Friday, August 24, 2018

SkylineValue Helps Break-down the Monolithic Office Classes

Class-A Max

Class-A Mid

Class-A Min
(Click on the image to enlarge)

The traditional commercial appraisal requires that office properties be classified into one of the following three broad categories: A, B or C. In reality, the classes are not that monolithic. On the contrary, there is significant diversity within each class, requiring sub-classifications.

That is why, we developed the SkylineValue office valuation system with three additional sub-classes (Max, Mid and Min) within each class, offering our users the flexibility to identify the class more precisely with a sub-class, leading to more meaningful and statistically significant valuations.

The above graphics show how the differentiation takes place. Though these are all Class-A properties with similar basic attributes (size, type, age and office tenancy), there are significant qualitative differences (sub-location, land, parking, view and type of retail) that vastly differentiate them even within this monolithic office class, resulting in large price variations. In addition to the World Class Retail (on the ground floor) and View (generally waterfront), Trophy and Class-A Max properties tend to be on Over-sized lots with better Parking facilities. Therefore, lumping all of them together simply defies meaningful market valuations.

I picked the above graphics from SkylineValue.com, a "quick look" office valuation site I own and operate, to avoid having to deal with any copyright issues. It produces such valuations in less than 60 seconds each. The site is mobile-friendly so no additional Apps are needed (just access the site from Safari on your iPhone and it will work as an App). It's totally FREE and NO login/registration of any sort is required. 80 Major Office Markets in the US and Canada are currently covered.

Just click on the market of your choice on our homepage and follow the prompt. If you need help, use 'TRY IT' from the homepage. Here is the link to SkylineValue.com:

homequant@gmail.com

What the Experts are Saying:
“I checked out SkylineValue.com and I have to say that its awesome.  This is a classic case of good things come in small packages.  I was excited to see that the [..........] market is included.  I could see this being a very handy tool for investors, appraisers, portfolio managers or just average Joe’s who like to dabble in Commercial real estate.   For my own purposes, I selected different parts of Long Island and different sub groups of properties and I was astonished at how much flexibility and how quickly I was able to retrieve accurate values without the need for full blown work ups.  The fact that I can get a valuation right on my device in about 60 seconds is a breath of fresh air.  I will be using SkylineValue regularly!” 


Our AVM & Other Offerings
2. QA/Review AVM

A Good Top-down Office Valuation System Allows Comparison of Values Across All Classes

(Click on the image to enlarge)
Based on the quality of construction, architecture, size, amenities, location, stories, tenancy, view, upkeep, etc. office properties are classified into three major categories: Class-A, Class-B and Class-C. Accordingly, their rental rates are significantly different, with A class properties (save Trophies) commanding much higher rental rates than their lower counterparts. Similarly, B and C classes rarely attract upscale ground floor retail and triple-A office tenants.

Of course, in major cities, a limited number of Trophy properties (for example, One World Trade Center in NYC Downtown and Empire State Building in Midtown) exist as well. Trophies generally fetch higher rental rates - both retail (ground floor) and offices than Class-A's in the area. They tend to be architectural masterpieces as well. Empire State Building in Midtown Manhattan needed half a billion (perhaps millions more) in rehab capital to restore it to its old glory.

I used SkylineValue.com to produce these sample valuations as I own and operate the site, to avoid having to deal with any copyright issues. The site is mobile-friendly so no additional Apps are needed (just access the site from Safari on iPhone and it will become a perfect App). It's also totally FREE and NO login/registration of any sort is required. 

In order to value an office property on this site, all one needs to know is the general location, rentable square feet and a few general property characteristics, all of which are easily obtainable online. Once these data elements are available, users can have the system process the valuation in 60 seconds or less. 

This system is designed for the Pros and Non-Pros, offering a "Quick Look" valuation and is intended to complement the traditional valuation, not replace it. 80 Major Office Markets in the US and Canada are currently covered. 

Just click on the market of your choice on our homepage and follow the prompt. If you need help, use 'TRY IT' from the homepage. Here is the link to SkylineValue.com:


What the Experts are Saying:
“I checked out SkylineValue.com and I have to say that its awesome.  This is a classic case of good things come in small packages.  I was excited to see that the [XXXX] market is included.  I could see this being a very handy tool for investors, appraisers, portfolio managers or just average Joe’s who like to dabble in Commercial real estate.   For my own purposes, I selected different parts of Long Island and different sub groups of properties and I was astonished at how much flexibility and how quickly I was able to retrieve accurate values without the need for full blown work ups.  The fact that I can get a valuation right on my device in about 60 seconds is a breath of fresh air.  I will be using SkylineValue regularly!”     


Our AVM & Other Offerings
2. QA/Review AVM


Friday, August 17, 2018

Why Some Bosses Bully the Superstars

   General Attributes of Bully Bosses

a) Exhibit extremely mean and vile behavior towards the targets – generally a handful of employees within the department/hierarchy.

b) Malice is rarely performance, work or ethics related.  

c) Enjoy (sadistic) pleasure in maligning targets in meetings in front of colleagues and others.

d) Insignificant stimulus triggers their bi-polar behavior towards the targets, often followed by an indecent and tangential rant.

e) Evaluate targets poorly with very derogatory narratives, atrociously ignoring their actual and on-record performances.

f) Enjoy humiliating targets with deliberately antagonistic stance and actions, systematically removing them from all major tasks, projects, groups and committees.

g) Relocate (or constantly threaten to relocate) targets to unfitting setting.


Why Some Bosses Bully Existing Superstars
Answer – Inferiority Complex

1) Incompetent bosses (hired or promoted due to high-level connections, nepotism, political appointments, etc.) often suffer from serious inferiority complex in managing the highly competent staff members (“superstars”).

2) Unfortunately, some of those incompetent bosses (who are also inherently angry and arrogant) grow into bullies fearing significant resistance from within.  

3) As a result, those bullies aggressively target the superstars (to start with), routinely walking down on the curve until the mission has been accomplished.

4) They even entice the “safe” enthusiasts (none is ever safe with these bullies!) to collaborate alongside, jointly reining in on the top targets, promptly and decisively.

5) Peers remain mum, to avoid having to cut a sorry figure with the power backing the bully.

6) The higher-ups usually look the other way, paving the way for least resistance – for a collective and glorious victory. 
   
7) The hand-picked investigators of the top bullies are sometimes accomplices too, protecting the evil and sacrificing the coveted.


Why Some Bosses Hire Superstars and then Bully Them
Answer – To Steal Domain Knowledge

8) The bullies that are obsessed with visibility and cheap credit often resort to this strategy: They hire industry experts and when the department shows potential, they start to exhibit their true color.

9) Of course, until then, they tend to be very quiescent, generally polite and encouraging – just to accentuate the pace of delivery, i.e. transfer of knowledge/know-how and implementation. 

10) These bullies realize that the presence of the superstars lowers their image and power so they strike at the first opportune moment.

11) Additionally, they trade on the fact that the superstars, unlike the other employees, would not stick around too long should the situation deteriorate, so they intensify the assault, often exponentially, to accentuate the pace.


What Happens When the Superstars are Bullied

a) The non-confrontational folks easily give up, accepting the writing on the wall. They start searching for new jobs, including within the same organization.

b) Depending on the atrocity being inflicted, some even quit without landing new jobs, knowing very well it’s easier to switch than having to start afresh.

c) The confrontational counterpart (without the union backing, etc.) wishfully lingers on, evaluates legal rights, and explores other avenues including therapy – until, of course, the inevitable hits the fan!

d) The other confrontational kind (with backing) tries to survive with the needed help from the backers – outcome is usually a toss-up depending on the power of the local leadership.

e) These superstars are the ultimate producers, taking utmost care of the concerned consumers around – mostly selflessly. Their departure often leaves a long-term vacuum.

f) The cycle (of violence) continues until a seismic shake-up in management or an unprecedented external pressure/ movement pushes them off the cliff!


Workplace Bullying Institute – 2017 Stats

(Click on the image to enlarge)

Don't let these bullies destroy your career. Seek help. Good Luck!

Disclaimer - The “bully bosses" portrayed here are hypothetical in nature and any likeness to  any individual or entity is strictly coincidental. The author is not offering this presentation as professional services advice in any shape, form or manner whatsoever. Every institution is different, so seek the advice of a competent professional before making any changes to your existing program(s).

Sid Som, MBA, MIM
President, Homequant, Inc.
homequant@gmail.com

Thursday, August 16, 2018

AVM is a Market Solution, Comparable Sales Analysis isn't (2 of 2)

- Intended for Start-up Analysts and Researchers -

If you provide a subject and a sales population to a group of concerned parties - an Assessor to a Bank Appraiser to a Listing Agent offering buyback guarantee to a traditional Listing Agent to a Buyer's Agent to an Appeals Consultant - you will be unpleasantly surprised by the outcome. They will pick different sets of comps based on their professional requirements and objectives, leading to different, often very conflicting, valuations. For instance, your Assessor may not have your best interest at heart as s/he has to meet a budgetary requirement, paving the way for counterparties like Appeals Consultants. A Listing Agent looking to get an "exclusive" may not do well with a set of middle-of-the-road comps which a Buyer's Agent might be interested in.  

In other words, the selection of comps is a function of the hat the party wears, making the entire process highly subjective. AVM, on the other hand (as I explained before - post 1 of 2) is a fairly scientific exercise. All variables interact with one another in an econometric equation and produce the resulting values. Therefore, all other factors remaining constant, two identical homes will have identical values - but not so in the world of the comparable sales analysis ("comp sales") as it is very party-specific.
  
Once the pool of sales, that closely represents the subject are properly scored and quantitatively adjusted, becomes comps. Generally, five best comps are then selected to value a subject. Valuers tend to use one of the three common methods - distance, least adjustments and sales recency - to narrow their choices down to the five contributing comps. Please read my prior postings (links below) for more details.   

In this analysis, the attributes of the subject home are: Bldg SF=3,250, Lot SF=17,400 and Bldg Age=26. 

From a large sales population, an optimal pool of 10 comps was algorithmically produced to demonstrate how subjectivity plays a key role in this valuation process. In each approach, the lowest ($308,770) and the highest value ($422,175) comps were removed. 




The above table represents the distance method, meaning the five closest (to the subject) comps were considered to be the best comps, producing a value range of $344,820 to $414,940, with a probable subject value of $388,775. Since least adjustments and recency of sales were ignored here, obviously several comps needing large adjustments or of older originations managed to creep in, thus making the process sub-optimal.  




The above table (middle one) represents the least adjustment method, meaning the comps that required the least adjustments were the best comps. The least adjustment is nothing but a balancing act. In other words, larger lots are compensated in value by smaller building sizes, lesser time adjustments are proxying for older homes, etc. For example, the second least adjusted comp (# 6) with much smaller lot was corrected by the larger and older building. It also sacrificed one of the closest (# 8) comps. This method produced a lower subject value of $371,150.




The above table (bottom one) represents the sales recency method, meaning the most recent five comps (in terms of sale dates) are the best ones. This is where the lowest and the highest value comps showed up on the initial line-up, hence substituted with the ones waiting in line. Though this method produced the most compact value range (upper bound was compacted down), it produced the lowest subject value of $360,340.

When analytics are robotized, this is how the game would be played out (no negotiations with robots until AI 5.0):


1. Assessor and Listing Agent (traditional) will be given the "distance" value.

2. Bank Appraiser and Listing Agent (buyback) will be given the "least adjustment" value.
3. Appeals Consultant and Buyer's Agent will be given the "sales recency" value.

Way to go, Mr. Robot.     


How to Reduce Subjectivity in Comp Sales


1. Apply meaningful selection, scoring/ranking and adjustments to the sales population

2. Build an AVM and insist on two AVM values (4th and 5th) on each line-up
3. Verify all comps spatially, ensuring they all come from same/compatible neighborhoods
4. Apply time adjustments in line with the local market (do not use national figures)
5. Pay attention to valuation dates (01-01-18 vs 08-16-18 require different adjustments)
6. While using sales recency, contract dates are preferred to closing dates (despite norm)
7. If you are not allowed to use AVM values, show them below the grid with value analysis
8. If the sales population is large, extract sample from the most recent arms-length sales
9. If the subject population is large, automate the process with batching technology.

Good Luck!

Sid Som, MBA, MIM

President, Homequant, Inc.
homequant@gmail.com

LINKS...
AVM is a Market Solution, Comparable Sales Analysis isn't (1 of 2)
Differentiate between Sales and Comparable Sales
Time Adjustment and Flexible Valuation Dates
Least Adjustment Method alongside Distance and Sales Recency
See the Contributing Comps Spatially

Tuesday, August 14, 2018

AVM is a Market Solution, Comparable Sales Analysis isn't (1 of 2)

-- Intended for Start-up Analysts and Researchers --

(Click on the image to enlarge)

The same sales population - derived from a single Zip Code - has been used across all three graphs (you may use other fixed locations like Census Tract, School District, etc.). Considering all sales from the same Zip, it helped minimize the impact of location (of course, you can never make location totally irrelevant as each block has a different appeal).

The above graph shows the noisy relationship between the uncorrected (raw) Sale Price and Bldg Size (Heated Living Area). The reason is very simple: Each sale is directly related to a buyer's judgment, hence is highly subjective. For instance, buyers are paying between $100K and $250K for a 1,500 SF home. While the investors would target the lower end of the range, the informed buyers would be in the middle and the uninformed buyers (someone who is bent on buying a pink house!) would succumb to the higher end of the range. The R-squared is therefore extremely low (0.189), explaining very little of the variations in sale prices.  




The Regression Value-1 graph proves that even a rudimentary regression model (with only three independent variables - Land SF, Bldg SF and Bldg Age) is capable of producing a decent market solution. The fit is significantly tighter, especially in the long end of the curve. The R-squared jumps from 0.19 to 0.91, accounting for 90% of the variations in sale prices. But this model has clearly bi-modal issues between 1,000 and 2,200 SF as the regression values are forked. 

FYI – If you see such stacked values, you have to investigate the underlying reason(s). The simple way to identify the issue is to scatter the normalized regression values against the other independent variables as well and look for an explanation.




The above investigation guided me to the solution. As the normalized regression values from the first model were scattered against the Bldg Age variable (above graph), it was evident that many buyers were paying a premium for the younger homes, causing the stack. In fact, a sizeable portion of those buyers were willing to pay over $130/SF for the younger homes, while very few offered such premium for the older ones. More precisely, none paid over $160/SF for the older stock.


(Click on the image to enlarge)

So the Bldg Age variable had to be transformed from continuous to binary (younger homes vs. the rest). The re-run of the regression model with the transformed Bldg Age produced the above (Regression Value-2) graph. Consequently, the value fork has disappeared, translating to a much tighter fit, with improved R-squared, lower intercept and a steeper slope approaching 45 degrees.  

We will discuss the Comp Sales Analysis in a future post (2 of 2).

Good Luck!

Sid Som, MBA, MIM
President, Homequant, Inc.


Thursday, August 9, 2018

Income Disparity is at an All-time High. What should we do about it? (2 of 2)

At the Local Level

Economic Opportunity! Economic OpportunityEconomic Opportunity!


   1. Implement Laureate Yunus’ Microcredit Model to Create Economic Opportunities in Inner Cities – Most inner cities in the western hemisphere lack economic opportunities resulting in poverty, often rampant poverty. Thousands of bright people are stuck in poverty in inner cities due to local governments’ inability to create meaningful economic opportunities. One size fits all economic model does not work there; instead, the local governments should try Laureate Yunus’ Microcredit Economic Model, thus financially empowering the local entrepreneurs (“are too poor to qualify for traditional bank loans”) to turn their neighborhoods around. Though this bottom-up economic model was developed for poor villages in third world countries, it has tremendous potential for our inner cities. In order to maintain the uniformity of the program, it needs to be federally (HUD) funded/insured, with a dedicated chain of private financial institutions operating and managing it, in line with the existing SBA program. Again, for the program to successfully work, government must not be involved in running it.
   
   2. Proclaim all Small and Mid-size Downtowns Enterprise Zones – Downtowns of many small and mid-size towns around the US suffered heavily with the out-migration of population to suburbs. While the theme of revival and revitalization of downtowns has been gaining momentum, it needs to accelerate and become more widespread. In fact, all such downtowns must be proclaimed as Enterprise Zones, enticing businesses and builders to return to take advantage of the long-term income and property tax abatements. Sales tax subsidies could be offered to entice consumers to return to shop in revitalized downtowns as well. Public parks could be privatized in an effort to convert them to esthetically-decent yet income-producing family-oriented amusement and entertainment centers. A well-planned nationwide downtown revival initiative will create enormous economic opportunities and jobs; in fact, it could complement the much-talked about trillion dollar Federal Infrastructure Plan, creating much better synergy than approaching them mutually exclusively.

   3. Build Water and Sewage Treatment Plants – Returning to the poorer countries, providing clean water along with effective sewage system is life’s basic necessity. In fact, providing clean water to citizens is as important as the basic education and preventive healthcare. Therefore, investing in water and sewage treatment plants must also be viewed as preventive healthcare, helping people avoid unnecessary trips to health centers and emergency rooms due to easily avoidable water-borne diseases and lack of sanitations. Private companies must be enticed to build and run these plants in exchange for long-term tax-free revenue. Upon expiration of the initial contracts, governments must auction off the maintenance and revenue rights for lump-sum and upfront revenue. This could be one of the best investments in keeping people healthy while reducing overcrowding at the ER, thus freeing up doctors and nurses to provide more critical medical services. This rising tide will incentivize private companies to make bigger and better (AI and robotics) investments in water treatment and recycling technology, striving to lower overall development and maintenance costs.

    4. Develop a Fair and Equitable Property Tax/Assessment System – Property tax is often the major source of revenue for Cities and Towns. The young and prospering cities and towns around the world must follow the US property assessment system so their systems become fair and equitable from the get-go. A poorly built haphazard assessment system tends to be regressive, thus heavily favoring the rich. Under such a biased system, poor and middle class homeowners subsidize the upscale and high-end properties. While rebuilding the assessment system, the major cities in those countries should seek the help of US consultants, to avoid having to deal with such bias which unfairly shifts the burden on to the poor. Obviously, an unfair system discourages home ownership at the rank and file level. A fair and equitable system spontaneously entices foreign property developers, both residential and commercial, to explore those markets. Likewise, major developers tend to avoid cities and town in third world countries with poorly developed and/or unpredictable assessment systems. Build it right from the get-go.

   5. Develop a Competitive yet Investment-friendly Business Climate – States/Provinces down to cities and towns must develop an investment-friendly business climate and learn to compete with one another in order to entice significant domestic and foreign investments, leading to persistent and long-term economic prosperity and an ever-expanding job base. Political leaders must also realize that a marketable local economy requires a marketable labor force along with an attractive business climate comprising lower corporate taxes, growth-friendly corporate and environmental regulations, separation of church and state, developed financial institutions, low crime, cooperative and functional government, etc. Furthermore, in order to attract major corporations to help take the city/town to the next level and reshape the economic landscape, local governments must be as forthcoming and accommodative as possible, considering the epoch-making economic impact of such an event could bring about (Case in point: the reaction of cities and towns across the US to the proposed development of Amazon’s HQ2).

   6. Build more Long-term Care Facilities, not Jails and Prisons – The young and reinvented cities around the world should rethink and redefine crime and punishment from a moral high ground. The lack (perhaps absence) of economic opportunities often forces poor people to commit petty offences, resulting in jail terms. Instead of sending them to jail, they should be assigned to the local clergies, rabbis and imams to perform community service. Similarly, in a civilized world, building juvenile detention centers does not pass the muster of moral hazards. Those kids should also be supervised by the local spiritual leaders. This holistic approach will be a much better deterrent than the traditional jail terms. They will thus remain as normal and productive citizens without the useless stigma of jails and detentions. In return, the participating religious institutions must receive government aids and grants for maintenance and conservation. People committing the so-called “more serious crimes” must be sent to high-security long-term care centers under the care of qualified psychologists and psychiatrists. If we decide to move to a “merit-based immigration,” top-notch psychologists and psychiatrists from around the world must top the merit list alongside STEM professors. This humane approach will help save a ton of taxpayer dollars, hopefully finding ways back into those poor communities.

   7. Make College Education Free for STEM Students – Poorer countries need to emphasize science and technology education to be globally more competitive. Government colleges must provide free STEM education to qualified poor students. In order to get into the free STEM programs students must compete and qualify for the available seats, ensuring the acceptance of the best and brightest. Students pursuing other essential disciplines like nursing, teaching, etc. must receive subsidies as well. All other majors irrespective of the students’ financial needs must pay full tuition, thereby forcing the otherwise needy to pursue vocational education in line with the market demand. Again, vocational education must carry full financial aid for the needy. While the local governments must always ensure that the financially disadvantaged students are never left behind, they must simultaneously understand the marketability of the labor force. Taxpayer dollars must never be squandered on education that is contrary to the market demand.

.            
                   At the Individual Level

   8. Richest 1% Needs to Accept the Generational Reset – According to a recent Credit Suisse report the richest 1% now owns 50.1% of the world’s wealth. Given this absurd concentration of wealth, we need this 1% to be self-convinced (like Mr. Warren Buffett) that they are just temporary custodians of the wealth. When a big chunk of their billions remains wastefully invested in unproductive and ostentatious wealth like $50M yacht and $300M in multiple mansions, it hardly benefits the human race. They must therefore come to terms with the generational reset meaning, at the end of their lives, they must return a sizeable portion of their wealth back to the society, pulling tens of millions out of abject poverty each year. In other words, the success or failure of the human race is largely dependent on them. If they are honest and honorable enough to accept this harsh reality, the advancement of the human race will gleefully continue; absent which, millions more will continue to drift away in utter poverty. Hopefully, this voluntary return of wealth – and not forced redistribution of wealth – will become a self-fulfilling prophecy in arresting the ever-widening income disparity and mitigating world hunger and starvation. We just want them to be more humane in feeling the pain and anguish of millions of mothers watching their children go to sleep hungry.

   9. Apply the Same High Moral Standard for the other 99% – We must learn to put the interest of the human race ahead of our own. So, the rich and poor alike must also come to terms with the generational reset, voluntarily returning a big part of our wealth back to the society. Perhaps, we need a universal ringtone ‘Mom, I am hungry. I can’t sleep’ that will constantly remind us that millions of children are hungry and that their mothers are starving. That nightly sound is the Via Dolorosa for those mothers. Just never ends. We must never forget that these are our children and their mothers are our daughters and sisters. They are inseparably part of us.

    Thank you.
    
    -Sid Som