Appraisal Matters

Bar and restaurant appraisals are interesting assignments. Unless you are going for an SBA loan, the lender only wants to lend on the "bricks and sticks." They are not interested in the bar equipment (AKA FF&E), business value or good will. The hardest part of this type of assignment is how to separate business value from real estate.

Rarely in a loan transaction are we given balance sheets for the business. In order to comply with the Uniform Standards of Appraisal Practice, we must allocate between real estate value and business value. This is much harder than it sounds.

In urban areas, it is often easy to find similar type buildings without restaurant uses. Our "backyard" is the DC/Baltimore markets and it is generally easy to find sales without businesses being sold with the property. Where it gets hard is in rural or suburban locations where the design of the building only lends itself to a restaurant use.

Very often owners don’t have equipment lists, don’t separate real estate expenses from business and generally do not understand that although the restaurant down the road sold for "X dollars" that included the business and the real estate without allocation between the two. Very often, sellers hold the note for the business or a separate loan with different terms written for the equipment.

For estate appraisals we do usually get balance sheets and can value the business and allocate between business and real estate, but obtaining this information on comparable sales is almost impossible. Some smart real estate agents do allocate between business and real estate but how much of this is real and how much is fabricated?

Technically, as hard as we try, do we ever comply comply with USPAP given the market data available? We certainly do all the due diligence we can, but since the market participants do not understand WHY we are asking the questions, it is difficult to obtain these allocations. The buyers of bars do not allocate. Why do we?

I’m open to all comments on this one.

Eileen