This post will be relatively short, as it covers a rather straightforward change in the new edition of USPAP. Specifically, a Definition has been added for “Exposure Time”. In previous editions of USPAP, a definition of Exposure Time was included only as part of Statement On Appraisal Standards No. 6 (SMT-6), which covers the topic of exposure time in depth. As there is a section of USPAP devoted exclusively to definitions (entitled, appropriately enough, “Definitions”), the ASB has now decided that this definition should be added to the Definitions section.

This change makes sense and was technically long overdue; however, as it carries no practical ramifications, I suppose it could hardly have been considered urgent. Ironically enough, as part of the 2012-2013 USPAP revisions, SMT-6 (which will be discussed in a future post in this series) now includes a full citation of the Exposure Time definition that has been added to the Definitions section. As the saying goes – the more things change, the more they stay the same . . . .

I’m thinking about buying the Empire State building. I like Art Deco. And after recent renovations to make it more energy efficient, the 2.9 million square-foot building is now an LEED-Certified (green) building. Also, I want to be able to hang out on the observation deck whenever I feel like it.

Malkin Holdings announced that they plan to convert the Empire State Realty Trust into a publicly traded REIT trading on the NYSE, with the ticker ESB. Bloomberg reported that according to the IPO filings, the REIT will consist of roughly 7.7 million square feet across 12 buildings. However, the Empire State Building will be the primary holding in the REIT.

The 102-story building has had a number of battles in recent years with the Malkin’s fending off Trump and the now deceased Leona Helmsley for control, but with recent renovations and capital improvements, the iconic building is now positioned as a solid B+ office building, and thus has been attracting new quality credit tenants.

The REIT plans to raise $1 billion the IPO.  The share prices have not been announced, and I haven’t seen the historical income or projections, however, high-quality well-leased commercial real estate, especially in NYC, has been one of the bright spots in our economy.  For 2011 the FTSE NAREIT All Equity REIT index was up 8.28%, that’s almost four time the S&P 500 return of 2.11% return for 2011. This, with the chance to say I own a piece of the Empire State building, has put the ESB REIT on my watch list.

]]> http://commercialgrade.millercicero.com/?feed=rss2&p=1245 0 http://commercialgrade.millercicero.com/?p=1235 http://commercialgrade.millercicero.com/?p=1235#comments Thu, 02 Feb 2012 22:32:15 +0000 Marc Kushner http://commercialgrade.millercicero.com/?p=1235 by Marc Kushner, The Informed Appraiser

Continuing on with the changes in the latest edition of USPAP, let’s look at minor revisions made to the definitions of Extraordinary Assumption and Hypothetical Condition. Below are the old and new definitions:

EXTRAORDINARY ASSUMPTION:

Old – an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.

New – an assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions.

HYPOTHETICAL CONDITION:

Old – that which is contrary to what exists but is supposed for the purpose of analysis.

New – a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.

The essence of these revisions is that the point is now made that these assumptions/conditions are as of the effective date of the assignment results. The Appraisal Standards Board’s stated rationale for these revisions is that the prior definitions were “often misunderstood by appraisers, client, and other intended users . . . . increasing the probability of misleading assignment results.”

While I recognize that extraordinary assumptions and hypothetical conditions are powerful – and potentially dangerous – tools that must be wielded judiciously and with the utmost care, it is news to me that there was widespread misunderstanding of these concepts. The new revisions are intended to remedy these problems. In the words of the ASB (referring to each of the definitions individually), “The ASB believes that adding the concept of the effective date of the assignment results to the definition will reduce misunderstanding and misapplication of this term.”

Will it now? Frankly, I don’t see how any clarification has been added here. Isn’t it implicit that all aspects of an appraisal – and certainly those pertaining to the subject property itself – center around the effective date of the assignment results? That’s the whole point of specifying a valuation date in the first place. I don’t see how these revisions shed any new light on the concepts of extraordinary assumption and hypothetical condition, and the proper application thereof. Perhaps someone can explain this one to me?

Next time we’ll look at an entirely new entry that has been added to the Definitions section.

Section 160-b of the law, paragraph 2, says plain as day “Nothing in this article shall preclude a person who is not a State certified or licensed real estate appraiser or a licensed real estate appraiser assistant from appraising real estate for compensation.”  So, there you have it:  Anyone can appraise property professionally, but only certified or licensed appraisers can call themselves certified or licensed appraisers.

Well, that certainly sounds like a reasonable goal. Let’s see to what degree this is indeed accomplished.

Old definition & comment:

CLIENT: the party or parties who engage an appraiser (by employment or contract) in a specific assignment.
Comment: The client identified by the appraiser in an appraisal, appraisal review, or appraisal consulting assignment (or in the assignment workfile) is the party or parties with whom the appraiser has an appraiser-client relationship in the related assignment, and may be an individual, group, or entity.

New definition & comment:

CLIENT: the party or parties who engage, by employment or contract, an appraiser in a specific assignment.
Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent.

It is readily apparent that the actual definition itself has not changed much at all; the revision was essentially a matter of semantics. The parentheses enclosing “by employment or contract” were promoted to commas, and the object (”an appraiser”) was shifted towards the latter part of the definition. From a grammatical standpoint this is probably an improvement, but the substance of the definition is unchanged.

The real story here is the revision to the Comment. To be sure, there was ample room for improvement in this regard. At best, the old Comment was bloated and confusing , and at worst it comes across as self-referential and largely meaningless. A major revision was certainly in order.

The new Comment is greatly streamlined, and introduces the important concept of agency. It tersely makes the point that there can be a non-client intermediary between the client and the appraiser. That said, it stops short of providing any guidance whatsoever as to how one might distinguish between an actual client and a mere agent. In today’s appraisal environment, it is very common for there to be one or more intermediaries between the “end-user” and the appraiser, so this is a highly pertinent question.

Fortunately, this point is addressed by USPAP FAQs 116 and 117, where it is framed within the context of performing an assignment for an AMC (Appraisal Management Company). The basic gist of the answers provided to these two FAQs is that the AMC can be a client or an agent – depending, essentially, on what the AMC wants to be! As I understand it, the upshot of this is that in the end, as far as USPAP is concerned there is no intrinsic distinction between an agent and a client. Therefore, the client is whomever we identify as such. Looking back now, the old version of the Comment actually starts to make more sense . . .

Stay tuned for the next post, in which I will explore the revisions made to the definitions of Extraordinary Assumption and Hypothetical Condition.

467 Keap Street, it’s real name is Ainslie Tower and, as far as I can tell, they’re condos.  Designed by Gilman Architects. Don’t know anything yet about amenities or price points…or whether it will achieve a “hipster premium.”

In an article in The New York Times today, Anxiety Mounts of Maturing Real Estate Loans, it was reported that in New York City alone, about $70 billion in mortgages would be coming due this year.  Many of these loans were originated with aggressive underwriting (and appraisals) while the rating agencies looked the other way.  Will be interesting to see how these refinances play out…and whether this tsunami of mortgages coming due will also result in a tsunami of demand for realistic appraisals.

On January 1st of this year, the latest edition of the Uniform Standards of Professional Appraisal Practice went into effect. Admittedly, the study of USPAP is not quite as exciting as, say, washing dirty dishes or watching grass grow. However, what it lacks in intrigue it duly compensates for with importance, given the simple fact that the overwhelming majority of real estate appraisals in this country are performed under the rubric of USPAP.

In the course of the next several posts, I’ll be exploring some of the changes that have been implemented in the 2012-2013 edition of USPAP, as well as the associated USPAP Advisory Opinions and USPAP Frequently Asked Questions.

So, fasten your seatbelts for what is sure to be a wild ride . . .