Broadening perspectives: international journals, US trend reports, and land survey analysis.
Valuers in the United States should take a look at what their peers are reading in the publications of international valuation associations. One of the first you may want to check out is the Appraisal Institute of Canada's Canadian Property Valuation (CPV) magazine. This magazine has many articles of interest to appraisers and analysts in the United States and elsewhere.
For example, the most-recent issue of CPV (2) includes an interesting article on "Closing the Technology Gap: Data Management." This article addresses information management in the field of commercial real estate, particularly performance metrics and better asset management. Another article in this issue, "The Use of Graphs in the Appraisal Process," discusses the ins and outs of using graphs in the appraisal process. The article points out that graphs are useful for finding patterns and trends in real estate data, although the real message of the data may be buried deep within it. The article provides advice on organizing data for analysis and graphing, quantifying data, the use of central tendency and dispersion (such as average and standard deviation), and when to consider log number formats. It also describes some perils, pitfalls, and cautions in graphing and data analysis. Several types of graphs are illustrated and explained, such as the boxplot, the scatterplot (scatter diagram), histograms, surface plots, bar graphs, and time series. An example multiple regression analysis is shown as well.
The below lists additional article topics of interest in recent issues of CPV magazine.
2015 (volume 59, book 3)
* "Managing Contamination"
* "Transforming the Real Estate Industry and Valuation Using Technology"
* "What It Takes to Become an Expert in Expropriation" 2015 (volume 59, book 2)
* "The Valuation of Distressed Properties"
* "Public Sector Buildings"
2014 (volume 58, book 4)
* "Assessing Condos Using 3-D CIS"
* "BOMA Standards"
* "Depreciation--A Common Flaw"
All articles are available at http://www.aicanada .ca/industry-resources/canadian-property-valuation 'magazine/. (3)
The Australia and New Zealand Property Journal (ANZPJ) also has articles that are helpful and thought'Stimulating for appraisers. ANZPJ is the joint professional journal of the Australian Property Institute and the Property Institute of New Zealand. Some examples of recent articles that may be of interest to US appraisers include
* "The Rewards of Innovation"
* "Social Media and Professional Development"
* "Price Differentials of Spatial Attributes in the Valuation of Housing"
* "Homes of the Future"
* "Innovative New Building Materials and Construction Techniques"
* "Impacts of the Aging Population"
* "Managing Global Commercial Real Estate Accounts"
* "Practical Issues When Seeking Compensation for the Relocation of a Business"
* "Gadgets Useful for Valuers"
On the website for ANZPJ (http://goo.gl /2eCKiW) you can download the cover stories from each issue and purchase other articles.
US Real Estate Trends and Forecasts
Real estate is dynamic, and it's always interesting to speculate about what may be in store for the real estate sector. For decision makers and appraisers, however, forecasting is more than interesting, it is necessary. Technology and changes in the economic, political, legal, and social environment must be taken into account to make a forecast. There are a number of thought-stimulating resources on real estate trends and the likely near-term future that you may find helpful in your forecasts and planning.
Emerging Trends in Real Estate 2016
The PricewaterhouseCoopers (PwC) and Urban Land Institute (ULI) Emerging Trends in Real Estate forecast is in its thirty-seventh year. The trends information for this report is gleaned from surveys and face-to-face interviews with private property owners or developers, real estate services firms, institutional/equity investors or investment managers, lenders, brokers, builders, and REIT leaders. Preparation of this hundred-page report involved over 100 PwC advisors and researchers, with over 400 market-participant interviews, and over 1,400 survey responses. (4) That is a lot of input, and it's quite broad based. The Emerging Trends in Real Estate 2016 report is available for download in pdf file format at http://goo.gl/y3K9GU.
The 2016 report notes that there is a granular weaving together of changes and trends that make real estate "ever more dynamic as it adapts to a networked world." The report cautions,
Everything is connected to everything else, so market participants cannot afford to ignore developments well beyond the property markets themselves.... A lapse of attention or a misstep in execution can result in being blindsided, foiling even a well-considered plan of action, (page 4)
Emerging Trends in Real Estate 2016 goes on to discuss the following key trends and factors in the real estate market.
There is growing confidence in investment returns in "18-hour cities." Investors are expressing interest in placing an increased share of investment capital in markets outside the 24-hour gateway cities. The beneficiaries of this expanded investment include secondary "hip" markets such as Austin, Denver, San Diego, and San Antonio, which are among the top-20 cities for real estate investment and development.
Suburbs are not dead. Investors are taking a new look at real estate investment in the suburbs. Suburb investment proponents argue that delayed marriage and family formation, and the current preference for downtown living, constitute deferred demand for suburbs, and Millennial will prefer suburban, lower-density locations during their childrearing years. One factor is the change in suburban concepts--the suburbs where Millennial live will not be like their parents' suburbs and will have more employment density, transportation orientation, mixed-use, and close-in locations, (page 6)
Office space is a barometer of change. The report notes that growth in employment since the Great Recession has been primarily in office jobs and that is likely to continue. New office space design is trending toward open space without walls and cubicles. Most job growth has been in the 1-49 employee firms (46.5%) and the 50-499 employee firms (37.8%), with only 9.8% in companies with over 1,000 employees, and 6% in the 500-999 employee size range. "Coworking" office space is growing in popularity and is a major force in office leasing, (page 10)
Housing is in flux. Homeownership, which was nearly 70% of the households in the last bubble, has shrunk to 63% (1Q.2015). The decrease is present in all age groups or generations. The analysts expect the homeownership rate to settle around 65%, its fifty-year average. Housing types are rapidly evolving--cohousing, microhousing, and developments with community amenities like catered meals, happy hours, and shared recreation. Much of the new types of housing is in close-in redevelopment. In this year's Emerging Trends survey, affordable and workforce housing is ranked higher in importance than in the previous five years of the survey, (pages 10-11)
Parking demand is under reassessment. The report discusses several trends affecting parking needs. Car miles driven by people 16-24 years old are down 23% (source: AAA), and the percentage of high-school seniors with a driver's license declined from 85% to 73% between 1996 and 2010. Parking ratios are changing with the evolution in transportation (various arrangements in shared vehicles, or short-term drop-and-leave, for example). Although automobile drivers as a percentage of all commuters rose sharply and steadily from 64% in 1960 to 85% in 1980, it peaked at 87.9% in 2000; since then, the percentage of automobile commuters has continued to drop, reaching 85.8% in 2013. Some cities are engaging in variable, demand-responsive parking charges and/or increasing mass transit frequency, all of which will affect parking infrastructure demand, (page 12)
There are bifurcated responses to climate change. The real estate industry's responses to climate change were lukewarm in the survey. The public sector responses to climate change, however, are creating real estate trends such as installation of backup power; higher-quality construction to withstand weather risks; limitations on construction in high-risk weather areas; enhanced insurance requirements; risk-assessment that incorporates severe weather events; and increased emergency management, disaster recovery, and contingency plans, (pages 13-14)
New approaches to improving infrastructure are being implemented. The nation and most cities are falling behind in needed infrastructure construction and maintenance. The solutions are costly with few alternatives. To help, many cities have connecting transit modes and increased public transit frequency. The private sector has become more involved in helping the public sector and thus helping private business, (pages 15-16)
Urban food production is expanding. Although traditional wisdom is that vertical development is the highest and best use in urban areas, one trend has been the reuse of "hollowed out" areas in cities, such as Chicago, Detroit, Newark, for food growing. The report notes, "New York City is home to one operation that produces more than 300 tons of vegetables in three hydroponic operations in Brooklyn and Queens." This reuse illustrates that the end of one productive use of a real estate asset does not spell the extinction of value, (page 16)
Scale of development is more varied. The old "bigger is better" common wisdom in some cases is giving way to smaller, more intense developments. The report states, "The evolutionary trends in development, equity investment, and lending are showing that 'small can be powerful'." (page 17)
Capital flows continue to increase, looking for new opportunities. The report notes the trend toward increasing US capital flows is continuing; for example, "total acquisition volume for the 12 months ending June 30 2015 was $497.4 billion, up 24.6% over the previous 12 months." The increased capital suggests that more money is likely to flow into alternative types of real estate assets (REITs investment in cell towers and outdoor advertising, for example), renovation and redevelopment, and alternative property types (such as data centers and lab space), (page 17-18)
There's a return of the human touch. There is a trend toward more intensively active investment management, with wise application of technology and data. The report notes that success in real estate takes more than "expertise in slicing and dicing numbers" or investment with heavy reliance on algorithms, models, and equations carries analytical risk, especially since it is usually based on historical data. There's increased recognition that individuals with judgment, understanding of the numbers and trends, understanding of changing attitudes, and forward-thinking mindsets are of overriding importance. In addition to investment management, the hands-on approach is a trend in risk management of hacking issues:
All computer systems, government and private, are vulnerable with attention to cybersecurity being ever important in real estate along with other fields. This will be even more important as the "internet of things" grows more prevalent. Can a hacker take control of your car? Of your HVAC system? Of your financial reporting? Real estate attention to countermeasures will be on the rise, (page 19)
Other issues to watch. In addition to trends gleaned from its interviews and research, Emerging Trends in Real Estate notes a number of broader issues that real estate professionals should keep in mind. These include interest rates; water resources; the Fair Housing Act and the Affordability crisis; and job formation and income mobility. The overview section concludes by offering some ideas for "the best bets of 2016."
To dig deeper into subsectors in the real estate industry, read Emerging Trends in Real Estate's chapters on capital markets (debt and equity sectors); markets to watch (markets to watch, market trends, top-20 markets); property-type outlook (industrial, apartments, office, hotels, retail, and housing); and emerging trends in Canada and changing opportunities.
Recommendation: Take a look at the Emerging Trends report--it's an easy download. You'll find it is well worth your time since it is the result of efforts of so many knowledgeable and talented people, is spearheaded by two respected entities, PwC and ULI, and is so well written with excellent graphs and exhibits.
Additional Trends Resources
In addition to Emerging Trends, valuers and other real estate professionals may want to take a look at the following articles prognosticating real estate trends.
"The 5 Real Estate Trends That Will Shape 2016." The National Association of Realtors' consumer website, Realtor.com, offers an interesting real estate forecast in an article by Jonathan Smoke, "The 5 Real Estate Trends That Will Shape 2016." The article is primarily aimed at brokers and consumers, which is a good reason appraisers should take a look at it. The five trends that are expected to affect the 2016 housing market are
1. We'll return to normal housing market (whatever "normal" is)
2. Generational shuffle will make 2016 the best year to sell in the near future
3. Builders will focus on more affordable price points
4. Higher mortgage rates will affect high-cost markets the most
5. Already unaffordable rents will go up more than home prices.
See the full article at http://www.realtor.com /news/trends/five-key-trends-for-2016/.
"A Fresh Batch of Housing Market Forecasts and Predictions for 2016." The Home Buying Institute offers a couple of articles looking at the year ahead. "A Fresh Batch of Housing Market Forecasts and Predictions for 2016," by Brandon Cornett, discusses an expectation for housing prices to continue to rise, although more slowly than in 2015, with the greatest home-price increases in the West. There is also an expectation that job gains will bring more homebuyers into the market, but "student loan debt will keep many Millennial out of the market." The article includes an interesting graph illustrating the relationship between student loan debt and the homeownership rate. (5) See this piece at http://www.homebuyinginstitute.com/news/fresh -batch-housing-predictions-679/.
"Best Real Estate Housing Markets through 2016. " Also on the Home Buying Institute's website, you can read "Best Real Estate Housing Markets through 2016," an article citing ten cities with the fastest appreciation. The article does not cite sources for the data or the underlying basis for its very specific forecasts for the ten cities named; therefore, use this information with some caution. To read the article go to http://www.housingpredictor.com/best-real-estate -housing-markets/.
"Survey Forecasts Favorable Real Estate Conditions for Next 3 Years." On the National Association of Real Estate Investment Trusts' website, REIT.com, you will find the article "Survey Forecasts Favorable Real Estate Conditions for Next 3 Years" by Sarah Borchersen-Keto. This article reports forecasts that are based on a ULI Center for Capital Markets and Real Estate study, and it cites the results of a semi-annual survey of 48 industry economists and analysts. Among the three-year expectations are
* Commercial real estate price increases are expected to slow in 2016 and 2017, and commercial rents are expected to increase
* Commercial returns are expected to be strongest for retail and industrial assets, followed by office and apartment properties, with vacancy rates decreasing in the office and retail sectors.
* Institutional real estate asset returns are expected to moderate in 2016 and 2017.
The article is available at https://www.reit.com /news/articles/survey-forecasts-favorable-real -estate-conditions-next-3-years.
"The 2016 Commercial Construction Market: A Contractor's View," by Bud LaRosa, has some good observations and forecasts as well; it is available on the Building & Design Construction website at http://www.bdcnetwork.com/LaRosaForecast. After discussions about the outlook for industrial, office, hotel, institutional, healthcare, and multifamily property types, the article concludes by emphasizing the role of demographics:
Demographics and the strengthening U.S. economy are helping to drive construction growth. As the economy strengthens, employment is increasing. After sitting on the sidelines for the past few years, businesses and developers are building new office space. Millennials ... are traveling more than other demographic groups, which is feeding hotel growth and remodeling. The strengthening economy is increasing discretionary income, helping the lodging and retail sectors. Millennial are impatient shoppers, making it imperative for retailers to invest in more robust order fulfillment systems and fast and excellent customer service.... Millennial are...looking for apartments in the urban core, but there is also a significant amount of mixed-use development occurring in the suburbs, particularly in transit-oriented developments. This is an indication that developers believe that Millennial choosing to defer marriage and families will embrace the suburban lifestyle--albeit in the context of mixed-use properties.
"Landlords Face Slowing Price Gains After U.S. Records Shattered." The outlook for real estate price gains is the theme of the Bloomberg Business article, "Landlords Face Slowing Price Gains After U.S. Records Shattered" by Sarah Mulholland; it is available on the Bloomberg website at http://www.bloomberg.com/news/articles/2015 -12-30/landlords-face-slowing-price-gains -after-u-s-records-shattered. The article reports that low interest rates have helped boost commercial property prices, but for commercial real estate investors the outlook is for slowing appreciation. The article notes that 2015 commercial property performance was "about 10% through September, according to the National Council of Real Estate Investment Fiduciaries, on a pace to cap six years of double-digit gains," (6) with commercial real estate market outperforming the S&P 500 and the Bank of America Merrill Lynch High Yield Index. As a balance to the likely continued rising interest rates (meaning higher cost of capital), the article points out that foreign and domestic buyers have large amounts of cash in need of investment; plus "a new law eases taxes imposed on overseas investment in U.S. real estate, making it less costly for foreign institutions to acquire properties." (7)
"Building a 24-Hour City: 'Just Imagine Real Estate in 2030."' On the Counselors of Real Estate's website you will also find discussion of trends and forecasts. Hugh F. Kelley's very interesting piece, "Building a 24-Hour City: 'Just Imagine Real Estate in 2030"' is an outstanding thought stimulator published in Real Estate Issues; you can read it at http://www.cre.org/memberdata /pdfs/24_Hour_City.pdf.
"2015-2016 Top Ten Issues Affecting Real Estate." The Counselors also prepare an annual list of the issues and trends most likely to impact real estate now and in the future. The most recent list, "2015-2016 Top Ten Issues Affecting Real Estate," is available at http://cre.org/CRE_2015-16_Top _Ten.cfm. The top-ten areas to watch are
1. Demographic shifts
2. Excess capital supply
3. Rising interest rates
4. Global instability and currency devaluation
7. The gap between rich and poor
9. Real estate technology and crowdfunding
10. The changing retail model
In addition to the resources described above, the major real estate brokerage firms also have online publications with forecasts and trends that you can for the latest market analysis. Moreover, check your state or local real estate centers at colleges and universities as well as other local sources. Several real estate professional groups, particularly in commercial brokerage, conduct annual forecasts with follow-up. It is a good idea to check the previous years' forecasts of the forecasting sources to see to what degree they were on (or off) target.
About This Column
Resource Center is about all types of helpful information resources for appraisers and real estate market analysts--books, articles in a variety of publications, presentations, data, and websites.
New Resources in the Lum Library
Most appraisers know a few of the basics about land surveys, but there is more that we should be better acquainted with. A new addition to the Appraisal Institute's Lum Library (http:// www.appraisalinstitute .org/library/default .aspx) will help, by providing in-depth information about surveys.
The American Bar Association's Section of Real Property, Trust & Estate Law has compiled a twenty-seven-chapter book on land surveys, titled Land Surveys: A Guide for Lawyers and Other Professionals, 3rd ed. This book is the result of efforts of eleven authors plus the editor.
You are not a land surveyor, so why look into a book about land surveys? Appraisers often need to understand surveys, what surveyors do, what a survey is, and the difference between the good and not-so-good ones. Appraisers need to understand how to read a survey, particularly in new development or new construction appraising, actual or potential boundary dispute situations, right-of-way appraising, and in many other situations in urban and rural assignments.
Further, appraisers need to be knowledgeable when making recommendations to clients. Appraisers' knowledge resources may often include a preliminary or information title report, engineering and/or construction inspection reports, soils or hydrology consultation, phase 1 or 2 studies, and a survey. (8) Appraisals are more accurate when the appraiser knows, for sure, exactly where the corners and boundaries are, and what the surveyor's calculated area is. It is wise to recommend, even request, a survey plot (also known as a survey map or survey report).
Even though this book was written with lawyers as the primary readership, the subtitle does say "and other professionals" for good reason. It has information of benefit to appraisers in almost every chapter. This meaty book is more than a "land surveys for the nonsurveyor" type of volume.
The Introduction provides background on what a survey is and is not. We learn that the term survey comes from an old French word meaning "to look over" particularly to locate the physical limits or boundaries of a parcel. In the process of doing that, the surveyor's evidence comes from field inspection, written recorded and non-recorded evidence, and field measurements.
Just as in the case of appraisers, the surveyor is not supposed to be an advocate for the client; the surveyor's opinion is based on experience, evidence, and precedents. Note that a survey is an opinion--not a guarantee, not a fact or truth to be found. The surveyor's research and field work is reported to the client by the plot of survey (commonly known as "a survey"), which communicates findings and opinions to the client. So the map or plot we see and use is the report of the surveyor's work process.
As this book explains, since surveys are opinions based on research, findings, and analysis they may vary from one surveyor to another. Sometimes the resolution of differences must come from a court or other method of dispute resolution. Variances arise for many reasons, including the depth of research and quality of analysis; accuracy of measurement is normally not a major cause of differences between surveys.
For appraisers, all this should sound quite familiar because of the similarity to the appraisal process, with its research and analysis, and the reporting of the process, findings, and conclusions and opinions to the client. And, as with appraisers, a surveyor provides an opinion, not a guarantee (page 129).
Identification of boundaries is just one reason for surveys; others include finding the relationship of the property to adjoining properties and rights of way; the relationship of occupied lines to record lines; the location of physical improvements, recorded and unrecorded easements, and other facets; and water boundaries.
Chapter 2 discusses what to look for when examining a survey map. As with other professional services, the quality of service, process, and report (in most cases, the survey plot or map) can vary widely. It notes that clients and users need to know some basics about surveys. For example, on the survey map or plot, "Every angle point, or every beginning and ending point of a particular line, should be justified on the map ... the surveyor should have a reason for the location of every angle point and every end point of a line or curve ... the data should be there in some form.... one should be able to decipher the rationale behind each and every decision made in the location of a line, curve, or point.... a boundary has to be built upon a strong foundation." (page 17-18) Chapters 3 to 7 go on to discuss advanced survey examination issues and minimum standard requirements. For example, the surveyor's seal, certification, and notes should be examined carefully.
The book also includes material about terminology that should be understood by users of surveys, such as measured distance, record distance, actual boundaries, occupied boundaries, ALTA/ACSM land title surveys, apportionment rule, surveyors report/certificate, gaps, and overlaps.
The book discusses ethics and standards but not to an extent that bogs down the reader. Chapter 11 (on boundary disputes) offers some information on the professionalism of surveyors, pointing out:
* The surveyor's responsibility to the public is equal to the responsibility to the client.
* The surveyor is to be objective, not serving purely the interest of the client, and is not an advocate of a client's position.
* No true answers are waiting to be discovered, only well-reasoned answers.
* There should be professional cooperation between surveyors.
* Keep peace in the neighborhood, and like a physician, do no harm. Surveyors may help peacefully resolve some boundary disputes in some cases.
There is much more to ethics and standards, but this list provides an interesting and thought-stimulating starting point.
The remaining chapters cover topics such as surveying's legal body of knowledge; the components of surveying services; coordinating land surveys in multiple jurisdictions; reading, interpreting, and writing land descriptions; (9) gaps and overlaps in legal descriptions; record research: paper versus ground truth; uncertainties in boundary locations; aerial photography in the land development process; the national flood insurance program; licensure and responsibilities of land surveyors; ethical considerations for the professional surveyor; possible surveyor liability relating to tree encroachments; early English and American surveying; and when is a rod not 16.5 feet? (more times than not).
Recommendation: Land Surveys has a lot of information appraisers should have some familiarity with, but normally--and unfortunately--is not in our education background. This paperback is not exactly low-priced, so take advantage of the Lum Library and take a look at it first if you are considering buying it.
Dan Swango, PhD, MAI, SRA, is president of Swango Real Estate Counseling and Valuation International in Tucson, Arizona. He is experienced in valuation and consulting involving equity investment, debt security, risk reduction, profit optimization, estate planning and settlement, buy/sell opportunities, and eminent domain. Swango is an instructor and communicator with domestic and international experience. He is namesake of The Appraisal Journal's Swango Award, past Editorial Board chair and editor-in-chief of The Appraisal Journal. and a current member of the Journal's Review Panel. Contact: firstname.lastname@example.org
If you know of additional resources of interest to real estate analysts and valuers--or would like to suggest topics for this column--please contact the author.
Land Surveys: A Guide for Lawyers and Other Professionals, 3rd ed. Edited by Mitchell G. Williams
(Chicago: American Bar Association, 2012) 341 pages
Available for purchase at http://shop .americanbar.org /ebus/default.aspx
by Dan L. Swango, PhD, MAI, SRA
(1.) For easy direct access to the URL addresses noted throughout this article, read this column online; go to http://myappraisalinstitute.org/taj/default.aspx, and click on "View Current Issue." (Login required.)
(2.) You can read or download the entire issue at http://goo.gl/Mek6CO.
(3.) Designated Members of the Appraisal Institute can do a keyword search of CPV using the Lum Library's EBSCO search function. Login on the Lum Library homepage, and in the lower-right column click on "Canadian Property Valuation" This will open EBSCO's catalog page for CPV', on this page click on "Search within this publication" located at the upper-left side of the page. You then can type your search term into the search box.
(4.) The interviewees are listed on pages 95-99 of the report--you may know some of them.
(5.) The very interesting graph in the article is from New York Fed Consumer Credit Panel/Equifax Census HVS.
(6.) See https://www.ncreif.org/property-index-returns.aspx.
(7.) For more on this new law, see http://www.bloomberg.com/news/articles/2015-12-18/u-s-poised-to-lift-35-year-old-real-estate-tax -on-foreigners.
(8.) Many appraisers are asking that the client provide some of these items before the appraisal is completed, since the results of other professionals' work may influence the appraiser's analysis and conclusions.
(9.) Chapters 15 and 15 have a host of important points for appraisers reading descriptions.
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