From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘Gulf Oil Spill

Gulf Oil Spill — Lessons Learned conference

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I’ve just been confirmed as a speaker at the big one-year “Lessons Learned” conference on the Gulf Oil Spill, sponsored by Tulane University Law Center, American Lawyer magazine, and the Brickel and Brewer Law firm. The conference will be held at the Weston Canal Street in New Orleans on April 28th. I’ll be one of the “wrap up” speakers that afternoon, focusing on the impact of the oil spill on the value of bank collateral portfolios.

For more info on the conference, click here. Hope to see you there!

Written by johnkilpatrick

March 25, 2011 at 6:18 pm

Scope creep…. or evolution?

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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.

Written by johnkilpatrick

February 23, 2011 at 9:50 am

October 10 — Update #2

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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.

Written by johnkilpatrick

October 10, 2010 at 11:24 am

My upcoming schedule

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The next couple of months will be pretty busy, “speaking engagement” wise. Thought I’d keep you up-to-date on what’s in store.

This month, most of my travel is for business meetings, with only ONE presentation on tap — I’m a member of the Real Estate Counseling Group of America (and allegedly the Membership Chair, but I’m not quite sure yet what that means) and our semi-annual meetings are scheduled for D.C. the last weekend in September. I’ll speak in Friday morning on the Gulf Oil Crisis (naturally). Right now, I’m figuring out how to embed YouTube videos into a powerpoint presentation. Wish me luck.

On October 7, I’m back in the Pacific Northwest as the keynote speaker for the annual Brownfields Conference, sponsored by the Northwest Environmental Business Council.

We TENTATIVELY have a web-in-ar planned for October 29 on the Gulf Oil Spill. More on that later. If you want info (as soon as we have scheduling), please send us an e-mail at info@greenfieldadvisors.com and we’ll be sure to keep you up-to-date.

Finally (well, not FINALLY, but at least for this list…) I’m scheduled to be in Miami Beach on November 4 to speak on the Gulf Oil Crisis at the Ritz Carleton Miami Beach (Yeah — terrible job I have, right?). For more info on that conference, click here.

Written by johnkilpatrick

September 4, 2010 at 7:08 am

Two new videos

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I’ll be the first to admit that I have a “face for radio”, but the good folks at LexisNexis posted a pair of videos of me from the big June “Gulf Oil Spill Litigation Conference” held in Atlanta:

Remediation after the oil spill

Bank losses after the oil spill

Enjoy!

Written by johnkilpatrick

August 22, 2010 at 3:21 pm

Posted in Economy, Real Estate, Valuation

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gulfspillvaluations.com

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We’ve been hinting at this for weeks….

www.gulfspillvaluations.com is finally alive! This is our web-based solution to providing valuations for thousands of Gulf Coast homeowners who need documentation for their property value diminution claims resulting from the Gulf Oil Spill.

The “official” announcement hit today. CNBC had a great piece on it (click here for a link) and there are already several great pieces about it on the web.

I’ll keep you posted as this progresses.

Written by johnkilpatrick

August 17, 2010 at 7:07 pm

Posted in Real Estate, Valuation

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Collateral Risk Network

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Great talk Wednesday at the Collateral Risk Network conference in DC. One-hundred or so in attendance, representing a great cross-section of stakeholders in mortgage collateral valuation, including some very senior folks from most of the Federal regulators. I spoke for an hour on the impacts of the Gulf Oil Spill on loan portfolios (current and future) in the affected region.

The news, by the way, isn’t very good. For starters, the property value losses are in the billions. While much of this will be compensable to the property owners, little is being done to the holders of the mortgages (banks, mostly). For example, assume a waterfront property in Louisiana valued at $500,000 before the oil spill. Today, it’s worth half that — $250,000. The property owner turns in a claim (which may be paid, or more likely at that level will need to be litigated). Even if the claim is paid, the property is still worth only $250,000. Now, what if before the spill event, the owner had taken out an 80% loan — $400,000. The bank is now sitting on a $400,000 loan collateralized by a $250,000 property.

In most circumstances, the property owners will continue to make payments, and the loans will be paid in full. However, if history tells us anything, a significant number of these loans will end up badly.

In the immediate, the lenders in the area are basically frozen. Anecdotal evidence coming in from the region indicates lenders are not lending, and even existing loan commitments are being cancelled. This has wide-ranging economic problems, not just for borrowers and lenders, but secondarily for a whole host of market participants (builders and brokers near the top of that list).

On that theme, I’m headed for Louisiana in a few days, with meeting scheduled on a variety of issues (some of them, oil spill related). As usual, I’ll keep you all posted.

Written by johnkilpatrick

August 6, 2010 at 4:36 pm

Posted in Economy, Real Estate, Valuation

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