Canadians may just find it rude to write down the value of their

real estate

, a disconnect a

Toronto real estate

conference this week heard is impacting sales activity.

Australian-born Bryan Reid, executive director of MSCI Inc., a global research company, asked some top Canadian real estate executives why there is so much reluctance here to accept the new economic reality of lowered vacancy and traffic and the impact that is having on the value of assets, a reluctance that in turn is stifling sales activity.

“I was joking, but I do find Canadians very polite,” said Reid, in an interview after moderating a panel at the RealREIT conference tackling the thorny issue of the true value of commercial properties, which have seen a rise in vacancy levels in some asset classes. “I would say this is something we have seen globally. We track 35 international markets, and price discovery has been very hard.”

Reid said it can come down to an owner believing their property is worth a certain amount, but a buyer anticipating a worst-case scenario.

“They are thinking about what is going to happen in the six months, and that disconnect is just massive. It’s a vicious cycle. When you have that disconnect, people transact less,” he said, adding that the market is starting to normalize.

Reid said there has been what he called “extend and pretend” on property assets, with lenders opting to lengthen debt obligations instead of foreclosing.

John Worth, executive vice president of research at the National Association of Real Estate Investment Trusts, joked south of the border there is similar behaviour.

“Maybe Americans are becoming polite as well because the valuation process on private real estate has been extraordinarily slow,” said Worth, adding publicly-traded REITs continue to trade on stock markets at a much lower implied value than private property is priced by owners.

Julian Schonfeldt, chief investment officer of Canadian Apartment Properties, the country’s largest publicly traded residential landlord, said the process affects trades.

“I find the politeness with the appraisal thing a bit frustrating,” he said. “You have prices that are based on conditions in the past that are not relevant anymore. People start talking about trading things, but are not willing to hit where the actual market is. It is something that gets cured with time. When things move up, people adjust appraisals quickly, but when they move down, you stay on the old appraisals, and liquidity dries up.”

Mike Brady, president of Northwest Healthcare Properties, Canada’s largest medical office REIT, believes his publicly traded shares trade at a discount to their net asset value or what executives believe is the value of the properties.

“We need to get out there and tell our story because I think that discount will start to disappear over time once people understand where we are today, not where we were two or three years ago,” said Brady.

Another panel at RealREIT discussed the realities appraisers face when trying to establish the value of properties today.

Rob Purdy, senior vice-president of valuations at Collier International Canada, joked that appraisers are great at telling you what happened six months ago. “We are habitual rear-view watchers,” said Purdy.

The appraiser said pushback on his valuations usually comes when there is little data to back up an assessment and he pointed to multifamily properties being difficult to price today because of factors like reduced

immigration

and how it will affect the market.

“We can present a value of Dec. 31, 2024 that says this asset may trade for this. It’s not a condemnation of an investment thesis. It’s just a point in time value but clients will say “I would never sell for that, it’s a 15-year hold.’ There is a disconnect,” said Purdy.

Dave Black, head of value and risk advisory of JLL Canada, agreed it is a struggle to value buildings that have not stabilized or are dealing with vacancies.

“The majority of value comes from what you turn that property into,” said Black. “Will a buyer pay for that vacant space to absorb that lease-up risk?”

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He said there is more involvement today from investment professionals weighing into valuations and more scrutiny of how a valuation is arrived at. “Scrutiny is good,” said Black.

Ray Wong, vice-president of data solutions at Altus Group, believes something has to give. “Companies have to start to making calls on transactions, dispositions and movement,” he said. “Right now we have a certain expectation from buyers and the challenge for the owners is on pricing. No one wants to make mistake but there are opportunities. Some of the uncertainty has to dissipate.”

• Email: gmarr@postmedia.com