Archive for the ‘Uncategorized’ Category
Construction defects
Took a “day trip” to Marina del Ray, California, yesterday to speak at HB Litigation Conference’s Construction Defects conference. It was very well attended, with a great cross-section of attorneys and experts on this complex topic. I was the only valuation expert on the panel, and spoke about the variety of challenged converting physical defects to market value determinations.
One of the really interesting issues arising now is in the area of “green buildings”. Insurers, contractors, and the attorneys who feed and care for them, are apoplectic over the vision of courtroom battles a few years from now over what was SUPPOSED to be a “green building” that turned out to be “not-so-green”. The industry has entered into a new realm. While there are plenty of prescriptive standards (LEED, Energystar, etc.) these standards do not take on the same level of codification of building codes, nor is there the same level of inspection and certification associated with building permits. Hence, a property PROPOSED as “green” may not actually turn out to be “green”, or at least the same shade of “green” that the investors were promised. When that happens, litigation ensues.
Share this:
Scope creep…. or evolution?
In December, 2010, a whole new set of mortgage lending regulations went into effect — the first major change since 2004. Given the recent pronouncements from the Treasury Department, it’s clear that future changes will come in rapid-fire form.
The various discussion groups I review — particularly the ones involving real estate appraisers — are filled with comments about “scope creep”, that is, how the mortgate lending community is requiring more and more information from appraisers and yet paying less and less. As one commenter put it, “If I’m going to lose money at this, I’d rather stay home and drink beer on my porch.”
Let’s face it, folks, the mortgage lending business has undergone a HUGE sea-change in the past 3 years, and will continue to evolve rapidly for the remainder of this decade. The ONLY reason to order an appraisal on a property to be financed is to confirm — or deny — the value of the collateral.
At the core of the issue is that, historically, the people inside the banks probably knew the local appraiser, understood appraisal methodology and terminology, and frequently were trained in appraisal practice. In the future, this will no longer be the case. Appraisal Management Companies (AMC’s, as they are commonly called) are intermediating the process, and all of this is screaming “lowest bidder” with no communications between the underwriter (who may not even be in the same country) and the appraiser. Unfortunately, appraisal methodology has changed little in recent decades, and automated valuation models speak a language that the new generation of underwriters understand better (cheaper, with known error rates, and predictable levels of statistical validity).
I wish I had a quick and simple answer to this. The appraisal profession frankly let the S&L crisis of 20 years ago dissipate without the sort of professional consolidation that they should have pushed for (what the CPA’s did during the Great Depression). Clearly, the appraisal profession is letting THIS crisis go to waste, too. This was probably their last chance to save themselves from marginalization.
At Greenfield, we’re VERY heavily engaged in the Gulf Oil Spill mess. When property owners turn in claims for property damage, guess who reviews those? Appraisers? Nope. CPA’s, who have a very different expectation regarding methodology, terminology, and statistical support. I wouldn’t at all be surprised to see the accounting profession emerge on top of the real estate valuation heap in the not too distant future.
Share this:
w-a-a-a-a-ay off topic….
We’re all stunned by the attempted murder of Cong. Gabby Giffords in Tucson on Saturday. It’s particularly stunning when you look at what she stands for, her essentially centrist, “let’s all try to work together” approach to things. She is exactly the sort of member of congress we wish all 435 of them were, and which all too few of them actually are.
I’m personally outraged more than most. Lynnda and I met Gabby and her husband Mark (Capt. Mark Kelly, USN, decorated combat fighter pilot, test pilot, and the Commander of the space shuttle Discovery) back in 2009 at Renaissance Weekend in Charleston, and saw them again just a week before the shooting. We partied with them on New Years Eve, and Mark and I were on a program together at Renaissance. Totally ignoring the public persona, they’re terrific people, and from all appearances totally in love with one another. It’s amazing too, when you consider that the two of them have devoted their lives to public service. Gabby was quite successful in business before she devoted her life to public service, and no one needs to tell you that Mark, despite the adventure of his job, takes home about half of what an airline pilot makes.
I’ve sent Mark and the family a letter of condolence and encouragement. They’ve asked that well-wishers show their support by making contributions to two very important charities:
Community Food Bank
3003 S Country Club Rd # 221
Tucson, AZ 85713-4084
(520) 622-0525
American Red Cross, Southern Arizona Chapter
2916 East Broadway Boulevard
Tucson, AZ 85716
(520) 318-6740
I would second that recommendation, and wish Gabby and her family, as well as the families of all of the folks killed in this madness, all the best through this terrible tragedy.
Share this:
October 10 — Update #2
Since my last post, I also had the privilege of attending (and speaking) at the semi-annual meeting of the Real Estate Counseling Group of America (RECGA). RECGA is a small but highly influential group, founded in the 1970’s by the great real estate valuation leader, Dr. Bill Kinnard, and over the years has counted in its membership many of the presidents of the Appraisal Institute and other leading groups, editors of several of the top real estate journals, noted professors and highly influential authors in the field.
The Fall meeting was held in Washington, DC, and the core of the meeting was Friday’s educational session. Max Ramsland opened up with a presentation demonstrating the impact of the number of anchor tenants on the appropriate cap rate of shopping centers. Carl Shultz, a member of the Appraisal Standards Board, followed with a discussion of impending changes to the Uniform Standards of Professional Appraisal Practice (USPAP). These changes are currently discussed in an Exposure Draft, which he invited RECGA members to revieww and submit comments about, and will be incorporated (with appropriate changes) in the 2012 edition of USPAP. Both Mr. Ramsland and Mr. Shultz are also RECGA members.
Two non-members followed with somewhat related presentations on eminent domain. Scott Bullock from the Institute for Justice was one of the attorneys who argued the famed Kelo case before the U.S. Supreme Court, and he discussed the status of eminent domain law since that landmark case. With a somewhat different perspective, we heard from Andrew Goldfrank, a U.S. Justice Department attorney who heads up all Federal takings litigation.
The afternoon session kicked off with David Lenhoff, a RECGA member and former editor of the Appraisal Journal, who discussed the complex issues surrounding hotel valuation. I followed with a brief synopsis on the Gulf Oil Spill, focusing on the current status of the claims and litigation processes. Reeves Lukens, a RECGA member, and his son, Tripp Lukens, discussed the state of pharmaceutical properties in the U.S. Joe Magdziarz, who is the incoming president of the Appraisal Institute (AI) discussed the current issues facing that organization, with a particularly emphasis on the recent controversies between AI and the Appraisal Foundation (AF). Notably, the founding Chair of AF, Jeff Fisher, is a RECGA member and was able to provide some historic commentary. RECGA members Jeff Fisher and Ron Donahue brought the day to a conclusions with discussions about the state of the securitized real estate market, including REITs.
For more information about RECGA, visit the web site, www.recga.com.
Share this:
…and yet another Seattle-centric post
I had the real pleasure of serving as Editor of the Central Puget Sound Real Estate Report for a number of years, a job which I gladly passed off to Matthew Gardner a couple of years ago. This is the 60th year of publication for this fine report. As local real estate markets continue to roil, it serves as a great touchstone for researchers, investors, and others with an interest in this market.
For more information or to subscribe, contact Glenn Crellin at the Washington Center for Real Estate Research, Washington State University, wcrer@wsu.edu, or visit their web site, www.realestatereport.org.
Share this:
1/30/09 — Stacking the Dominos Back Up
I’m a Member of the Faculty of Valuation of the Royal Institution of Chartered Surveyors, headquartered in Great Britain. The only reason I mention that is they do a great job — much better than their American counterparts — at tracking and reporting information on construction, valuation, etc.
I received a very insightful missive from them this morning about U.S. residential construction. (Please don’t miss the irony here — a Seattle-based real estate economist depends on Londoners to report on U.S. construction trends.) Employment in the residential construction sector has been falling for 18 straight months, with 100,000 jobs lost in December alone. Note that all job losses in the U.S. in November and December totalled about 1-million, so residential construction losses in December accounted for about 10% of the total job losses. As of the end of 2008, housing starts are about as low as they’ve been in the past 40 years, and show no signs of doing anything but getting lower.
The President, Congress, and… well… everyone is committed to getting employment back up. Simply throwing money at the housing sector isn’t even close to being enough. There are a whole series of dominos which have fallen down, and before the residential construction domino can be picked up, all the rest have to be picked up as well. Builders and developers won’t commit to the risk of starting houses without some promise that these homes will be bought. For that to happen, the housing demand equation has to get back up on its feet again. For THAT to happen, buyers have to have some promise that home prices will quit tanking AND they have to have savings for down payments AND the nation needs a healthy lending infrastructure in place.
I tend to be a “glass half full” kinda guy, but clearly the residential construction industry will remain moribund until the employment numbers turn around, until the foreclosure mess gets fixed, and until the banking industry is working and lending again. Here’s the good news — there are glimmers of light at the end of the tunnel. Congress and the White House seem to be speaking with one voice on fixing things and getting people back at work. In general, economists forecast that unemployment will get a little bit worse this year, but not by the sort of huge numbers we saw at the end of 2008. Brace yourself for a round of corporate bankruptcies, but most of those are already discounted by the markets and most of those have already suffered layoffs.
There is a substantial generic demand for housing in the U.S. — our population continues to grow, particularly on the two coasts. Some theorists suggest that over-wrought lending preciptated too much construction (our rate of home ownership briefly touched 70%, and there are theories that this number should be closer to 60%). The prolonged construction nadir will sop up any excess supply in the market. Remember — millions of homes per year are still being bought, even though we’re in a recession. In short, once our economy starts back up out of the recession, the residential construction sector should react quickly.
In the meantime, investors who are bottom-fishing for bargains might consider that the window of opportunity won’t be open forever.
From a small northwestern observatory... 