JLL’s Mike Ellis and Tony Lenamon Discuss CRE Valuation and Risk Advisory

MBA NewsLink interviewed JLL Value and Risk Advisory group CEO Mike Ellis and Head of Client Engagement Tony Lenamon about commercial real estate valuation and other challenges.

MBA NewsLink: Mike, you were named CEO of the Value and Risk Advisory group at JLL in January. Can you take a moment and reflect back on the first half of the year?

Mike Ellis: It has been a fascinating journey moving from a brokerage world to the Value and Risk Advisory platform. The volume of transactions and the wide variety of asset classes and advisory transactions was surprising to me. Our clients are in a moment in time where our Value and Risk Advisory services are in great demand; that said the market dynamics are driving tough conversations across almost all sectors.

Our shift to a sector-led approach verses geo-lead has been well received by our clients and aligns with most of their go-to market strategies. As we continue to evolve this sector-led approach across all asset types, it has allowed our team to narrow their focus and deepen their knowledge base to better understand the market and their client needs. Looking forward through the end of 2023, we expect the need for valuation engagement to increase as the ownership/control landscape evolves. We have seen a recent pickup in demand from clients that we expect to continue into the fourth quarter.

MBA NewsLink: Tony, any additional insights from your new role as Head of Client Engagement?

Tony Lenamon: As always, our clients need services tailored to their specific activities in the market.  Those needs are even stronger in the dynamic market we’re facing today. Our lending clients need to know the collateral underlying new loans properly supports their loan amounts. They also need insights around their existing loan portfolio; where are the risks, and what markets/property sectors are concerning. Finally, our institutional clients need to accurately report to their investors, without being conservative or overly optimistic. 

The common denominator of these diverse clients is the need for accurate, insightful and actionable market intelligence.

MBA NewsLink: Now that we’re well in the second half of 2023, are we seeing any more clarity around value? 

Mike Ellis: We are certainly seeing more clarity now from 1Q23, with more sales and data points. This translates to more clarity about where buyers want to transact and, in many cases, the “value gap” is shrinking from the seller’s side. We are also observing some markets where bid activity is very strong, stemming from a general reduction in supply of new deals hitting the market. That said, we still have some progress to make, with many investors and lenders still on the sidelines until rates stabilize and the lending environment opens up.  

MBA NewsLink: How is your group going about valuing properties in such a limited sales comp environment?  

Mike Ellis: Sales are limited; however we are still seeing transactions and can point to hard data, as owners have had to sell due to timing of funds, redemptions, issues with re-financing, etc.

In addition to the limited sales, we lean on market participant surveys from a variety of sources including brokers, developers, owners, and portfolio/asset managers. We are also talking to the market every day and gathering data on not just closed transactions, but deals in market, and deals in escrow. There is a lot to be gained in understanding deal fundamentals and buyer’s shifting objectives in these conversations. The combination of the data from sales and feedback from various sources who are on the ground and see trends in real time allow us to provide valuations that reflect current market conditions. 

MBA NewsLink: What are the biggest challenges your clients are facing at the moment? 

Tony Lenamon: The biggest challenge our clients and the overall market currently face is the uncertainty with underwriting and valuations. Clients are trying to understand values and benchmarking, with these value conclusions affecting strategies related to businesses, funds, or loans. JLL assists our clients in navigating these current conditions.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to NewsLink Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)