5 Benefits of Outsourcing Valuation Management in Europe

More lenders, equity funds and syndicate investors are embracing the outsourcing of real estate valuation and review services. A primary driver is independent reporting: The European Central Bank in August 2024 warned of issues in the ways banks value the collateral underlying their commercial real estate (CRE) loans.  

ECB inspectors began looking into the details of valuation processes starting in 2018, and found institutions relied too heavily on old transaction data, saw frequent misconceptions of “Market Value” and lacked guidelines for automated valuation models. The report emphasised the need for banks to have effective frameworks in place for reviewing and challenging valuations.  

Outsourcing to a third-party firm, which can manage the RFP process to appoint valuation firms, coordinate workflows and review the valuations, provides that independence. “When the process is managed by an expert third party with appropriate systems, and no financial stake in the outcome, institutions can demonstrate to regulators or investors that their process has a level of objectivity,” said Jonathan Kendrick, Head of Real Estate Valuation Services in Europe & APAC. “That inspires a greater confidence.” 

Here are four other key strategic advantages of outsourcing CRE valuation management in Europe.

Leaner Teams, Lower Cost, More Focus on Priorities 

Outsourcing valuation management services allows institutions to operate with leaner teams as portfolios grow and shrink, and frees up internal asset and portfolio managers from time-consuming data aggregation. This is particularly helpful in quickly providing additional bandwidth as refinancing and lending activity continues to increase.  “We're working on an engagement at the moment where we've just picked up the review of over 500 assets,” Kendrick noted. “We can mobilise and deploy our team very quickly.” 

Outsourcing empowers fund managers and bank professionals to focus on the value-accretive elements of their roles, rather than the nitty gritty of valuations. And the ability to run leaner teams saves money; outsourcing services can be included in the loan term sheet at origination, shifting the cost to the sponsor.   

Expert Market Knowledge, Deeper Insights, Best Practices

Third-party valuation firms offer more comprehensive market knowledge and better attention to detail. “The internal professional who is responsible for valuations and running the process might not be a valuer by background,” said Kendrick. “By contrast, every professional on our team has the accreditation and deep experience in both completing and reviewing valuations, which brings enhanced insights.” 

In addition, third-party providers can ensure swift adoption of best practices. SitusAMC’s dedicated specialists serve a diverse client base in different institutions and geographies, exposing the firm to a wide array of strategic approaches, processes and technologies in valuation management. They also regularly interact with the major valuation consultancies, providing perspective on activity across the market. 

“We are performing these activities day in and out with an intense focus on the quality of our service delivery,” Kendrick said. “When we see a process, idea or software that makes workflows faster or more efficient, or a more robust style of reporting that’s helpful in client decision-making, we immediately disseminate these practices among our clients.” 

Greater Flexibility, Staying Current on Fast-Moving Trends 

Meanwhile, outsourcing enhances flexibility in processes. For example, when the valuation management process is managed internally, firms often rely on a single vendor for simplicity’s sake. An outsourced valuation management firm has the bandwidth to manage multiple different relationships with external vendors. This gives clients the ability to select the most qualified firm to value a specific asset or sub-portfolio, implement rotation policies, better manage conflicts of interest and ensure consistency in approach and knowledge transfer through the rotation process and reporting. 

Third-party firms can also help clients stay ahead of industry trends. For example, over the last few years, valuations in Europe have seen a greater emphasis on using a discounted cash flow (DCF) method, and a shift away from the traditional income-capitalisation approach.  

“Fund and asset managers are looking for a greater understanding of the inputs that go into valuations and a DCF method more closely aligns with how they look at assets,” Kendrick explained. “We've been able to support both clients and valuers in transitioning into DCF and understanding some of the challenges and the nuances that go alongside it.” 

Technology to Drive Consistent Data and Reporting 

Outsourcing valuation management provides access to technologies that improve data accuracy and insights. For example, SitusAMC’s proprietary valuation management system (VMS) is web-based workflow tool that aggregates data and provides real-time valuation reporting, supporting but not dictating the client’s requirements.  

SitusAMC reviews all of the data points received from multiple different valuers to ensure KPIs are uniform across the portfolio. It can then aggregate reporting and provide analysis against other metrics in the market. “The ability to quickly respond to your investor queries and reporting requirements not only saves time, but also gives those investors greater confidence in the lender or fund, which can lead to longer-term relationships,” Kendrick noted. 

“Our technology helps manage the process and allows clients to do a deep dive into trends at the asset and portfolio level,” Kendrick added. “For example, our value-change analysis tool can show period-over-period changes with the monetary impact of those changes to different metrics within the valuation.”  

What To Look For in an Outsourcing Partner 

When outsourcing valuation management to a third party, look for a partner who views themselves as an extension of the internal team and can adapt to meet client-specific requirements. The third-party firm should be able to demonstrate an understanding of the needs of various stakeholders in process, from fund and asset managers to accounting teams to valuers, auditors, legal, reporting and analytics teams.  

“There is understandably some nervousness around outsourcing a process that historically has been done in house,” said Kendrick, noting that valuation management, while common in the U.S., only migrated to Europe about a decade ago. "The third-party provider should be able to demonstrate they have the experience, ability to adapt and nimbleness in responding to different stakeholders needs.” 

As global and local economic conditions become increasingly unpredictable, more European institutions and U.S. firms with European operations are turning to outsourcing to enhance their operational agility and cost-effectiveness. By delegating valuation management to an expert third-party firm, institutions can streamline their operations, direct their focus to core business priorities, leverage the best technology, improve independent reporting, and adapt more swiftly to market changes.  

SitusAMC is a leading provider of comprehensive commercial real estate finance services in Europe, including valuation management, serving a wide range of clients in the corporate finance sector. In Europe and APAC, SitusAMC’s MRICS professionals provided valuation services on €54.5B in asset value representing c.1,500+ valuations in 2023. For more information on outsourcing valuation management services in Europe, contact Jonathan Kendrick at jonathankendrick@situsamc.com, or Tom Moreton at tommoreton@situsamc.com, or visit our website.