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Valuation Trends and Building Durable Value Across Real Estate and Business with Joe Calvanico of J2C Valuation 1-14-26
00:18:16
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- [00:00]
A
This is Scott Becker with the Becker Business and the Becker Private Equity podcast. We bring to you daily one to two market and business insight episodes. We also get a chance to visit and interview regularly brilliant business leaders. We're thrilled today to have back with us Joe Calvanico. And Joe is the founder of J2C Valuation. He does a lot of work in real estate and in business generally in equipment and across the board and, and he talks to us today about some of the trends he's watching both in real estate and in valuation and advice for founders, leaders, CEOs and owners. Joe, can you take a moment as we get started to introduce yourself and tell us a little bit about J2C valuation?
- [00:43]
B
Absolutely. And thanks Scott for having me as your guest today. I really appreciate it. So the, my career spans 45 years, so I'll only bore you with a couple of highlights and my favorite highlight of course is I spent a number of years at Cape APMG where I was a partner. I spent over 20 years in public accounting. And one of my former partners, a guy named Steve Sherman, had once he left the practice, he went over to an investment bank here in Chicago run by Jim Reynolds called Luke Capital. And so I went and worked with with Steve, basically restarting my real estate practice after leaving public accounting. And I spent a number of years with, with, with Steve and it was during COVID and I realized that I really wanted to start my own, my own business. And not only was Steve really supportive, but so is Jim Reynolds. And they, they basically kept me on as their senior advisor and I still get a quite a bit of work from them on the real estate and machinery equipment side in terms of valuation and had the opportunity to work on some pretty interesting projects with them. That's pretty much how I started J2C.
- [01:53]
A
That's amazing. And I know you spent a lot of time in real estate and also in equipment and other areas and business generally. Talk a little bit about what you're seeing in the real estate market sort of in different sectors, retail, multifamily, office, industrial. What are some of the things you're watching in those areas?
- [02:10]
B
Interesting things have changed over 2025. There were a lot of changes and you know, it was interesting right when Covid started and kind of when we went through a lot of the mess that we went through, I had said to a number of my colleagues, I said boy, I bet you it's about another five years before we start to see things kind of really level out and get back to almost quite bit a quasi Normal, if you will. And I think that is the start of it. In 2025, things started seeming a little bit more closer to normal. I mean, offices are still struggling, you know, basically because of the fact that there so many people work remotely. I mean that was one, that was one change that happened during COVID and that continues as a trend, although many companies are asking their employees to come back to the offices. But that, that notwithstanding, the footprints needed are a lot, lot less. In fact, I was actually at a client yesterday and he was saying that they're absolutely decreasing their footprint in their office. So there's still some changes there, but interestingly enough there's still room for some new buildings that are coming up in many areas. The one area where it really hasn't had that much of an effect is Manhattan. Manhattan still, you know, the office, the office place to go to. There's been a lot of changes in some of these sectors and in some of the bigger towns. So 2026 will prove to be a real change in the office, this area. And we'll see, I think some growth set we haven't seen yet since COVID Retail has been coming back. Interestingly enough. I read today that Amazon is, is actually got approval to put up a store, if you will, to compete with, with Walmart in the Chicagoland area. So that's, that's a big change where we start to see bricks and mortar back in the retail side of things. In terms of the uh, you know, a lot of, a lot of online or electronic shopping has been going on over the years since COVID and now we're starting to see actually a lot more demand for retail space certainly here in Chicago. I've seen that change over the last year and I think that trend will continue as well. Multifamily still seems to be one of the bigger leaders, you know, in terms of certainly apartments and apartment rents have still been increasing, although there is some compression. You're starting to see it a little bit in some of the areas and I think you'll see it also continue here in 2026. But we're still watching. Multifamily is still being somewhat of a leader in the real estate industry. And finally, I think industrial has a lot of the fundamentals that it started with actually during COVID and I think it continues today that it's still a high demand product and that investors are still putting money into that area. So I think we're going to see a lot of that going on in 2026 as well.
- [04:57]
A
And Joe, let me ask you this question. The core use cases for valuations. Talk about what drives most of the use cases where people work with you. Is it because of financing? Is because of tax issues, estate planning, trying to fight appraisals or try to fight tax bills. What's the primary driver, the principal drivers for yourself?
- [05:22]
B
Yeah, that's a great question. What it is. We do valuations for a number of purposes. We do for, certainly for financing. We do for litigation matters. I actually do a fair amount of expert testimony. Not a lot of appraisers like to do expert testimony, but I do. I think having gone to law school has given me somewhat of a different perspective than a lot of appraisers have. And so I think that is certainly a demand factor for me. I also do quite a bit of work with attorneys and consultants, is for property tax appeals. In fact, a mutual friend of ours, Scott, Jim Field, does a great job with appeals here in the Chicagoland area. And I do a fair amount of work for him as well. And he's a great property tax provider here in Chicago.
- [06:14]
A
You're a very gifted person. 100% right. So then when working on property tax cruisers, financing, expert witness testimony, anything I'm missing in terms of the core bankruptcy.
- [06:28]
B
Back in 2008, I would bet you half of my time was spent on bankruptcy matters. I had gotten work with a lot of people, a lot of the attorneys that do bankruptcy proceedings. I worked on some very big ones actually. Interestingly, some very large real estate developers had gone under during those days. So I did. I was doing subdivisions everywhere from the west coast all the way to Florida. And it was an interesting time watching a lot of these builders go through a very rough time. But working through the bankruptcy courts, a lot of these debtors in possession were able to work out some great deals with the with their creditors. And many of them still continue today, which is great to see because there is a demand for housing. As we all know, housing has been a big factor in terms of trying to areas grow. The other area I do quite a bit of work in is in the trust estates area. As presidencies and administrations change, so do trust in the states laws. So probate and gifts are looked at differently from a federal tax standpoint. And so valuations are often needed in that and certainly just even if administrations don't change, generally speaking, in a probate situation, in a date of death, where there is a trust, there's going to need to be evaluation. Same thing with trusts in general. They need to be valued generally every year And I provide those kind of services as well.
- [07:57]
A
Thank you. Actually, a couple questions to start with valuations. What's the balance between sort of people think of them as really precise, but in reality there's a lot of judgment. Where do you see people most commonly overestimating or underestimating value today? And then second, how is the valuation conversation changed over the last few years? So those two questions.
- [08:24]
B
I hear that question a lot, Scott, and thank you for asking it because I, it's important. I, I find that people often overvalue historical revenue and then undervalue the transferability and risk. In other words, the biggest mistake I see is that people trading trailing revenue or EBITDA like an asset, it isn't the asset is the future cash value or cash flow, rather a buyer can actually rely on. What happens is founders will overestimate value when they assume that last year's numbers will repeat. And then they estimate underestimate value when they don't realize how much risk reduction, diversification, documentation, management depth increases, what somebody will actually pay.
- [09:05]
A
Thank you. And how has that conversation changed over the last few years? There's evaluation, so, so for example. Right. You're absolutely right. What really counts is what is the valuation? What does cash flow look like going forward? Not just historic, but what does it look like going forward? And then how has that conversation changed over the last few years? Well, you know what it is, the.
- [09:25]
B
The, the, the free Scott. The free money era hit weak fundamentals and that's gone. Okay. When, when capital is cheap, buyers could forgive a lot. Thin margins, customer concentration, aggressive projections. Now money has a cost and buyers are underwriting risk again. And you know, basically that has shifted valuations from a situation where it's how fast are you growing to how defensible and repeatable is this business. You know, J2C understands underwriting, not just multiples. And that's, I think is a key factor.
- [09:58]
A
Talk about. You do a lot of work in the transaction space, sometimes helping people make sure they've got, or a bank making sure they got the right appraisal on a property and, or on a business. When deals fall apart, what disconnects tend to be the center of that breakdown? I know you've touched on it a little bit, but what causes there to be challenges?
- [10:18]
B
Well, you know, what's interesting is that oftentimes it's not the model that was wrong, it was the assumptions that were so most broken deals come down to one of three things, basically is the customer appreciation that looked small until due diligence happened or earnings aren't exactly reoccurring or actually reoccurring or are that key people that the buyer realizes that they can't replace are going to go. And that's the key where you see a lot of valuation, excuse me, that's where basically valuation fails, where reality shows up.
- [10:50]
A
In other words, in that case, 100%, you got a key key employee, a key key asset, it walks out the door, you have trouble with that asset, all of a sudden it's a big linchpin. Particularly in a smaller company, one person, key person risk can be very big, small and large companies, quite frankly, talk for a second. Founders, operators, owners, what are the biggest mistakes that they make? And it could be a real estate owner too, when they sort of focus very much on this is what this number should be. Because I've seen a property like it, I've seen a business like it. What happens there and, and what mistakes happen when people are too, they think they understand the value when the actual market value might be quite different.
- [11:28]
B
You know that, and that's really a good question because I see it like you said, with real estate businesses and even various forms of personal property collectibles, that kind of thing, what happens is that the, the owners, founders, they end up negotiating against themselves. All right. Anchoring yourself to one number turns a valuation basically into a, basically a referendum on ego instead of a risk adjusted price, in other words. So I mean great exits come from understanding why a buyer would pay a premium, not just demanding one.
- [12:01]
A
In talk for a second. When you work with clients, so many clients have a very open mind as to value so many clients are anchored towards. This is what I think it should be. How do you manage that perspective of, of your clients that have very different perspectives on how open minded they are as to what value is versus they have a dictated value they want. And I know that's very challenging to work with for an appraiser.
- [12:28]
B
Oh yeah, absolutely. I mean here's the things that I see there. I think there are about three things that drive long term value more than people realize. And that's how replaceable is the leadership. Okay. And how concentrated is the customer base or in the case of real estate, how, how concentrated is the lease in terms of one, one, you know, one, one lessee rather, rather than multiple lessees or one property versus a number of properties. And then how well is the business documented? I mean having the. Basically buyers will pay more when they're not buying a job. Okay. And that with the real estate management that goes with any business, that kind of thing. I mean, this is pure Joe Calvanico philosophy at this point.
- [13:19]
A
And when you talk about this, when you talk about trying to grow a valuation, how should a team think about valuation? They're not selling today, but some people want to look at and say, what's the maximum value it's worth today versus trying to build an organization or a portfolio or property to command premium later? How do you balance those different thoughts? Maximizing cash value today versus building an organization or property for longer term value.
- [13:49]
B
Building building value is easy. It's got to be boring, okay? It's got to be predictable, diversified, and even to a certain degree, system driven. All right? If you have a process within a business or if you have a good maintenance philosophy within a parcel of real estate, those are the kind of things that are going to help. I mean, you don't, you don't build for buyers by chasing multiples or cap rates. You build it by eliminating single points of failure, if you will. Okay, Is that where, where a business can shine is, is where you understand that. Exactly. That cash flow, that revenue, a model, and that you have more than one area that you're gaining that revenue from, Those are the things that really help to basically maximize any future value for any company or real estate or other asset.
- [14:47]
A
And so much of what you say is so, resonates so well in terms of single points of failure, in terms of customer concentration, in terms of executive concentration, are you too vulnerable to the loss of any key executive, any key customer, any key tenant, and so forth and so on? Talk a little bit about what signals to you sustained performance. And you talked about this a little bit like some property owners do a great job of keeping up maintenance. Some defer it for a long time, then all of a sudden they've got challenges because it's a real liability on the books or to the business. What indicates to you sustainable versus temporarily inflated performance or valuations?
- [15:24]
B
Oh, that's a good, that's a great thing to talk about is. It's durability, Scott. I mean, if, if, if there's basically one customer or one piece of one, one piece of real estate in a portfolio, one contract, basically, or one within a company, one rainmaker, one seller, or one unusual market condition, that's a fragile business, that's a fragile piece of real estate, that's a fragile portfolio. You know, basically durability, you know, shows up when the revenue continues, even when something breaks, okay? That's the important thing, durability, you know, growth without any Durability is really makeup or cosmetic, if you will.
- [16:05]
A
It could be soft and could be illusory as well. Can lead you to a sort of it's there and then it's gone if you're not careful in and so you really want to build durable organizations, durable strategies, durable portfolios. Talk for a second. If you were to give a CEO one piece of advice heading into evaluation or transactional process, what would that piece of advice be and how do they avoid, you mentioned a little bit already, self inflicted damage. How do you help a CEO or a leader or an owner avoid self inflicted damage?
- [16:36]
B
They really have to understand their own risk profile. The problem is a lot of times a founder or a CEO goes into a situation where they're looking to sell and they understand or discover their own weaknesses in front of the buyer instead of understanding it in advance. And that that is just the most damaging thing that any CEO or founder can run into is that not understanding what their own risk profile looks like.
- [17:05]
A
It isn't that important. Like we always say, the best business owners know first and foremost their own business really well then the macro environment. So they know their people, their properties, what, what their customers, either tenants, you know, whatever it might be. I think that's, that's so right on. Joe, anything else you'd like to leave with the audience today? Joe Calvanico Joe, anything else you'd like to leave with the audience today that.
- [17:31]
B
You know, 2026 is going to be a year of change. I think this is going to be the year that we, I think we finally outgrow the shadow of COVID and that there's a lot of deals that are going to happen and I think that it's going to be an interesting year to see and you know, J2C would love to be a part of any conversation in that regard.
- [17:54]
A
Joe, it's an absolute pleasure to visit with you. As always, you're one of the brightest people I get to visit with. It's a true pleasure. Thank you so much for joining us today on the Becker Business and the Becker Private Equity podcast. Again, Joe Calvanico, J2C valuation Thank you so much for joining us.
- [18:11]
B
Thanks Scott. Really appreciate the time.