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Posts Tagged ‘Commercial Grade’

[Commercial Grade] Massey Knakal NYC Income Property Market Report Second Half 2007 prepared by Miller Cicero released

May 15, 2008 | 11:58 am | Reports |

Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John 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. …Jonathan Miller


The latest New York City Income Property Report covering the second half of 2007 has been released. I prepare this report semi-annually on behalf of Massey Knakal and it’s the only one of its kind. The report tracks the sales activity of walk-up apartment buildings, elevator apartment buildings and mixed-use buildings in five New York City markets: Manhattan (generally south of 96th Street), Northern Manhattan, Brooklyn, Queens and the Bronx.

The total number of sales dropped 16% from the first half of 2007, but a more moderate 7% compared with the second half of 2006. Though the number of sales has declined prices remained stable and even increased in some instances. The following table reflects a peak in the number of sales in early 2006, while pricing has continued to rise.

Though this is clearly not as big as when Bob Knakal got his hair cut, for those interested the entire report is available for download at www.millercicero.com.


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[Commercial Grade] Reminiscents Of An Old Timer

April 15, 2008 | 11:46 am |

Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with focus on commercial valuation. John 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.

John is starting to sound a lot like an old man with a pocket calculator, but with wisdom far beyond his boyish charm facade.
…Jonathan Miller

I was recently reminiscing about how much this field has changed over the past 23 years, since I first began appraising in 1985. We had no computers then. Rather, every appraiser had a yellow legal pad where he/she would hand write the entire report. The “boilerplate” would be copied from another report and taped onto the pad. We’d then give the pad to a typist who would take a couple of days to type the report. If changes were required, the typist would use “correct-tape” to replace one line of text with another. If she was good (I don’t mean to be politically incorrect, but we had no men typists), you could barely notice the changes, but more often than not the lines were crooked and extended well into the margins.

Fax and email had not been invented yet; the internet was the stuff of science fiction movies. (I don’t recall if Fed Ex service had begun yet.) We didn’t have the instant gratification of doing market research that we have today. Market research was done the old-fashioned waymanually sifting through property transfer cards that were mailed daily and making lots of phone calls. No googling sale comps, or subscribing to web-based data services.

It was before state licensing, and appraisers were actually respected. Holding the MAI designation meant something and young kids out of college actually aspired to being a professional appraiser.

Banks didn’t ask you to “bid” your labor, through web-based bidding sites. There were no goofy checklists that need to go in the addenda of reports.

Two things have remained the same over the past two decades: I have the same lucky HP-12c that I bought in May 1985 (though I’ve had to change the battery a couple of times), and fees have not increased a dime.


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[Commercial Grade] Greed Is Not So Good

March 18, 2008 | 5:50 pm |

Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with focus on commercial valuation. John 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. Since I ended my Radar Logic gig, John has promised to bring more of his insight to Soapbox [wink] …Jonathan Miller


Greed is not-so-good after all.

If the movie Wall Street were made today, they would give Michael Douglas an HP-12c and make him a real estate investment banker.

I don’t think that I fully realized just how bad things had gotten until I learned that powerhouse Bear Stearns was being bought for $2/share. (For $2/share, even I could have bought itI always wanted to own an investment bank!). While this 90-year old institution, crippled by its losses in mortgages, was being rescued by JP Morgan Chase and the Fed, I was on a conference call with a couple of investment bankers (a Bear Stearns competitor) who were adamantly trying to convince me that my appraisal of a proposed apartment building was too low. There are clearly still some Masters of the Universe out there that apparently don’t read the papers and are still underwriting business as usual.

Appraiser guru Jonathan Miller (my business partner) recently did a series of interviews about appraiser pressure where he opined that as many as 80% of all residential appraisals were inflated during the housing boom. That is an astonishing number and when I challenged him on it, he stuck to his number and explained that not coincidentally as many as 80% of all home mortgages were originated by mortgage brokers. I have no idea how many commercial mortgages were underwritten by investment banks and securitized during the recent boom, but that’s probably a good indication of the number of commercial appraisals that were likely inflated.

Though the attention to date has been on residential mortgage brokers and the pressure that they exert on residential appraisers, inflated appraisals have also been greasing the wheels of the CMBS market. Unlike a commercial bank, where FIRREA requires separation of the appraisal and underwriting, no such distinction exists in the investment banks (unless it happens to be the investment banking arm of a commercial bank). Therefore, the same 24 year old underwriting the CMBS loan, and who stands to realize a six-figure bonus at year end depending on how much money he pushes out the door, is also responsible for ordering the appraisal.

Just like 1987 all over again!

And the rating agencies, supposedly the watchdogs of the process, failed to see the abuses, or since they are also hired directly by the investment banks turned a blind eye.

With all of the recent high-level attention given to real estate lending practices, we seem to be at a turning point in the appraisal profession. However, without fundamentally changing the way commercial CMBS loans are underwritten, this problem will not go away.


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[Commercial Grade] Massey Knakal NYC Income Property Market Report prepared by Miller Cicero released

December 2, 2007 | 6:05 pm |

Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John 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. …Jonathan Miller


The bi-annual NYC Income Property Market Report, that I prepare on behalf of Massey Knakal Realty Services, was just released for the first half of 2007. The report was launched in the first half of 2006 and is the only one of its kind, tracking cap rates, gross income multipliers (GIMs), median price per square foot and number of sales in five submarkets: Manhattan, Northern Manhattan, Bronx, Queens and Brooklyn.

The data shows that the multi-family market throughout the City remained strong through the first half of this year, with the median price of a Manhattan walk-up apartment building exceeding $500 per square foot for the first time. The median price of a Northern Manhattan walk-up crossed the $300 per square foot threshold for the first time. The number of sales that transacted was way up in the first half of this year relative to the prior six month period. For the most part, cap rates and GIM’s remained stable.

As the study includes only sales closed through June 30, 2007 the impact of the so-called “credit crunch” on pricing and sales activity for such property is not yet evident.


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[Commercial Grade] A Few More Words About Appraisal Pressure

June 17, 2007 | 9:49 am | |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. In this post, John piles more on the plate appraisal pressure buffet, providing additional insights, that even years of pressuring him, I didn’t fully appreciate he had. He sends the clear message that appraisal pressure is like going to a bad restaurant. The customer won’t complain if the food and service doesn’t meet their standards, they simply won’t come back.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Fridays on Sundays, one of the smartest guys I know. …Jonathan Miller



Just a few more words about appraiser pressure before I let this go. When I teach my Valuation class at NYU, I ask on the first day, “Why do appraisers get hired?” The answer “Because they have to be.” Sure, on occasion there will be someone willing to come out of pocket to find out what the professional appraiser says the value of their property is, but 90% of the time appraisers are hired because they have to be:

  • When a mortgage loan is made, the federal government mandates an appraisal to assess the collateral
  • When securitizing a loan, the rating agencies require an appraisal to assist in rating the debt
  • When paying estate taxes, the IRS requires an appraisal to assess the value of the inheritance
  • When doing estate planning, an appraisal is similarly required by the IRS
  • When negotiating an equitable distribution in a divorce, the two sides need an appraisal for their settlement
  • When an investment fund acquires real estate, it requires an appraisal to monitor the value of the asset for periodic fund reporting

And the list goes on. And in each case, the client has a strong interest in the outcome of the appraisal. The investment banks want to see it high to get a higher rating on its debt. The estate wants to see it low to minimize the estate taxes. The pension fund wants to show its investors that it made a good purchase and is creating value over time.

The investment banker makes a bigger bonus if he pushes more money out the door. The asset manager at the pension fund is rewarded if his assets perform well. And so on.

Appraiser pressure is not just the sleazy mortgage broker threatening to pull the plug if you don’t make his number. In most cases, appraiser pressure is oh so subtle.

I was told recently by a prestigious investment fund that they thought our appraisal was low (even though we concluded to the 2 month old purchase price, and confirmed that the circumstances of sale were “market-oriented”) and that if our conclusion was not higher the report was “going to get a lot of attention and be reviewed to death.” The sub-text: we will not be permitted to finalize the report that is out in draft and submit the invoice until we have been raked over the coals to “prove it.” Sticking to my guns will be a long, painful and ultimately costly process, whereas if I agree to change my value during this draft phase, no one will be the wiser, I can finalize the report, submit my invoice and move on.

In most cases, appraiser pressure is impossible to prove. If you kill a deal or “disappoint” the client, you just don’t hear back. In most cases, nobody is so stupid as to make an overt threat. It is just understood.

I get excited when I read all the press about the AG cracking down on appraiser pressure, until I realize that our system is so fundamentally flawed that it is likely beyond repair.


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[Commercial Grade] Better Late Than Never

May 24, 2007 | 10:24 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. This week, John is crushed by the lack of a firewall in the commercial world of valuation.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Fridays, one of the smartest guys I know. …Jonathan Miller



I am thrilled that appraiser pressure is now in the spotlight. Articles are everywhere. The Real Deal writes Appraiser pressure at pandemic proportions and Inflated Appraisals feed mortgage meltdown and the New York Times and Bloomberg News have been reporting about the recent subpoenas issued to residential appraisal firm MMJ, appraisal management company eAppraiseIt, as well as mortgage broker Manhattan Mortgage.

In keeping with my Commercial Grade mantel, I wanted to give one commercial appraiser’s perspective. As professional appraisers, we essentially sell our opinions for a living. We don’t sell paper reports, or comps, but our expert opinion of market value. It may be an educated opinion, but it is an opinion nonetheless. And, just as in politics, sports and restaurants, there will always be some people that don’t agree with your opinion. You can have a spirited intellectual debate. That’s fine. When a client disagrees with my opinion I am open to discussion, provided that it centers around the valuation issues. If, for example, the client is able to give additional insight into the property and/or market that we may not have fully considered, then I may upon further consideration make a modification to my report. That is not appraisal pressure.

Appraisal pressure is every bit as real and sleazy as the articles make it out to be. And as my esteemed partner, Jonathan Miller said in his recent Matrix post it is a business and ethical decision whether you will work for those people. In the world of commercial lending, however, the sources of appraisal pressure are not necessarily the same as the residential appraisers. Yes, we have mortgage brokers who are clearly motivated to have the appraisal reflect a certain value, but we are not as impacted by the appraisal management companies. Actually, I think that the main source of appraisal pressure in the commercial appraisal world are the investment banks.

If I am not mistaken, the investment banks are the largest source of commercial loan origination in the country. They pool their loans and securitize then. The rating agencies rate the securities and then sell the various tranches to investors. No loans are held on the investment banks’ books.

There is no firewall between origination and appraisal at an investment bank, as required in commercial banks by FIRREA (which has proved to be ineffective, but that’s a topic for a different post!). To indulge in a stereotype, the appraisal is usually hired by a 22-year old MBA who has never seen a down cycle in real estate and needs to make the loan in order to make his 6-figure annual bonus. They are aggressive and they push hard.

I never really understood why it the investment banks need such optimistic appraisals. Nor do I understand why the rating agencies don’t see right through them when they review the appraisals that come with the loan documents. And since the investment banks require the appraisers to include reliance language in the appraisal saying that any investor of the security can rely on the appraisal, I don’t understand why so many appraisal firms are willing to be so ethically flexible.

Maybe once these securities start to default Andrew Cuomo will take a look here as well.


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[Commercial Grade] Valuing 5-Boro Bikin’

May 9, 2007 | 11:44 am |

Commercial Grade is a regular post by John Cicero, MAI, CRE, FRICS who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. This week, John shows us how we can correlate real estate values with physical exertion and not resort to blood doping.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Tuesdays on Wednesdays , one of the smartest guys I know. …Jonathan Miller

Truethe subways are crowded, apartment rents are through the roof and every so often you need to fend off the squeegee guy, but for me this remains the greatest city in the world! For the second year in a row, I rode in the NYC 5-boro bike tour — a completely unique perspective. It was completely exhilarating to be biking down the Brooklyn-Queens Expressway, a road that is typically clogged with trafficnot to mention riding over the Verrazzano Narrows Bridge without paying the $9 toll!

The highlight of the trip for anyone near me, of course, was listening to my running commentary on the dozens and dozens of buildings that I’ve appraised over the years as I rode by!


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[Commercial Grade] All for only $15

May 5, 2007 | 11:48 am |

Commercial Grade is a regular post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. This week he laments how low the appraisal profession has gone, and even worse, he confirmed it through spam.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is one of the smartest guys I know. …Jonathan Miller



Like most people my Inbox gets jammed with spam on a daily basis. The other day, however, I got the ultimate in junk mail: a solicitation by a firm to punch data into your residential appraisal forms, all for the bargain fee of $15 per file. The services provided:

The fees:
– SFR $15.00 PER FILE
– CONDOS $15.00 PER FILE
– 2-4 UNITS $25.00 PER FILE
– REO $20.00 PER FILE
– DRIVE BY APPRAISAL $10.00

I am all for free enterprise, and if there is a need for someone to run your mapping program and punch in your comps for $15 then, who knows, the next McDonald’s may be born. But my initial reaction was to shake my head sadly and think how low the profession has sunk since I entered 23 years ago.

While we’re all striving to incorporate new technologies to make our appraisals more efficient, I just don’t know if subcontracting your drive-by for ten bucks is the answer.


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[Commercial Grade] The Shin Bone’s Connected to the Knee Bone

April 12, 2007 | 6:42 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. This week, after a winter slumber, John looks at client traffic patterns and explains why sharing information is not a one way street.

Disclosure: John is a partner of mine in our commercial advisory firm Miller Cicero, LLC and he is, on Wednesdays on Thursdays, one of the smartest guys I know. …Jonathan Miller



Being just an appraiser, I always appreciate someone who can take a complex subject like economics and explain it in a way that I understand. I was fortunate to have recently been at a joint seminar offered of the Appraisal Institute and the Royal Institute of Chartered Surveyors (RICS). The keynote luncheon speaker was an economist named James Grant, Founder and Editor of Grant’s Interest Rate Observer, who was speaking on the current state of affairs in the subprime lending market.

As a commercial appraiser, I’ve been reading about the rising default rates in subprime mortgages with one eyethat’s a problem for the residential guys! However, Mr. Grant explains that in the capital marketsthe shin bone’s connected to the knee bone, and the knee bone’s connected to the thigh bone! The light bulb went off (thanks, Jim)the fallout in residential subprime mortgages are just the tip of the iceberg and although they may be affecting our residential brethren first, it is inevitable that it is just a matter of time before tighter credit ripples through the capital markets to affect us commercial guys as well.

I can’t help but feel that this is the calm before the storm. The wheels have already been set in motion and credit is starting to tighten. While I have not personally seen the effects of this yet in my practice, the thigh bone is connected to..something( the hip bone?)


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[Commercial Grade] It’s A Two-Way Street

March 9, 2007 | 11:04 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. This week, after a winter slumber, John looks at client traffic patterns and explains why sharing information is not a one way street.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Fridays, one of the smartest guys I know. …Jonathan Miller



I am on the list of approved appraisers for a major national bank. I’ve submitted dozens and dozens of bids over the past year, and was not awarded even one assignment. It is this lender’s written policy that they must select the lowest fee and, as I’ve said on my Soapbox before, I never aspired to be the lowest feeonly the best appraiser. (However, in the interest in developing a relationship, I have in my opinion submitted quite aggressive fee proposals)

What, then, to do about the frequent phone calls that I get from this bank’s loan officers who are looking for market data for their underwriting? This has been a real dilemma for me. My regular clients know that I will do back-flips for them when they need somethingbut I am not sure how to respond to these particular requests.

I presume that I get these calls because they know I have good market data. My firm keeps abreast of the condo market and, with our Miller Samuel affiliation, probably have the best condo database in the City. Sodo I continue to send out this data to the underwriters, who will then turn around and hire another appraiser? Do I trip over myself, gushing that I’d be happy to supply them with valuable market data in the hopes that maybejust maybethis time they’ll pick me from the field of appraisers that they’ve sent bid requests to? Do I tell them I have just what they need but I am not going to help them, and risk being taken off the list.

Or do I just get their email address and send them a link to this Soapbox post?

For a while I’ve explained to the callers that I am happy to help them, but they need to remember that it’s a two-way street. But nothing has changed and I am still grappling with an appropriate response.

I would appreciate any feedback and advice from Soapbox readers.


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[Commercial Grade] Give It To Me Fast And Cheap

January 22, 2007 | 12:04 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John quickly gets annoyed about clients trying to hire hime on the cheap.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Mondays, one of the smartest guys I know. …Jonathan Miller


One of my clients, a major and very active national real estate lender, sends fax solicitations for “bids.” Most recently their bid request forms have been accompanied by the lender’s internal instructions to the appraisal department.

On top of the page, above some very general information about the property (which very often needs to be clarified before a reliable quote can be given) and borrower contact were these instructions:

Engage based on: ___________ Quickest turnaround ___________ Lowest price

I looked high and low but couldn’t find the check box for:

  • best quality
  • most proficient
  • most experienced with this property type, or
  • best database

In nearly each instance, both boxes were checked. The instructions to the appraisal department were crystal clear:

Get me an appraisal fast and cheap.

In some cases the property was straightforward; in other instances it was quite complex.

No doubt that loyal Commercial Grade readers will recall a recent post where I discussed the joy of seeing an account officer finally get it, the realization that preparing a good appraisal is not easy, but critical to the underwriting process.

It is clearly going to be a sisyphean task to get the entire lending community to come around.


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[Commercial Grade] Just Another Day In Manhattan

January 8, 2007 | 9:46 pm | Radio |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John looks forward to the day when appraisers are not seen as a nuisance, and its sooner than you think.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Mondays, one of the smartest guys I know. …Jonathan Miller


Our offices closed at 10 am Monday morning. I came out of Grand Central Station after my morning commute and immediately smelled gas. The smell stayed with me during the four block walk to the office and up the elevator. Some of the appraisers in the office smelled it and some did notbut the longer we smelled it the more concerned we got. A few of us started to get dizzy, others started to get nauseous.

Maybe it was psycho-somatic (I was a psychology major, after all!) but when 1010 Wins (the local news radio station) described it as a “mysterious gas-like odor” and officials had not yet identified the source there was a brief tinge of panic.

I was in midtown the morning of 9-11 five years ago and watched the towers burn from the corner of 40th and 5thhow could you not think the worst when there are reports of mysterious gasses enveloping Manhattan, extending to Jersey and Brooklyn? For a moment, however brief, I thought …bio-terrorism.

So, my employees and I each worked from home that day and by noon it was clear that perhaps I had been a bit of an alarmist. But then againI’d probably do the same thing tomorrow.


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