I have been given several great suggestions of appraisers to talk to, and my only regret with this first appraiser, is that the discussion didn’t take place in an Uptown locale. I was Uptown this past weekend for the Panther’s game, and the more time I spend there, the more I understand why I wish I was at the Dunhill tonight sipping wine rather than writing this post for Thursday. Better yet, I wish I was swimming laps in the VUE pool.
The discussion was animated, not the least of which because of the colorful language and stories the appraiser had to share with me. His first question to me was when did these Vue contracts get signed? I told him many in 2005. He said that was the PEAK of the real estate market. I thanked him for reminding me. He then said the following, and the conversation was almost an hour, but I will not forget it:
No form of real estate that I know of is currently priced at the value that it was priced in 2005.
The second thing memorable statement was this:
The economic and dynamics of Charlotte are not the same in 2010 as they were in 2005. And the economic future of Charlotte is not the same in 2010 as it was in 2005. In 2007/2008, the world changed.
As examples, he said in 2005 we had 2 banks. And we had, as some said publicly, a “recession proof city.” Those days are gone.
He qualified some of this later by saying that the lower the value of the property, the lower the percentage drop in market value. The higher the value of the property, the higher the percentage drop. He would not give me an answer to the question of “well, as a ballpark figure, what would you say the VUE’s prices should be as a percentage of the contract prices in 2005?” Rather, he gave me some leads of how I could make an educated answer and I will be following up on those.
Early on in the conversation the quote from MCL that I will go to “appraiser to appraiser” to get the appraisal right came up. I won’t delve into this, as I am sure this is a statement that MCL wishes it never made, but I want to mention it because this appraiser did and to let you know he very much objected to it.
I asked about using sold units as comps. He said doing that would only make sense if it was someone who walked off the street, didn’t have a contract already, and bought a unit. Otherwise, anyone that has a contract and pays that price is “under duress,” and a rule of thumb for both the buyer and seller when using comps is that neither should be under duress. This answered my question of using appraisals of pre-sales buyers that pay contract price.
I asked about the amenity deck, and would that be a factor in an appraisal? He said sure: amenities, location, floor, view, finishes, they all factor in.
I asked what recourse someone has when they feel an appraisal is suspect? He said there is an appraisal board that handles these matters.
When asked why can’t the units just be re-priced to closer to market value, and the answer was that would be a Pandora’s box for the developer.
I was very frank, and said in my opinion, which could be completely wrong, relatively few pre-sales buyers would close, unless prices were moved closer to market value, and why wouldn’t the banks just take the project over? The answer was that in this business, the lenders need every nickel and dime they can get. So even if a relatively few buyers close at contract price, it is important to collect that before the lenders take over because of the economics of the way bad bank debt and set-asides work and how reserves impact what banks can lend. There were a number of other reasons he gave why the lenders might not want to foreclose on a piece of real estate like the VUE and would therefore give MCL time to work things out.
I didn’t ask him if he thought the VUE could work things out. But I know that I hope they do, and many of the folks I hear from hope they do as well. Again, thinking back to the Panther’s game, I walked out of the stadium and looked up at the VUE Charlotte gleaming in the sun. It is a magnificent building, and somehow it will find a way to survive.
This led me to one of the final parts of the conversation which is the “hardball” approach that seems to be taken by MCL on price/compromise/etc. He told of someone he knew in the service that had a story of basic training, and how when you first enter it you have 1 stripe. If you get in trouble, the commander comes and rips off your stripe. But if that same person gets in trouble the next day, he can retort: “what are you going to do now, rip my sleeve off?”
This blog obviously takes the view of the buyer moreso than the seller. But we have to remember also the position MCL is in and the position of the folks that invested their money believing in MCL and financed the construction. If we do that, we can say with great confidence that there is no one involved in this transaction that is not under duress right now.
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