panappr
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Commercial BPOs-fascinating
- Thread starter Caligirl
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mgalleshaw
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What could go wrong?
Okay, so there are some brokers doing BPOs on commercial real estate. What could go wrong?
I have a number of friends and associates who are CCIMs, and they are smart and understand the differences between fee, leased fee and leasehold. But not all commercial brokers have broad experience and, combined with the natural narcissism of that trade, there could be some opinions that are way off base. OK; there will almost certainly be some, maybe a lot!
Used to teach cap courses for the Institute. Had brokers enrolled. In their own businesses, some would price based on proforma; market rent, market v&cl, market opex, then stablized NOI. Hit with market cap rate: Wallah! Market value...
Sounds (gulp) reasonable. But sometimes, unexplainedly, they would artibitrarily mix in actual income, or actual vacancy, or actual expenses, or actual opex and try to cap that. I tried to explain repeatedly this would be some kind of "hybrid" value definition, neither leased fee or fee.
Same deal with "comps". If comps are leased at or very near market rates, these sales may be leased fee but the spread to fee would probably be relatively insignificant. The unit indicators might be reasonable projected for the subject. But below the visible, like the iceburg below the waterline, there may be all sorts of physical and financial factors which need to be understood before attempting to project the sale onto a subject property.
Most, seriously, I mean most, of the broker's prospectuses I have seen do a reasonable job of analyzing the actual circumstances of a property for sale and reporting them, though some paint a little prettier picture than if there were no commission involved. But the time and effort put into analyzing a property for sale is many times multiple that likely for such a BPO. Frankly, I fear some brokers won't put much effort into their BPOs. And, due to our CPA driven penny-wise pound-foolish system, the lowered price BPO artists will likely get the lions' share of business.
As usual, it is the client's and/or regulatory ignorance that leads to this possible tilting at windmills. Perhaps there is an underlying agenda to do things on the cheap, but I would prefer to think the clients and regulators just don't get it and we can educate.
Is this a one-man parade?
Mark Galleshaw
Okay, so there are some brokers doing BPOs on commercial real estate. What could go wrong?
I have a number of friends and associates who are CCIMs, and they are smart and understand the differences between fee, leased fee and leasehold. But not all commercial brokers have broad experience and, combined with the natural narcissism of that trade, there could be some opinions that are way off base. OK; there will almost certainly be some, maybe a lot!
Used to teach cap courses for the Institute. Had brokers enrolled. In their own businesses, some would price based on proforma; market rent, market v&cl, market opex, then stablized NOI. Hit with market cap rate: Wallah! Market value...
Sounds (gulp) reasonable. But sometimes, unexplainedly, they would artibitrarily mix in actual income, or actual vacancy, or actual expenses, or actual opex and try to cap that. I tried to explain repeatedly this would be some kind of "hybrid" value definition, neither leased fee or fee.
Same deal with "comps". If comps are leased at or very near market rates, these sales may be leased fee but the spread to fee would probably be relatively insignificant. The unit indicators might be reasonable projected for the subject. But below the visible, like the iceburg below the waterline, there may be all sorts of physical and financial factors which need to be understood before attempting to project the sale onto a subject property.
Most, seriously, I mean most, of the broker's prospectuses I have seen do a reasonable job of analyzing the actual circumstances of a property for sale and reporting them, though some paint a little prettier picture than if there were no commission involved. But the time and effort put into analyzing a property for sale is many times multiple that likely for such a BPO. Frankly, I fear some brokers won't put much effort into their BPOs. And, due to our CPA driven penny-wise pound-foolish system, the lowered price BPO artists will likely get the lions' share of business.
As usual, it is the client's and/or regulatory ignorance that leads to this possible tilting at windmills. Perhaps there is an underlying agenda to do things on the cheap, but I would prefer to think the clients and regulators just don't get it and we can educate.
Is this a one-man parade?
Mark Galleshaw
mgalleshaw
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Hey, panappr (posting above)-
I guess we were writing at the same time, because this organization is unknown to me. I looked over the "standards" they present briefly and they sound pretty good.
I can't help but wonder if the "standards" they propose have any teeth. I was under the impression that most BPO's had less content than suggested.
Know anything about this group?
Mark Galleshaw
I guess we were writing at the same time, because this organization is unknown to me. I looked over the "standards" they present briefly and they sound pretty good.
I can't help but wonder if the "standards" they propose have any teeth. I was under the impression that most BPO's had less content than suggested.
Know anything about this group?
Mark Galleshaw
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JSmith43
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CCIM Institute salutes the NAR's "aspirational" code of ethics regarding BPO's, I assume.
Nice Avatar, Mike. Maybe I should trade you for a while. I posted with an Al Bundy avatar long ago and my posts seemed to take on the TV persona.
Nice Avatar, Mike. Maybe I should trade you for a while. I posted with an Al Bundy avatar long ago and my posts seemed to take on the TV persona.
Caligirl
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RW, if you changed your avatar I don't think anyone would know who you were.
panappr: interesting link. I find this quote interesting:
. as the banks want the BPOs to contain not the probable selling price, but the Fair Market Value. Now, assuming these BPOs are for vacated owner/user properties, or for vacated single tenant properties, this might make sense. But using a BPO to establish a Fair Market Value for a foreclosed property involving multiple leases using only three sales..
fair market value (FMV)
Definition
Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) know the relevant facts, (3)neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer. FMV is generally the basis for tax assessment and court awards. Also called fair value. See also arm's length transaction.
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mgalleshaw
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Avatars.
Don't know if you meant me (Leslie Nielsen pic). You can have the avatar if you want it. I also found good ones of John (Bluto) Blutarsky ("It's not over till we say its over. Was it over when the Germans bombed Pearl Harbor? Hell no!").
Don't let the turkeys get you down.
Mark Galleshaw
Don't know if you meant me (Leslie Nielsen pic). You can have the avatar if you want it. I also found good ones of John (Bluto) Blutarsky ("It's not over till we say its over. Was it over when the Germans bombed Pearl Harbor? Hell no!").
Don't let the turkeys get you down.
Mark Galleshaw
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