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Appraisal Institute President Leslie Sellers, MAI, SRA, and Appraisal Institute Chief Executive Officer Frederick H. Grubbe reiterated the importance of safeguarding real estate appraiser independence while also promoting appraiser competency to the nation’s top financial policy regulators. The two spoke at a Feb. 23 meeting of the Real Estate Advisory Council of the Federal Reserve Bank of Atlanta.
In their presentation, "Elevating the Real Estate Appraisal Function," Sellers and Grubbe noted the significant role independent appraisers play when it comes to protecting the best interests of borrowers and lenders alike.
"Appraisers have a duty to uphold the public trust. As such, we strongly believe that the Federal Reserve has a unique opportunity to provide bold leadership on these serious issues," Sellers said. "We could not be more pleased with the receptivity to our remarks and the discussion that ensued."
Among the issues Sellers and Grubbe addressed during their presentation were the needs to establish a Federal Reserve Chief Appraiser position to emphasize competency and independence; to clearly define fair value vs. market value; and to stress the use of collateral valuation as an essential element to commercial real estate workouts.
In addition, Sellers and Grubbe recommended that the Fed sponsor a national conference where all stakeholders in the valuation process could come together to review current standards, identify problems and create solutions.
The pair offered the Appraisal Institute’s assistance with any questions or needs the Fed may have when it comes to strengthening the health of our nation’s real estate markets.
The presentation continues the relationship between the Appraisal Institute and the Federal Bank of Atlanta. Last year, Grubbe was appointed to the bank’s Real Estate Advisory Council. As such, he provides advice and counsel on real estate issues to Dennis P. Lockhart, president and CEO of the Sixth District Federal Reserve Bank.
On behalf of the Appraisal Institute, Past President Terry Dunkin, MAI, urged the Internal Revenue Service to develop a meaningful oversight and enforcement system to take action against appraisers operating outside of their professional ethical obligations.
His comments came during a Feb. 18 hearing at the IRS offices just outside Washington, D.C., in response to the agency’s request for feedback on changes to its regulations regarding the process for assessing civil money penalties against appraisers for valuation misstatements.
“We are concerned the penalties against appraisers under section 6695A of the Internal Revenue Code will implicate the good appraisers with the bad ones without the due process deserved,” Dunkin said in his prepared statements. “The process for bringing a penalty against an appraiser as outlined (by the IRS) is tantamount to a ‘guilty until proven innocent’ standard in the realm of appraisal, in our view.”
According to Dunkin, the Appraisal Institute is concerned this “guilty until proven innocent” standard will dissuade many of the most qualified appraisers from providing important valuation services when it comes to appraising noncash charitable contributions. The organization fears that appraisers may be falsely accused of inaccurate valuations, despite a lack of peer review that considers the factors that led to the appraiser’s opinion of value.
“The issue is made more complex by the nature of appraisal, which expresses an opinion of value following extensive research, analysis and professional judgment,” Dunkin said. “It is critical for the work of appraisers to be reviewed thoroughly by a professional peer, and preferably in accordance with the Uniform Standards of Professional Appraisal Practice. Without this, we see the possibility of appraisers being wrongfully caught in the middle of cases between IRS agents and taxpayers, and potentially without the appraiser’s knowledge or permission.
To remedy the problem, Dunkin suggested the IRS establish a screening process that will effectively insulate appraisers from being falsely accused. Under the Appraisal Institute’s scenario, senior IRS appraisers would serve as a committee to review cases of potential valuation misstatements, while the qualified appraisers running the committee would ensure someone who understands USPAP and its application would be making the decisions.
Dunkin was joined at the hearing by Appraisal Institute President Leslie Sellers, MAI, SRA, and Appraisal Institute Director of Government and External Relations Bill Garber.
“The Appraisal Institute looks forward to working with the IRS to establish a sound review process that is fair and reasonable to the appraisers and the public they serve,” Dunkin said.
New data initiatives under development by Fannie Mae and Freddie Mac – along with updates from Federal Housing Administration and the Department of Veterans Affairs – were among the highlights at a Feb. 23 appraisal policies seminar sponsored by the Washington, D.C., Metro Area Chapter of the Appraisal Institute.
Appraisal policy managers from the two government-sponsored enterprises, the FHA and VA spoke at the event. The GSEs presented the latest information on their proposed collateral data delivery, which would enable the agencies to receive full copies of appraisals prior to delivering the loan for purchase. Today, Fannie Mae and Freddie Mac only see limited fields within the appraisal unless the loan is in default.
Robert Murphy, senior business manager of credit policies & control with Fannie Mae, explained that the program would not initially impact the work of appraisers, but that it would likely lead to changes with appraisal forms in the future. Specifically, the potential development of “smart forms” – similar to online tax completion software programs like TurboTax – may de-emphasize the forms and garner more market analysis from appraisers in the field.
Jacqueline Doty, director of collateral policy of Freddie Mac, outlined her agency’s recent initiatives relating to appraisal, including the Home Valuation Code of Conduct and best practices. Doty confirmed that the underlying cooperation agreement establishing the HVCC was scheduled to expire in October 2010 but that neither Fannie nor Freddie had made any decisions relative to any potential changes to their seller/servicing guides. Doty also explained that the results of the HVCC from an agency risk standpoint had been positive, particularly in the wholesale loan channel, which has been particularly vexing for many years.
In terms of best practices, Doty said Freddie Mac continues to encourage lenders to look to affiliations with professional designations when hiring appraisers.
Peter Gillespie, senior appraiser with the FHA, outlined numerous policy changes advanced by the agency in the past year, including the appraisal independence rules, appraisal portability and upgrading minimum appraiser certification requirements. Gillespie confirmed that FHA’s market share has increased to 40 percent, up from a 2.5 percent share three years ago.
Gerald Kifer, the VA’s supervisory appraiser, outlined his agency’s success with administering appraisal programs. He described the VA as a government-sponsored appraisal management company with more than 5,000 appraisers on the agency’s designated fee panel. The rotating system has been an important component of a program that historically has had far fewer losses than the conventional mortgage market, he said. Based on that track record, he said, the agency was receiving inquiries from Congress and federal mortgage fraud investigators as the latter entities attempt to develop solutions to prevent mortgage fraud and promote safe and sound lending.
The panel fielded several questions relating to the HVCC, AMCs and prospects for the appraisal profession. The panelists nearly all agreed that a burgeoning area of business possibly well suited for appraisers is conducting “energy audits” of houses, which was advanced as a potential supplemental service that could be provided by qualified appraisers.
Following the collapse of bipartisan talks in the Senate Banking Committee to draft financial regulatory reform legislation, staffers for Richard Shelby, R-Ala., the committee’s ranking Republican, said the senator will be introducing his own plan, according to a Feb. 18 Bloomberg News story.
Committee Chair Chris Dodd, D-Conn., is reported to be moving forward with his own version of a regulatory reform bill, but he is trying to maintain a level of bipartisanship by working closely with Sen. Bob Corker, R-Tenn.
Shelby’s plan likely will aim to create a consumer protection unit within a new bank regulator instead of a standalone agency. It also would shield taxpayers from costs of unwinding systemically important failed financial firms, said aides who spoke with Bloomberg on the condition of anonymity. Dodd has been adamant that new legislation include a standalone consumer protection agency , which is a position both President Obama and the House of Representatives agree with, according to Bloomberg.
The House voted in December to pass a version of a financial-regulatory overhaul bill that includes a standalone consumer agency.
Yet as the Senate works to strengthen oversight of Wall Street following massive government bailouts tied to poor oversight, Shelby believes that creating a separate consumer protection unit may be too extreme. According to his aides, the senator is seeking input from other Republican committee members on a unified approach for an alternative regulatory reform bill. While details remain vague, there should be areas in which Democrats and Republicans agree.
For instance, the idea of creating a consolidated bank regulator has been supported by both Dodd and Shelby, who are in favor of eliminating the Office of Thrift Supervision and Office of the Comptroller of the Currency. The two offices’ powers, along with the bank-supervision powers of the Federal Reserve and the Federal Deposit Insurance Corp., would be moved to the new agency, according to Bloomberg.
So far, no timetable has been set for when Shelby will issue his party’s financial regulatory reform legislation.
Loan originations by the top 11 U.S. banks that received government financial assistance rose 13 percent in December from the prior month, according to a Feb. 16 report released by the Treasury Department . In its monthly survey of lending by the top recipients of taxpayer money from the $700 billion Troubled Asset Relief Program, the Treasury reported $178.1 billion in new loans for December.
Bank of America Corp. reported the most in originations, with $64.6 billion, up 11 percent from November. Wells Fargo & Co. reported the second-highest amount, with $58.3 billion in November, a 6 percent increase, and Citigroup reported an 11 percent increase, with $16.3 billion in new loans, as noted in the Treasury survey.
Banks that repaid their TARP funds in June 2009 were excluded from the latest Treasury report. Future reports will also phase out data from institutions exiting the government rescue program, according to Bloomberg.
The Treasury last February launched its monthly bank lending survey designed to provide new, more frequent and more accessible information on banks' lending activities to help taxpayers “easily assess the lending and other activities of banks receiving government investments.”
To access the latest Treasury survey, visit www.financialstability.gov/impact/monthlyLendingandIntermediationSnapshot.htm.
The Federal Reserve has raised an interest rate it charges banks for emergency loans, thus beginning the process to wean the banking industry from government assistance while simultaneously trying to convince the public that the move does not represent an imminent tightening of credit.
On Feb. 19, the Fed officially increased the discount rate charged to banks for direct loans by a quarter point to 0.75 percent.
“(This change is) intended as a further normalization of the Federal Reserve’s lending facilities,” the central bank said in a Feb. 18 news release. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”
Despite the Fed’s reassurances, stock futures and bond prices fell, and the dollar rose against the euro as economists saw the central bank’s move as a “shot across the bow,” according to a Feb. 19 story in The Wall Street Journal.
With the Fed’s announcement, the gap between the fed-funds rate – which as a Fed-influenced rate dictating what banks charge each other on overnight loans serves as one of the central bank’s main policy tools – and the discount rate will now be a half percentage point, up from a quarter percentage point.
Before the crisis, the discount rate was a full percentage point above the fed-funds rate, a penalty meant to discourage banks from using it except in extreme conditions. In the early stages of the financial crisis in August 2007, the Fed had greatly reduced the gap between the two rates to encourage banks to borrow, according to the Journal.
But now, with financial institutions’ reliance on Fed credit waning as market liquidity continues to improve, the Fed felt the time was right to act. Fed governor Elizabeth Duke justified her agency’s policy changes in remarks she delivered on Feb. 18.
"I'd emphasize that the changes are simply a reversal of the spread reduction we made to combat stigma,” Duke said. “And like the closure of a number of extraordinary credit programs earlier this month, represent further normalization of the Federal Reserve's lending facilities."
At a Feb. 19 speech in Nevada, President Obama announced plans to allocate $1.5 billion to state finance agencies to develop new foreclosure prevention programs, according to a White House news release. The funds will be available to states where average home prices fell more than 20 percent from market peak. Obama was joined by Senate Majority Leader Harry Reid, D-Nev., whose state has been amongst the hardest hit.
“During these difficult economic times, we will work to help responsible homeowners stay in their homes and stabilize the housing market so home values can rise,” Obama said during the speech. “This program will allow housing finance agencies in the places hardest-hit by the housing crisis find innovative ways to help homeowners stay afloat, and empower local agencies that know these communities best.”
Because housing markets vary considerably from state to state – and often within a single state – state and local housing finance agencies will be responsible for overseeing the funds. “Housing finance agencies are intimately engaged already in their local housing markets, and will play the lead role in determining what sorts of programs are most appropriate to local conditions,” according to the news release.
Each housing financing agency will determine the priorities for their communities while following strict transparent accountability rules, according to the release. The agencies will be able to use the funds to address difficult, locally important challenges in their regions, including aiding unemployed and underwater borrowers.
Federal Housing Authority-insured loans that were 90 days or more delinquent jumped to 558,944 in January – a 62.1 percent increase compared to a year ago, according to a Feb. 19 CNNMoney.com report. In comparison, the number of loans that were 30- or 60-days delinquent fell over the past year. The surge has some industry watchers worried that the agency may need a bailout.
According to mortgage consultant Allen Hardester, aggressive originators pushed loan qualification requirement limits for risky borrowers in order to secure FHA backing after the subprime lending market ended in 2007. "They took advantage of lax underwriting by FHA to interpret the guidelines broadly," Hardester told CNNMoney.com.
Adding to the problem, the number of FHA loans has grown over the past three years since the housing meltdown from a small percentage of the market to around 40 percent of all loans. "There are a lot of young loans in the FHA book," Mike Fratantoni, a vice president at the Mortgage Bankers Association, told CNNMoney.com. "Mortgages typically hit their peak delinquency rates two or three years after origination."
However, Jay Brinkmann, MBA’s chief economist, said the increase in delinquencies may be a statistical glitch and not a trend. According to Brinkmann, lenders and servicers are reluctant to foreclose on homes that they think will be difficult to sell, which keeps some seriously delinquent loans in the 90-day category for a longer period. Moreover, many lenders are in the process of modifying loans for struggling homeowners, which also keeps loans in the 90-day category for an extended period.
While the FHA has not changed its policy on risk-based pricing for borrowers, the agency now requires a 10 percent down payment from borrowers with FICO credit scores of less than 580 as opposed to the 3.5 percent required from those with higher scores. Moreover, the agency has eliminated its seller-assisted down payment program that allowed sellers to kick back the down payment to homebuyers. "Given the environment, the FHA has made very responsible changes to its underwriting," Fratantoni said.
FHA Commissioner David Stevens said the agency’s finances are intact, including the fact that its primary reserve fund is at $32 billion, its highest level ever. However, the agency’s secondary reserve fund has fallen below its mandated level. To help boost its secondary reserve, FHA has recently requested that Congress allow it to increase the monthly fee it charges borrowers to insure loans.
Although the overall number of homeowners struggling with mortgages remains high, the delinquency rate for mortgages fell in the fourth quarter of 2009 to a seasonally adjusted rate of 9.47 percent, according to the Mortgage Bankers Association’s National Delinquency Survey released Feb. 19. The fourth-quarter rate was down 17 basis points from the previous quarter but remained 159 points higher than a year ago.
Borrowers who were 30 days late on their mortgages in the fourth quarter fell 0.2 percent from the previous quarter to 3.6 percent, down from 3.85 percent a year ago, the survey showed. The drop is the first quarter-over-quarter decline in that category since 2004.
“This drop is important because 30-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures. With fewer new loans going bad, the pool of seriously delinquent loans and foreclosures will eventually begin to shrink once the rate at which these problems are resolved exceeds the rate at which new problems come in,” Jay Brinkmann, MBA’s chief economist, said in an accompanying news release.
Despite the decline, some industry analysts warn that the housing market remains turbulent, noting that unemployment remains high and the number of homeowners behind on mortgages is at a record level. According to the MBA, roughly 15 percent of all mortgages – representing 7.9 million loans – were either in foreclosure or at least one payment past due.
During the fourth quarter, more than 2.6 million borrowers had missed at least three payments, which accounted for half of all delinquencies, double the level a year ago, according to the MBA. “That is the number that is going to produce foreclosures,” Guy Cecala, publisher of Inside Mortgage Finance, told The Washington Post. “It is continuing to go up, and what it really means is that 2010 is going to be a bad year, perhaps worse than 2009 in the number of foreclosures.”
Despite federal incentives for lenders to set up programs for at-risk homeowners, the number of foreclosures continues to increase. Adding to its efforts to address the problem, the Obama administration has allocated an additional $1.5 billion for state finance agencies to develop new foreclosure prevention programs, which will be available to states that were hit the hardest after the collapse of the housing market, such as California and Florida.
Recently passed legislation in New Mexico will require appraisal management companies operating in the state to post a surety bond or equivalent means of security with the Regulation and Licensing Department. The Appraisal Institute’s Rio Grande Chapter had campaigned on behalf of the bill, S.B. 138, which will be presented to Gov. Richardson, who will have 20 days to sign the bill into law.
The legislation, which builds upon a comprehensive AMC regulatory framework that was enacted in 2009, also will require that AMC employees who review appraisals are geographically competent to complete the review. Furthermore, it will prohibit AMCs from including “hold harmless” provisions in their contracts with appraisers, or from requiring appraisers to indemnify the AMC against liability.
The legislation also adopts fee disclosure requirements that are very similar to those adopted by the Federal Housing Administration in late 2009. In New Mexico, AMCs will now be required to separately state the fees paid to an appraiser for appraisal services and the fees charged by the AMC to their client for services associated with the management of the appraisal process. Further, appraisers cannot be prohibited by the AMC, a client, or other third party from disclosing the fee paid to the appraiser for the performance of the appraisal in the appraisal report.
A provision that would have required an AMC to “compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised” was dropped during negotiations to ensure passage of the bill.
A final version of the legislation is not yet available. Previous versions of the legislation can be viewed at http://legis.state.nm.us/LCS/_session.aspx?chamber=S&legtype=B&legno=%20138&year=10 .
The Texas Appraiser Licensing and Certification Board has announced a formal review of all state rules affecting the appraisal profession in 2010, including licensing requirements and standards of practice. Included in the review process will be extensive requests for comments prior to proposed changes, allowing participants to shape the process more profoundly than in the past, according to board members.
Under state law, each agency must formally review all of its rules every four years. However, according to TALCB Commissioner Douglas E. Oldmixon, 2010 will be “the key year for a comprehensive review of all agency policies.” Oldmixon adds that this year’s review will be different from previous reviews. “Instead of responding to proposals, participants will have the opportunity to provide input before draft rules are created, helping to shape how the agency implements statutes and policies.”
TALCB General Counsel Devon Dijansky added, “During the Rule Review process, the agency will be determining whether the basis for the initial adoption of a rule continues to exist.”
Currently, the TALCB is inviting public comment on Chapter 155 (“Standards of Practice”) and Chapter 157 (“Practice and Procedure”) of the TALCB regulations. Comments can be sent to email@example.com and firstname.lastname@example.org .
According to the Commission, rule proposals and adoptions will be presented at the respective Commission and Board meetings throughout 2010, and the culmination of the process will be at the Commission’s November meetings.
M&I Bank announced that it has dropped seven lawsuits brought last month against Arizona real estate appraisers. The suits, filed in January, were intended to recover some of its massive Arizona loan losses, according to a Feb. 17 story in The (Milwaukee, Wis.) Journal Sentinel.
The bank would not say why it was dropping the suits, but Appraisal Institute member Jay Josephs, owner of Josephs Appraisal Group, a large Phoenix appraisal company sued by M&I, told the Journal Sentinel that his company was told by his insurance carrier that the M&I suits would have trouble making it through court because of the statute of limitations. Arizona’s statute of limitations gives plaintiffs just two years to file claims alleging negligent misrepresentation, according to the Journal Sentinel.
However, Rachel Dollar, a California lawyer specializing in mortgage fraud representing M&I on the suits, told the Journal Sentinel, "Statute of limitations analysis is legally and factually complex … in many cases, claims do not accrue, and thus the limitations period does not begin to run until years after the conduct underlying the claims has occurred. Attorneys review potential statute of limitations issues prior to filing lawsuits."
Josephs said that "the bank made a filing without even reviewing the appraisals," adding that even though M&I was suing him, they still contacted him for appraisals.
The lawsuits noted that recent reviews and investigation reveal the market value listed in the appraisals – some of which were from as late as 2007 – was inflated. The lawsuits charged the appraisers showed a "reckless disregard for the truth" in estimating the value of properties that were used as collateral for bank loans. M&I sought $6 million in damages, the Journal Sentinel reported.
For a limited time only, members and non-members can save more than 50 percent on the Appraisal Institute’s “Appraising Residential Properties” book package, which includes “Appraising Residential Properties,” fourth edition, and the “Study Guide to Appraising Residential Properties.”For Appraisal Institute members, the package sale price is $48 (normally $100). For non-members, the package sale price is $60 (normally $125).
In addition, the individual“Appraising Residential Properties,” fourth edition, textbook is on sale for 40 percent off. This textbook provides all of the information that appraisers need to perform residential appraisal assignments competently. For Appraisal Institute members, the sale price is $36 (normally $60). For non-members, the sale price is $45 (normally $75).
The “Study Guide to Appraising Residential Properties” is also available at a 40 discount. This supplementary study guide is a valuable tool for students and a useful review resource for more experienced practitioners. For Appraisal Institute members, the sale price is $24 (normally $40). For non-members, the sale price is $30 (normally $50).
For more information and to order, visit www.appraisalinstitute.org/publications/residential.aspx.
Overall housing starts increased at a higher rate than expected, posting a 2.8 percent gain in January to a seasonally adjusted annual rate of 591,000 units, according to U.S. Commerce Department data reported in a Feb. 17 National Association of Home Builders news release.
“As our latest home builder surveys have indicated, today’s excellent home buying conditions – including the availability of tax credits for first-time and repeat buyers, very favorable mortgage rates and stabilizing home values – are helping drive potential buyers back to the market,” David Crowe, NAHB’s chief economist said in the news release. However, Crowe warned that lack of credit availability continues to hamper new construction activity.
Both single- and multi-family housing starts saw gains in January. Single-family starts increased 1.5 percent to a seasonally adjusted annual rate of 484,000 units while multi-family started increased 9.2 percent to 107,000 units. By region, overall housing starts in the Northeast, West and South increased in January, with gains of 10 percent, 8.9 percent and 1 percent, respectively. With a drop of 3.2 percent, the Midwest was the only region that recorded a decrease.
Overall permit activity fell 4.9 percent in January to 621,000 units from the previous month’s rate of 653,000 units. Multi-family permits plummeted 23 percent to 114,000 units while single-family permits inched up 0.4 percent to 507,000 units. By region, overall permit activity decline in the Northeast, Midwest and South in January, with losses of 17.8 percent, 20.2 percent and 1.3 percent, respectively. With a gain of 8.5 percent, the West was the only region that recorded an increase.
Meanwhile, homebuilder confidence increased more than expected in February, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index released Feb. 16. The index increased to 17, its highest level in three months, from the previous month’s figure of 15, the NAHB reported in a news release.
The housing market index measures builders' confidence in the market for newly built single-family homes. Scores lower than 50 indicate that more builders view sales conditions as poor than good.
“Continued low interest rates, very attractive home prices that appear to have stabilized in many markets, and the availability of the home buyer tax credit make this an opportune time for potential purchasers,” Bob Jones, NAHB’s chair, said in the news release. “As a result, builders are slightly more optimistic that the housing recovery is finally beginning to take root.”
By region, the homebuilder confidence index increased in February by two points in both the Midwest and the South to 13 and 19, respectively. However, both the Northeast and West dropped a point to 19 and 14, respectively.
Despite a 2.5 percent drop in home prices in the fourth quarter of 2009 compared to a year ago, the year-over-year decline rate has improved compared to the first, second and third quarters of 2009 according to the latest Standard & Poor’s/Case-Shiller Home Price Indices released Feb. 23. In those three quarters, the index dropped 19 percent, 14.7 percent and 8.7 percent, respectively.
As noted in the report, home prices across the country were at summer 2003 levels as of December. The 10-city composite fell 2.4 percent compared to November 2008 while the 20-city composite dropped 3.1 percent.
“As measured by prices, the housing market is definitely in better shape than it was this time last year, as the pace of deterioration has stabilized for now. However, the rate of improvement seen during the summer of 2009 has not been sustained,” David Blitzer, chair of Standard & Poor’s Index Committee, said in the news release. “In the most recent months, we are seeing fewer and fewer MSAs reporting monthly gains in prices.”
Both the 10-city and 20-city composites, as well as all 20 metropolitan statistical areas, saw improvements in year-over-year returns in December compared to the previous month. However, Detroit, Las Vegas and Tampa continued to record negative double-digit annual rates. On a brighter note, Miami, Phoenix and Seattle moved from negative double digits to single-digit territory in December.
When examining month-over-month data, 15 of the 20 MSAs recorded declines in December compared to the previous month. With a decline of 1.6 percent, Chicago recorded the steepest drop while Las Vegas, up 0.2 percent in December, posted its first positive gain in more than three years.
Charlotte, Seattle and Tampa all posted their lowest rates in four years, which has repositioned their current trough values to December 2009 levels. However, San Diego posted its eighth consecutive monthly increase, and Los Angeles and Phoenix posted their seventh.
The Architecture Billings Index dropped to 42.5 in January, down nearly three points from December’s revised rating of 45.4. Scores lower than 50 represent declining conditions, while those greater than 50 indicate an industry-wide increase in billings.
The index, released by the American Institute of Architects, is an economic indicator of construction activity that shows a nine- to 12-month lag time between architecture billings and non-residential construction spending.
“Projects are being delayed or cancelled because lending institutions are placing unusually stringent equity requirements on new developments. This is even happening to financially sound companies with strong credit ratings,” AIA Chief Economist Kermit Baker, Ph.D., said in a Feb. 24 news release. “This serious situation is being compounded by a skittish bond market, decreased tax revenues for publicly financed projects and declining property values – all (of) which serve as deterrents for construction activity.”
The regional averages in January were 41.3 for the South, 45.7 for the Northeast, 48 for the Midwest and 40.5 for the West. The sector index breakdown in January included mixed practice at 40.3, institutional at 43.1, multifamily residential at 50.1 and commercial/industrial at 44.9. New project inquiries in January came in at 52.5.
The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics and Market Research Group. For more information, visitwww.aia.org.
Despite the current instability of the commercial real estate market, an increasing number of lenders are expanding their commercial lending activities, according to a Feb. 17 CoStar Group report.
From November to December, new commercial real estate lending more than doubled, and existing account renewals increased 57 percent. Overall, total new commercial real estate commitments surged 157 percent. In addition, some larger financial intuitions have increased their CRE asset disposal activities.
According to Jones Lang LaSalle’s annual 2010 Lender’s Production Expectations Survey, other banks plan to follow suit, CoStar Group reported. The survey showed that 43 percent of respondents expect loan production to range from $2 billion to $4 billion in 2010, more than double the previous year, while 70 percent indicated the same range for 2011. Moreover, the number of respondents expecting to lend more than $4 billion in 2010 increased from 9.3 percent in 2009 to 15.2 percent.
"Lenders we spoke with say they'll be giving borrowers 24-plus month extensions in order to avoid foreclosure on high quality, well-located assets," Bart Steinfeld, a managing director at Jones Lang LaSalle, told the CoStar Group. "With more than $1 trillion worth of commercial real estate loans expected to mature between now and 2013, it's no surprise that a majority of borrowers are placing significant importance on restructuring those loans.”
Of the respondents who indicated that they will be increasing single-asset acquisition lending activities, 28 percent are planning to lend $50 million to $100 million and an additional 28 percent are planning to lend more than $100 million. The number of respondents planning to increase single-asset acquisition lending to between $50 million to $100 million in 2011 jumped to 64 percent.
More than 67 percent of life company respondents indicated that 40 percent to 60 percent of their portfolios will be allocated to refinancing maturing loans in 2010. However, the respondents indicated that they will maintain tight underwriting standards similar to those in 2009. According to more than 74 percent of life company respondents, loan-to-value ratios will fall between 50 percent to 70 percent in both 2010 and 2011.
The majority of respondents, 59 percent, indicated that loan terms in 2010 will range five or more years while only 28 percent indicated three to five years.
When asked about which sectors they would most prefer to lend to in 2010, 27 percent of the respondents indicated multifamily while 21 percent indicated office. The hotel sector was the least-preferred sector.
The number of respondents who indicated that they are selling performing and non-performing loans increased, according to the survey. Of the respondents, 29 percent indicated that they are selling performing loans at 90 cents on the dollar while 24 percent indicated 70 cents to 80 cents on the dollar.
Walgreen Co., the biggest U.S. drugstore chain, agreed to buy Duane Reade Holdings Inc. from affiliates of Oak Hill Capital Partners for $618 million to expand in metropolitan New York. Walgreen said that with its purchase, it also will assume $457 million in Duane Reade debt, Bloomberg reported Feb. 17.
The $1 billion Duane Reade acquisition makes Walgreen the biggest drugstore chain in New York’s five boroughs, ahead of Rite Aid Corp. and CVS Caremark Corp., which is second in the U.S. in stores and retail sales. The acquisition adds 257 Duane Reade stores to Walgreen’s existing 7,100 stores, including 70 Walgreen’s stores in the New York area – only 13 of which are in Manhattan, according to The Wall Street Journal.
Walgreen said it doesn’t plan to close any Duane Reade locations, 60 percent of which are in Manhattan, according to Bloomberg. Furthermore, Walgreen Chief Executive Greg Wasson said they will retain the Duane Reade name, at least until such time as Walgreen can “harmonize” the two brands, according to the Journal. The deal is expected to close by Aug, 31, according to Crain’s.
Walgreen will spend about $60 million over the next few years to refurbish Duane Reade stores, Walgreen Chief Financial Officer Wade D. Miquelon said on a Feb. 17 conference call, according to Reuters. In an interview on Bloomberg Television, Wasson said that Walgreen will continue to consider other acquisitions.
Harvard University is selling part of its $5 billion real estate portfolio as it seeks better investment opportunities. The sale signifies Harvard's latest effort to reduce its exposure to the troubled property market, The Wall Street Journal reported Feb. 17.
The $5 billion portfolio is part of the university’s $26 billion endowment, According to sources, the endowment intends to sell only up to $500 million in assets and future commitments. In addition, Harvard has indicated that it intends to maintain an ownership position of at least 51 percent in each of the real estate partnerships, a requirement that may deter potential buyers, the Journal reported.
According to several secondary-market buyers and intermediary firms familiar with the offering, Harvard began marketing a portfolio of stakes in November in more than 30 real estate funds, ranging in size from $50 million to $500 million through Credit Suisse Group, the Journal reported.
Several of Harvard’s investment funds were launched around the top of the market. As such, they have been hit hard in the downturn. On top of that, industry experts say that generally, property funds have been offered for as much as 80 percent below net asset value, and investment managers continue to mark down the value of the commercial real estate they own, the Journal reported. Needless to say, Harvard faces a challenging environment for selling real estate.
At a recent endowment conference, Jane Mendillo, head of the company that manages the endowment, said that Harvard has used some of the proceeds from its sales to build a cash reserve of about 2 percent of the portfolio, compared to a negative 5 percent cash position in the recent past. The university also borrowed $1.5 billion in taxable debt in December 2008, the Journal reported.
The consensus coming out of the recent International Builders' Show in Las Vegas is that dream homes of 2010 will cost less, be smaller with fewer rooms and be more energy efficient. This is a sign of the times as the troubled economy requires that housing be more affordable, the Chicago Tribune reported Feb. 12.
The National Association of Home Builders, the show sponsor, confirmed the downsizing trend in its “NEW New Home” survey of builders released Jan. 20, It showed a decline in the average square footage of single-family homes in 2009. The survey concluded that most builders will focus on lower-priced models and smaller homes in 2010, the Tribune reported. The survey is available by visiting www.nahb.com/generic.aspx?sectionID=137&genericContentID=133039 .
In addition to the troubled economy, changes in design are also being dictated by droves of younger consumers. Generation Y, those born between 1981 and 2001, do not want the same floor plans as Baby Boomers, born between 1946 and 1964. "Gen Y likes smaller, edgier homes in urban settings. They aren't interested in the typical suburban model," Steve Lane, principal and senior designer at Kephart Community, Planning, Architecture in Denver, told the Tribune.
Lane added that the magic number for a new house today is $200,000 or less. "To hit that price point, builders are scaling down from 2,600 square feet to below 2,000 square feet," Lane told the Tribune.
With new designs in the works, the burning question remains: when will home construction bounce back?
"The turnaround will start in the third and fourth quarters of 2010 and spill over into 2011 and beyond. Based on demographics, there is a huge pent-up demand for housing, and it will be released," Edward Sullivan, chief economist for the Portland Cement Association in Skokie, Ill., told the Tribune. In addition, builders hope that historic low mortgage rates in the 5 percent range and government tax incentives that run through April will boost sales, the Tribune reported.
The Appraisal Institute’s Mark Hepner, SRA, was featured in a consumer-focused story on KATU-2 (ABC) in Portland, Ore., last week. Hepner warned consumers about discrepancies between home values listed by automated valuation model Web site Zillow.com and those determined by a qualified appraiser. He said Zillow’s “Zestimates” often contain faulty information and neglect to account for home improvements.
Appraisal Institute President-Elect Joe Magdziarz, MAI, SRA, was featured on WebTalkRadio.net, a Web-based radio broadcast site. In the Feb. 18 interview, Magdziarz gave listeners insight on how appraisers work when conducting residential real estate appraisals.
Those stories are among the recent media coverage included in the “AI in the News” feature on the members-only section of the Appraisal Institute Web site.
Other Appraisal Institute members featured in media coverage around the country last week included Richard Wolf, MAI, Michael Silverman, MAI, Louise Jeffers, SRA, and Michael Mignogna, MAI, in The Philadelphia Inquirer; Gail Lissner, SRA, in the Chicago Tribune; Joe Price, MAI, SRA, in the Palm Beach (Fla.) Daily News; Associate member Jay Josephs in the Milwaukee Journal Sentinel; Tommie Burke, SRA, in the Athens (Ga.) Banner-Herald; and Warren Weathers, SRA, in The Tampa (Fla.) Tribune.
To see the latest media coverage about the real estate valuation profession, the Appraisal Institute and its members, go to the members-only area of the Appraisal Institute Web site at www.appraisalinstitute.org/myappraisalinstitute/Default.aspx and click any of the headlines under “AI in the News.” Media coverage is updated daily and also includes the latest news releases from the Appraisal Institute.
At a community workshop on residential property tax valuation sponsored by Rep. Gregory Meeks, D-N.Y., members of the Metropolitan New York Chapter of the Appraisal Institute gave attendees insight on property tax assessment procedures and the appeals process. The workshop, which attracted roughly 60 attendees, took place Feb. 22 at the Jamaica Performing Arts Center in Jamaica, N.Y.
Chapter President Kenneth Wong, MAI, and Scott Gallant, SRA, along with members of law firm Baker Hostestler, LLP, educated homeowners about New York’s assessment policy, explaining that assessments cannot increase by more than 6 percent annually or 20 percent during a five-year period. In addition to providing sources on where to obtain city-specific property valuation information, the audience was informed about the various forms required to apply for an appeal as well as associated deadlines.
Meeks organized the workshop to educate homeowners on how to appeal property assessments to better match current economic conditions, in response to the fact that home values in the area have fallen since the collapse of the housing boom. The workshop also illustrated how New York City’s Department of Finance uses various approaches to value residential property.
The Appraisal Institute designated 34 members in January, including 11 who received the SRA designation. Of the 23 new MAI members, seven are from Seoul, South Korea.
Also, three of the new designees became dual-designees, as two of them – Bonnie L. Longo, MAI, SRA, of Williamstown, N.J., and Chris A. Finch, MAI, SRA, of St. Petersburg, Fla. – were already MAI members, while Timothy J. Powell, MAI, SRA, of Orlando, Fla., was already an SRA member.
The other new SRA members are: Anthony J. Barone, SRA, Pittsburgh, Pa.; Brian T. Cadieux, SRA, Campbell, Calif.; Ivor J. Hill, SRA, Pueblo, Colo.; Pamela J. Mann, SRA, Florence, Ore.; Thomas R. Martin, SRA, San Antonio, Texas; Carol J. Sherwood, SRA, Cheboygan, Mich.; John A. Streb, SRA, San Diego, Calif.; Jeffrey T. Strottman, SRA, Milford, Ohio; and Doug A. Wilson, SRA, Oak Park, Calif.
The new MAI members from South Korea are: Woo Yeol Cho, MAI, Ki-Young Hong, MAI, Jin-Sil Jang, MAI, Jae-Sung Kang, MAI, Yong-Hee Kwon, MAI, Ki-Jang Ryu, MAI, and E. You, MAI.
The rest of the new MAI members are: Kent S. Ahrens, MAI, Tucson, Ariz.; Andrea F. Applegate, MAI, Albuquerque, N.M.; William S. Barnes, MAI, Memphis, Tenn.; Wade A. Becker, MAI, Bismarck, N.D.; Adam G. Bursch, MAI, Sacramento, Calif.; Robin A. Detling, MAI, Roseville, Calif.; Jack Falik, MAI, Coral Springs, Fla.; Ryan A. Frings, MAI, Sacramento, Calif.; James B. Hodge, MAI, Houston , Texas; Martin S. Kane, MAI, Castle Rock, Colo.; Kevin A. Kernen, MAI, Southfield, Mich.; Ajay S. Madhvani, MAI, Tucson, Ariz.; William G. Norling, MAI, Portland, Ore.; Mark E. Nugent, MAI, Winter Garden, Fla.; and Keon-Tae Park, MAI, New York, N.Y.
Designated members make a commitment to advanced education and defined ethical requirements. The MAI designation is held by appraisers who are experienced in the valuation and evaluation of commercial, industrial, residential and other types of properties, and who advise clients on real estate investment decisions. The SRA designation is held by appraisers who are experienced in the analysis and valuation of residential real property. Visit www.appraisalinstitute.org/membership/designated_mem.aspx for more information on designations.
For a full list of designees by month, visit www.appraisalinstitute.org/membership/NewlyDesignated.aspx .
The Appraisal Institute regrets the passing of the following designated members who were reported to us in February: Alfred J. Beam, Jr., SRA, Wilmington, Del.; Harry F. Boyce, Jr., MAI, Columbus, Ga.; Hugh M. Crumpton, Jr., SRA, Tampa, Fla.; Daniel G. Cummins, SRA, Alexandria, Va.; Taylor E. Dark, Jr., MAI, SRA, Pasadena, Calif.; Burton L. Hotaling, MAI, Salem, N.Y.; Philip E. Klein, MAI, Baltimore, Md.; Norman E. Lauer, MAI, Arlington, Va.; Michael F. Sweeney, MAI, SRA, Bloomington, Ill.; and Kenneth E. Zamzow, MAI, Cle Elum, Wash.
This information is listed in Appraiser News Online on a monthly basis. For a list covering the past several years, go to the “In Memoriam” page of the Appraisal Institute Web site, www.appraisalinstitute.org/findappraiser/memoriam.aspx, which is continually updated.