CRED iQ analyzed 556 properties that were re-appraised during 2023. We were interested in the overall valuation impacts by quarter and property type.
The Top 25 valuation declines all received an updated appraisal, and we dug into that data. The updated valuations offer a rich perspective on the overall market along with trends that can add meaningful dimensions in forecasting. Each of these properties were either delinquent and/or transferred to the special servicer.
In total, the average decline in value compared to the original valuation at issuance was 42% – remaining in the narrow range between 41% and 43% that prevailed throughout 2023.
Sector Perspectives
Not surprisingly, the office sector turned in the largest valuation decline in 2023 at 50%. Office valuation declines peaked in the first quarter at 52%, with the subsequent quarters showing reductions (Q2: 51%, Q3: 50%, Q4: 47%)
Retail came in a close second with 49% valuation decreases in 2023. Retail also peaked in Q1 at 57%, but saw a choppier pattern for the remaining quarters ( Q2: 50%, Q3: 45%, Q4: 35%)
Multifamily was in third place for 2023 with a 35% valuation decline followed by the hotel segment at 30%
The Industrial segment also posted a 30% decline; however, this is based upon only three properties/loans—which continues a theme that we have seen throughout 2023. Many would consider these edge cases that offer a somewhat misleading print.
Here are the most notable properties that made our Q4 list:
This 449, 933 SF Class A office building plus a 261,500 SF below grade parking garage. Portals I is part of a six-phase, mixed use complete currently containing 3 office building and a Mandarin Oriental Hotel. All office tenants have either vacated at the end of their lease term or signed termination agreements. Occupancy is currently 4.67%. The property saw a valuation drop from $235 million ($494/SF) to $87.6 million ($184/SF)
The Brass Professional Center, San Antonio, TX
This suburban office complex in San Antonio, TX consisting of 11 buildings throughout a 35-acre plot. The buildings were constructed between 1968 and 1998. The collated was valued at $79.1 million at underwriting in June 2020 and has since dropped to $41.9 million in August 2023, representing a 47.0% decline. The asset became REO in October 2023 and is backed by a $55.6 million loan that is scheduled to mature in August 2030.
While overall valuation losses remained largely flat throughout the year, we saw both retail and office sectors come off their peak decreases from earlier in the year. For office, there may be a favorable trend; however, retail, and multifamily seem to be more unpredictable as we move into 2024.
About CRED iQ
CRED iQ is a commercial real estate data, analytics, and valuation platform providing actionable intelligence to CRE and capital markets investors. Subscribers use the platform to identify valuable leads for leasing, lending, refinancing, distressed debt, and acquisition opportunities.
The platform also offers a highly efficient valuation engine which can be leveraged across all property types and geographies. Our data platform is powered by over $2.0 trillion in transactions and data covering CRE, CMBS, CRE CLO, Single Asset Single Borrower (SASB), and all of GSE / Agency.
