Outdated appraisal methods fail to accurately value modern buildings, necessitating new, comprehensive assessments that account for intelligent infrastructure and evolving corporate needs.

Buildings across the country are losing their value, leaving owners stunned by appraisals showing a 50% drop in market value. Banks, too, are skeptical. Such disbelief is justified—these appraisals are not just shocking but outdated. They fail to review and assess all the key facets of a building and overlook the new intelligent amenities essential for conducting corporate business in the twenty-first century. In reality, the decline in value could be even more severe if a more precise assessment were conducted.

Just as twentieth-century solutions cannot address twenty-first-century challenges, outdated appraisals cannot measure the intelligent infrastructure and critical amenities needed today.

As I stated in an earlier article this year, “In the final analysis, traditional appraisal methods are obsolete. The real estate industry must adopt a forward-looking approach, recognizing the permanent shifts in workforce dynamics and technological requirements. Only then can it address the true value of commercial properties in today’s evolving market.”

Understanding a building’s worth in today’s commercial real estate market requires owners and bankers to grasp what corporate tenants need. Most corporations depend on mission-critical applications that require both power and broadband connectivity in a redundant configuration, ensuring no single point of failure.

Appraisals that fail to measure a building’s digital intelligence are obsolete. Similarly, those who neglect to review the types of connections a building has for both power and network connectivity are equally outdated. They do not provide an accurate picture of a building’s viability. In fact, the actual viability could be significantly lower than what traditional appraisals suggest.

The same goes for a building’s market write-up. If critical information about intelligent infrastructure and amenities is omitted, potential tenants cannot determine whether the building can support their mission-critical applications.

Many in the industry are slow to recognize that the commercial real estate market is experiencing a “reverse in musical chairs.” This concept, which I coined a few years ago, describes the increasing availability of office space in specific markets while demand for such space decreases. More building owners are searching for tenants to fill high vacancy rates, even as corporate tenants seek less and less space.

Discussions are necessary about what to do if your building is 70-80% vacant, as it could lose 50-70% in market value without attracting more tenants. Some buildings require major upgrades to remain viable in the new commercial real estate landscape. Others, which are too technologically obsolete, might need complete overhauls or demolition, depending on the cost of making them resilient for commerce.

Some industry advocates claim that now is a good time to acquire buildings at bargain prices. However, my warning to eager investors is clear: “Junk is still junk, even at a discount.” Without intelligent amenities to attract and retain corporate tenants, a newly acquired building could remain vacant, leading to an additional 50% drop in value. Investors might find themselves holding a “hot potato” when the building’s value hits rock bottom.

Numerous buildings in various U.S. markets have sold for ten cents on the dollar of their market value, which should set off major alarms across the industry. Most property portfolios are overrated, necessitating a new approach to appraisals to determine their real value.

A two-dimensional appraisal is insufficient for a three-dimensional world. Traditional appraisals fail to assess or measure the critical intelligent infrastructure required to support mission-critical applications. These appraisals have not kept pace with the rapid advancement of technologies within buildings. New technologies can add value by attracting tenants, but their absence or obsolescence can negatively impact value and occupancy.

Moving forward in today’s post-pandemic market requires a new, comprehensive yardstick to measure both viability and value. This is crucial for everyone involved in real estate transactions—from property owners and their banks to leasing agents and corporate clients seeking space. Insurance companies must also understand what impacts a building’s value and market viability.