Commissioning BOVs routinely/annually vs on an as-needed basis?
Are most of yall getting BOV's on a routine basis (i.e. annually) throughout the life of an investment, or do you wait until you're approaching the end of you're u/w hold period/getting ready to exit?
My firm typically doesn't start to get BOVs until 3-6 years into the hold and then all of the sudden we'll get them frequently (1-2x per year depending on the market & urgency to sell). The rational, as explained to me, is that we aren't usually ready to sell that early in the hold so there's no need to get a BOV. Is this how most firms operate?
A friend who works at another shop made it sound like he's routinely getting BOVs on assets once a year even if they're not ready to sell. If this is a common approach, what is the rational for doing it before your ready? Is just that outside brokers can provide a different perspective than an in-house Acquisitions/AM team?
TIA for any of your insights!
Based on the most helpful WSO content, the approach to commissioning Broker Opinion of Values (BOVs) varies across firms and strategies, but here are the key insights:
Routine BOVs (Annually or Regularly):
As-Needed BOVs (Closer to Exit):
Which Approach is Better?
Why Some Firms Do Routine BOVs:
In summary, both approaches have their merits, and the choice often depends on the firm’s investment philosophy, cost considerations, and the importance of external market validation. If your firm is more focused on cost efficiency and internal expertise, the as-needed approach makes sense. However, firms that prioritize market intelligence and broker relationships may lean toward routine BOVs.
Sources: Opportunity Zones, Q&A: BB M&A Banking to PE Associate and then a Pivot to a Tech VC / Growth Equity, Waterfall for long term hold, When did LBO become a valuation technique?, Q&A: I’ve held Pre-MBA MM LBO, Growth Equity and Venture Capital investment roles for funds with $500M+ AUM to $5B+ AUM
They may get BOVs to more accurately report values if they need to report them to an investor and compare returns against their benchmark (though this would more likely be an appraisal). It's an outside data point that they can point to in order to say "hey we're not making these values up" but again, I've seen that be an appraisal vs. a BOV.
They may also do a formal hold/sell analyses on an annual basis that informs whether they should sell the property. In other words, based on the market pricing today are they better off selling the deal early, or continuing with the original hold/business plan.
My experience is similar to this - you get appraisals for backup on values shown in fund reporting. However, if you do need BOVs that won’t immediately lead to a sale, I’ve found brokers are generally open to short form BOVs- just a value/underwriting, none of the dog and pony show or recommendations on how to position the asset in marketing. Easier to get those when you’re an active buyer and eventual seller
BOVs are usually provided free of charge under the tacit understanding that when you sell you will use that broker to represent you on the sale. Requesting them frequently seems like a poor use of time and resources for both the receiver (you can’t use your own brain?) and the provider (the broker). If it’s for fund documentation / more routine work, there are plenty of third-party appraisers who you can pay. I used to work for a top brokerage shop and I know they would not accommodate that. They were selective in providing BOVs for only top institutional investor relationships because it’s a resource drain. The BOVs were thoughtful / not templates.
And to answer your questions, no I don’t think this is routine, or at least shouldn’t be for true BOVs. I work for a PE shop and the reality is that good brokers can value real estate better than acquisition pros (and better than appraisers) because the brokers are plugged into the capital markets real-time and the capital markets are always changing (preferences for sectors, geographies, underwriting conventions, discount rates, exit caps, debt, etc). The brokers also think about value across a spectrum of buyers and risk profiles (core to opportunistic), not just under an opportunistic lense, whereas the opportunity fund will always solve to their return targets even if that’s not the right market price, and on exit will default to a somewhat arbitrary exit cap / per pound price without giving as much thought on how to “sell” the opportunity and drive/justify higher sales proceeds (identifying upside and/or marketing to the right buyer/profile). The brokers are simply better informed.
Generally agree with this, but I have seen groups request relatively frequent BOVs from brokers to provide ammo for valuations to lenders, equity partners, etc.
Say a seller is in the process of a selecting a brokers to market a deal, is it common to have a couple brokers on the short list (i.e. the two leading contenders) submit BOV's so that the seller can better understand how each broker views on the deal?
Yes - personally, if I bought a deal I am having that broker BOV & then list it when it’s time to sell - I’ll follow the broker if they change shops. It’s bad form to list with someone else except under very limited circumstances in my opinion. Examples include breaking up a portfolio (I’d still give the incumbent the deal(s) with the biggest commission though), buying from an off market broker that doesn’t have a true marketing platform or direct from the seller, or if a brokerage team folds/hops to principal side/truly pisses you off.
However, yes, you are generally correct - most firms get two, maybe three BOVs when considering a sale. I know of one recent southeast trophy multi deal that got four. Some sellers require formal pitches as well, either on video or in person. For institutional owners, they will almost always pick from the largest brokerage shops - I am in multifamily, so that’s like 8 or 9 shops, and in some MSAs you can add a regional player or two that get a handful of listings per year.
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