Valuation of real estate in Chapter 11 cases is challenging to begin with, and adding the effect of COVID-19 to the equation will make litigating valuation issues much more complicated. Although it is clear COVID-19 has affected most facets of our economy, quantifying the impact on real estate will lead to increased valuation hearings and motions in limine challenging the data relied upon by appraisers and their ultimate opinions of value. Also, COVID-19 did not have the same effect on all assets classes, with industrial properties doing much better as the demand for warehouse space increased, while lodging took a substantial hit with soaring hotel vacancy rates. It is likely that the lifting of various COVID-19 moratoriums and the expiration of forbearance agreements will cause a spike in Chapter 11 filings, leading to epic cramdown battles between debtors and secured creditors.

Generally, real estate is valued at its highest and best use with appraisers conducting a four-part test to determine a use that is legally permissible, physically possible, financially feasible, and maximally productive. However, under the Bankruptcy Code, when a debtor intends to retain property and pay the secured creditor over time, the property is valued based upon the debtor's intended use of the property, which is not always the highest and best use of the property. 11 U.S.C. §506(a). In addition, the property is to be valued using the "replacement value" standard, which is the price a willing buyer in the debtor's trade, business, or situation would pay a willing seller to obtain property of like age and condition.  With these fundamental concepts in mind, we can turn to valuing real estate in the era of COVID-19.