In the current issue of The Real Deal magazine, the article Real estate’s most verbose talking heads: A look at the busy schedules of NYC’s go-to market pundits…
…goes haywire with Adobe Illustrator and selects four go to media resources:
Barbara Corcoran, the founder of the Corcoran Group and now a regular on the “Today Show”; Jonathan Miller, the ubiquitous president of appraisal firm Miller Samuel; Dan Fasulo, managing director at Real Capital Analytics; and Bob Knakal, chairman of Massey Knakal Realty are just a few among a growing bunch of go-to contacts.
I think the bobblehead designation is a compliment? Verbosity? I always used that word in the “long-winded” connotation. Well, my phone simply rings – plus – I’ve been known to hang out on car dashboards on the weekends.
Aside: Bob Knakal is a long time colleague who has generously agreed to sit down with me on my podcast, The Housing Helix, in a few weeks.
During the housing boom, a slew of foreign buyers came to New York City to take advantage of the falling dollar. Largely from Europe and with a high concentration from Ireland, this movement was characterized by tales of Irish carpenters buying multi-million dollar luxury condos. Booming economies and a weak dollar made investors hungry to go farther to seek out higher returns.
One of the more well-known Irish marketing firms to find Irish investors to buy luxury condos and other properties was KMS Commercial, and we usually dealt with Cathal McGinley, the Managing Director. Our residential and commercial firms dealt with his firm on several occasions as the housing boom roared on and even after it corrected at the end of 2008.
Here’s where it went sour between my commercial appraisal firm Miller Cicero and KMS Commercial.
On April 28, 2009, Cathal/KMS hired our commercial firm Miller Cicero via a signed engagement letter for a substantial appraisal assignment covering the residential component of 835 Sixth Avenue, a new large mixed-use project going up on Sixth Ave at 29th Street developed by JD Carlisle (Jules Demcheck).
The report was delivered within the agreed upon time and the appraisal fee was due in full.
Hence the reason for this post, which is basically us venting our frustration since KMS Commercial is acting like it doesn’t intend to honor its financial obligations. My partner John Cicero has been trying to collect the fee for past 5 months and has been treated less than honestly – and he’s torqued about that. His first few attempts at contact were met with his assistant saying they were on vacation, etc. until finally there was no response at all.
Appologiese for not reply before but Cathal and I are both on holidays and will not be back in the office until 14th August. I will remind Cathal re payment as soon as we are back and will send you confirmation of same.
After several months with no response, John began to think he had the wrong contact info (they moved) but it was hard to believe such a high-flying well-known firm would simply disappear. Someone we know had a contact in Dublin who went by the building and indicated that KMS Commercial does not appear on the building directory that is listed on their correspondence. Weird.
After repeated efforts by John to contact Cathal, he finally got a response on October 23 which necessitated this post due to their sarcasm:
On Oct 23, 2009, at 9:40 AM, Cathal McGinley wrote:
I am in receipt of your 27 various email last night and today. I can confirm that I met today at 11am my time with my partners to advise them of the urgent need to pay your bill which I agree is long overdue for payment. I personally hold a 5% interest in KMS Sixth Avenue LP with the balance of the shareholding held by two others, Liam Smyth 85% and the O’Malley family 10%. As, to date I have not been put in funds, other than my own contribution, by my partners I have been unable to pay the invoice however they have both assured me that they will put me in funds by early next week (it is a bank holiday here on Monday) so assuming this happens I will send the money out probably on Wednesday or Thursday. In the mean time if you like I can send you my $600 today or wait to send it all at once. You’re choice.
The Malting Tower
Grand Canal Quay
t: +353 1 6425220
f: +353 1 6619708
Of course this was October 23rd. Its now November 3rd and our follow up efforts after the above email have not been answered.
It’s a shame that there aren’t any viable options to pursue them in Ireland. It’s hard to believe they can’t afford our appraisal fee (that they agreed to in advance).
We have to pay our staff for the time it took to complete the report which was not nominal. Our conclusion has to be that KMS Commercial is either under severe financial duress or it is a business strategy – 5 months of repeated attempts to contact them is a reasonable period to draw these conclusions.
We recognize that this is one of the risks of doing business and we assume KMS Commercial will never pay us for the services they sought us out for and received. However, our treatment was so unprofessional, we felt it necessary to talk about it in a public forum. For all appraisers out there – if you are contacted by KMS Commercial for an assignment, think twice. If you are, make sure you are paid in advance and in cash. We have twelve thousand reasons to believe this is a tested assumption.
Ok, venting complete – back to work.
I stumbled on a really great blog on the American Banker site called BankThink and it’s worth checking back on a regular basis.
Webmaster/Journalist Emily Flitter asked me to contribute a guest column on the current state of appraising. I named it:
I hope you enjoy it.
Here’s a local copy of the article:
The trillions in adverse financial exposure and lost economic opportunity were supposed to teach us, especially those of us connected with the banking system, something about risk. But a look at the latest trend in home appraisal practices shows that although the relationship between mortgage lenders and appraisers may look different on the surface, its nature remains troubled.
As a rule, appraisers are generally ignored until we make a mistake. We’re the back-of-the-house worker bees. During the housing boom (actually a credit boom with a housing boom as a symptom), an appraisal was relegated to a commodity status like a flood certification. Without much political clout or public awareness, we weren’t used to being in the spotlight. We’re finding it not at all flattering.
Mortgage brokers’ business swelled during the boom years and many participated in compromising as much as two thirds of the residential mortgage lending business at peak – they only got paid if they could close the deal. That took an appraisal. Guess what type of appraiser was hired en masse? The ones who provided the “right” value.
How did things work in the banking industry? During the boom, in-house appraisal review departments were closed in most US Banks because they were “cost” centers. Mergers and consolidation caused lenders to lose local relationships with appraisers.
After the September financial system tipping point, it seemed like we appraisers might get an opportunity to redeem ourselves. After all, we were part of the problem along with regulators, investment banks, commercial banks, ratings agencies, real estate brokers, mortgage brokers, mortgage bankers and consumers. One big happy party.
Regulators have set out new guidelines on appraisals for lenders. The Home Valuation Code of Conduct, pronounced “Havoc” is an agreement between New York State Attorney General Andrew Cuomo and Fannie Mae that was intended to change everything.
Comp Checks, inquiries in which an appraiser was often asked to assure a floor value for a property without actually performing an appraisal, are over. Mortgage brokers can’t order appraisals anymore – otherwise the bank can’t sell the paper to Fannie Mae.
But not much else has changed. Lenders now call appraisal management companies who pay the appraiser half their wage (fees for AMCs are lower than appraisal fees paid 20 years ago) and require 24 – 48 hour turn times without exception.
The National Association of Realtors wants appraisers to use “good” comps and ignore foreclosure activity because we are “killing the recovery.”
Many of the ethical “appraisers” have been forced to seek new types of work or switch careers, as they have been replaced by an army of “form-fillers.”
After all of the financial system turmoil, not much has changed in the mortgage process as it relates to appraisers. A conversation with a loan consultant we had last week perhaps best exemplifies how detached from reality many in the lending community really are.
One of my staff appraisers recapped to me a direct conversation with a loan consultant at a large national bank. The consultant had contacted the appraiser to complain about the appraised value not being high enough on several occasions, even bringing the borrower in without advanced notice to the appraiser on one of the calls. This is a frequent conversation and it’s getting old.
When trying to get an understanding of the collateral, does the banking industry want to know what the value is from a neutral source or not? If not, don’t call it an appraisal because its not.
Jonathan Miller is a real estate appraisal consultant in New York. He is the co-founder of the residential appraiser Miller Samuel, and a managing principal of the commercial appraiser Miller Cicero.
One of our appraisers at our commercial appraisal firm Miller Cicero was taking an on-line McKissock appraisal course (which is excellent) and came across a page under the section One-person firms and noticed a familiar person in the photo.
Even though there is an “I” in “appraiser”, unlike “team”, our appraisal firms of Miller Samuel and Miller Cicero is growing – and our staff does a lot more work than I ever could.
One could say I’m a “model” appraiser? Ok, probably not.
Tags: Miller Cicero
Today is a big day at our commercial appraisal firm, Miller Cicero. My partner John Cicero has shared a few thoughts on the anniversary – after all, he is the smartest guy I know.
Here’s John Cicero’s take on it.
Seven years ago today Miller Cicero was formed, a collaboration between me and Jonathan Miller (before he became famous and went on Mexican TV), his wife Cheryl (who watches over the purse strings) and his sister Dina (the true brains of Miller Samuel!) It’s been a great ride and I couldn’t ask for better partners.
Similarly, I couldn’t ask for a better group of staff appraisers, especially Michael Falsetta, Executive Vice President, who freakishly remembers every sale that ever took place in Brooklyn since the turn of the century (and knows where to get the best pizza and grilled octopus in every borough), and Steve Manheimer, Senior Vice President, who leaves no stone unturned when researching a project and makes more demands on himself than I ever do. I know that I’m biased but I believe that I have the best group in the business.
Its been an interesting time to be appraising property in the New York metro area, though. Over the past seven years we’ve seen property double and triple in value, buyers camping outside the sales offices of new condos to be the first to buy, 21-year olds fresh out of school becoming developers (cute!) and then…just as quickly, complete market paralysis.
OK, enough nostalgia. I need to get back to trying to figure out what anything is worth these days….
Well, it’s still morning in LA.
Real Deal Magazine publisher Amir Korangy and Editor Stuart Elliott finally get their due with a page 1, column 1 story in the LA Times yesterday. It covers their history and what its like to cover the New York housing market.
There was a market related quote in the article from one of the top New York City commercial real estate brokers, Bob Knakal, of Massey Knakal in Manhattan that got my attention. Here’s how he described the current commercial real estate market.
“It’s as if you had both your arms hacked off and you were bleeding all over the place,” Knakal says. “But then the bleeding stopped and you feel a little better. You still have your arms hacked off, but everything is relative.”
That’s brutal honesty – literally.
I spoke at length with Michael Falsetta, EVP of our commercial real estate valuation firm Miller Cicero, a 17 year expert on the Brooklyn new development space.
As a native Brooklynite, he’s got a lot to say about the most populous NYC borough.
He recently started a blog, 21Elephants.com covering the residential new development market in Brooklyn.
As an added bonus, I got some details about his Guiness Book of World Records world record for riding every mile of NYC subway system (in about 25 hours).
Tags: Miller Cicero
Guest Appraiser Columnist:
John Cicero, MAI, CRE, FRICS
John provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. He is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know.
Bob Knakal, Chairman of investment sales brokerage firm, Massey Knakal Realty Services, recently released an excellent commentary on a 25-year history of the New York City multifamily market. Using actual sales data from 1984 to the present (including cap rate data from 2005 to 2008 compiled by my firm, Miller Cicero, LLC).
In addition to examining historical cap rates and gross rent multipliers over time, the report analyzes cap rates relative to mortgage rates and the yields on 10-year T-bills. An excerpt:
From 1994 through 1999, we saw slow steady declines in cap rates, with slightly positive leverage and risk premiums within a range of 100 to 250 basis points…Throughout the 25 years of this analysis, this period was the most stable-and I attribute this stability directly to the very disciplined lending practices of debt providers.
It’s actually fascinating (at least for a commercial appraisal nerd like me!) to see how many NYC multifamily property was routinely purchased with negative leverage (i.e. at cap rates below mortgage rates. In fact the past five years has been the biggest period of negative leverage buying since the mid 1980’s. However, with the more stringent underwriting now in place, the NYC multifamily market seems poised for another (surprisingly rare) period of positive leverage.
John Cicero has more than twenty five years of commercial real estate valuation experience and is my business partner and managing principal in our firm Miller Cicero, LLC, a commercial real estate appraisal firm covering the New York City region.
He talks cap rates, market trends of various types of commercial properties, his recent market report for Massey Knakal and the political movement in Albany that is of great concern to income property investors in New York state.
Don’t fret, John bifurcates everything to those outside the cap rate mainstream.