Understanding Costs Versus Values

Beware: High rates of customization will not always pay off in terms of valuation

Recently a banking client contacted Loeb Appraisal in need of valuation for a newly installed computerized conveyor system. They required an opinion of value to include both a Fair Market Value In Place definition, as well as, a Forced Liquidation Value definition. This prompted a lengthy conversation and discovery period as the overall costs of the system was $4,000,000, but there was no breakdown from the lender's client the document hard costs (the actual cost of the conveyor system) versus the soft costs (labor, installation, and programming).

This scenario presents a unique situation wherein there will be a large differential of values between the FMV IP definition of value and the FLV definition of value. Opinions of value under Fair Market Value In Place for these types of scenarios are typically very straight forward. The actual total cost for the recently installed system is a known value. However, the Forced Liquidation Value is quite a bit different. The soft costs play a large factor in the final valuation as these unrecoverable costs cannot be incorporated into a Forced Liquidation analysis. In Place, the values are retained, but under the Forced Liquidation Value scenario, they will not.

The result of this engagement was an opinion of FLV being merely 10% of the overall cost. From the FLV perspective, both our banking client and their borrower agreed with our analysis. The time factor that is inherent with the definition of FLV is critical to keep in mind in these scenarios. What are the hard and soft costs, what the value is on the books, what the current value of the assets are – these factors impact the analysis and the final opinion of value.

Our day-to-day involvement in the marketplace is critical when it comes to true asset valuations. With Loeb 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. We apply real world analysis to our approach.

Achieving Consistent Results Through Our Proven Process

Loeb is divisionally agnostic. Regardless of why we are looking at an industrial asset, Loeb always looks at the equipment in a consistent manner.

Are you looking to sell equipment, auction your plant or are in need of an appraisal? Our clients get the benefit of knowing that regardless of why we are being asked to look at the facility or equipment. The benefit of our knowledge and expertise is applied consistently.

This is our cross-divisional approach. We have numerous clients who throughout our relationship we have performed multiple services: performed appraisals, sold equipment, bought equipment, conducted auctions, and also financed.

At it's core, Loeb Appraisal's Proven Process can be broken into just a few key steps (click on the graphic above for detailed information):

• Appraisal Requested
• Executed Engagement Letter with 2, 3, or 4 week Turnaround (depending on type of appraisal requested)
• Inspection
• Research & Opinion
• Asset Verification & Internal Peer Review
• Final Review
• Final Appraisal Report
• Quarterly Check-in

We meet our clients expectations not only because of our knowledge and expertise, but also because of our Proven Process.

Equipment valuations for industrial facilities of all sizes!

Contact Loeb for all your Appraisal needs!

Your partnership with Loeb has made our contribution to the Red Cross possible!

Happy Holidays and Happy New Year!

Your partnership with Loeb has made our contribution to the Red Cross possible!

During this Holiday season we wanted to take a moment and express our appreciation.

In today's world you can't be successful without others and we wanted to take this time to thank you for your support of us and we hope that you feel we have been equally as supportive to you.

For the last 5 years instead of giving out small trinkets as a sign of our appreciation, we have been making donations to worthy causes to help make our world a better place.

This November, a massive storm system swept through the Midwest, leaving widespread destruction in its wake. Hundreds of thousands were affected by these storms including friends and family of Loeb employees.

We wanted to help with the ongoing support of Southern Illinois this holiday season as they continue to recover and rebuild. By donating to the Red Cross, we are mobilizing relief workers and helping to stock shelters with greatly needed food and supplies.

We are grateful to you, our customers and partners, for your continued business and we hope you appreciate being a part of our support of the Red Cross and their efforts to bring assistance to those deeply affected by the storm.

We Wish You a Wonderful Holiday Season

& a Happy New Year!

Net Values & What This Really Means to Lenders

I your net recovery by understanding the true costs involved in liquidating or auctioning a credit.

Many focus on gross appraisal values but now need to pay more attention to the rising unrecoverable costs of liquidating a facility. Net values have become more main stream as more lenders focus on the final results.

Loeb now asks every facility appraised for a variety of facility costs on a 1-month basis. We ask for such things as:

• Rent/mortgage payment and Real Estate Taxes
• Security
• Utilities & Maintenance
• Insurance
• Any other recurring miscellaneous expenses, such as waste water permits or costs associated with purging the product from the system

*Assumed three (3) months FLV and six (6) months OLV

Looking at our database we have normalized the average utilities at 10% of costs under production for an idle facility. In calculating Net FLV we assume 3 months of expenses and 6 months of expenses for Net OLV. Furthermore, given our auction expertise, we additionally estimate marketing, setup and selling expenses.

Below is an example from an actual appraisal recently performed where the Net OLV is less than the Net FLV. This is not uncommon though surprising to lenders that are not underwriting or credit focused.


In the real world, a major facility (such as the example above), would generally liquidate in one of two manners:

• Sold as turnkey, and thus most likely achieving a value over OLV
• The facility would be shuttered and prepared to sell at auction. (It is less common in the real world for a net OLV scenario to play itself out)

Quantifying your exit strategy and understanding the financial impact of your lending practices is crucial when lending on hard assets. Loeb Appraisal is focused on providing clear concise data so that more informed credit decisions are made.

Learn More About Loeb Appraisal ›

Avoid Inherent Conflicts at End of Lease

As appraisers we are often brought in to help mitigate arguments that arise at the end of leases because a lot of leases don’t have their purchase options defined clearly.  The most common issue is not defining “Fair Market Value.”  When you don’t define specifically what “Fair Market Value” is, misunderstandings will always prevail.  The Leasing Company argues that the purchase option is “Fair Market Value In-Place” while the lessor argues that it is “Fair Market Value for Removal” and, as we all know, the cost of a machine installed is always significantly higher.

For an example, Loeb Appraisal recently was hired by a lessee to appraise a machine coming off lease that they wanted to purchase.  They hired us because our client felt the “Fair Market Value” as presented by the lessor was onerous due to the fact that a) The technology had changed significantly in the industry and b) Newer comparable equipment costs on average 25% less than when the original lease was put in place. 

During our research stage, we were able to show the trending in the used market and auction market for this type of asset, along with quotes on similar units if purchased “New.”  Even with this research showing the leasing company that the value assigned for the purchase option was not based on current market, the argument continued because of the value of the installation.  After many rounds of conference calls we were able to act as an expert, and unrelated party,  to eventually reach a happy medium for both parties.

It is our recommendation to avoid this situation by either clearly defining if Fair market Value is “in-place” or “for removal.”  Better yet, consider the rising trend of including a fixed dollar purchase amount in your lease terms.  From a lessor’s standpoint, it will better position your organization to avoid possible asset disposition issues if the purchase option is not exercised because your lessees will have a set purchase goal, and will be able to manage their cash flow accordingly.

For more information on how Loeb Appraisal can assist in your asset valuation projects, please visit www.loebappraisal.com.

Overall equipment values remain up across most industries!
Take a moment to review our 3rd Quarter Appraisal Trends Sheet.

 Appraisal Market in Review 3Q2012

The Market in Review: 2nd Quarter 2012

John K. Hagist
VP Appraisal Svcs.
& Controller

Spring has sprung at Loeb and all our divisions have been busy in the field!

At Loeb Appraisal, we have been working on appraisal requests for a variety of new underwriting opportunities from financial institutions in addition to end-users that are acquisition minded. The uptick in activity is encouraging to see in the marketplace and has put our field appraisers in facilities all across the US, from Miami all the way to Kodiak Island, Alaska. The past few months have seen us in such diverse facilities as a NASCAR fabrication shop, a high capacity Mail Facility, a high-yield fish processing plant and a coffee roasting plant.

We continue to partner with Loeb Winternitz, our industrial auction company, and Loeb, our stocking inventory division, to stay up-to-date on the latest opinions of value with pertinent and relevant data from recent auction, liquidation and inventory sales.

If you have any upcoming needs, whether it be on the appraisal, auction, finance or equipment front, please do not hesitate to contact us. At Loeb, we view ourselves as a multi-faceted industrial resource and stand ready to be a partner in making the best decisions for your business.

Appraisal Market in Review as of April 2012

The Market in Review

John K. Hagist
VP Appraisal Svcs.
& Controller

Happy New Year, Everyone! Q1 has certainly started out being extremely active. Whether looking at our appraisal calendar, auction schedule or ongoing activity in the warehouse, I see nothing but a flurry of activity.

As we make the move into 2012, we thought it would be helpful to take a moment and share our perspective as relates to values and demands in a variety of industry sectors. Loeb Appraisal will publish our Market in Review on a quarterly basis.

If you have any upcoming needs, whether it be on the appraisal, auction, finance or equipment front, please do not hesitate to contact us. At Loeb, we view ourselves as a resource to you and your business.

 Appraisal Market in Review as of January 2012