Appraisal – Real Estate Matters
Browsing Category

Appraisal

Affordable Housing, Appraisal, Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

University of St. Thomas Housing Market Analysis for November 2018

Will A Computer Tell You How Much Your House Is Worth?

Lower Mortgage Rates for Energy Efficient Homes?

Market Update – Is the Twin Cities one of the top markets in the country where you should buy this winter?

 

Will A Computer Tell You How Much Your House Is Worth?

Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms.

Appraisals help lenders ensure that the estimated value of the property supports the purchase price and the mortgage amount. An appraisal that is off by a few percent could leave a homeowner owing more than their house is worth or lenders with insufficient collateral to cover defaulted loans.

Will this automated approach work? It is hard to see how an appraisal can be done without a human appraiser involved. There is so much variation in condition and functionally that cannot be assessed by a computer algorithm. There’s still no computer that can see, hear, taste, smell and touch the property. Until that happens appraisals with humans involved will continue be necessary to do accurate appraisals.

Lower Mortgage Rates for Energy-Efficient Homes?

Mortgage guarantors, insurers, underwriters, and security owners have recently observed that home buyers with lower monthly utility costs default less. Do these lower-risk home buyers deserve a lower interest rate? Lenders are starting to consider the idea of offering a lower interest rate for mortgages on energy efficient homes. Energy efficient mortgages (EEMs) encourage energy efficiency by giving buyers a better rate or more borrowing capacity to buy an energy efficient house or to cover the cost of new energy improvements.

There are several types of EEM products in use today; however, adoption remains limited. Developing programs in several states inject capital into traditional mortgage products to “buy down” the interest rate that is charged to borrowers as an incentive to finance energy retrofits. A third structure being tested assumes that the energy savings and reduced exposure to energy costs reduce the risk profile of the loan and on average should lead to better loan performance. The reduced risk justifies a lower interest rate, which in turn improves the loan pricing for borrowers, while leaving underwriting criteria unchanged.

There are now quantitative standards available to measure a home’s efficiency. The HERS Index is the industry standard by which a home’s energy efficiency is measured. The HERS or Home Energy Rating System was developed by RESNET and is the nationally recognized system for inspecting and calculating a home’s energy performance. Certified RESNET Home Energy Raters conduct inspections to verify a home’s energy performance and determine what improvements can be made to increase it. Home buyers will be attracted to buy homes that are not only more efficient, saving utility costs, but also being able to qualify for lower mortgage rates.

November Market Update

According to a recent Zillow report the Twin Cities was one of the top ten markets in the country where it makes the most sense to buy this winter. This ranking is based on an index they developed using the factors below. For potential buyers looking to make a move before rents and mortgage payments rise further, the report indicates our market compares favorably to most other markets in the country.

Here are the three factors that went into the index:

  • The share of price cuts compared to a year ago: (In the Twin Cities the year over year over year actual selling price compared to the asking price has been declining since June indicating that sellers are beginning to cut prices.)
  • Rent appreciation forecast: Metros where rents are expected to rise more over the next year are ranked higher on the index, because they offer the greatest opportunity for buyers to save money by picking up a mortgage rather than continuing to pay rising rents. (Year over year rents in the Twin Cities continue to increase modestly and are expected to continue to do so, although the rate of increase is expected to moderate.)                      
  • Mortgage affordability: Metros that already have bad mortgage affordability will become harder for buyers as mortgage rates rise, so they are prioritized on this index. (Relative to other markets in the country the Twin Cities does not already have “bad” mortgage affordability. In our market mortgage rates have increased and median sale prices continue increase faster than income making mortgage affordability more difficult.)

The median sale price increased .4% between October and November, however the median sale price of homes sold in the Twin Cities has increased by 8.6% in the past year to $266,000. In comparison, the average annual increase for the previous 12 months has been 7.8%.

The number of closed sales decreased .2% between November of 2017 and November of 2018, continuing a trend of decreasing year over year sales that has been observed for 10 of the last 12 months. The combination of the low number of homes available for sale and higher interest rates continues to take its toll on the number of homes sold. The number of pending sales decreased by 5.7% however the number of new listings increased 11.8% compared to the same period last year. The increase in new listings is a hopeful sign that will be more homes available for sale in the coming few months and that the slide in the year over year sales volume will begin to reverse itself.

For more information, visit the Shenehon Center’s complete report for November 2018 at http://www.stthomas.edu/business/centers/shenehon/research/. The report is also available for free via email from Tousley at hwtousley1@stthomas.edu

 

   

 

 

 

 

 

Appraisal, Commercial Lending, Commercial Real Estate, Commercial Real Estate Index, Development, Industry News, Twin Cities Real Estate

Minnesota Commercial Real Estate Outlook Showing Increased Signs Of Pessimism

 

The October 2018 University of St. Thomas / Minnesota Commercial Real Estate Survey is continuing to show to show changes in the sentiment of our panelists as they look out over the next two years. The biannual survey projects a two-year ahead outlook for Minnesota’s commercial real estate industry and forecasts potential opportunities and challenges affecting all commercial real estate sectors.

As was done with all fifteen of our previous surveys, the same group of 50 commercial real estate industry leaders involved in development, finance, and investment were polled regarding their expectations of near-term, future commercial real estate activity. The decisions that these industry leaders are making today will determine what the CRE markets will look like two years from now.

Fall 2018 Results

Observations from October 2018 have recorded several notable changes in the panel’s expectations that were observed in the last survey conducted in December 2017. “There is some concern that we are near the top of the cycle and that overbuilding and increased vacancies may occur in some product types and submarkets.” says Herb Tousley, Director of the Real Estate Programs at the University of St Thomas. “While the forecast for 2020 has become slightly less optimistic, there is no expectation of a major downturn in the commercial real estate market in the Twin Cities. The increase in online shopping, higher interest rates, changes in housing trends and the continued redefinition of the office environment will remain major factors in the performance of commercial real estate in the coming two years.”

Our panelists seem to be most concerned about the expected increase in the cost of building materials and the impact of rising interest rates on values and expected returns for developers and investors. The panel has changed to a more pessimistic outlook on all categories (see the chart at the end of the report). While our respondents are not expecting a major downturn, they are more concerned about future prospects than they have been in our previous surveys.

The composite index of all the other indices the survey continues to indicate a slightly less than neutral expectation looking ahead two years to late 2020. The composite index was recorded at 42. This is slightly less optimistic than the 43 that was recorded a year ago. Index values greater than 50 represent a more optimistic view of the market over the next two years, with values of less than 50 indicating a more pessimistic view. More detailed information about each of the individual indices may be found below.

The individual indexes are detailed below:

Rent Expectations

The outlook for rental rates has become less optimistic. Market conditions expected in late 2020 are best described by the price for space (rental rates) and the supply of space (occupancy levels). The index for rental rates was 62 compared to 67 one year ago. This means the panel now has a lower expectation of the rate rents will increase for all property types over the next two years. The panel’s sentiment is that the economy will continue to grow and that business conditions will continue improve at slower pace, creating less competition for commercial space.

Occupancy

The outlook for occupancy levels has changed significantly moving from slightly optimistic 52 to more pessimistic 43. This indicates the panelist’s belief that occupancy levels and space absorption may not remain at current levels during the next two years. As a great deal of new product has been delivered the panel is beginning to be concerned about the market’s ability to absorb the new space. This is especially noticeable in the multi-family, office and industrial segments. It is a continuation of a general trend that began 4 years ago. Businesses will continue to grow but they are concentrating on reducing their cost of occupancy by doing more with less space.

Land Price Expectations

The rate of increase in land prices is expected moderate. The land price index has increased (become less pessimistic) in the current survey moving from 38 last in December 2107 to 46 this fall. The lowest point for the index was recorded at 31 in the fall 2013 survey. This index has become somewhat less pessimistic. Although land prices are expected to continue to increase during the next two years, any moderation in the rate of increase would help to keep total project costs in check. Higher land prices are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.

Building Material Price Expectations

There is a continued expectation that increases in the price of building materials will continue to accelerate. The index for the price of building supplies remains strongly negative, moving from 24 in December 2017 to 27 in October 2018. The panel believes that commodity prices for lumber, concrete, steel and many of the other materials used in construction will continue to increase due to shortages and newly imposed tariffs. Since building materials are a major cost component of any development project any increases in prices will make it difficult to provide adequate returns on future developments.

Return on Investment Expectations

Our panel expects that investors return on investment expectations will increase. The index for investor’s return expectations has become more pessimistic moving from 42 to 39. This indicates that investors will be expecting to achieve higher returns. The consensus among survey respondents indicates that investors will be seeking higher returns due to their expectation of increasing interest rates and concern about market fundamentals over the next two years. Investors will continue to seek out quality investments but they will be much more diligent about how they price risk and evaluate return when considering their investment options.

Lending Expectations

Equity and loan to value requirements are expected to remain essentially unchanged. The index for the amount of equity required by lenders has decreased slightly, moving from 42 to 41 in December 2017 to 42 in October 2018. Although interest rates have increased somewhat since our last survey, the panel’s belief that is even if interest rates continue to increase moderately credit will still be available for good projects. However, they expect lenders will continue be more risk adverse by tightening their underwriting criteria in the coming two years.

 

 

 

 

 

 

Appraisal, Executive Insight Series

Rob Lunz Shares Insights on Real Estate Appraisal

The Real Estate Executive Insights Series is presented by the Opus College of Business MSRE program. This series invites speakers from the real estate industry to provide valuable information and discussion about hot topics and current trends. This program is free and open to the public. To view the full upcoming schedule, click here.

Rob Lunz, CRE, MAI

At the most recent UST Executive Insights event, Rob Lunz, principal at Nicollet Parnters shared insight gained over the course of several decades as a real estate appraiser. Nicollet Partners is a full-service appraisal, brokerage, and consulting firm headquartered in downtown Minneapolis. At the event, Rob introduced MSRE and MBA students to some the fundamentals of real estate appraisal. The standard definition of an appraisal is simply an analysis or opinion of value. Rob defines appraisal a little more broadly, and considers it to be the mission of appraisers to help ensure that real estate assets are employed to the best use possible.

Rob also shared some interesting situations he has come across over the course of his career in appraisal. One instance involved the appraisal of a lakeside residential property after the purchaser found a bald eagle’s nest in a tree over their deck. One might not think that a bird’s nest in a tree could significantly impact the value of a property, but they’d be wrong. Bald eagles are of course given protected status as an endangered species,  but their diet of small animals, the associated odors, and habit of throwing any leftovers out of the nest all make them unideal neighbors to have at a vacation home.

This unique case had Rob approaching wildlife biologists and the Department of Natural Resources in an attempt to determine what the owners could do about the eagles (nothing) and to evaluate what that might mean for the property owners. The impacts which Rob had to quantify included significant cleaning services expenses, reduced enjoyment of the property, and limitations on what future improvements the owners could make to the property. A prevalent theme in this and other stories Rob shared was the need for appraisers to be able to quickly learn about things they might previously have known little about, in order to accurately appraise real estate value.

Rob also provided insight into current trends in real estate. Nicollet Partners tracks development trends closely, including the current hot multifamily market. Rob noted that there are currently about 12,600 units of apartments either recently completed, under construction, or proposed in the Twin Cities, 55% percent of which are in the core cities of Minneapolis and St. Paul. He also sees improvement in the industrial market since the Great Recession, but believes that retail and office remain soft.
Appraisal, Business Valuation, Commercial Real Estate, Economics, Real Estate Programs, Real Estate Trends, Uncategorized, Upcoming Industry Events, Upcoming UST Events

23rd Annual Business Valuation Conference

The 23rd Annual Business Valuation Conference will be held Wednesday, February 6. This conference covers topics of interest to attorneys, accountants, business brokers, business owners, commercial real estate brokers, lenders, investment bankers, appraisers and others who regularly encounter business valuation issues.  It is held at the University of St. Thomas campus in downtown Minneapolis and is presented/sponsored by The UST Shenehon Center for Real Estate, NCCIBA, NACVA, ASA.

Topics featured at the conference include:UST RE conference

  • Economic Update
  • The Layman’s Use of Regression Analysis
  • Identifying Metrics and Calculating Value in Excel
  • Basics of a Real Estate Appraisal
  • Avoiding the Pitfalls When Valuing Machinery & Equipment
  • Understanding Minimum Compensation in Eminent Domain
  • When is it Time to Call in the Experts?
  • Current Court Decisions

This conference has been approved for eight hours of real estate and appraiser continuing education through the Minnesota Department of Commerce.

Register here.

Appraisal, UST Class Profile, UST Student Profile

UST Student Profile – Natalie Mink, Certified Residential Real Estate Appraiser

The UST Opus College of Business Master’s in Real Estate program welcomes the new class to the 2012-2013 academic year!  Take a look at a brief snapshot of the students in this year’s class.

NAME: Natalie Mink

What is your educational background and experience?

I graduated from the University of Wisconsin Eau Claire with a Bachelor of Arts in Accounting.  Currently, I am a Certified Residential Real Estate Appraiser and work for Sunrise Community Banks as an Appraisal Specialist. 

Why did you choose the MSRE program at UST?

I was looking for ways to expand my education regarding all aspects of commercial real estate.  I researched many programs throughout the country and found the MSRE program at UST offered exactly what I was looking for.

What are your future career goals?

I am working towards an SRA designation with the Appraisal Institute and hope to have the opportunity to earn a commercial real estate appraiser license.

As you enter the MSRE program, what aspect of the program are you most excited about?

I am looking forward to networking with other local real estate professionals.

What do you enjoy most about the real estate industry?

I enjoy the fact that the market is constantly changing and every property is unique therefore every day is different with new challenges.

What is your favorite non-real estate pastime and why?

I enjoy doing anything outdoors.

Appraisal, Business Valuation, Commercial Lending, Commercial Real Estate, Development, Economics, Government Policy, Green Building, Industry News, Multifamily, Property Management, Real Estate Trends, Residential Real Estate, Retail Real Estate

Location, Location, Location

Whether you are looking for ways to position Minnesota as a good location to buy real estate or simply need a reminder of why we like living here next time it snows, the Greater MSP, the Minneapolis St. Paul Regional Economic Development Partnership website is a great resource. Not only do they put together videos about the highlights of the areas on their  YouTube channel, they provide statistics to backup why this is a great area to do business (location, transportation, financing & incentives, demographics, taxes, utilities, innovation, the economy), to live (education, cost of living, healthy lifestyles, philanthropy and volunteerism, sports and recreation, arts and culture, shopping and attractions) and workforce information (labor force statistics and projections, wages, employment by industry and occupation, colleges and universities.)

http://www.youtube.com/watch?v=JDH5il6FFiM

Just a few of the reasons Minnesota is a great place to live, go to school and do business:

  • #1 region to be an urban cyclist.  Bicycling Magazine
  • More golfers per capita than any other region in America.
  • Top 4 states for workforce quality. CEO Magazine
  • Among America’s top regions for brainpower. The Daily Beast, 2010
  • Where you can get a good cappuccino and eat Thai food yet live on a quiet tree-lined street with a backyard and send your kids to public school. Garrison Keillor Continue Reading
Appraisal, Business Valuation, Commercial Lending, Commercial Real Estate, Development, Property Management, Real Estate Trends, Residential Real Estate, Retail Real Estate, Uncategorized

Ask the Real Estate Expert!

askexpert

Do you have questions about the Twin Cities commercial real estate market, valuation of commercial property, real estate finance, real estate law, development, property management, education and careers in real estate, or other industry topics?

Whether you’re a student, novice, or a seasoned industry professional, our experts are here to help!  Send us your real estate questions, no matter how simple or complex, and faculty from the Master of Science in Real Estate program will respond to your questions weekly on the Real Estate Matters blog and via Twitter @USTRealEstate.

Continue Reading

Appraisal, Real Estate Matters - Interview, Real Estate Programs, Uncategorized, UST Student Profile

Student Profile- Lane Thor

DSC_5428“The (best part of the UST MSRE program is the…) whole package; having industry experts as guest speakers, hearing their stories, and learning, first hand, their opinion’s on the major issues facing the real estate industry.  Furthermore, the overall connection to the real estate community as a whole is superb.  These connections will set me up for success in any endeavor I choose. I have had an excellent experience in the program and would recommend it to others in the real estate industry.  The UST and MSRE program’s reputation in the industry is top of the line.”

Real Estate Matters has had the opportunity to sit down with several MSRE students in the graduating class of 2011 and get their impressions of the program, their plans for the future, and their advice to perspective students as their time in the MSRE program draws to a close. The first 2011 graduate, Lane Thor, has been working at the Ramsey County Assessors Office as an Appraiser. Lane was kind enough to take a few minutes out of his busy schedule to answer a few questions for us.

What is your background and experience?

I grew up in St. Paul, and have lived in Lino Lakes since 2006. I earned my undergraduate degree at Hamline University in St. Paul, where I majored in Political Science. I was fortunate enough to play football for Hamline while I was a student there, which provided a great opportunity to learn valuable lessons about life, responsibility, and leadership.

So who do you route for in the MIAC?

I have to route for Hamline.  But I promise, I alway route for St. Thomas to win.  If they play Hamline I just hope for a tie…

Where have you worked since earning your undergraduate degree?

I am fortunate, in that my first job out of school is one I have really enjoyed. I began working at the Ramsey County Assessors Office in 2006.  My day-to-day duties involve the appraisal of real estate for tax purposes. I specialize in residential property and am currently one of 52 appraisers working for Ramsey County. The thing I like most about the job is the unique nature of each property.  Each property presents new challenges and opportunities for me every day. As an undergrad I was interested in getting into business law, but after a few law classes I changed my mind.  My passion for public sector work, especially the parts of the government that support the real estate industry, has remained which makes my current position a great fit for me. Also, my job affords me the opportunity to keep a healthy work-life balance, which is something that is very important to me.

Why did you decide to get an MSRE, and how did you choose UST?

I wanted to strengthen my skill set and knowledge of real estate issues to compliment my current background, with the goal of having more opportunities  in the field of real estate. Looking back on my time in the program I can definitely say that I have broadened my skill set and given myself many new and exciting options. Furthermore, my sophistication in real estate has increased two fold, (1) I have learned more about the theoretical aspects of the real estate industry than I ever imagined, and (2) I was pleasantly surprised at the amount of practical knowledge I gained, with regard to the different aspects of real estate. I am certain that this experience will benefit me in any area of real estate that I get into.

I chose St. Thomas, because the program and the school is regarded in the Twin Cities, as the gold standard in real estate education. UST has an extensive professional network, including the real estate advisory board, which is basically all the heavy hitters in the Twin Cities real estate industry. I looked at a few other programs but ultimately chose UST because I wanted to have classroom experience – that personal level, face-to-face contact with my professors and peers is important for me. Because of this I have built life long friendships.  The small class sizes have allowed me to meet everyone and make valuable connections. The classroom experience and the relationships that stem from this structure is what brought me to UST.

What is the best part of the program?

The whole package – having industry experts as guest speakers, hearing their stories, and getting first hand opinion’s on the major issues facing the real estate industry.  Furthermore, the overall connection to the real estate community as a whole is superb and will set me up for success in any endeavor I choose. I have had an excellent experience in the program and would recommend it to others in the real estate industry.  The UST and MSRE program’s reputation in the industry is top of the line.

Do you have some advice for perspective students?

If you have a passion for real estate, this will be a great opportunity.  As with any graduate degree program, the workload gets heavy at times.  But, if you have taken the time to prepare for the program, taken the GMAT, etc. you will find a way to manage the out of classroom work. This program is great for people who love real estate.

What are your career goals?

Right now, I am working on a couple of ideas that I have been formulating for a long time. I wanted to wait until I graduate before I really focused on one plan, as I needed to really see what was involved in each part of the industry, and where my passions really were. I think for the long-term, I would like to go into business for myself. . For the time being, I will continue to pursue high level positions in the public sector dealing with real estate or real estate related issues. After I get settled in, I would like to begin my own business, doing both at the same time, public sector and private. My private business will consist of a full service real estate company focusing solely on  niche markets that  have not been tapped. With good marketing and perseverance there is a lot of upside to  some areas that  remain untouched.

What is the best advice you have ever received?

At Hamline, my football coach told me to be successful you need to surround yourself with the right people. That means making the right connections, having the right network, as well as putting good people near you. At UST you get that, professors who are helping you and working so you succeed. My new network is due in large part to UST.  This alone has made my decision to enter the MSRE program a great one and makes me very excited as I look forward to my future career.

Real Estate Matters would like to thank Lane Thor for taking the time to share his insight and experience in the MSRE program. We would also like to congratulate him on his graduation and look forward to keeping track of his promising career. To find out more information about the UST MSRE program, please visit our website.

Appraisal, Business Valuation, Commercial Real Estate, Development, Industry News, Minnesota Real Estate Hall of Fame, Property Management, Residential Real Estate, Retail Real Estate, Upcoming Industry Events, UST Real Estate in the News

Call for Nominations – Minnesota Real Estate Hall of Fame

skyline graphic HoF

The Minnesota Real Estate Hall of Fame was established by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business to honor leaders in the local real estate community.     

A real estate leader is someone who:

  • has made a significant contribution as a leader in the field of real estate.
  • has impacted his or her particular area of real estate and should be recognized primarily as an exceptional role model in his or her discipline.
  • has displayed the highest level of ethics in his or her business practices.
  • has improved his or her community as a business leader.

Do you know someone who fits this description?  Nominate them for the Minnesota Real Estate Hall of Fame. Nominations are being accepted until June 1, 2011. Each nomination will be considered for up to three selection periods.

btn_download-PDF-nomination

btn_complete-online-nomination

Appraisal, Business Valuation, Industry News, Real Estate Matters - Interview

Real Estate Matters to: Robert Strachota

th-Bob-Strachota2

“My favorite part of the job is helping others at Shenehon succeed, by providing them the tools and support that gives them the best opportunities possible. Seeing those around me at Shenehon have success is the most rewarding aspect of my work, in the same way that a coach shares in the success of his team when they are playing to the best of their abilities.”

This is the first in a series of interviews with the movers and shakers in the real estate industry. Our first interview is with Mr. Robert Strachota, President of Shenehon Company and Co-Chair of the Real Estate advisor board at University of St. Thomas. With almost four decades of experience, Mr. Strachota was gracious enough to share some of his ideas and lessons learned over the course of his career. As the president of Shenehon Mr. Strachota has had an incredible career, here is his work bio (From Shenehon’s website):

Bob is the President of Shenehon Company. He holds both the MAI and CBA designations and has over 30 years of appraisal experience in the commercial real estate and business enterprise valuations. During that time, he has successfully completed thousands of appraisals, including some very unusual assignments such as: railroads, riverboats, ranches, resorts, etc. Bob serves as an expert witness in Federal, State, and District Courts, as well as for commission hearings and special government proceedings. He is an ad hoc professor for three degree-accredited universities and is frequently invited to speak at valuation seminars and extension courses. He acts as a court-approved arbitrator, commissioner, and magistrate in real estate and business valuation disputes. Bob holds the highest designations from the Institute of Business Appraisers and the Appraisal Institute and he publishes in both local and national trade journals.

Continue Reading