Monday, May 20, 2019

Single-Variable Trend Analysis – despite being Industry Standard – must be Challenged

(Click on the image to enlarge)
  
    - Intended for New Analysts and Researchers -

Since "Trend Analysis" is one of the most common top-line analyses new analysts are often tasked with, I am going to use this Blog post to demonstrate why such Champions must be challenged with Challenger Analysis.

Champ Analysis: Many trade/research organizations and government agencies publish the Monthly Median Sale Prices for pre-owned and new homes. As a result, these Monthly Median Analyses have become the industry standard, prompting analysts to put together graphs, etc. to show the market trend. If they are not seasonally adjusted (generally they aren't, except Case-Shiller), M-O-M is less meaningful. If the series is extended, Y-O-Y (Jan-18 vs. Jan-19 or Q1-18 vs. Q1-19) is more meaningful as they are (sort of) seasonally adjusted. If you have to show such unchallenged trend(s), at least make it emphatically clear to your boss that the latter is more meaningful. In any case, no data-savvy boss will ever use an unchallenged study to take important business decisions.

Challenger Analysis: Alternatively, if you have access to the Sale Price and Net Bldg SF (Living Area or Heated Area), build a Challenger analysis to produce a normalized trend. Remember, it has to be organic, meaning the monthly stats must come from the variable SPSF (Sale Price divided by Bldg SF). Do not just divide the Monthly Median Sale Price by Monthly Median Bldg SF as they are mutually exclusive. Now, use this trend to challenge the Champ.

Caution: before running the stats on SPSF, make sure there is no structural shift in the monthly median Bldg SFs. They must be well within a normal margin of error (say 5%) of the overall median. For instance, if the overall median is 2,000 SF, all monthly medians must be within that +/- 5% range. If you notice the tail end of the curve has been steadily shrinking (say around 1,650 SFs), make adjustments for the variances before challenging and highlight the point in your write-up, proving that you are well aware of the on-going change in the demand pattern.

Now, take a look at the above graphs. While the Champ (top chart) shows a bearish double top, the normalized Challenger trend (bottom chart) is almost diametrically opposite. Instead of a bearish double top, it shows an extremely bullish upsloping double bottom, even eclipsing the prior high of $180/SF. This analysis proves why a superficial top-line (univariate) trending – despite being the industry standard – is inadequate, particularly in taking informed business decisions. 

Better yet, present the Champ-Challenger Analysis with an expanded percentile curve, preferably between the 5th and 95th percentiles, thus ignoring the outliers (to avoid having to manually validate the sales for this project). As you stack up the monthly percentile curves, any shift in the demand pattern will also stand out (the median alone won't show that). 

If you submit these two analyses side by side to your boss, you will become a highly sought-after analyst, perhaps a hero - in no time!

Good Luck!

Sid Som, MBA, MIM

President, Homequant, Inc.

Saturday, May 18, 2019

Why Error Rates across Property Tax Rolls are not Comparable

Analysis of the Assessment Rolls of major Jurisdictions requires advanced technical training and quantitative knowledge. It's hilarious when a local staff reporter settles the score annually, with a lengthy and superficial article and the politicians run with it, silencing the unhappy taxpayers. And the cycle continues, year in and year out.

A recent local newspaper article indicated that the percent error rates "of the five largest cities for which studies have been completed in the last two years...include New York at 17.6 percent, Chicago at 25.1 percent and Philadelphia at 20.2 percent. Houston’s error rate was 7 percent in its most recent study, and Phoenix’s was 8.1 percent."

Though Automated Valuation Modeling ("AVM") was used to develop all of the above Assessment Rolls ("Roll"), the error rates as indicated above (generally defined by the Coefficient of Dispersion or "COD" of the underlying AVM) are not comparable. 

While there are general AVM guidelines, they are not like the SAT or GRE. In fact, the development of AVMs is highly subjective, depending largely on the acumen of the in-house modeler(s) or the hired consultant. Since the actual models are not published, post re-validation of those model CODs, externally, is even more subjective and circular.  

So, why do I say the above CODs are not comparable? Here are the reasons:

1. Sales Validation -- All market AVMs are developed off of recent, arms-length sales. Thus, all sales have to be validated and then a random or a stratified random sample of arms-length sales serves as the modeling sample. Of course, there is no hard science behind the sales validation process. Therefore, if Jurisdiction X considers all of its border-line cases as arms-length, while Jurisdiction Y aggressively removes them from its identical universe, the resulting AVM of the former, ceteris paribus, will produce a higher COD than the latter's. Unfortunately, when the local reporter compares the competing CODs, s/he will have no idea as to how the sales were validated by the respective jurisdictions.

2. Sales Sampling -- From the universe of the validated arms-length sales, a sample properly representing the overall population, is then derived. In fact, the sales sample must statistically "represent" the population, failing which the resulting AVM will be invalid, paving the way for a flawed Assessment Roll (statutorily, an Assessment Roll must be fair and equitable). Again, there is no hard and fast rule as to the extraction of the sales sample. If Jurisdiction X restricts the representative test to 1st-to-99th percentile range while Jurisdiction Y takes a more lax approach of 5th-to-95th percentile, the AVM of X, ceteris paribus, will have higher COD than Y's. Does the local reporter even know of this requirement, let alone performing the test?   

3. Removal of Outliers -- As part of the model optimization, a set of outliers are systematically identified and removed. While there are various methods to identify and remove outliers, the (sales) ratio percentile range is a common one. Of course, some would use a very conservative range or approach while others (those who are obsessed with better stats, i.e., lower CODs) would be more aggressive. Ceteris paribus, the modeler who conservatively defines and removes outliers below the 1st percentile and above the 99th percentile range will have a much higher model COD than someone who aggressively removes all below the 5th and above the 95th percentile range. Case in point: Chicago's 25.1 vs. Houston's 7. Think about the reporter who would try to justify either. Perhaps, some reporters already have.

4. Sub-market Modeling -- Many modelers and consultants build their AVMs bottom-up, instead of the customary top-down. Let me explain what I mean by bottom-up modeling. Let's say that the Assessment is for a County as a whole, though the County comprises five Towns. Now, if the modeling takes place at the Town level (bottom-up), instead of at the customary County level (top-down), the average COD would be lower than the customary top-down modeling, despite the fact that the objective remains unchanged: To produce a fair and equitable County-wide Roll. The problem of this type of bottom-up modeling is that there will be significant noise along the Town lines, generating significant amount of inconsistent values. Will the local reporter ever know any of this, considering that the models are rarely made public?

5. Spatial Tests -- Irrespective of #4 above, publications of Town-wise results are not common. Again, while the County-wide COD could be compliant, the Town-wise CODs could be far apart. If Town-1 is highly urban (requires complex modeling, hence higher COD) whereas Town-5 is highly suburban (involves easier modeling, hence much lower COD), the CODs are expected to be quite different. Of course, the modeling criteria (sales sampling, outliers, etc.) must remain uniform across all Towns. Absent publications of the actual models, the taxpayer advocacy groups must, at least, insist on CODs by major sub-markets (e.g., Towns), in addition to the system-wide COD. They must also insist on knowing if the modeling criteria were uniform across all major sub-markets. Do you think the local reporter will be in the know as to how the modeling had taken place? 
   
6. Equity Analysis -- A system-wide COD is just the beginning. It does not confirm that the Roll is fair and equitable. Let's assume that the reported COD is 15, which is compliant, a priori. Now, let's also assume that the unreported Town-wise average sales ratios range between 85 and 115. Since the Rolls tend to be regressive, it's highly likely that the 85 ratio would pertain to the richest Town in the County while the 115 would represent one of the middle-class Towns. In essence, the poor and middle-class neighborhoods perennially subsidize their rich counterparts. While the rich would make a lot of splash about their Roll values, they would be totally quiet when they sell their homes at twice the same Roll values. The average ratio of 85 does not mean that all homes in that Town are assessed strictly at or around that level. In fact, the 1st-to-99th range could be 70 to 100 (generally wider), while the Town with an average ratio of 115 could have a 1st-to-99th range of 100 to 130. Now, let's compare 70 to 75 with 125 to 130. How fair is that, local reporter?

7. Data Maintenance -- Intra (i.e., within the Jurisdiction) comparison: Sales are dressed and staged so the sale data are inherently cleaner and more up-to-date than the unsold property data, thereby producing lower CODs for the modeling sample. Also, the sold parcels with data inconsistencies fall off by way of model outliers, simply to resurface upon application of the model on to the population. It's a classic hide and seek, unless those data errors are heeded to before the model application. Of course, nobody knows what happens behind the curtain. Generally, the local MLS plays a big role in (indirectly) forcing the Jurisdiction to keep the sale data up-to-date (obviously, sale data are easy picking by the media and other interested groups). Inter (i.e., across Jurisdictions) comparison: Two adjoining Jurisdictions may have vastly different outlooks in terms of managing the population data. One may be very proactive while the other may be reactive, at best. Ceteris paribus, the lot fraction defective of the former Roll would be significantly lower, generating far fewer tax appeals (a good metric to follow) than the latter's. Will this be known to the local reporter?

8. Model Testing -- The modelers and consultants who apply their draft models on to the mutually exclusive hold-out samples, ceteris paribus, will have more sound and reliable Rolls than those who tend to skip this extremely important modeling step. This step helps identify the errors and inconsistencies - from sample selection to outliers to optimization to spatial ratios and CODs - in draft models, often to the extent that they get sent back and reworked from square one. The hold-out sample must have the same attributes of the modeling sample (and, in turn, of the population) so this test is one of the most established ways to finalize a model, leading to its successful application. Again, the Jurisdiction that methodically performs this step produces a more sound and reliable Roll, with potentially far fewer tax appeals than its counterpart that boldly skips it. Will the local reporter ask this question?

9. Forward Sales Ratio Study -- A forward sales ratio study would be an ideal way to begin the Roll investigation process. For example, if the Roll was developed off of 2018 calendar year sales, it could be tested against a set of forward sales ratios (comprising validated Q1/Q2-2019 sales, etc.). In order to bolster the forward sales sample, seasoned listings could also be added. The forward sales ratio test, when time-adjusted back to the valuation date, must produce results that closely parallel that of the published Roll. Therefore, before rushing to hire expensive consultants, the advocacy groups should consider hiring local analysts to compile the forward sales sample and run the simple sales ratio test. Those ratios must be studied multi-dimensionally, meaning spatially/major sub-markets, value ranges, non-waterfront vs. waterfront, Non-GIS vs. GIS, etc. If the results turn out very different, a challenger AVM is in order. At that point, instead of hiring a so-called industry consultant (who would not shoot himself in the foot), an outside economic consulting firm is always preferable as that firm will provide real analysis with a coordinated strategic action plan.   

So, what is the solution? We need to replace this inherently regressive Property Tax System with the middle-class friendly Progressive Consumption Taxes (see the link below).

No wonder, the well-respected billionaire businessmen like Warren Buffett and Sam Zell have written the print media off.

Thank you.

Sid Som, MBA, MIM
President, Homequant, Inc.
homequant@gmail.com
    
Replace Property Taxes with Progressive Consumption Taxes   

Coming Soon...Sid's New Book: 
Life, Logic and the Power of Nine (Branding)

Wednesday, May 15, 2019

SkylineValue produces Quick-Look Value of "Trophy" Office Property in 60 Seconds

(Click on the image to enlarge)

The above graphic represents a sample valuation of One World Trade Center, a trophy office property in Downtown Manhattan (NYC). A trophy property is different from a Class-A office property in that it showcases a major city. While Class-A office properties are plentiful in major cities around the world, trophies are simply few and far between. People recognize them by their name and fame. Even in Manhattan, a handful of office properties are considered trophies. In fact, in Downtown Manhattan, the World Trade Center is perhaps the lone ranger. 

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 this sample valuation 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. 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 [XXXXXX] 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 [XXXXXX] 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!”

Tuesday, May 14, 2019

Housing Market vs. Condo Market – A Good Champ-Challenger Starting/Learning Point

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

1. Champ-Challenger analysis is an excellent way to provide a validation of your primary research. Let's assume you are analyzing the local single family housing market. Instead of combining single family residences (SFRs), townhomes (PUD/HOA) and condos, provide separate analysis of each category as their underlying demand characteristics are usually different, often resulting in vastly variant market behavior. 

2. Aggregate demand is not necessarily the best way to present a particular market, especially when the components do not move in tandem. For example, the Condo market generally leads the housing market - on the way up, as well as on the way down. So, in your analysis make the SFR market your Champ and the Condo market your Challenger. 

3. Remember, the Challenger analysis is nothing but a validation exercise. When the Champ is meaningfully challenged (validated), the study becomes inherently more meaningful and statistically more significant, considering they are mined off the mutually exclusive and competing market segments. The same concept applies to the other major markets, e.g., challenging a sector Mutual Fund with a competing ETF or a country analysis in emerging Europe with BRICS, etc. 

4. An unchallenged univariate analysis like month-over-month median sale price analysis is inadequate (necessary but not sufficient) to make informed business decisions. It needs to be challenged "intra" or "inter." The intra challenger is generally the normalized median sale price per sf. Conversely, the ideal "inter" could be the analysis of the condo market as it is a competing component (sub-market) of the overall housing market, thus leading to the highest and best analytical use of the condo market. See the links below to my prior posts for more detailed analysis.  


5. Normally, the SFR and condo markets remain in sync. When they diverge, you need to investigate as to why. Since the condo market often takes the lead - either way - it could be tell-tale, pointing to the beginning of a new market swing. For example, if the condo market starts to trend up, SFRs and Townhomes won't be far behind. When they diverge for a long time, you need to run the normalized tests to find out if the market internals are diverging as well. If not, it could be the "monthly" aberration. The 2-Month Moving Average helps reduce the monthly noise. These are the basic tools you must apply as part of your investigation. If the basic tools are unhelpful, a step-by-step Regression model could point to more precise reasons.

6. If you are forced to build a Regression model for the condo market, you must remember that the condo modeling is different from the SFR modeling. Condo modeling can be top-down or bottom-up. Avoid top-down modeling as it involves income modeling requiring hard-to-find complex-level income-expense data. Since condo sales are at the unit level, the bottom-up market modeling is more common. In addition to the unit-level condo sales data, market modeling does require data related to the unit-level property attributes, complex-level amenities and general location, which are generally available on county assessment sites.   


7. Remember, the SFR market tends to be more homogeneous than the condo market. While there are Waterfront Mansions, French Tudors, Brownstones, etc. in the SFR market, they are not the norm. On the other hand, condo markets routinely comprise low-rise, mid-rise, high-rise, skyscrapers, etc. with significantly different amenities. So you need to know the apples-to-apples comparison. For example, in NYC, only the low-rise condos are grouped with the SFRs in the same tax class, easing the comparison. In suburban markets, it is prudent to remove the high-rise/skyscraper condos. Of course, if you are using the median sale price or median price/sf, a handful of high-rise condo unit sales will not skew the results. 


8. If you are learning on your own, you need to collect the data externally. Now-a-days, a vast majority of counties (where the population level data originates) make the sales data available on their sites (as a customer service so the property owners can develop their own comps and validate the market values on the tax roll). Try to choose a county that makes the property data elements like Bldg SF, Land SF, Year Built, etc. available, in case you need to develop the normalized test or the Regression model. Of course, if you are undertaking the project for your institution, you are better off buying the data from a national data vendor. They will give you a 10-case sample to evaluate the data quality and the variables they warehouse.

9. Last but not least, compare your market results with S&P Case-Shiller's. The Case-Shiller monthly housing indices are available for 20 major markets (MSAs), both seasonally adjusted and not. Since yours is seasonally unadjusted, compare with their unadjusted index. Add this comparison in your report, but not on the presentation. This is the 3rd party work so you do not want to promote theirs; instead you should promote your own solution. For instance, a smart real estate broker will always advice his/her salespeople to try to sell in-house inventory as it costs the brokerage a lot of money and time to acquire exclusive listings. Similarly, you have poured your heart into creating this solution, so promote it to the max.

Good Luck! 

How to Ace an Interview

** Intended for New Graduates **

Ceteris paribus, meaning other conditions remaining the same: Read a book or two on interview strategies, watch a few video clips on do's and don'ts, and skim through several trend-setting articles on the subject. This blog post, by no means, attempts to compete with them. Instead, it's strictly complementary. Having sat on both sides of the table, I will share my humble but slightly different take on interviews. I will, however, describe my experience by combining both, i.e., how I used to approach interviews as a candidate and later what specific qualities I used to look for in candidates when I interviewed them.

1. Try Match Practice before Interviewing with the Targeted Companies -- Just the way teams play a number of exhibition matches before the start of a major tournament, it's always healthy to interview with several second-tier companies within the industry before starting with the targeted companies. For instance, even if you are targeting the major investment banks like Goldman Sachs, Morgan Stanley, Credit Suisse, JP Morgan Chase, etc., it's a good idea to start the interview process with several second tier investment banks, followed by the actual targets. It will immensely enhance your confidence as you begin interviewing with your targeted companies. If the question comes up during the interview, make a generic statement like "I am focusing on investment banks only" or "Yes, I am interviewing with some of your competitors as well," etc., without making any specific name reference or categorization (1st-tier, 2nd-tier, etc.) whatsoever.     

2. Right at the outset, Ask the Interviewers if you could use your own Notepad (or if you could Borrow one) -- FYI, the vast majority of interview questions have multiple parts and it's generally by design. Simply put, they try to test that you are capable of retaining and answering them in the right sequence. By having a notepad in front of you, you can simply jot down the different parts of the questions and the sequence they are being asked. Obviously, this will help you concentrate on the answers, without having to remember the different parts and juggle with the sequences (which, needless to say, carry no extra points). Even if you disagree with any sequence, do not take the liberty to alter them. A candidate who does not write the questions down often expresses, "Let me start with the last part first" and rarely addresses the rest as they often fail to remember the prior parts. Again, as a candidate, you have absolutely no right to alter the sequence. The interviewers are in charge and you just follow their instructions. There is no room for any arrogance.

3. Be Polite while answering the Opening Question, usually about Yourself -- Generally, the first question is about yourself (e.g., introduce yourself; describe your achievements, etc.). The interviewers usually throw the ball into your court, thus allowing you to "set the tone." Even if you had aced the SAT and then maintained straight A's in college, do not harp on that string. Instead, politely answer that you managed to "do well" in high school and college, moving on to the specifics of your college major, leading to the thesis of your internship. In any case, since your achievements are already bulleted at the top of your resume, there is no need to double down on them. Instead, set a polite tone which will immensely impress upon them, so much so that it will have a serene carry-forward impact throughout the interview. Smart people try to minimize the use of the braggadocios personal pronoun "I" and consider its overuse morally hazardous. 

4. Be equally Polite while addressing your "Strengths and Weaknesses" -- This tends to be a common question for the new graduates. Again, instead of parroting a laundry list of strengths from the Internet (most of which may not have anything to do with the new graduates), politely specify a handful of diverse and meaningful (especially related to this job) attributes saying, "These are some of the strengths that have been pointed out to me over the years" or another polite expression along this line. By the same token, do not make up weaknesses just to create an answer. Instead, politely and confidently say, "Nothing has ever been pointed out to me." If you make one up, the conversation will take a negative turn, often with a snowball effect. Remember, "Goods well bought are already half sold." The fact that you are being interviewed (and I'm talking about a real management interview, not just an HR interview) bumps your point of origin up to 50 -- it's not 0 anymore. So, continue to ride on the rising positive momentum, without the need for any negative emotions, which may only act to your detriment.

5. Show very Positive Attitude while Describing your Knowledge and Impression of the Company -- This is another very common question for the new graduates. As a candidate, you must have this answer well-prepared and properly practiced. Instead of spending too much time and effort on company's headcounts, ultra-modern real estates and global footprints, emphasize on what attracts you about this company, e.g., how they became the best in class, world-class training, perennial growth prospects, cutting edge marketing initiatives, top-of-the-line yet highly diverse workforce, proven and consistent room for growth, etc., but staying away from the obvious like excellent salary, benefits, physical work environments, etc. Also, refrain from getting bogged down to balance sheet nitty gritties. Needless to say, hold back all of your questions till the end or until you are asked to do so. At this point, just focus on addressing their questions as politely, precisely and thoughtfully as you professionally can.     

6. Avoid any Negative Talk/Opinion about your Current or Prior Employers and Bosses -- If you completed an internship or held temp/part-time jobs during the college years, do disclose all of them in your resume. If you are asked to talk about them, try to keep the narrative as positive and perfect as is humanly possible. Smart people do not enjoy negative talks or tones. If you do, they may sympathize with you superficially, but rest assured you will be pushed down to the bottom of the list. We all know life is not a bed of roses, so smart people do not waste time dwelling in the past; they move on and work towards a brighter tomorrow. At an early age, I learned from Lord Buddha to live in the present which always helped me to stay positive and focused. Positive people are inherently more productive and tend to make great corporate leaders. Their positive energy helps create very positive work environments. No doubt, it's a true blessing to be able to work with a boss who is perennially positive.

7. While answering the Main Questions, try to Walk Away from the Herd -- Remember, for two or three openings, the shortened list may still comprise twenty to thirty highly qualified candidates. So, while answering the main questions use your knowledge (depth) and intelligence (ability to get to and stick to the real issue) to narrow the competition down. In doing so, whenever you can, try to walk away from the herd so you stand out -- in addition to conventional thinking, present outside-of-the-box solutions, preferably with the help of some real examples from your internship, work/study programs, etc. Soon, you will be solving enterprise-level challenges so make an emphatic case in front of them that you are capable of rising way above the occasion and, thus, you rightfully belong there alongside those brilliant minds.  

8. Save the Best for Last. Show off your Mettle with some Awe-inspiring Questions -- The main interview has ended. Now, it's your turn to ask them some questions. Remember, this is the only part of the interview you will control so it's your time to show off your mettle. Bang away with questions they have never heard of. Bang away with questions that will leave them wanting more. Bang away with questions that they themselves will ask one another later. Bang away with questions that will prove you are the super-human they have been waiting for. Anything less will greatly reduce your chances. Whatever answers you get, accept them politely. It's impolite to ask them follow-up questions; instead, move on to the next question. Again, this is not the forum to ask any HR questions. Even if the topic comes up, politely decline it by saying, "If I have any HR questions, I will contact the HR Department later. Thank you anyway." 

9. Rejections must Inspire you to Prepare harder and smarter for Future Interviews -- While you should take rejection as a passing show, it must also inspire and impel you to prepare better for future interviews. Steve Jobs used to say, "You can’t connect the dots looking forward; you can only connect them looking backwards." Every time I was rejected (after having interviewed), I told myself I was not prepared enough to get the job. Then again, I knew quite well the mistakes I made and promised myself I would not repeat them. Of course, one of the best ways to reduce the incidence of classic or run-of-the-mill mistakes is to allow yourself some meaningful match practice (#1 above). A rejection is not a let-down, rather a reminder of better opportunities ahead, taking advantage of which requires slightly better preparations. You are almost there!

A few years ago, I was (phone) interviewing an overseas candidate for a Senior Analyst position. I was so impressed with his answers that I had to give him a perfect 10. Then it was his turn to ask me some questions. The first question he asked pertained to his work hours. I had no choice but to mark the 1 off from his score. The point is, when you are interviewing for a career job that might lead you to be the future CEO of the company, the last thing you should think about is your work hours. When you are starting out, you have to be flexible. If you are looking for a 8 to 5 job, you lack that CEO mettle.

Thank you,

Sid Som
Homequant, Inc.
homequant@gmail.com   

Also Read:
Are You a Future Superstar? Take the Test.

Coming Soon...Sid's New Book: 
Life, Logic and the Power of Nine (Branding)

Monday, May 13, 2019

Formation of a Upward Sloping Triangle often Represents a New Bullish Market Trend

(Click on the image to enlarge)
The Median Sale Price chart (top) shows the meteoric growth in the first half of 2017, followed by healthy sideways within a tight range of $545K to $555K. Even the December drop - nothing spectacular - was quickly reversed, pointing to solid market fundamentals. 

The fact that the 2-Month Moving Average trendline follows closely the data line indicates a fairly non-volatile price curve. Both trendlines are however confirming the reversal, including the peak. Any breakout above the prior high of $557K would make the curve even more backward-bending (more bullish).

The normalized Price per SF trend (bottom chart) is so bullish that a linear trendline was in order (of course, for demonstration purpose). The formation of the upward sloping triangle further adds to the bullishness. 

In an event like this in the equity market, traders would initiate long positions. 

Again, the moving average trendline proves the lack of month-to-month volatility, though confirming the reversal as well as the fantastic breakout.       

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

SkylineValue Shows how CBD Office Valuations Differ from CBD Periphery, Suburb & Airport's

CBD Location

CBD Periphery

Suburb
(Click on the image to enlarge)

If you move around a very similar Class-A property (in terms of size, age, rehab, etc.) from  the Central Business District (CBD) to the CBD Periphery to the Suburb, it will fetch very different rental rates due to a number of of qualitative factors including but not limited to the quality of tenancy, type of ground floor retail and availability of parking. 

Considering the glitzy Miami CBD (in this example), the property would attract all triple-A tenants and very upscale retail paving the way for very high rental rates and translating to high market value, while the CBD Periphery would attract a combination of triple-A and highly creditworthy (but not triple-A per se) tenants along with specialty retail (but not necessarily the upscale retail that Miami CBD would easily attract). 

The Suburb location, on the other hand, would also attract a combination of a limited number of triple-A and mostly high credit tenants coupled with none to limited general storefronts (coffee shops, magazine/variety shops, men's wear, eye wear, etc.).

I used SkylineValue.com to produce this sample valuation 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. 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:

http://www.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 [XXXXXX] 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 [XXXXXX] 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!”     

Sunday, May 12, 2019

Formation of a Double Bottom often Foretells the Beginning of a Bullish Market Trend

(Click on the image to enlarge)


** Intended for New Analysts and Researchers **

The Monthly Median Sale Price chart (top) shows a classic double bottom formation, with a bullish 'W.' The second drop (#13 - $213,216) remains in line with the first (#10 - $213,108), meeting the classic requirement that the second leg remaining at or above the first one. 

The trend becomes more bullish when the second reversal eclipses the first (#14 > #12). When this trend emerges, the traders (professional traders and flippers) tend to move in. Both trendlines are confirming the strong market fundamentals. 

The normalized Price per SF trend (bottom chart) is equally bullish as the reversal makes a higher high (#14 > #6), with an up-sloping sideways. 

More importantly, both trendlines are ignoring the Jan-18 (#13) drop as an aberration, endorsing the ongoing reversal.

The double bottom analysis with a 'W' formation is often used in the equity market as well. 

Note: This underlying data covers the City of Houston, not the entire Harris County. 

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

Saturday, May 11, 2019

Outsourcing IT/Web Services to Overseas Vendors

Outsourcing to Overseas Vendors

"We are considering outsourcing our web development and maintenace to an overseas vendor. Any suggestions?"

Okay, here is my take...

Having dealt with several smaller outfits (10-15 engineers and support staff) over the past 10-year period, yes we managed to gain some experience in the area. Nonetheless, please do your own market research (whether/how to get into that market, followed by how to narrow your choices down) and perform proper due diligence (upon selecting the top contenders) before taking the plunge. 

At any rate, working with a smaller foreign outfit is inherently risky so practice prudent risk management. Here are some additional safeguards you might consider (assuming you are targeting a smaller outfit):

1. Look for outfits (10+ years in business as it's a matured industry) where the founding partners (US/Top school educated - not necessarily engineers) are still together.

2. Narrow your choices down to the final three (preferably in the same geographic market so the quotes are comparable). Make sure they respond/agree to your RFP, point by point, which will minimize exposure and enhance protection.

3. If you are in any "Innovation" business, make sure you copyright your concept before circulating the RFP. Let the RFP prominently indicate the US Copyright number and the date.

4. If you are outsourcing an innovative web service (like ours), RFP must specify that the final codes and flow charts are a "requirement," allowing yourself the flexibility to patent the completed version (it's a good choice to have; the completed version could be much better than you envisioned).     

5. Depending on the extent of services being outsourced, paying unannounced visits might not be a bad idea. You can hire a local investigator (or a lawyer) to do it for you. The point is, you want to make sure that these are full-time established entrepreneurs, not moonlighters with full-time day jobs elsewhere. 

6. Make payments in 3 to 4 milestone installments via an US Escrow (Escrow protects both parties; do not let them sweet-talk you out of it after the first project, etc.). Follow this practice perennially, unless you decide to take an equity stake in that company down the road (only exception!). 

7. Insist on weekly updates (email), followed by Skype/Facetime meetings (to make sure they are conducting the meetings from the office, not from cars).

8. Keep conversations strictly at the professional level, avoiding all wasteful chit-chat. Any such indulgence will be construed as weakness, leading to needless exposure.

9. Avoid putting all eggs in one basket. While you may have to stick to the same vendor for upgrades and enhancements (but do not talk about it in advance; instead, play it by the year), evaluate different vendors for unrelated projects. Do not ever give them the impression that you are dependent on them.

Good Luck!

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