Category Archives: Mann Overboard

After a 2-year hiatus, the Mann Overboard blog is back. This blog will cover anything and everything that comes to mind. There will be market forecasts. Suggestions regarding interesting web sites, books, or topics I think readers should check out. My continual diatribe on the real estate appraisal industry and all of its wrongs. My support for a new real property valuation profession, adopting Mortgage Lending Value in America, creating Real Property Risk Ratings in America, and introducing readers to the concept of Socionomics. Other topics will surely arise.

Feedback will be limited to approved site visitors. This is not to limit disagreement – different ideas are needed for us to advance any concept we discuss. I just want to keep the content professional. Replies whining about old subjects like AMCs and what banks have done to the industry and such don’t get us anywhere. And simpl


May 17, 2017 – As most of you know, I have been promoting Mortgage Lending Value (MLV) in America since back around 2009.  For the first time ever, HypZert is going to offer the course in America.

Information about the course is below.  The cost is $3300, which is a lot cheaper than the $20,000+ I spent on courses, travel (to Berlin), and the exam.  This is a great opportunity to learn new appraisal theory as it is introduced to America.  It is spreading in Europe and I believe it will be commonplace in America within 10 years.  I encourage you to go for it!

Training Course „Mortgage Lending Valuation“, Sep and Nov 2017 in New York – Please Register before 30 June 2017

 German Pfandbrief banks have recently intensified their activities in the U.S. real estate markets. This results in an increasing demand for real estate valuers with local market expertise who are qualified in Mortgage Lending Valuation (MLV) according to the German regulation (BelWertV).

 The vdpPfandbriefAkademie offers a compact training unit covering the methodology of MLV. The training consists of 4 seminar days in New York City including extensive study material and prepares for the corresponding certification as a HypZert Real Estate Valuer for Mortgage Lending Valuation.

The CIS HypZert (MLV) certification guarantees that its holders fulfil, without restrictions, the legal requirements for valuers according to § 6 of the German Regulation on the Determination of the Mortgage Lending Value (BelWertV).

 HypZert is Germany’s leading recognized institution in the area of certification of real estate valuers. HypZert certified experts are appreciated by clients and employers in the finance and real estate industry.

 For more information on the Seminar and Certification, please contact Nadine Roggendorf at



May 18, 2017 – Today The Appraisal Foundation (TAF) gave a webinar on using Restricted Appraisal Reports (RARs) to meet the need of Evaluations.  As TAF is no longer an unbiased entity, I will correct the Fake News they put out today.  My perspective is based on 23+ years of writing true Evaluations (i.e. non-USPAP) and 23 years of ordering RARs.  I have seen both type of reports all across the nation.  So, here goes…

  1.  FAKE NEWS – Evaluation requirements are more than Appraisal requirements.  Misleading.  TAF listed the 5 appraisal requirements listed in FIRREA.  Then compared that to the 14 bullet points for Evaluations listed in the IAEG.  Of course, one of the 5 appraisal requirements is mandatory compliance with USPAP – which has 12 bullet points in SR 2-2.  A few of those requirements require multiple items.  FACT – As I will explain below, A RESTRICTED APPRAISAL REPORT MUST ALWAYS CONTAIN MORE INFO THAN AN EVALUATION!

2.  Remember USPAP has NOTHING to do with Evaluations.  Only the December 2010 IAEG applies to Evaluations.  Thus, this webinar and the next webinar about writing an USPAP Evaluation (an oxymoron – USPAP has an A for Appraisal in it, not an E for Evaluation! Evaluation requirements are in the IAEG) are not relevant.


A.  Evaluations CAN omit many items that are required and/or reported in the typical appraisal report (I will list many below).

B.  RARs CANNOT omit any items required by the IAEG for Evaluations.


4.  FAKE NEWS – It was insinuated in the webinar that a RAR could have less content than an Evaluation.  A single statement near the end said RARs do need to be beefed up and that will be explained in the next webinar.  That should have been emphasized more.  The sample RAR presented would NOT meet Evaluation requirements.  The IAEG says ‘sufficient information’ is needed.  Simply stating a value is not sufficient information.

5.  Here is a list of items that are typically included in a RAR, but are NOT included in an Evaluation:

2 very important items are Evaluations do NOT require the SR 2-3 Certification, nor do you have a work file requirement.  Those are yuge and bigly!

Reporting-wise Evaluations typically will NOT contain an executive summary, limiting conditions, extraordinary assumptions and hypothetical conditions, intended use, intended user, zoning, tax assessment info, flood zone, detailed property descriptions, prominent use restriction statement (RARs), or listing and sales history.  That is not to say every RAR needs all of those items (many are mandatory though) nor that every Evaluation will omit all of those items (most of them will be omitted though).  Therefore, it is FAKE NEWS for anyone to ever say or insinuate that a RAR contains less or equal detail to an Evaluation.


Lastly, not that TAF suggested a bank would use an Evaluation on a $34 Million property, the IAEG makes it clear that as the loan and/or property become more complex, banks need to move towards appraisals.  Nearly all Evaluations will be on properties valued around $1 Million or less.  Some exceptions will exist, especially for the largest banks.  But, not too often will a bank use an Evaluation on properties over $1 Million.  Yes, technically, they make their decision based on loan amount.  But, us appraisers deal with property value.

TAF made a great point that an RAR can be done on any size property.  The amount of work doesn’t change between a RAR and an Appraisal Report.  But, the amount of reporting is less (in a RAR) and that saves a little bit of writing time.

Agencies Finalize EGRPRA Review with Joint Report to Congress

March 22, 2017 – After about 2 years, FFIEC has finally published their report that includes dealing with appraisal issues.

The link is below.   Pages 28 to 40 deal with appraisal issues.  Albeit, appraisals are discussed a bit in a few other places.  As noted, these are NOT final and official changes.

In general, if the proposal does not change, this is a big win for appraisers.  The small increase in a single threshold will not have a major affect on appraisal volume.


March 7, 2017 – This post is an email put out by Bruce Cumming, a commercial real estate appraiser in Florida.  As he notes, the email contained some attachments.  I have not included those on my web site – please contact Mr. Cumming if you would like to see the data he has collected.

I hope you find his research interesting.  Our industry faces a lot of challenges.  Bruce has put in a lot of time in doing this research and sharing his results.  As he suggests, please contact him if you wish to discuss his findings.


The focus of this document (MS-Word version attached) is CRE (Commercial Real Estate) VAS (Valuation Advisory Services) Industry Trends, Product-Service Quality, University Relations, and Challenges in Recruiting and Retaining Talent.

My abbreviated qualifications and contact information appear at the end of this document.

 At last count I am up to 23 exhibits for another research project of which:

  • 9 comprise primary research (inclusive of the 4 attached)
  • 11 comprise secondary research on the web
  • 3 comprise semi-confidential information from other sources

The first part of this email revolves around my research into “Apex Level,” or Global-National CRE VAS Firms as noted below and attached:

  • Global-National CRE VAS Firms – this list is divided into two groups, the first of which are the Global-National CRE Services Firms VAS Groups and the second are the National Boutique CRE VAS Firms, granted some on both lists are more aspirational, than reality at present.
  • CRE Valuation Professional Requirements – I reviewed a large number of employment advertisements from 4.20.2009 through 2.10.2017 for larger CRE VAS firms and banks.  This research indicates the current professional requirements sought in the marketplace.  I then created Aggregate Professional Profiles for:

o        Senior Professionals

o        Managing Directors/Group Managing Directors (of specialty groups within larger CRE VAS firms)

o        Bank Review Appraisers

  • Global-National CRE VAS Firms Marketed and Promoted Professional Services – I briefed what professional service line expertise and property type specialization these firms are currently marketing and promoting.
  • CRE Valuation Data, Resources, and Software – I reviewed a number of academic and professional sources to generate a fairly comprehensive list of current CRE Valuation Data, Resources, and Software.  I emailed that list in mid-January 2017 to MAI/principals, professional staff, and academics around Florida.  I received a number of good suggestions adding about a dozen items to the list and then I did substantial additional research of what will always be a “work in progress.”

Key Takeaways:

  • Mergers and acquisitions of “local” CRE VAS firms by Global-National CRE Services Firms JLL (Jones Lang LaSalle) and NGKF (Newmark Grubb Knight Frank).
  • Emergence of the CFA (Chartered Financial Analyst) professional designation as a CRE VAS credential
  • Market acceptance of the MRICS/FRICS professional designations as a US CRE VAS credential
  • Demand for advanced MS-Excel (and ARGUS) financial and valuation modeling skills as well as some key online providers of training
  • The Player-Coach Model of management, common in many small CRE VAS firms and typical within specialty groups of larger firms.  The general consensus of the articles that I was able to find is that the skill set between a good player/individual contributor/producer and a good coach/manager are very different and bouncing between the two areas often does not work well in practice (people tend to lean toward either the activities they like best, or the ones with the most immediate economic rewards).  Given that virtually any entrepreneurial start-up is subject to the Player-Coach Model (as are virtually all small professional services firms), I was surprised NOT to have found any information on tactics to successfully navigate the challenges presented of balancing review, accounting/billing, information technology, management, marketing, new business development, and training functions mixed with personal production (see attached CRE Valuation Professional Requirements – Managing Director/Group Managing Director, page 8 for Player-Coach Model articles and links).

o        I have long thought that a CRE trainee appraiser course/manual be developed with a managing director/supervisor track and a trainee appraiser track to facilitate effective on-the-job training.

  • Valuation for Financial Reporting (CBRE and Duff & Phelps both have good online brochures outlining the CRE VAS applications)
  • The Wall Street Oasis website was the second hit when I searched, “Commercial Real Estate Appraisal Business” for another project.  It has a variety of posts on the CRE VAS career (linked later in this document) that largely view the typical CRE VAS career in a negative light.  Granted, Wall Street Oasis has a focus on students of, and graduates from (read Millennials) Wall Street target schools (The Ivy League, top liberal arts colleges, and other elite schools) and semi-target schools (second tier).  The most liberal list of business schools would be students of, and graduates from the “50 Best Undergraduate Business Schools,”, and equivalent graduate business programs.  

o        CRE VAS was viewed as good training option for 12 to 36 months prior to moving on to a better CRE opportunity.  It was also viewed as consisting of a lot of “grunt work” at “poor pay” with limited long-term opportunities.  The exception being managing directors/ group managing directors (and the principals of the more entrepreneurial/marketing oriented, specialized, and tech savvy boutiques) – “the salesman” – who were primarily rainmakers.

§         Hopeful CRE VAS exit strategies included:  AM (asset management), BB (bulge bracket banking), IB (investment banking), PE (private equity), REIT (Real Estate Investment Trusts), development, and investment properties brokerage.

          I remember when I attended the Appraisal Institute’s Leadership Development and Advisory Council (2001 to 2003), which is held annually in DC, that many of the better, large local/small regional CRE VAS firms in Northern New Jersey (and Manhattan) would NOT hire NYU real estate graduates, because they would leave after 2, or 3 years and triple their earnings on Wall Street.

           The Florida Gulf Coast Chapter of the Appraisal Institute wanted to sponsor one of my Career Forum21’s (expert panel discussion followed by a networking reception) at Florida State University (FSU), which has one of the larger real estate programs in the US (ranging from 80 to over 300 depending upon the real estate market’s current cycle).  I’ve spoken to several classes at FSU over the years.  I could not get a response back from any of my FSU faculty contacts.  When I was attending an FSU Real Estate Trends & Networking Conference, I “cornered” the, then, faculty advisor for the FSU Real Estate Society.  I’ve spoken to his classes before.  He said that he was concerned that FSU would NOT get enough students, specifically, to attend a real estate valuation event to make it worth our while. 

           When the Florida Gulf Coast Chapter of the Appraisal Institute met in Tallahassee, Florida near FSU we offered a free lunch at our chapter meeting for up to 10 FSU/real estate students.  This yielded 3 FSU/real estate students.  A similar offer near FGCU in Fort Myers, Florida also yielded about 3 students.

           I know that both the FSU real estate faculty and FSU alumni promote real estate valuation as, at least a very good place to start a real estate career, that message, I have been told by faculty and students falls on largely deaf ears.

           I met an FSU/real estate senior back at the 2012 FSU Real Estate Trends & Networking Conference.  It turns out that his old high school was my old junior high school.  I got to know him fairly well and I asked him about student interest in real estate valuation, particularly coeds (who, given the relative career flexibility, I thought might be good targets).  He said that they (coeds that he knew) all wanted corporate real estate jobs with benefits.  He had a couple of CRE VAS interviewed, but the compensation was too low.  He is a retail properties leasing agent.

          A senior managing director at CBRE Valuation & Advisory Services once told me that the average CBRE appraiser earns about what the average CBRE broker earns, albeit the appraiser has to work a lot more hours to do so.  He was quick to add that the top CBRE brokers far out earn the top CBRE appraisers.

          A former managing director at Cushman & Wakefield Valuation & Advisory Services said the he rarely lost an appraiser to another CRE VAS firm, but did lose them to the investment properties brokerage side of Cushman & Wakefield.

o        The first staff professional exception to the poor income opportunity in the CRE VAS Industry included employment at one of the Global-National CRE Services Firms VAS Groups (specifically mentioned were CBRE and Cushman & Wakefield) where low-to-mid six figure CRE VAS incomes were reasonably aspirational.

o        The second staff professional exception to the poor income opportunity in the CRE VAS Industry included employment at entrepreneurial/marketing oriented, specialized, and tech savvy boutiques.

The base requirement to produce a quality work product is a quality professional.  The baseline Aggregate Professional Profile requirement of all the “Apex Level,” or Global-National CRE VAS Firms is:

  • A bachelors degree, or higher from an accredited university (AACSB preferred) in accounting, economics, finance, real estate, or related field; MBA degree, plus

My last survey of Florida university real estate professors relative to recent BSBA/real estate graduate starting salaries was in the fall of 2014:

  • Bachelors degree overall range, $25,000 to $70,000, plus benefits, plus training, plus equipment & tools
  • Bachelors degree central tendency, $40,000 to $45,000, plus benefits, plus training, plus equipment & tools
  • MSRE (Master of Science in Real Estate) degree overall range, $70,000 to $90,000, plus benefits etc. with MBAs higher

My last survey of Florida MAI/principals indicated that CRE state-registered trainee appraisers were paid in the $30,000 to $40,000 range max, often with a minimal (if any) benefits package and minimal (if any) training allowance.

See my article, Houston, We Have a Problem, on page 15 of the Florida Gulf Coast Chapter of the Appraisal Institute newsletter, The Approach (2013:Q3),, for a more detailed discussion.

Starting salaries for Florida CRE state-registered trainee appraisers are weak when compared with the overall earnings potential of a newly minted BSBA/real estate graduate.  The CRE VAS Industry will be very challenged to recruit and retain quality professionals based upon the current economics of the CRE VAS Industry.

Since founding the Region X of the Appraisal Institute University Relations Program in October of 2003 by regional vote, I have talked to about 3,500 to 4,000 college students at the University of Florida (UF), Florida State University (FSU), University of South Florida (USF) Tampa, USF-SP, University of Central Florida (UCF), Florida Gulf Coast University (FGCU), and New College of Florida and coached about 30 enough on their job searches that we still keep in some level of contact.  There was some interest by students/recent graduates in CRE VAS careers from 2005, when I first started to speak to university classes and student organizations, until 2008.  Then it stopped.

The next student who had a genuine interest in a CRE VAS career who contacted me was in July of 2016 when I was contacted by a 2015 UCF BSBA/finance with a real estate minor.  I met her at the 2015 Appraisal Institute-University of Central Florida Expert Panel Discussion.  She is now located down in the South Florida area.  I have arranged for some of my South Florida AI friends to speak with her and she has attended a South Florida Chapter of the Appraisal Institute chapter meeting.   She has had no luck locating a CRE VAS trainee appraiser role as of mid-February 2017.  We have exchanged numerous emails and she is a very good writer and seems to be enthusiastic and motivated about entry into the CRE VAS Industry.  She is getting frustrated with limited to non-existent CRE state-registered trainee appraiser opportunities after six months in a metropolitan area of about 6,000,000 people.

Next, as previously noted, I searched “Commercial Real Estate Appraisal Business,” for another project, which yielded the Wall Street Oasis website as the second hit and the link (current students and recent graduates (read Millennials) would find this link easily):

  • Jobs as a Commercial Real Estate Appraiser Suck?

 A further review of the Wall Street Oasis website yields the following posts:

 Appraisal/Valuation Exit Opportunities 

  • Commercial Real Estate Appraiser (The Future of this Career) 

  • How is Appraisal Looked Upon 

  • JP Morgan Middle Office in Newark DE Vs. Commercial Real Estate Appraisal 

  • Real Estate Appraisal/Consulting -> Real Estate IBD/PE/AM? 

  • Real Estate Appraiser Internship 

  • Real Estate Appraisal Question? 

  • Transition from Real Estate Appraisal to Real Estate Modeling 

The above posts are the types of things that current students and recent graduates (read Millennials) will quickly find when researching the CRE VAS career.  What do you think most will do?

 Key Takeaways:

  • CRE VAS is great training for 12 to 36 months (BUT have an exit strategy)

o        Be prepared for a lot of “grunt work” at “poor pay”

  • The professional image of the typical CRE VAS firm is generally viewed poorly, as compared with other types of firms:

o        A UF MSRE candidate (Yale University undergraduate) that I knew several years ago, whose entire cohort class had internships at local CRE VAS firms in a wide variety of locations, to an intern, did not care for the less-than-professional grade offices and related professional images that they encountered – none wanted to enter the CRE VAS Industry at the typical CRE VAS firm upon graduation.

o        A more recent UF MSRE who wanted to enter the CRE VAS Industry in South Florida could find no firms that offered health insurance and most were described to me as having “broken chairs and egg crates” to sit on.  He is an analyst with a commercial loan servicer now.

  • Economic opportunity within the CRE VAS Industry is viewed as poor with the following exceptions:

o        Employment at one of the Global-National CRE Services Firms VAS Groups (specifically mentioned were CBRE and Cushman & Wakefield) where low-to-mid six figure CRE VAS incomes were reasonably aspirational.

o        Employment at entrepreneurial/marketing oriented, specialized, and tech savvy boutiques.

o        Longer-term, managing directors/group managing directors (and principals of the more entrepreneurial/marketing oriented, specialized, and tech savvy boutiques) – “the salesman” – who are primarily rainmakers.

Recruiting and retaining quality professional talent in the CRE VAS Industry will, again, prove VERY challenging in light of the career “realities” presented on the Wall Street Oasis website.  A quality work product begins with quality professional talent.

What do CRE VAS professionals do?

  • Research
  • Analyze
  • Quantify
  • Report

This same research and analysis process should be turned on the CRE VAS Industry itself to better understand its current economic dynamics relative to the performance of other CRE professional options for quality new professional talent — and for RETAINING that talent.  A quality work product begins with quality professional talent. 

As I indicated in my previously linked article, Houston, We Have a Problem, research in the form of a “cost approach,” or “feasibility analysis” on the economic viability of CRE state-registered trainee appraisers should be done by one, or more, of the following: 

  • The Federal Reserve
  • The FDIC
  • The Appraisal Subcommittee
  • The Appraisal Foundation
  • The Florida Division of Real Estate/Florida Real Estate Appraisal Board
  • The Appraisal Institute

Based upon my relatively informal research of many MAI/principals around Florida the current fee level is far below an equilibrium required to recruit, train, and retain quality CRE trainee appraisers with the minimum previously researched Aggregate Professional Profile criteria of:

  • A bachelors degree, or higher from an accredited university (AACSB preferred) in accounting, economics, finance, real estate, or related field; MBA degree, plus

A quality work product begins with quality professional talent.

The Project Management Triangle (AKA, Iron Triangle, or Triple Constraint),, is central to the economic issues of the CRE VAS Industry:

  • Cost
  • Scope/Quality
  • Time

Generally, on the financial side, the CRE appraisal, or valuation product/service, has been commoditized driving the cost down substantially and reducing turnaround times, which, based upon the Project Management Triangle, will substantially erode quality.  This economic pressure also drives down the CRE VAS Industry’s ability to attract quality new professional talent – and to RETAIN that talent.  Economics will largely trump The Appraisal Foundation’s Appraiser Qualifications Board and Appraisal Standards Boards best efforts.  A quality work product begins with quality professional talent.

I have given the above dynamics much thought over the last few years.

Quality must be effectively demanded by and a commensurate professional-level fee paid in order to drive quality upward, that new economic reality would then drive up the ability to recruit quality new professional talent – and to RETAIN that talent, and provide superior risk management tools for financial institutions individually and as a whole.  A quality work product begins with quality professional talent.

The Federal Reserve, FDIC, and other financial regulators could hire enough bank examiners experienced, qualified, and trained in assessing and reviewing CRE valuation reports as to quality and ranking their risk management level.  This could help drive up the demand for true quality CRE VAS products/services at a commensurate professional-level fee.  A quality work product begins with quality professional talent.

Two financial “Carrot and Stick” levers could be engaged to accomplish this goal:

  • The Federal Reserve could raise the reserve requirements of those financial institutions run by lending “cowboys” and “cowgirls” limiting the funds available to lend, lowering profit potential, and lowering the bonus pool and value of stock options.

o        Conversely, those financial institutions run on very sound CRE risk management principles could be rewarded with lower reserve requirements increasing funds available to lend, increasing the profit potential, and increasing the bonus pool and value of stock options.

  • The FDIC could raise deposit insurance premiums of those financial institutions run by lending “cowboys” and “cowgirls” reducing the funds available to lend, lowering profit potential, and lowering the bonus pool and value of stock options.

o        Conversely, those financial institutions run on very sound CRE risk management principles could be rewarded with lower deposit insurance premiums increasing the funds available to lend, increasing the profit potential, and increasing the bonus pool and value of stock options.

Theoretically, this would penalize aggressive, or reckless “cowboy” and “cowgirl” lending behavior and reward prudent lending behavior and risk management; thereby, lowering CRE-related systemic risk.

Capitalism without bankruptcy is like Christianity without hell.

 – Frank F. Borman, II, retired Chairman & CEO of Eastern Airlines and a former NASA Astronaut

Privatizing profits and socializing losses.

A phrase describing how business and individuals can successfully benefit form any and all profits

related to their line of business, but avoid losses by having those losses paid for by society [taxpayers].  Privatizing profits and socializing losses suggest that when large losses occur for speculators or businesses, they are able to successfully lobby government for aide

rather than face the consequences of said losses.

– Investopedia 

I have also thought for many years why the buyer/consumer protection value of an appraisal to help ensure that a buyer/consumer is not over-paying for a property is not advocated by: 

  • The Appraisal Subcommittee
  • The Appraisal Foundation
  • The Florida Real Estate Appraisal Board
  • The Appraisal Institute
  • Individual Professionals

* * * *

 Alternative Case Study:  Superior Selling Skills

 John Henry Patterson . . . NCR . . . and the cash register . . . the product that almost nobody wanted (this, sadly, reminds me of “cowboy” and “cowgirl” lender driven financial institutions and CRE appraisals/valuations to some extent):

*  Honesty store clerks viewed the cash register as an insult to their integrity

  • Dishonest store clerks viewed the cash register as cutting their self-determined bonus program

Before the MBA degree, there was NCR.  Between about 1910 and around 1930, I read, that about 1/6 of US business executives spent some time at NCR.  John Henry Patterson bought what would become NCR in 1882.  He had a knack for hiring good people and then firing them. 

One of the people Patterson hired and fired was Thomas J. Watson,, who took what he learned at NCR and built IBM.  Watson created the motto “Think,” at NCR and took it with him to IBM (after Patterson’s death) — that’s where the ThinkPad notebook brand name came from. 

Patterson was the father of professional selling.  There are some interesting articles on him in old Forbes magazines from the 1920s (the USF Tampa library has them on microfilm).  I can’t find any books written by him and few written about him and his methods. 

Your comments, insights, and thoughts ARE solicited. 

You may forward this email at your discretion. 

– Bruce

 J. Bruce Cumming, Jr., BSBA | Real Estate & Urban Analysis | uf

State-Certified General Real Estate Appraiser RZ1639 | f

Licensed Real Estate Broker | f 

941.926.0800 | t

941.926.2880 | f 

813.505.7241 | c | e 

Former member, Real Estate Council, Dr. P. Phillips Institute for Research and Education in Real Estate, University of Central Florida (2014 to 2016)

Founding chairman, University Relations Committee, Region X, Appraisal Institute (2003 to 2013)

Former member, Real Estate Advisory Board, Bergstrom Real Estate Center, University of Florida (2006 to 2012)

Former vice chairman, Global Education Research Initiative (GERI), International Valuation Council, The Appraisal Foundation (2009 to 2011)

Former member, Industry Advisory Board, Argus Software (2008 to 2010)

Former chairman, National University Relations Project Team, Appraisal Institute (2007 to 2009)

Former commissioner, Architectural Review Commission, City of Tampa (1999 to 2000)


February 1 – Following is my first guest post.  Bruce Cumming, Jr. is the author.  He can be reached at 941.926.0800 or

We would like to note that from an academic-business perspective real estate is viewed as a sub-discipline of finance, finance as a sub-discipline of economics and the classical economist such as Adam Smith and David Ricardo referred to their discipline as “political-economy” linking economies with the political mode of a country, state, county, or municipality.  The following is some economic theory and emerging issue that could impact real estate values.

According to the Austrian business cycle theory, central banks (such as the US Federal Reserve System and specifically its Federal Open Markets Committee) can set interest rates too low for too long, which can create an artificial boom and distort the accuracy of data on a trend line basis, often causing what is termed “malinvestment.”  According to an article by Mauldin Economics, based upon a graph of the US 10-Year Treasury Rates going back to 1790, 10-Year Treasury Rates over the long-term averaged just less than 6% and the average over the last 50 years was 6.58%.  The current 10-Year Treasury rate according to the US Department of the Treasury is 2.06%, or about 394 basis points below the 200-plus year average rate and 452 basis points below the 50-plus year average rate.  The Federal Open Markets Committee just increased its rate for the first time since December 16, 2008, on December 17, 2015.  The Federal Funds Rate has been between 0% and 0.25% for 7 years.  The Federal Funds Rate is now between 0.25% and 0.50%.  The US stock market has been in rapid decline so far in January of 2016.

The McKinsey Global Institute’s report, Debt and (Not Much) Deleveraging, dated February 2015, reports that between 2007:Q7 and 2014 worldwide debt have increased from $142 trillion to $199 trillion, an increase of $57 trillion, or 40.14%.  Debt has not been liquidated during the so called Great Recession, but has been increased, thereby potentially distorting asset values.

It should be noted that the Green Street CPPI:  All-Property Index (which was started in December of 1997) was 22.7% higher in December of 2015 than in December of 2007, its previous peak.  Green Street tends to focus on investment grade real estate and is tightly tied to the capital markets.  The Moody’s/RCA CPPI, which focuses on repeat sales of properties greater than $2,500,000 in value, saw its last peak in 2007:Q3 (165) and reached that same level in 2015:Q3 (165).  The trough reported by this index was in 2009:Q4/2010:Q1 (96), so the index has increased 71.88% from trough to peak.

Austrian economists theorize that the artificial monetary boom ends when bank credit expansion finally stops, which is when no further investments can be found which provide adequate returns for speculative, or “Ponzi” borrowers.  The Austrian business cycle theory asserts that the longer the artificial monetary boom goes on, the more speculative and “Ponzi” the borrowing occurs, the more errors and waste committed, the longer and more severe the workout period (e.g., bankruptcies, foreclosures, and short-sales) until equilibrium is achieved through market-based price discovery.

The Austrian business cycle theory is one of the precursors to the modern credit cycle theory, which is emphasized by Post-Keynesian economists at the Bank for International Settlements and by mainstream academic economists such as the late Hyman Minsky (PhD/economics, Harvard).  Post-Keynesian Minsky taught at Brown University and the University of California at Berkeley among others.  Minsky’s financial instability hypothesis is translated to real estate markets by borrower type.

Minsky theorized that a key mechanism that pushes an economy toward a financial crisis is debt accumulation by the private sector.  He identified three types of borrowers:  hedge borrowers, speculative borrowers, and “Ponzi” borrowers.

„      Hedge borrowers:  can pay both interest and principal loan payments from current cash flows (e.g., traditional mortgage).

„      Speculative borrowers: can pay interest only loan payments, but must regularly roll over the principal (e.g., interest-only loan).

„      “Ponzi” borrowers:  cannot pay interest or principal, and depend upon asset price appreciation sufficient to refinance the debt (e.g., negative-amortization loan), only asset price appreciation keeps the “Ponzi” borrower afloat.

If “Ponzi” borrowing is widespread enough during a credit boom when asset prices stop raising rapidly the “Ponzi” borrower can no longer operate profitably (or at all) and once asset prices start to decline the speculative borrower may not be able to roll over their loan principal and could face a technical, if not a real default.  The final financial domino is the hedge borrowers who are unable to find loans despite the apparent soundness of the underlying assets.  The market begins to unravel, that is to say, a “Minsky Moment” occurs.

Former PIMCO managing director Paul McCulley (MBA, Columbia) is credited with coining the phrase, “Minsky Moment,” when referring to the point in any credit cycle, or business cycle when investors begin having cash flow problems due to the spiraling debt incurred in financing speculative assets.  At this point, a major sell off begins because no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in prices driving market clearing asset prices down as well as a sharp drop in market liquidity.  The “Minsky Moment” comes after a long period of prosperity and increasing asset values, which has encouraged increasing amounts of speculation using borrowed money.

Austrian economist Ludwig von Mises (PhD, University of Vienna) who taught at New York University theorized that a financial crisis emerges when consumers seek to reestablish their desired allocation of saving and consumption at the prevailing interest rate.  The ensuing recession or depression is the process by which the economy adjusts to the errors and wastes (malinvestment) of the boom, or bubble.

It remains too early in the current cycle to confirm that a “Minsky Moment” has occupied, or if the current stock market activity is a short-term correction that will rebound in a few weeks, or months.

It should also be noted that during that during the last downturn vacant land decreased in value at a far greater rate than improved properties that could be income generating.  A paired repeat sales analysis study that we conducted indicated that vacant land was declining at a rate of about 1.35% per month (rounded) versus improved sales that were declining at a rate of about 0.75% per month (rounded).  Land was declining in price at an 80% greater rate than improved property.

Generally, entitlements are only worth about what they cost during a normal market and are “usually worthless” during a downturn, such as we recently experienced.

The current macro-level economic activities have not yet impacted real estate values, they may and they may not.  Time will tell…



THE BIG SHORT – A Movie All Americans Need To See

January 16, 2016 – I went to see The Big Short today.  I encourage everyone to go see it.

After seeing this movie, you will know why I list Banks among The World’s 3 Greatest Evils (I won’t go into the other 2 at this time).  You will know why I took on Fifth Third Bank and suffered for 7 years to achieve vindication.  And why I look so forward to all of the other whistleblowers out there getting their share of that and many other banks.

For me, it was an emotional movie.  I lived it and knew it at the time.  I can totally relate to Mark Baum, and really the others who went short, as it was an obvious winning bet – but, to win, the American public had to be decimated and we knew banks and Wall Street would be bailed out by the taxpayer.  Corporate Socialism I heard it called recently.

It was good to see the few other people that forecast what I termed in June 2005 The Great Depression II (c).  Unlike them, I just didn’t make a few billion dollars:(  I am glad they did at the cost of ‘the smart money’ on Wall Street.  Yes, a few of us can be right and 99.99% of the World can be wrong.   Remember Mann’s Axiom….

Money will be made shorting the current Echo Bubble during this Echo Depression(c).  It just won’t be as much as last time since the bullish housing people know what the shorts are doing this time around.

I was interviewing with the OCC in the Summer of 2008 and they asked me if I thought banks had learned their lesson.  I said ‘NO’ and that as soon as the pendulum swung back to optimism they would do everything all over again.  I have been told things are even worse today than in the bubble years.  Scary.  The OCC then asked me what it would take to stop banks from being so wreckless.  My answer was to enforce the FIRREA penalties that would allow the government to fine and imprison individuals – the corporate veil does not protect employees that violate FIRREA.  I won’t give it away, but the movie tells us how many bankers have been arrested for the housing debacle – you won’t be surprised, but should be disappointed in the system.

Today, my solution to get banks to clean up their act is simple – eliminate the FDIC deposit insurance.  The public would demand 100% transparency and total safe lending and practices before they would put their money in a bank.  Of course, and saying this I sound like Mark Baum for sure, this would just move all of the unethical and greedy people from banks to non-bank lenders.  The scum keeps moving to where it can thrive.

Speaking of which, the scum have renamed CDOs today as ‘Bespoke Tranche Obligations (BTOs).  Also, a residential lender told me that lenders are starting to do ‘Statement Loans.’  They simply look at your bank statement to see your income and don’t request your tax return.  This is the first step in the direction of the old NINJA-type loans.

I encourage anyone in the industry that encounters these products to collect all of the info you can and go to the authorities so these people can be prosecuted when the time comes – I will be glad to advise you on what steps to take.  Also, investors should remember a rose is a rose is a rose.

Please go see the movie.  Please tell everyone you know to go see the movie.


Many Thanks To All

October 15, 2015 – Since the announcement that I had a hand in making 5/3 Bank pay an $85MM fine, I have received over a 100 emails of support. First, I must thank all of my family and friends that sent emails and supported me over the past 7 years, and longer.

Also, a special thanks to my former staff that sent congratulations.  It was with your buy in of my program that we were able to receive a Best In Class in the Nation rating from bank examiners.  We could not have achieved that without everyone believing that things can be done 100% ethically with no caving in ever.

The emails I received had similar themes:

  • You are Da Mann!
  • Good for you for fighting the good fight, and that you were vindicated. I just can’t believe their shareholders didn’t take this a little more seriously.
  • Wow!  A resounding vindication and testament to your integrity.  Well done.  You are a man to admire.
  • Wow George!  Congratulations!! And BTW as a taxpayer thank you!
  • congrats george.  thanks for winning one for the good guys
  • Glad that you are finally able to get this out in the open and be vindicated.  They certainly picked on the wrong guy back in 2008 didn’t they?!
  • Your ethics and patience are admirable.
  • It warms my heart to see 5/3 hand over $$ for their many abuses.
  • Congrats Mr. Mann. Thanks for having the guts to step up and take a rip at a monster that is out of control.

I wonder how many emails of support 5/3 received?  LOL

I will write more over the next few months.  Nothing in the settlement requires my silence.  I went the route I did because I would never agree to be silent.  It was a long, tough route, but it was worth it.  Everyone deserves to know the full truth.

For now, I leave you with the song that got me thru many tough situations over the past 20+ years.  Give it a listen any time someone wants you to compromise your ethics.

Til next time….

I Won’t Back Down

Tom Petty

Well I won’t back down
No I won’t back down
You can stand me up at the gates of hell
But I won’t back down

No I’ll stand my ground, won’t be turned around
And I’ll keep this world from draggin me down
gonna stand my ground
… and I won’t back down

Hey baby, there ain’t no easy way out
(and I won’t back down…)
hey I will stand my ground
and I won’t back down

Well I know what’s right, I got just one life
in a world that keeps on pushin me around
but I’ll stand my ground
…and I won’t back down

Fifth Third Bank Settles False Claims Act Case for $84.9 Million

PHILADELPHIA, PA, October 6, 2015 — The United States Department of Justice announced today that Fifth Third Bank will pay approximately $85 million to the federal government to settle claims under the False Claims Act (“FCA”) relating to the Bank’s practices in connection with loans insured by the Federal Housing Administration (FHA).  The settlement also resolves a whistleblower lawsuit filed by Kenney & McCafferty in June, 2011 in the Southern District of New York.

Kenney & McCafferty filed the whistleblower complaint on behalf of a former chief appraiser at the Bank, who alleged a broad range of commercial and residential mortgage violations, including fraudulent appraisal practices, which resulted in significant losses to the federal government. The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act.  These provisions permit private parties to sue on behalf of the United States when they believe an individual or company has submitted false claims for government funds.

Fraud on the government’s mortgage programs has become a major source of False Claims Act recoveries in the wake of the mortgage crisis, and the Fifth Third settlement marks another significant victory for both the government and the taxpayers in this line of cases.  According to George Mann, the former Fifth Third employee who blew the whistle, “the culture of the Bank at that time emphasized profits over compliance with federal regulations.  This type of behavior is exactly what led to the financial crisis and, no matter what the outcome, I felt it was my responsibility to speak up and do the right thing.”

“We were fortunate to represent Mr. Mann in this case.  He is honest, ethical, and informed, and was willing to step forward under difficult circumstances,” said Kathryn Schilling, a whistleblower attorney at Kenney & McCafferty.  “Mr. Mann raised concerns about Fifth Third’s compliance issues internally, but no one listened to him.  He is thrilled that the government has recouped significant funds from Fifth Third to restore taxpayer dollars,” Ms. Schilling said.

Mr. Mann and his attorneys expressed great appreciation for the work of the Department of Justice, and the US Attorney’s Office for the Southern District of New York, particularly Assistant US Attorneys Pierre Armand and Jaimie Nawaday.  Mr. Mann also thanked his family, friends, former colleagues who supported his compliance efforts at Fifth Third, his co-relator John Ferguson, and the law firm of Kenney & McCafferty.

For inquiries, please contact:

Kenney & McCafferty, P.C.

Kathryn Schilling

(215) 367-4333



Adding value to the appraisal of the future – by Ed Pinto

August 24, 2015 – Ed Pinto of the American Enterprise Institute was a closing speaker at the Appraisal Institute’s national conference in Dallas a few weeks ago.  One of the new items he presented is summarized below.  As the title suggests, the idea is to make the appraisal of the future value-added – instead of simply providing Market Price as has been the case for the past 80 years.  The primary focus of Ed’s comments is residential appraising.

His ideas follow.  I will not add any commentary.  Just sharing the perspective from an independent party that is in contact with FHA, FNMA, Freddie Mac, etc – Ed was a prominent FNMA employee in the 1980s.

Determine (methodology):

–Market cycle history*

  • Create and review 10-year nominal and real home price trend to determine current position in market cycle relative to equilibrium
  • If the real price trend currently at equilibrium, robust comparable sales approach is likely appropriate.
  • If the real price trend currently elevated or depressed, the lesser of investment and replacement cost approaches is likely appropriate.

–History of buyer’s (>6 mo.) and or seller’s market (<=6 mo.) for existing homes**

  • Determine whether a buyer’s or seller’s market based on months of home inventory divided by listings/sales rate; determine whether a buyer’s or seller’s market
  • If real prices are increasing, it is almost certain that a seller’s market is present
  • Market disequilibrium more likely the longer an uninterrupted seller’s market continues

–Buying power due to change in power leverage**

  • AEI’s Center on Housing Risk plans to incorporate into its Mortgage Risk Index by year end

–Land value and change in land share trends**

  • Calculate land value by extraction using exchange value minus replacement cost

–Whether real price change due to leverage growth or improving utility or a mix

  • Evaluate role played by income leverage vs. fundamentals (i.e. job & real income growth)

*For the MSA, the subject property’s market area and price tier,(zip code or below), and the subject property

**For the MSA and the subject property’s market area and price tier (zip code or below)