Eric Schultheis is a salesperson and appraiser for Sweeney Real Estate & Appraisal, a commercial real estate brokerage and appraisal firm based in Providence. Schultheis joined the company in 2018, after entering the real estate industry following his graduation from the University of New Hampshire in 2013 with a bachelor’s degree in business administration.
PBN: It’s been reported that the valuations of properties changed drastically in the last few years. What are your observations about this, and how does this change in valuations impact your work?
One of the biggest challenges in appraising high-vacancy office properties is estimating future occupancy rates and absorption timelines when providing a “stabilized” value. Persistent negative absorption has made it difficult to predict when this trend might reverse.
Other property sectors, such as multifamily and industrial, experienced significant value growth from 2020 through the end of 2022. However, as interest rates have risen, value growth in these sectors has slowed. Some property owners expect the dramatic value increases seen in single-family residential properties to carry over to the commercial property market. Unfortunately, this is not the case, and explaining why their properties may not be worth as much as they expect can be challenging.
PBN: What are some of the biggest challenges for you and your firm right now in the local commercial real estate market?
SCHULTHEIS: Transaction volume has declined as interest rates have risen. With tighter lending conditions, there is less appraisal work coming through traditional lending pipelines.
However, beyond traditional lending, there remains demand for appraisals in areas such as estates and private lending. Fortunately, we have established a strong network of local attorneys, accountants and business owners who help fill the gap when activity in the traditional lending market slows.
PBN: What will the future of downtown Providence look like and why? Will it change much or not?
SCHULTHEIS: With the increasing number of multifamily units downtown, I believe we’ll see shifts in business operating hours and uses to cater more to residents rather than office workers. Distressed office buildings, along with the Providence Place mall, are likely to sell at lower valuations to new owners seeking creative ways to add value. Rhode Island has historically not been a front-runner for change, so we can look to trends in neighboring markets to anticipate what may emerge downtown.
PBN: You do appraisals of commercial properties. What are some things that commercial property owners could do to boost the value of their properties in Rhode Island?
SCHULTHEIS: The most successful property owners, in terms of securing valuable tenants and long-term leases, are those who not only maintain their buildings but also invest strategically in buildouts to attract the right tenants. These owners clearly take pride in their properties and understand that the initial cost of a buildout is outweighed by the long-term value added by a quality tenant.
To maximize the marketability of your property, it’s essential to have all necessary paperwork in order for a smooth transition during a sale. Often, we encounter owners who say “the tenant has been there forever” but [they] lack a current lease or a timeline for rental rate increases. While you may have a strong relationship with a long-term tenant, not having a lease can ultimately diminish your property’s value and, worse, jeopardize both the sale and the tenant relationship.
PBN: What role do you see local government policies playing in shaping the future of commercial real estate in Rhode Island, and how can property owners best adapt to these changes?
SCHULTHEIS: Local government policies on zoning, tax incentives and infrastructure investment play a significant role in shaping the commercial real estate market. Recent changes in zoning policies, particularly around converting properties into mixed-use spaces, have helped streamline the process. Traditionally, zoning requirements often delayed projects, but these new changes aim to reduce project timelines and alleviate some of the hurdles developers face.
Tax incentives, such as the Rhode Island Historic Tax Credit program, have been pivotal in rehabilitating older properties and attracting developers to areas that might otherwise be overlooked. Similarly, infrastructure investments – or, in some cases, the lack thereof – can greatly influence the types of businesses drawn to a region and either enhance or diminish the desirability of neighborhoods throughout the state.
Property owners must stay informed about policy changes, such as new rental regulations regarding lead compliance. Not being compliant with regulations can negatively impact the marketability of a property and potentially delay its sale. Partnering with legal and appraisal professionals can help ensure compliance with evolving regulations and position properties for maximum marketability.