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Valuing CRE debt for lenders and borrowers

In June 2021, Jackie Bowie and John Kjelstrom presented to a joint BPF, CREFC Europe, and INREV audience about the importance of appropriately and consistently marking debt to market. This has become a more critical issue in 2022 as reference rates continue to climb, particularly for INREV NAV reporters where fair value adjustments are required.

Chatham Financial independently values debt for more than 40 real estate funds for the purpose of INREV NAV calculations including approximately half of funds who contribute data to the European ODCE index. For more information about our services, please reach out to schedule a call.

Skip ahead to the sections most relevant to you by following the timestamps below:

  • (4:07) Introduction and Chatham coverage
  • (9:00) Why mark debt to market?
    • (11:23 and 17:35) Regulatory and reporting requirements1
    • (11:51) Fair value facilitates transparency, confidence, and trust when the conclusions are aligned with and supported by market participant behavior
    • (12:50) Periodic volatility should be appropriate and supported by market sentiment and behavior
    • (12:58) Case study
  • (20:50) Valuation methodology
    • (21:03) Market participant behavior establishes fair value
    • (21:29) Market participants include similar investors
    • (23:12) The best indication of fair value occurs at origination
    • (26:45) Valuation conclusions should consider all relevant exit scenarios
    • (27:39) Fair value measurements require judgement
    • (28:08) Yield method
    • (29:36) Equity method
    • (37:50) Market approach
    • (39:29) Reconciliation
  • (43:15) Panel questions and discussion including from Ritesh Patel with LondonMetric Property Plc, James Tarry with Aviva Investors, and Brad Bauman with Alpha Real Capital

1As of Q1 2022 INREV has updated their requirements such that all fixed- and floating-rate debt must be fair valued as part of the INREV NAV calculation. (https://www.inrev.org/system/files/2022-05/INREV-ODCE-Eligibility-Criteria-Governance.pdf)

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  • John Kjelstrom

    Managing Director
    Valuation, Reporting, and Analytics

    Real Estate | Kennett Square, PA

    John Kjelstrom is a Managing Director, leading Chatham’s Valuation, Reporting, and Analytics team.

  • Jackie Bowie

    Managing Partner, Board Member
    Head of EMEA

    Real Estate | London

    Jackie Bowie is a Managing Partner and Head of EMEA providing guidance and strategy for the European and APAC regions, with over 25 years of financial markets expertise.