Segueway to Success
Listen at – “Inside Commercial RE Appraisals”
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By: Brent Hamachek and Tom Kuchan
Our “Segueway to Success” show, talking about our blog, airs each Wednesday at 15:00 CST. Find today’s show and the archives on our web site: www.seguewaysolutions.com/Articles-and-Events.html
How commercial real estate appraisers do their job is a mystery to most. Every business owner is impacted by their work, even if they don’t own their own space because somebody does and that somebody probably has a mortgage. There is real science behind how an appraiser arrives at a value and there is also interpretative art. That is why contracts often call for three appraisals to be performed and the average of the three used to set value. The numbers can be very different.
In 1989, in response to the collapse of the savings & loan institutions earlier in the decade, President Bush signed into law the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). The regulation did many things including abolishing the Federal Home Loan Bank, made the FDIC the universal insurer of deposits, and created the Resolution Trust Corporation (RTC), which effectively became the federal government’s workout division for the banking industry.
There was something else that FIRREA did that had a much greater day to day impact on commercial banks and commercial borrowers than did all the other provisions combined. The principals of Segueway were both making their living in commercial banking at the time the law was passed and a couple of years later when its regulations went into effect. Once it did, the new, not-even-half-joking interpretation of the FIRREA acronym became “Finally I’m a Rich Real-Estate Appraiser”.
FIRREA had changed the requirements for banks obtaining real estate appraisals on commercial loans secured by real estate. At one time, banks had it within their discretion to decide when an appraisal might be required. No longer. FIRREA mandated when appraisals had to be obtained and what the content needed to include. Suddenly the commercial real estate appraiser had a very captive market. From a sales perspective, the appraiser no longer had to convince a bank to get an appraisal, they only had to convince the bank to choose them to deliver it.
It really took the industry a few years to adapt to the changes. Loopholes and exceptions in FIRREA led banks to try to circumvent the law when they could. Regulators took a very strict interpretative view. The two worlds collided for about 24 months before everything settled in. And some form of new-normalcy took hold.
And then real estate collapsed in 2007.
While the provisions in Dodd-Frank regarding appraisals deal primarily with consumer loans and the residential market, the collapse in real estate in general has heightened interest and scrutiny of commercial real estate appraisals, as well. While the real estate collapse in 2007 was primarily a result of government policies, the word in the press is that “bankers” caused it with reckless lending practices. Now, more than ever, bankers are looking to commercial real estate appraisers to “lean on” for support in making their decisions. Regulators are also looking at those appraisers as the independent voice who makes or breaks a loan decision or determination as to what to do with an existing loan.
Given how much influence the commercial real estate appraiser’s work has in today’s business marketplace, Segueway hosts thought our listeners would enjoy hearing from someone in the profession who has been around long enough to see all of the changes that have taken place in the industry over the last 25 years.
Join us this Wednesday when our guest will be David A. Kunkel, founder of Kunkel & Associates, a Lisle, Illinois based commercial real estate firm. We will ask Dave how the industry has changed over the past few years and how his work impacts the lending practices of banks and, resultantly, how businesses can borrow, or not borrow, money.
Segueway Solutions – http://www.seguewaysolutions.com/
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Brent E. Hamachek spent the first 15 years of his professional life in banking, working in 6 different sectors including audit, credit and 9 years as a commercial banker.
After commercial banking, Brent formed Segueway Solutions in 2000 in order to assist privately held companies in transition. To date, he has worked in 40 different industries and has served in the capacity of CEO, CFO & EVP Sales for clients. Brent is a sought after consultant, speaker and trainer offering national and foreign expertise to clients.
Tom Kuchan is a proven leader in global business expansion and effectiveness, risk management, finance and operations with experience in both Fortune 50 and entrepreneurial environments. He has a proven record of defining strategic objectives, translating them into operational tasks, and leading their implementation in diverse geographies and cultures across the globe.
Tom has lived overseas for over twenty years, including Switzerland, Germany and the United Arab Emirates, and has worked extensively across Europe, Latin America, Africa, the Middle East, and Asia.