Fear The Tree! (stuff happens and markets adapt)

I have often said that my favorite college mascot slogan in college sports is Stanford’s unofficial mascot – their marching band’s tongue in cheek “Fear the Tree.” Words to live by.

In many ways, the new federal tax law is the proverbial tree. As we look at its impact on housing, it is not falling on the roof. I believe there has been a broad overreaction. I’ll explain further in the notes.

Most housing market participants probably feel like this:

Market Report Gauntlet Q4-2017 Week 2

This week Douglas Elliman Real Estate, the firm for whom I have authored their expanding market report series since 1994, has published a slew of reports this week:

  • Manhattan, Brooklyn & Queens Rentals
  • Brooklyn Sales
  • Queens Sales
  • Riverdale (Bronx) Sales
  • Westchester Sales
  • Putnam & Dutchess Sales

The rental report results attracted the most attention, as we saw record concessions this month across the three boroughs. Westchester County continued to see a brisk market but some softness in trends fostered some interest.

On Bloomberg news, the stories covering these market reports were the number 1 and 2 most emailed stories across Bloomberg Terminals yesterday.

But what is better than a list? Charts, obviously.

Bloomberg News: Manhattan Apartment Rents Fall the Most Since 2014

Bloomberg News: Westchester, Home of America’s Highest Property Taxes, Braces for a Hit

Wall Street Journal: Manhattan Rents Fell 2.7% in December to Median of $3,295

Bloomberg Markets Interview January 11, 2018

So I was walking down Fifth Avenue in Midtown Manhattan in the late morning yesterday after a meeting and got a call from Bloomberg TV. Apparently, two different stories that featured two of the market reports I author – published by Douglas Elliman – were the number one and two most emailed on the Bloomberg Terminals worldwide.  They wanted to talk about the results.

So I took a left and walked over Bloomberg HQ.  Got to speak with Vonnie Quinn and Shery Ahn on set – who knew how to make an interview go well.

This is a 2-minute clip of the 5-minute interview, but you’ll get the gist. I’ll expand on this discussion tomorrow at 2 pm when my weekly Housing Note is released.

[click to view video]

Tax Law Ramblings AMT+MID-Style

Over the past few weeks, I’ve spoken with many people about the new tax law. I have fought the urge to let my eyes glaze over and dream of watching paint dry.

The impact to housing is a combination of price, mortgage amount and SALT on top of local market conditions and personal financial situations. One of my biggest epiphanies has been the interaction with the Alternative Minimum Tax (AMT). It was basically designed pre-new-tax law to require those who took too many deductions to pay more tax. So when pundits try to explain the impact to homeowners, it tends to be overstated because they tend to look at deductions without any context (me included). For example, the average property tax in Westchester County, New York is the highest in the U.S. according to ATTOM. With the $10,000 cap on property taxes (set aside SALT for a second), that infers that the average homeowner just incurred a $10,000 increase in tax exposure at whatever bracket they are in because their total property tax bill was $20,000. But before the new law, their $20,000 real estate bill may only provide $12,000 after the AMT calculation. Going from an adjusted $12,000 deduction to a $10,000 is much less severe than going from $20,000 to $10,000. That’s the general idea.

Also, in the case of co-ops, I’m being told that the pro rata share of underlying mortgage interest of the corporation, plus a shareholders own mortgage interest combined are subject to the $750,000 MID cap.

Admittedly I’m still struggling with the aftermath of the AMT implications. Shared insights are appreciated.

Ken Griffin loves real estate

Ken Griffin just bought the highest priced condo in Chicago for $58.75 million, he is reportedly under contract for around a reported $250,000,000 in Manhattan at 220 Central Park South and he has been assembling Palm Beach oceanfront parcels well in excess of $100,000,000.

Denver: Housing Glut of High-End Rentals

The Denver housing market has been booming. But like most urban markets, there has been way too much product constructed in recent years that has been skewed to luxury. You can thank the flood of low-cost capital from a low interest rate world. The push towards additional supply did not appear to factor in the new product being created.

This chart is a little scary.

Upcoming Speaking Events

January 24, 2018 – Fordham Real Estate Institute at Lincoln Center: panel co-hosted by the Real Estate Services Alliance (RESA), “Tax Reform’s Impact on the Real Estate Market.” Keynote presenter Richard Shapiro, Director at Eisner Amper, will demystify the new tax bill, reviewing the changes that individuals and businesses will face starting this year. From there, a panel of market leaders will discuss the impact on both the residential and commercial real estate markets and share insights on what to expect in 2018. The panel will feature:

James Nelson, Vice Chairman at Cushman Wakefield (moderator)
Brad Klatt, Co-founder, Roseland Property Company, Canoe Brook Partners
Jimmy Hinton, Managing Director of Research, HFF
Jonathan Miller, CEO, Miller Samuel Inc.
Mike Stattery, SVP Research, Real Estate Board of New York

Wed, 24 January 2018, 8:00 AM – 10:00 AM EST
Fordham Law School, 150 West 62nd Street, 2nd Floor, New York, NY 10023

The event is free – but you need to register.


Lots of things starting to brew in the new year so lets recap last year’s roller coaster ride.

REALITY DISTORTION FIELD: Guess the year the AI National new president’s interview was written?

That all caps phrase is a marketing technique mastered by Steve Jobs of Apple.

In appraiser speak, the effective date of the following press release is in 2018, but the actual age could be any time since AI’s inception with only slight modification. The new Appraisal Institute president Jim Murrett looks like yet another old guard inner circle executive as evidenced by this super generic press release-as-interview for Appraisal Buzz.

Reading the release, you’d never know that AI National had a terrible year in 2017 that began with their self-serving actions in late 2016.  To be fair, AI National was very good in leading the industry’s response to the Tristar Bank appraisal waiver request outcry. I would encourage them to do more to look out for their membership using that event as a template.

Here were the issues facing AI National in 2018 that the new president didn’t acknowledge in the slightest:

  • The “taking” of most chapter funds initiate and “pre-approved” by the board in late 2016 without vetting to membership or chapter leadership.  This action was merely paused but is still alive and was set to begin January 1, 2018.  No word on this but I do believe that is AI National’s poison pill.  If they go forward with their plans, that will be the end of AI National.

  • AI National now has a big competitor with the merger of NAIFA and ASA who lobby and work hard for their members.

  • Ignoring chapter boards when aggressively courting state legislators in 2017 to embed anti-USPAP regulations that would severely damage the residential profession by providing confusion to the marketplace – incredibly, claiming it was great to enable appraisers to turn off their certification at will in order to do $25 evaluations.  And all along I thought certifications were in place to protect the public trust?

  • A misleading congressional testimony in late 2016 that falsely characterized the fake “appraisal shortage” as the fault of USPAP and TAF when this was really an attempt to embed their own standards.  Ironically AI National gave their standards to TAF as the platform to build USPAP (how quickly they forget).  AI National aggressively lobbied individual financial committee members with this misleading narrative to make this hearing happen – I saw this firsthand.

  • Given the accelerated rate of membership decline last year, possibly triple the decline of the previous years, I don’t see how 2017 was a good year unless their goal was to shrink the organization?

  • After fleeing from the Appraisal Foundation a decade ago (and the reason I quit as an affiliate after their non-credible reasons by then president Leslie Sellers), AI National tried to re-join TAFAC but was rejected by a 2:1.  The reason I believe they were rejected was that they would not agree to the stated goal of the organization.  Some council members blindly loyal to AI National actually said not agreeing to the goal was the same as not agreeing to check a “little box” on an application.  Since there have been exciting developments in the industry, it was great to see an organization like TAFAC have a backbone and stop putting up with prima donnas.  As someone told me – “I’m sick of their crap, we’ve wasted enough time on them.”

  • And after the “middle of the night departure” of CEO Fred Grubbe, last August for no stated reason – although many tell me he has been a large part of the culture problem at AI National and many have told me what they thought the actual reason was. There has been no word on the nominating process for a replacement. I’m betting it is Jim Amorin.

  • 2017 marked the first year that AI National was recognized by the industry and their membership as a detriment to the future of the appraisal industry, taking actions that they themselves have been unable to explain to their membership. Who doesn’t find this bizarre? The reasons for their contrarian behavior are only understood by the inner circle of executives. Perhaps 2018 will be the year where membership is able to crack their code to understand why they are so eager to work against the industry i.e. USPAP, evaluations, promoting AMCs, the “taking” debacle, which is still alive, and more. Whether or not we ultimately learn what is going on internally, it matters less in 2018 since they have lost their actual leadership role and are essentially irrelevant.

Now please re-read the press release and tell me how 2017 was a good year for AI National – our industry’s largest trade group and whether they as an organization learned ANYTHING from their recent mistakes, included a massive, unheard of, membership uproar. Former CEO Fred Grubbe may have been the only one to understand that after than a decade of leading the organization and its culture into irrelevancy, it was time to leave.

View the press release on Appraisal Buzz

Brilliant Idea #1

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  • They’ll write a market report;
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  • And I’ll continue to fear the tree.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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