German Valuation Practices

By Stephen Lowrance

A few observations regarding a recent research trip to Frankfurt to meet with ARGUS Software business partners and customers:

The German property market is not as transparent as the U.S. market, and German appraisers routinely evaluate property with summary information regarding tenants and tenant mix (number of residential units, retail area, average rent per square meter, average term remaining). Discounted cash flow analysis is still a relatively new practice as it pertains to valuations, whereas direct capitalization techniques – often referred to “investment methods” – are still a common approach, along with other legally mandated calculations.

While the client or regulating authority ultimately dictates the formal valuation approach – including DCF, traditional German methods and UK style valuations – sophisticated investors always analyze projected cash flows and more often than not, this includes portfolio level valuations, sensitivity analysis and multiple “what if” scenarios related to the purchase or sale of individual assets during the anticipate holding period.

So what conclusions can one draw from these observations? Analysis tools to support German valuation practices must be flexible to support a range of methodologies and sophisticated enough to evaluate complex portfolio scenarios. And on your next visit to Frankfurt, I highly recommend you try the pork knuckle, beef with Frankfurt’s special green sauce and some apple wine to wash it down!

If you have any interesting observations on German real estate practices or cuisine, send me an email at slowrance@argussoftware.com, and I’ll try to include your comments in my next blog. 

Guten Appetit!