From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘RICS-Americas

International Financial Reporting Standards

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I know I’m sounding like an overly technical geek on these subjects, but as we know from the recent (current?) economic malaise, seemingly back-page issues can have major impacts on large segments of the economy.

Buried deep inside Friday’s issue of the Wall Street Journal (OK, page C1, but that’s pretty deep) was news that the SEC will once again delay implementation of the International Financial Reporting Standards (“IFRS”) for U.S. regulated businesses (from a practical standpoint, essentially all of them).  For those who aren’t up on their accounting theory, U.S. accounting standards — generally referred to as “Generally Accepted Accounting Practices” or “GAAP” for short — have been developed over time from essentially three sources:  “best practices” which have evolved literally over the centuries, pronouncements of the Financial Accounting Standards Board, or “FASB”, and its predecessors, and adaptations to conform with U.S. tax practice.  IFSR is more of a top-down approach, and governs accounting practices pretty much anywhere in the developed world EXCEPT for the U.S.   (One might argue, and with some validity, that recent accounting problems among Chinese businesses reveal real problem with IFRS compliance, and one wouldn’t be altogether wrong.  That’s a topic for a different day, though.)

American businesses dealing in global commerce (as nearly all big ones do, now-a-days) have been anxious for a unifying accounting paradigm for many years.  Indeed, the differences between IFRS and GAAP are significant, and in fact adoption of IFRS in the U.S. may cost many businesses quite a bit in tax penalties, since IFRS doesn’t recognize certain tax avoidance strategies (e.g. — last-in-first-out inventory accounting) that are common in the U.S.  Nonetheless, American businesses are willing to suffer the tax pain in order to get a common accounting language globally.

From an accounting perspective, this delay by the SEC is a royal pain in the neck, but that too is a topic for another day.  The reason I bring it up today is the implicit impact on real estate appraisal standards.  I’ve noted, with some interest, that appraisal standards are increasingly derivative of accounting practices.  Back when America’s Uniform Standards of Professional Appraisal Practice (“USPAP”) was developed, accountants could barely care about appraisal standards.  Today, a close examination of the International Valuation Standards Council (IVS) reveals a substantial degree of input from the accounting and banking fields, much more than we saw 25-ish years ago when USPAP was first codified.

In my own observation, this SEC delay gives the appraisal profession another year or so to decide if they want a top-down or bottoms-up approach to appraisal standards in the U.S.  Do appraisers want to be driving the truck or riding in the back?  I’ve observed that the three constituent “regulatory” bodies (the professional organizations, such as the Appraisal Institute and RICS, the Appraisal Foundation, and the state and federal regulators) seem to be of three different minds on the subject.  The constituent bodies seem to be more proactive and ready to move forward with IVS adoption.  The Foundation seems to have been constantly playing damage control in the past couple of years over the mortgage market meltdown and the resultant sturm-and-drang from the Federal regulatory bodies.  None of those regulatory bodies seemed to have a dog in this hunt, so haven’t appeared to care.  I will say, however, that proposed changes to USPAP 2014, which are currently being circulated in draft form, are very forward-looking, albeit with baby steps.

Finally, state regulators are almost 100% reactive.  Some are very good at reacting, and some are very bad.  Currently, they are all overwhelmed with the double-whammy of very real budget cuts and very real appraisal standards violations problems emanating from the mortgage market meltdown.  As such, a major paradigm shift in appraisal standards will be difficult for them to swallow.

This all seems to be back-page stuff, but in fact these issues have very real implications for the way “business does business”, particularly in the real estate valuation world.  We’ll keep you posted.

Written by johnkilpatrick

July 8, 2012 at 4:43 am

Canada looking more like the US and UK?

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The books are still being written on the causes and effects of the recent recession, but one wide-spread agreement is that aggregate household debt, and particularly the ratio of debt to household income, has been a real problem for developed nations.  In the U.S., this ratio hit between 1.6 and 1.7 at the onset of the recession, and then fell to about 1.4 today.  In the U.K., the ratio topped out at just under 1.6 in late 2007, and is now down under 1.5.  Given the flat-lining of household incomes in the two countries, this constitutes a very significant pay-down in household debt.  Note that for most of the 1990’s, this ratio hovered between 1.0 and 1.1 in the U.S., and between 0.9 and 1.0 in the U.K.  It wasn’t until the easy money period of the late 1990’s that these ratios started soaring.  (In the U.S., this was a gradual rise, really starting about 1990.  In the U.K., the rise was more abrupt, beginning about 2001.)

Now we har that our neighbors to the north are trying to copy our bad behaviors.  In 1990, the typical Canadian household had a debt/income ratio of about 0.9.  This gradually rose to about 1.1 by the late 1990’s, then hovered there for a few years.  Over the past 10 years, the Canadian debt ratio has continuously grown, with no “peak” in the early days of the recession, and now sits at about 1.5.

courtesy RICS Global Real Estate Weekly

Canada, interestingly enough, did not have the great depth and breadth of recession that roiled the U.S. and Europe.  While they had a brief period of negative GDP growth in early to mid 2009 (remember — two consecutive quarters of negative GDP growth defines a recession), their recession was both brief and shallow, and was followed by very positive numbers — their 2010 GDP growth rate got as high as 3.6% on an annualized basis, and continues strong today.
That having been said, Canada hasn’t been a powerhouse of economic growth since the early 1960’s, and many pundits suggest that Canada’s relative health during the past few years is a direct result of the fiscal conservatism of both their institutions as well as their citizens.  However, there are some faint storm clouds on the northern horizon.  Vancouver, BC, housing prices have been booming and some analysts suggest they’re in for either a fall or at least a fizzle.  Watching the Canadian household debt ratio get up to levels that the U.S. and the U.K. have found to be unsustainable and unhealthy isn’t very comforting.

Written by johnkilpatrick

February 16, 2012 at 10:02 am

Posted in Economy, Finance, Real Estate

Tagged with , ,

Global R.E. Perspective

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The Royal Institution of Chartered Surveyors (RICS, for short), with over 100,000 members throughout the world, is the largest real estate organization of its type.  Their quarterly Global Property Survey gives a great snap-shot into the world-wide investment market.  (Full disclosure — I’m a Fellow of the RICS Faculty of Valuation, and a contributor to this survey.)

The headline really captures the big picture — Weaker economic picture takes its toll on real estate sentiment.  Not every region feels the same pain — Canada, Brazil, Russia, China, and others continue to buck the trend and record positive net balance readings.    Nonetheless, in some of the most economically significant regions, at least from an investment perspective, expectations continue to be weak.  Obvious problem areas are the troubled spots in the Euro zone, but negative expectations are also reported in the U.S., India, Singapore, the U.K., Scandinavia, and Switzerland (among others).  However, despite a weak real estate market, investment demand is expected to grow in the U.S. and even in the Republic of Ireland, which is one of the Euro trouble-spots.  China, despite value-growth expectations, is among the weakest regions of those expecting positive investment growth, behind South Africa in total investment expectations.

One of the more telling studies compares expectations of demand for commercial space and expectations of available space.   Among major markets, only Canada, Poland, Russia, and Hong Kong expect meaningful decreases in supply coupled with increases in demand.  Not unexpectedly, most of the trouble-spots reflect increases in supply significantly outstripping increases in demand,  with the most notable gaps expected in the UAE, the Euro trouble spots (plus, interestingly, the Netherlands, France, Scandinavia, and Switzerland), India, and the U.K.  Expectations for the U.S., China, Brazil, Hungary, Japan, and Thailand all appear healthy, with increases in demand expected to exceed increases in supply.

The survey is available on the RICS website, which you can access by clicking here.

Written by johnkilpatrick

January 30, 2012 at 10:10 am

Greenfield’s Manufacturing Research Partnership

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A really big “shout out” to Dr. Cliff Lipscomb and all of our economic research team, who have inked a partnership with the U.S. Department of Commerce, the National Institute for Science and Technology (NIST) and Georgia Tech to investigate NIST programs in manufacturing. Following is the text of the press release, which is also featured on a number of web sites, including RICS-Americas (

Greenfield Advisors and Georgia Institute of Technology to Evaluate the NIST MEP
November 15, 2011

ATLANTA, GA –The Hollings Manufacturing Extension Partnership (MEP), a program of the National Institute of Standards and Technology (NIST), is a nationwide network of manufacturing extension centers that provide services to small and mid-sized manufacturers to increase their competitiveness and productivity. Since 1989, the MEP has worked with manufacturers to provide cost-effective expertise and assistance to improve their manufacturing processes, to provide workforce training, and to implement new technologies. The MEP also focuses on supply chains, providing growth and innovation services to firms. Approximately 7500 client firms are served annually.

Many stakeholders view the primary mission of the MEP as materially improving the long-term viability of US manufacturing. To meet this mission, MEP must demonstrate persistent, long-term improvement in client performance. In addition, the U.S. Office of Management and Budget (OMB) has asked federal programs to make decisions regarding assessments of program performance based on evidence. Recently, the U.S. Department of Commerce awarded Greenfield Advisors and the Georgia Institute of Technology $249,000 to evaluate the effects of the MEP program. In this work, we will be evaluating the economic performance and survival of U.S. manufacturing firms, comparing the outcomes of MEP clients to nonclients, controlling for other factors. Our focus will be on establishments that received MEP services between 1997 and 2007. We will estimate the effect of different levels and types of MEP services on output and productivity growth over this period. The novelty of our approach is the econometric methods we will use to find the determinants of economic performance and survival of MEP clients while adequately controlling for selection bias.

Greenfield Advisors’ partner in this research is the Georgia Institute of Technology. Dr. Jan Youtie, Manager of Policy Services and Principal Research Associate at Georgia Tech’s Enterprise Innovation Institute, commented “the MEP is an important program targeted specifically for manufacturing. We are excited to work with Greenfield Advisors on this important evaluation of the effect of program services on manufacturing performance and survival.”

The MEP evaluation will take approximately 1 year to complete. Greenfield has assembled a blue-ribbon Technical Advisory Group (TAG) to consult on the development of the research and provide guidance as necessary. Members of the TAG include former and current chief economists within the U.S. Department of Commerce as well as other well-known economists at the U.S. Census Bureau and the University of Texas at Austin. You can learn more about the MEP at http://www.nist/gov/mep.

Written by johnkilpatrick

November 16, 2011 at 8:38 am

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