Tag Archives: Mann’s Axiom

NATIONAL TENANTS ARE RISKIER THAN THE MARKET ACKNOWLEDGES

August 12, 2016 – 24+ years of being a reviewer, I continue to find it preposterous that appraisers use a 0% vacancy rate when valuing properties with long-term leases to national tenants.  Have we not seen enough bankruptcies and vacant big boxes and restaurants and drug stores to finally acknowledge a 5%-10%+ vacancy rate is warranted for these properties?  I have always argued that national tenants are riskier, not less risky, than local tenants.  Why?  Because they have better lawyers!  They can use bankruptcy or a number of ways to get out of leases.  If I sign a lease, I have no chance of getting out of it.  Dollar General signs a lease and they can get out of it.

Yesterday, Macy’s announced the closing of 100 stores.  Today, Ruby Tuesday’s announced the closing of 95 restaurants.  Logan’s Roadhouse filed for bankruptcy this week and will close 18 restaurants.  WalMart and Target have announced store closures this year (BTW, WalMart is pricing their closed stores at about 20% of the project costs to build them just 2-3 years ago….yes appraisers, price equals value…NOT!  It is likely the same appraisers who valued these at $3.5mm in 2013/2014 will appraise them today at $700,000!  They will laugh and call it job security.  America really needs to place liability on appraisers like they do in Europe – the full value that the appraiser concludes at they can be sued for!).

Of course, the ridiculous reply the vast majority of appraisers provide is ‘The market does not deduct any vacancy or expenses, so that is why we don’t.’  As you know, I have long argued that it is not our job to reflect the market.  Reflecting the market simply provides Market Price and anyone in the public can do that nowadays.  Market Value is not Market Price and value is not based on prices unless the market is in equilibrium – which is almost never.

Per Mann’s Axiom – If the market says it is so, it isn’t!  The market is almost always wrong.  Studies have shown that investors have overpaid for properties by around 20% for almost 30 years now.  These are the smartest investors in the world.  Why are they so far off in what they pay?  I believe prices are inflated for two reasons – 1) Investors significantly underestimate potential vacancy, and 2) Investors underestimate expenses.  The studies have shown that actual returns are 20% below expected returns.  Obviously, the market’s expectations are, and have always been, wrong – way wrong!

Appraisers who want to use 0% vacancy and 0% expenses for national tenant properties can continue to play this game and provide Market Price.  Many clients simply want that.  It is what keeps REITS and CMBS and Wall Street and national appraisers making their fees.  But, these prices are not indicative of value.  Clients deserve to know the underlying value of these properties.  They already know what the prices are – without hiring an appraiser to provide a Confirmation Report.  Real appraisers will deduct realistic vacancies and expenses and conclude a real market value.

Will the real estate appraisers please stand up….

 

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.