| Detail | Explanation |
|---|---|
| As-is value | Current condition, use, and zoning on the effective date |
| As-completed value | Prospective value when construction or renovation is expected to finish |
| As-stabilized value | Prospective value when the property is projected to reach stabilized occupancy |
| Defined in | Interagency Appraisal and Evaluation Guidelines |
| Used for | Sizing bridge, construction, and renovation loans |
How do the Interagency Guidelines define each value?
The Interagency Appraisal and Evaluation Guidelines issued by the federal banking agencies define "as is" market value as the estimate of market value in the property's current physical condition, use, and zoning as of the appraisal's effective date. They describe "as completed" and "as stabilized" as prospective market values, with effective dates after the date of the report.
Under the same guidance, the as-completed value reflects market value when development is expected to be complete, and the as-stabilized value reflects market value when the property is projected to achieve stabilized occupancy. For an income property, stabilized occupancy is the level expected after the space has been exposed to the market for a reasonable period at terms comparable to similar properties. For construction or renovation financing, a bank will generally ask the appraiser for the as-is value and, as applicable, the prospective values.
Why is as-is value usually lower?
A buyer of a property with vacancy or deferred work pays for what exists today and bears the cost and time to fix it. Appraisers reflect that by accounting for the income lost during lease-up, leasing commissions, tenant improvements, renovation costs, and a profit allowance for the risk. The as-stabilized value assumes that work is done and the income is in place.
The gap between the 2 values is roughly the value a sponsor's business plan is expected to create. It is also the part of the value a lender has not seen proven yet.
Worked example
In this hypothetical example, a 60% occupied property appraises at $17,500,000 as is. The appraiser projects stabilized net operating income of $1,560,000 and applies a 6.50% cap rate, for an as-stabilized value of $24,000,000 by direct capitalization. Compare 2 assumed lender limits. All figures are illustrative.
As-stabilized value = projected stabilized NOI / cap rate (direct capitalization)
| Basis | Value | Assumed advance rate | Maximum loan |
|---|---|---|---|
| As-is value | $17,500,000 | 70% | $12,250,000 |
| As-stabilized value | $24,000,000 | 65% | $15,600,000 |
How do lenders use as-is and as-stabilized value?
A lender that relies on the as-stabilized value usually holds back part of the loan and releases it as the plan is carried out. Capital Partners matches sponsors with bridge and construction lenders whose valuation basis fits the business plan. Estimate the stabilized value with the cap rate calculator, then submit the deal with the appraisal or pro forma.
- Banks often cap the initial advance on loan-to-value against the as-is value
- Bridge lenders may size the total commitment, including future funding, to the as-stabilized value
- Construction lenders usually test loan-to-cost and a limit against the as-completed or as-stabilized value
- Permanent lenders size on current income and as-is value, since the property should already be stable
Sources
Common questions
Which value does a bridge lender use?
It depends on the lender. Many size the initial advance to as-is value and the total loan, including renovation or leasing dollars, to as-stabilized value. The term sheet should state the basis and the maximum percentage for each.
Is as-stabilized value the same as as-completed value?
No. As-completed value is the prospective value when construction or renovation is expected to finish. As-stabilized value is the prospective value later, when the property is projected to reach stabilized occupancy. For a property that opens without tenants, as-completed value is usually lower.
Can a lender lend more than the as-is value?
Some construction and bridge lenders will commit a total loan that exceeds as-is value when future funding pays for improvements that create value. The initial advance is normally limited to a share of as-is value, and the rest funds as the work is completed.
Does the appraisal have to show both values?
It depends on the loan. For construction or renovation financing, the Interagency Guidelines say a bank would generally request the as-is value and, as applicable, the prospective values on completion or stabilization. Many non-bank lenders ask for the same set.
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