Commercial real estate market trends always adapt to economic developments on a European and global scale, which also means a consequent demand for valuation of business and specialized properties. During the Covid-19 pandemic, when tourism experienced a downturn, we observed a sharp increase in the demand for hotel valuations, while the introduction of sanctions against Belarus and Russia caused banks to find out the value of ports, taking into account changes in cargo flows and potential risks. What are the current events in the segment of special purpose properties and commercial real estate? The insight is provided by "Latio" business valuation experts Kristīne Katlinska and Raimonds Lieksnis.
A hot topic - valuation of solar and wind farms
It is no secret that the energy resource crisis has stimulated interest in the possibilities of alternative energy production. For Latio valuers, this means responsible work on justifying the economic efficiency of solar and wind farm projects. At the initial stage, large-scale energy projects are evaluated for the needs of investors, but later, when the necessary permits are received and a plot of land or even a whole portfolio of plots of land is purchased, the evaluation is required by credit institutions. The future value of the property is also often determined at the request of the banks.
"Evaluating several solar and wind farm projects of various scales, we have accumulated a rich base of knowledge and experience, which allows us to determine the viability of the project already at its initial stage. If necessary, we can recommend effective changes in the project, make forecasts and, at the owner's request, analyze and adjust the cost structure of the project," explains Kristīne Katlinska.
There is a growing demand for evaluation of boiler houses
As the increase in natural gas prices is reflected in rapid tariff jumps and causes dissatisfaction among residents about heating costs, the number of boiler house evaluation orders has increased dramatically over the last year. The appraisals are mostly used to get Altum's support and bank financing for heating network system modernization, as well as for transition of boiler houses to a cheaper type of fuel - wood chips, which is obtained as a by-product of wood processing and falls under the category of renewable energy.
Peat, sand, and dolomite - evaluation of mineral extraction sites is always relevant
Although Latvia is not a mineral powerhouse, valuation of local resources such as sand, dolomite, peat bogs, and chalk quarries has always been important in both local and international transactions. Recently, the demand for the evaluation of mineral extraction sites has grown significantly - the revaluation of peat bogs has become particularly relevant. Nevertheless, the most rapid increase can be witnessed in the demand for sand and dolomite, a trend driven by the progress of the Rail Baltica project. Recognizing the opportunity for large-scale quarrying in the near future, the owners approach banks to secure financing. This will enable them to efficiently initiate or expand mineral extraction by acquiring the required machinery and equipment. Additionally, they may undertake preparatory tasks such as topsoil removal and forest clearing if necessary.
"Quarry owners should note that the market value of their property is influenced not by demand alone but also by its location and the quality of the usable materials. Furthermore, convenient access and well-maintained access roads to the site are crucial factors. In some cases, these factors can play an even more significant role in determining the property's value than the actual mineral resources," says Raimonds Lieksnis.
Farms, ranches, and grain dryers are evaluated
For years, the dairy industry has grappled with the issue of exceedingly low raw milk purchase prices. The cost of a liter of milk can vary almost fivefold in comparison to the prices seen on store shelves, often falling short of covering production costs. Consequently, Latvia boasts one of the lowest milk purchase prices not only in the Baltics but also across Europe. To remain competitive under these circumstances, dairy farmers are relying heavily on crucial opportunities for modernization and enhanced operational efficiency. These opportunities are made accessible through Altum programs and bank financing. This explains the significant uptick in evaluation applications from dairy farm owners.
Conversely, concerning grain farming, the conflict in Ukraine instigated by Russia has exerted a substantial influence on grain prices. Given the prevailing economic circumstances and the escalating demand for grain, Latvian entrepreneurs are actively seeking Altum's support to embark on new mill construction projects, as well as the modernization and expansion of their existing facilities.
"When valuing a farm or a grain drying facility, our assessment goes beyond mere consideration of buildings and land. We evaluate the entire economic operation, encompassing its equipment and technologies. Essentially, a farm functions as a production plant, and its value hinges on its productivity. Following renovations, agricultural companies experience reduced production costs, thereby leading to a substantial increase in the farm's business value, often several times over,’’ Latio experts comment.
What valuation trends do experts predict in the near future?
Realizing how strongly valuation is influenced by economic developments, the question arises - is it possible to predict the demand for valuation of specialized objects in the future? What objects could be on the evaluators' agenda?
Recognizing the significant impact of economic trends on valuation, it leads to the question: Can we foresee the future demand for appraising special purpose property? Which types of assets might come under the purview of valuers in the future?
"Let's follow and see how the economic situation develops," say "Latio" commercial real estate valuers. "Over our 32 years of experience, there are no assets that Latio has not appraised. Without a doubt, evaluating homes, businesses, commercial properties, farms, and forests is part of our daily routine. However, we've also assessed the value of unconventional types of assets like football and tennis fields, crematoria, chapels, manors, hydroelectric plants, and various other unique properties. With a diverse range of opportunities and a team of certified valuers, we possess the expertise to evaluate any type of real estate," say Raimonds Lieksnis and Kristīne Katlinska.
Is there a need for the valuation of a specialized property or business?