Okay, let’s start today’s post with some background.
After tax laws were revised in 1986, largely eliminating the ability of investors to shelter other sources of income with losses in Real Estate, many investors opted out of real estate investment and the crash of
the overbuilt market was exacerbated.

A scapegoat was needed. Lawmakers concluded that appraisers had an outsized contribution to this
crash and decided that a mechanism to establish minimum appraisal standards had to be implemented.
Hence, in 1989, the Appraisal Foundation was created and soon thereafter, the Uniform Standards of
Appraisal Practice were developed. USPAP was meant to define those minimum standards. It soon
became clear that establishing minimum standards for the many activities that make up “Real Estate
Appraisal” was elusive. What applies in the appraisal of homes vs. the appraisal of hotels is quite
different. Appraising for mortgage purposes is quite different than appraising for tax appeal or eminent
domain. Hence, every two years, a newer, better USPAP is published with more examples and opinions.
The document has grown – Original USPAP – ( + A-114 + F-152 + I-8 = 361 pages).

Rather than concede to the futility of regulating all these activities in a single document, the Foundation
pressed on, developing guidelines that would be the basis for the establishment of laws by the States
and the basic curriculum that would determine minimal competency. The states revved up their
regulatory capabilities – using the same structures used to regulate other activities, like cosmetology.

The appraisal profession gave up its status as a self-regulating profession and devolved into a trade – a
heavily State regulated, highly competitive trade. Banks and other frequent users of appraisals could
now fall back on the State defined minimum level of competency. Instead of having to seek out the
services of a designated member of a respected, self-regulating, trade organization, they could simply
use anybody who successfully completed State requirements.

But not everybody was happy with the need for every valuation product to meet these standards. Even
as USPAP was being finalized, regulatory agencies were already defining situations when a lesser
product could be accepted – which they termed “evaluation”. In December, 2010, a number of banking
agencies and financial organizations got together and issued their own additional rules – commonly
referred to as the Interagency Guidance (FIL-92-2010). In fairness, the Guidance is not purely regulation
of the appraiser, but rather of the whole process of appraising, obtaining appraisals and reviewing

Further, they expanded guidelines for the use of “evaluations” in some instances. They define evaluation as: “A valuation permitted by the Agencies’ appraisal regulations for transactions that qualify for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.” The threshold exemption is $250,000, the business loan exemption (owner user) increases that to $1MM and the subsequent transaction exemption applies in instances where a refinance/loan restructure involves no extension of new credit – no new money. Of course all of this regulation has led to burdensome expense to business.

Despite the fact that actual appraisal fees have fallen, despite the fact that the typical appraisal report now provides more information about a property and its neighborhood and market than ever before, and despite the fact that actual appraisal turn times are shorter than they were in say 1985, in recent years, the burden of the appraisal expense has precipitated the expanded use of the latest “cheaper valuation product” – the evaluation.

What is an evaluation? The widely trumpeted 14th edition of The Appraisal of Real Estate, which serves
as the “bible” of the appraisal body of knowledge, does not even have the word “evaluation” listed in its

Our sparkling new USPAP 2014-15 defines an evaluation as part of Appraisal Practice on page U-1. “The
use of other nomenclature for an appraisal or appraisal review assignment (e.g., analysis, counseling,
evaluation, study, submission, or valuation) does not exempt an appraiser from adherence to the
Uniform Standards of Professional Appraisal Practice.” (italics added). In addition, in the Advisory
Opinion Section (AO-13, pg. A-29), USPAP 2014-15 states that “…appraisers who are bound by USPAP
must recognize than an evaluation meets the USPAP definition of appraisal and appraisers must comply
with USPAP when providing such a service.” In theory, non-appraisers who perform the same services
are not. Hence, we have a playing field that is not level. Those who have made a commitment to the
appraisal profession, who have made the investment in time and money to comply with government
regulation are placed at an economic disadvantage despite the fact that they are clearly the portion of
the population with the best education and experience credentials to perform the service.

So let’s summarize.

Appraisers did a bad job regulating themselves so Congress stepped in to ensure minimum standards
would be clearly defined and the Appraisal Foundation and USPAP were born. Both have evolved and
grown – at alarming rates.

Under regulation appraisals became too expensive (though they actually cost less and provide more
than they use to) so a new product that is not subject to USPAP was created – evaluations.
So now, a great deal of valuation work (particularly in the “kicking the can down the road” part of the
business – the “subsequent transaction” exception cited above – essentially expiring loans that need to
be extended or renewed) can now be done by individuals who are not subject to minimum competency
and standards other than those set by individual institutions (both public and private).
This saves users of appraisal products some money – particularly in those non-fee producing
“subsequent transaction” situations. In a recent blog post advocating State statutory changes that
would allow appraisers to do evaluations, George Mann points to statistics he has assembled indicating
that appraisal fees average about $2,100 and evaluations are about $700.

That’s great from the user’s perspective, how about from the providers? Not so great. First off, it is difficult for the operator who has invested in the infrastructure and licensing required for USPAP
compliance to compete with the non-licensed provider. For instance, I just spent $$ attending my sixth or seventh USPAP update course. And I came away confused. Although it was recognized by the instructor that evaluations can be done as appraisals by appraisers (i.e., we can do reports that conform to USPAP and sell them in the market where our competitors are selling product that doesn’t conform), he indicated that we might do this using Restricted Appraisal Report formats. But that left me befuddled. USPAP is very clear that Restricted Appraisal Reports can only be used when there is a single intended report user. In my experience, no report done for a regulated bank can be reasonably expected to have only one user. Any report
submitted to a bank is likely to be read and relied upon by the owner and/or any of a myriad of
regulators.  So there we are…


Miami’s Design District: In Transition

Miami’s Design District is a pocket of commercial properties that comprise a unique “community of design”, generally located between N.E. 36 and 41 Streets and between Biscayne Boulevard and North Miami Avenue.   The vast majority of commercial space within the Design District has traditionally catered to creative businesses including interior design firms, art galleries and studios, media production firms, and furniture retailers.  Over the past eight years, restaurants have also begun to open in this district, providing a night-time entertainment element to the neighborhood that has increased its popularity.  These currently include Michael’s Genuine Food, Buena Vista Bistro, MC Kitchen, Mandolin, Egg & Dart, and Oak Tavern.  The Design District is also home to the Design and Architecture Senior High (DASH), a highly-regarded magnet high school that is part of the Miami-Dade County public school system.

Craig Robins, the majority owner of properties within the Design District, was the driving force for the neighborhood’s recent rejuvenation.  Most recently, he has begun luring high-end, luxury retailers to locations in this neighborhood.  This is part of a large-scale plan to re-make a large central portion of the Design District into an enclave of ultra-luxury shopping, augmented by cafes and tree-shaded plazas.  The targeted area lies between N.E. 38 and 40 Streets, along N.E. 1st Avenue and continuing to the east toward N.E. 2nd Avenue.  It includes more than 540,000 square feet of new construction and redevelopment that is now underway, at a cost of $312 million.  The original plan calls for the creation of Palm Court, a pedestrian retail district along a north/south axis through these city blocks, with underground parking.


Longstanding non-compete clauses for luxury retailers at Bal Harbour Shops have expired, allowing these retailers to look at other locations in Miami-Dade County such as the Village of Merrick Park in Coral Gables and Brickell CityCentre, which is now under development.   The redevelopment of the Design District is part of a partnership between Craig Robins and a Paris-based investment fund that is backed by luxury giant Louis Vuitton Moet Hennessy.  As a result of this collaboration, Louis Vuitton, Christian Louboutin, Christian Dior, Prada, Celine, Hermes and Cartier have already opened stores in the Design District along N.E. 40 Street between N.E. 1st and 2nd Avenues.  Other famous brands such as Fendi, Pucci, De Beers, Marc Jacobs, Zegna, Tom Ford, Burberry have expressed an interest in locating stores in the Design District.  The redevelopment plans also call for two anchor stores such as Bloomingdale’s SOHO concept.



This surge in new luxury retail development is fueled by a growing number of wealthy visitors and residents that are arriving in Miami, including those from Latin America and Europe with increasing numbers from Asia.  The recovery in Miami’s condo market has been led by luxury high-rise development in prime markets, with many units priced above $1million and marketed to high-wealth foreign buyers.  The region’s luxury profile has been greatly enhanced by events such as Art Basel in Miami Beach, a five-day event that is held each December.  This event attracts more than 260 leading art galleries from across the globe, with works by over 2,000 artists that draws a sophisticated and affluent crowd of visitors to Miami.  Art Basel in Miami Beach is now recognized as the most-prestigious art show in the Western Hemisphere, with functions increasingly centered in the Design District and its adjacent Wynwood Arts District and Midtown Miami.

Peripheral areas of the Design District continue to feature interior furnishing and design showrooms, which currently includes a roster of nearly 50 outlets including Adriana Hoyos, Ann Sacks, Armani/Casa, Baltus, Bisazza, Design Within Reach, Holly Hunt, Fendi Casa, Janus et Cie, Ligne Roset, Jonathan Adler, Luminaire, Monica James, Vitra, Pampanoli, Poliform USA, The Rug Company, Waterworks, Michael Dawkins, and Bobby Berk..  These luxury home furnishing and design brands target an upscale clientele.  With the addition of restaurants and high-end retailers, more of these design showrooms are open to the public during normal business hours, with businesses seeking ground floor locations with direct frontage to the street to attract retail customers as well.

Other plans for the Design District include a high-rise hotel and residential project at N.E. 40 Street & N.E. 1st Avenue, and a continued mix of restaurants and cafes to create a luxury lifestyle shopping “experience” within the Design District.  Construction is feverishly underway in the center of the Design District to accommodate these redevelopment plans, with luxury fashion retailers already appearing along N.E. 40 Street.   This has led to additional speculation as investors have recently paid premium prices for properties in the Design District, before retailers’ sales volumes have shown support for sharply increased rents.   These rents can range from about $30-$60 per square foot at the District’s periphery to a premium rate of $100 per square foot or more along N.E. 40 Street.  These investors are hoping that the critical mass of newly-developed retail and showroom space in the Design District can attract enough shoppers that sales volumes will eventually support the higher rental rates and premium prices paid for investments in this market.

– Jay Mlinar




Note Sales and Transparency

March 21, 2011

There have been a few recent land sales which included the foreclosed borrower reacquiring the property with new partners. These sales usually are note purchases that include the elimination of the guarantee for the borrower. The interesting comparison is with residential loans where this type note sale to the original borrower never occurs.

Lenders who sell commercial notes sign confidentiality agreements with the new buyers which prevent appraisers from confirming the price of the purchase. The buyer then begins foreclosure on the original borrower.

The result of these practices is to lessen the number and reliability of sales in the market. Today there are many more note sales than property sales. In addition the process of buying a note is not as open as a normal MLS marketing and sales of a property. Local banks begin the sale of assets by offering the notes to bank insiders prior to an open market trade.

The sale of residential loans thru the secondary market includes large discounts for loan pools with late payment history or non-payment periods. So far no real discount has been given to the property owner who has continued to make payments even though the loan amount in many cases is above the market value of the home.

The analysis of these note sales indicates in the commercial market lenders are much more likely to include the borrower in a restructure of a loan, while no such consideration exists for the residential loan borrower. The reason is probably size of the deal and the degree of expertise of the legal advice for the borrower. The larger commercial loans tend to have solid legal representation for both lender and borrower.


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