Proper valuation of real estate takes into account the future: usually 15+ years of rental income, maintenance cost, interest on loans, vacancies and churn, the

Proper valuation of real estate takes into account the future: usually 15+ years of rental income, maintenance cost, interest on loans, vacancies and churn, the development of surrounding areas in that period and then as a clincher: the future value that the building can be sold for. The underlying principle of any valuation is that there is "At Least One" potential buyer. That makes valuation of real estate an art. Say in a downturn when nobody is buying, the value is suddenly non existent. Valuers have solved that by the "At Least One" criterium: you just value in the fiction that there is always a buyer. I've been involved in several dozen valuations from a risk management perspective and that is the one thing that stuck by me. The downside risk of no liquidity is not in the valuation. What does this lead to? A value of zero in case of tenants is highly unlikely unless there are some large cost are modelled. If there are a lot of vacant properties with zero current value, that might lead to all values being depressed. If in the set are buildings with high future maintenance cost modelled, the value of the set could become zero. Perhaps the bank didn't want the risk of all eight properties at the same time and he should have moved step by step: first buy and redevelop the buildings with tenants, only then to expand and get leverage while building on an existing portfolio. That is the way real estate fortunes are made where I live. Get a building, make condos, fill them, show a positive cashflow and add leverage. Rinse and repeat. With rental income in 5%+ and interest moving to 1% it has been a few lucky decades for those involved. The statistics mentioned between loaning in white and black communities are quite stark. However, to give some more perspective from the lender. A low interest rate signals even smaller risk appetite for the lender. If there ever was room for defaults in portfolios, there is none at interest rates < 1%. It just kills your business to have any one customer fail on payments or worse needing auctioning off. I guess he could easily get crowdsourcing or private investment at 25% of needed capital with his story if he did 75% downpayment at 4%. But that would kill his part of the business case. I would agree that this risk management view could blow up inherent biases in the way valuation work.