinvestments, such as mortgage-backed securities, infrozen markets. In response, regulators have recently made changes to the standard.o get a better appreciation for how the appraisal com-munity is reacting to changes in the industry, we spoketo Cushman & Wakeﬁeld’s Senior Director of Dispute Analysis & Litigation Support, Don Dorchester.
Q: Have the new account rules under FAS157 had an impact on your appraisalprocess or in the information youprovide to clients?
he appraisal process has not changed, but thereis greater emphasis on three key areas: marketparticipant information, use of price and othermarket information, and the development of ahighest and best use opinion. We are conducting primary market research thatinvolves not only known buyers and sellers, butowners of competing properties or other realestate in the vicinity of properties we appraise.Tis information is used to better understandmarket participant perspectives and behavior,identify methods they use to decide whetherto sell/buy or not, develop information aboutattempted transactions that were not formalizedor completed, and the like. We try to identify who the market participants of relevance are andsomething about them.Te primary market research is used along withinterviews with buyers and sellers to better un-derstand diﬀerences between “price” and “marketvalue” so that fair value determinations can bemade. Sometimes not fully apparent from othersources is the existence and level of duress, or theabsence thereof, in transactions reported fromsecondary data sources.