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New IPA Guidelines Set New Appraisal Standards

by Bryant Asset Advisors on 05/31/13

IPA Guidelines and FINRA Regulations ask REITs to rethink their valuation/appraisal and disclosure processes.


In late April 2013, the Investment Program Association (IPA) unanimously passed a new IPA Practice Guideline outlining new standards for valuing publicly registered, Non-Listed Real Estate Investment Trusts (REITs). These new industry-wide recommendations have been in the works for two years and, according to IPA CEO Kevin M. Hogan, aim “to bring a higher level of uniformity, consistency, and transparency to the financial reporting for Non-Listed REITs.”


Why Are There New IPA Practice Guidelines?

The IPA passed the new Guideline in order to bring more transparency to the industry. The new guidelines will standardize valuation approaches and give investors a lot more information about Non-Listed REIT valuations and investment performance. This new transparency is key to proving Non-Listed REITs’ investment results, which in turn enhances the American public’s trust and confidence in the industry (two qualities which have been sorely lacking as of late).


The IPA embarked on the journey to creating the Practice Guidelines two years ago because they wanted to create standards for providing objective valuation information about publicly registered Non-Listed REITs. According to the IPA, the more detailed information would confirm the benefits of Non-Listed REITs and would help investors understand their real role in a diversified portfolio. Without this standard, detailed information, investors have been making uneducated investment decisions.


Why Invest in REITs?

Investors have been attracted to REITs for years, especially after the financial collapse in 2007-2008. REITs have yielded results. So, even though there has been a recent decline in many Sponsor portfolios (in some cases, a 25% or even 75% decline in asset values or share prices), asset flows into REITs have remained strong.


With just under $100 billion in total assets invested in REITs, the industry should continue to capture a growing share of investor capital. And now, with the new IPA regulations and the FINRA valuation/disclosure requirements, there is a chance that investors will feel more confident in these vehicles and we could see a substantial increase in investment.


The Impact on Appraisals/Valuations

The new FINRA requirements and the IPA industry-imposed guidelines are positive steps towards a more transparent investment landscape. In order to comply with the IPA guidelines, Non-Listed REITs must follow several important rules in the valuation process:


  1. Non-Listed REITs must establish a committee of independent directors (a “Valuation Committee”) to oversee the valuation process and recommend a final valuation.
  2. Non-Listed REITs must engage third-party valuation experts and appraisers (firms like Bryant Asset Advisors, LLC) to determine the REIT’s investments’ value in the initial year of valuation and then at least once every year thereafter.
  3. Non-Listed REITs must provide valuations within approximately 9 months after the closing of the REIT’s offering.


These new guidelines require REITs to engage third parties to value and appraise their investments annually, and much faster after closing of the offering. REITs are now at a turning point. To comply with the guidelines (and therefore continue to attract valuable investors), REITs must establish strong Valuation Committees and choose outside appraisers that can act as long-term, unbiased experts in the valuation and appraisal process.


This trend of increased transparency and improved disclosure in the investment arena is not exclusive to the Public Non-Traded REIT space and has largely been driven by pressure from shareholders, limited partners, etc.  Increasingly, sponsors of a variety of smaller Regulation D investment offerings are airing on the side of caution and following the lead of their registered counterparts by engaging appraisal advisory firms to conduct full portfolio valuations, third party reviews, or confirmation of the sponsor’s valuation assumptions as applied to individual assets and/or at the fund level.  


Not every appraisal firm can handle the volume, or complexity of appraising Non-Listed REIT or similar fund investment assets. Most commercial appraisers can handle appraising a 7-Eleven or McDonald’s restaurant, but not every firm has the knowledge and experience to handle these more complicated assignments. The REIT or Regulation D fund’s underlying real property assets are typically Class A or B in quality and require an appraisal firm with extensive and varied experience.


Bryant Asset Advisors’ Principals and Strategic Partners have decades of experience with valuation and advisory services relating to the appraisal of high profile and value-added assets. From commercial real estate to personal property, Bryant Asset Advisors has the capability to deliver a multitude of property related services throughout the United States.  We have offices in California and the Midwest and are licensed in CA, IN, OH, MI and PA.  In certain situations, depending on the needs of our clients, we are able to service all parts of the continental U.S.  Please contact us today to discuss your immediate or future valuation needs.


CA, OH, IN, MI, PA Inquiries: 858-243-8724



Learn More

Learn more about the IPA’s new guidelines here:

Midwest Regional Office:  317-730-2423
Western Regional Office:  858-243-8724

West:  3525 Del Mar Heights Rd, #621, San Diego, CA 92130
Midwest:  11715 Fox Road, Suite 400-127, Indianapolis, IN 46236