Quality Quarterly Q4 2017 - Issue #35


A Cushman & Wakefield Valuation & Advisory Publication




Welcome to the 35th edition of the Quality Quarterly (QQ). We need your help. We are looking for bright ideas to help freshen up the Quality Quarterly, including its content, delivery method(s) and any other topics you might want to see addressed. Feedback so far includes: • Change the format to a blog • Publish hot topics more frequently • Limit the content to only appraisal-practice-related issues Based on a suggestion we received, we will now publish the specific client survey ratings twice a year, rather than each quarter. Since the ratings typically do not vary significantly each quarter, this will streamline the presentation of the publication. This publication is intended to inform you of events and issues confronting our practice, and we want to ensure that people read it and find it helpful. So please get creative and let us know what you want to see. Forward any suggestions to anyone on the editorial staff for consideration to help us make this publication more useful to all. We hope you find the features in this edition useful. Your continued participation in identifying “live” issues will help us improve our knowledge and appraisal reports.



edited by Sid Womack, MAI, AI-GRS, FRICS Notable client comments:

“There was no explanation for howmarket rent was determined. There was a $ amount math error in the pro-forma expense additions. Excellent sense of urgency, but did not include explanations for market rent determination or details on the individual expense categories in the report so the conclusions was not very convincing. The Sales Comparison was fine, but the Income Approach does not show the appraiser’s reasoning for the selection of market rents. Also does not describe how the various expenses were determined.”

“In my opinion, use of the NOI multiplier should not be included in the Sales Comparison Approach and is nothing more than the reciprocal of the cap rate. Adjust your units of comparison derived in the SCA the best you can and don’t default to a NOI multiplier as a unit of comparison.”


Notable client comments:

“Very comprehensive report that reflects the true market, the first one I have seen with this detail in a long time.”

“I only gave it a “good” since the cost was quite higher than other proposals, but we were willing to pay a little more knowing it would be done quickly and effectively. It was a pleasure to work with Shawn and we look forward to working with him on future projects.”

The following individuals received positive comments and/or praise from our clients and/or coworkers in the past quarter and represent our Client Comment Honor Roll:

“The adjustment grids and summary tables’ fonts are too small. Get rid of unnecessary info.”

• Jason Bitter • Jay Booth • Phil Cadorette • Chris Cauthen • Trevor Chapman • Tommy Crozier • Nancy Dawn • Cliff Dawson • Dimitri Dixon • Stephen DuBois • Fawn Everett • Ed Falkowski • Lynda Gallagher • Demetrius Gadson • Mike Gentry • Edy Gross

• Doug Heinrich • Jeffrey Hoffman • John Katinos • Sean Kelly • John Kirby • Bradley Krabec • Tim Love • Patrick Lynch • John Mackris • Kelsey Malecha • David Masters • Erick Mazzoni • Jim Morrissey • Joanne Murdoch

• Ignacio Pruneda • Eric Lewis • Mike Papagianopoulos • Mike Paradiso • Tom Rowley • Sacramento (entire office)

• Brad Smith • Jeff Smith

“The discussion of expenses does not match the numbers used. The Real Estate Tax section said that the taxes will increase by 15%. This was not done. Numerous errors, square footage changed in the cost approach. Proof.”

• William Sutera • Jimmy Takach • Tim Tolson • Scott Tonneson

• Jim Walsh • Josh Ward

• Leah Murphy • Lamar Ochs

• Andrea White • Sid Womack

Detailed individual survey responses from this quarter were distributed to the appropriate appraisers and QC reviewers.


CASE STUDY NO. 45 – COST SEGREGATION by David Koller, ASA and Eli Varol

Our case studies section features actual problems brought to our attention through V&A appraisers and QC reviewers, clients, colleagues at competing firms, and

general news publications. Eli Varol joined Cushman & Wakefield in September as a Senior Director starting up the Cost Segregation consulting practice within Valuation & Advisory. Cost Segregation is a consulting service that can unlock significant hidden value in real estate holdings. It is applicable to all types of commercial real estate, and Eli will rely on our V&A professionals to help promote this service to clients. About Eli: Eli has 18+ years of Cost Segregation consulting experience. He has a bachelor’s degree in mechanical engineering and an MBA, both from Washington University in St. Louis. He is a Senior Member of the American Society of Cost Segregation Professionals. With the addition of the Cost Segregation platform, we have expanded our ability to serve our clients. We now have the capability to incorporate Cost Segregation into Purchase Price Allocations and other Valuation & Advisory assignments. It is a great tool with which to reach out to new and existing clients in order to stay in touch and demonstrate the depth of our platform. The following describes Eli’s first assignment awarded through the Valuation Michele Kauffman has a long-standing business relationship with a professional home staging company. The client acquired a Los Angeles area warehouse in 2015 and subsequently made capital improvements to the property. In a conversation with this client, Michele let them know that we have an in-house Cost Segregation practice and it may be worth their time to have a conversation on this topic. She advised that even though they bought the property two years ago, they were still able to pursue the Cost Segregation tax strategy. With their affirmative response, an introductory call was set up. & Appraisal network. INTRODUCTIONS

WINNING THE ASSIGNMENT Based on this initial conversation, we were able to provide the Client with a detailed benefit projection that shows an estimated present value benefit range between $63,000 and $108,000. We also provided a fee quote. Cost Segregation should always have fixed fees rather than percent-of-savings or results-contingent fee arrangements. BENEFIT TO V&A PRACTICE Cost Segregation is a low risk/high reward consulting service. It is a value-add that provides benefits to property owners that are typically many multiple times the fee charged. The benefit is 100% achieved within a few years of ownership. By bringing in a value-adding complimentary service, Michele was able to strengthen this client relationship. We are seen by the client as not only an important part of the project financing process, but also as a trusted advisor looking out for the client’s business interest. At the same time, there is no conflict of interest or impairment to Cushman & Wakefield’s all-important objectivity in appraisal assignments. WORKING WITH THE COST SEGREGATION PRACTICE Eli looks forward to having many similar success stories within V&A. A cost segregation web presence is now live and includes a number of case studies. It can be found at www.cushmanwakefield.com/ cost-seg . At the website, you can also find a link to an online questionnaire. If you have a recent or upcoming client property acquisition or construction project in mind as a potential Cost Segregation opportunity, please fill out this questionnaire. Eli will then prepare a courtesy benefit projection and fee quote that can be shared with your clients.




FAQ No. 65 – New Assignment/ Same Property EA Q “I recently prepared a report for a bank client. A few weeks later a new bank client called and asked if we could issue the report to them. I got the original report released from the first client, received a new engagement letter and delivered the new report. I added an extraordinary assumption (EA) on condition of the subject since, a new inspection was not required. The time between reports was about 6 weeks. Do we have a policy regarding adding the EA if the time frame excess a defined time or limit?” A This issue occurs occasionally and we have not previously prescribed an EA for use in such situations. As a result of discussions with the QC Committee, the following EA should be included when we are issuing a new report to a different client: We assume that there have been no changes to the physical characteristics of the subject property from the date of our inspection to the date of value Note: Take care not to divulge the name of the original client to the new client. This will help ensure that confidentiality is maintained. FAQ No. 66 – Certification Question Q “The last few clients I have worked with required the addition of this exact statement in the Certification: “The Appraisal Assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.” Is this something that needs to be added to the templates?” A The language in our templates is consistent with that recommended in USPAP, and this appears to be dated verbiage. Please refer any comments to Scott Schafer for discussion with the client.




Tip No. 45 – Excel Tips by Curtis Buono, ARA, MAI, AI-GRS A lot of people are familiar with the basic Excel keyboard shortcuts for copy and paste and basic formatting functions, but these are just scratching the surface. Excel has a ton of shortcuts that can eliminate clicks and make creating or editing spreadsheets quicker and more efficient. These are some of the most helpful. Shortcuts with cells selected: Select Entire Column Ctrl + Space Select Entire Row Shift + Space Add Filters (only works in 1 row) Shift + Ctrl + L Delete Column / Row / Cell Ctrl + - Add Column / Row / Cell Ctrl + Shift + "+" Hide Selected Rows Ctrl + 9 Hide Selected Columns Ctrl + 0 Add Data Group (+/- to Hide/Show Rows/Columns) Shift + Alt + Right Arrow (add) or Left Arrow (remove) Tip No. 44 – Estimating Effective Age We’ve seen some inconsistency in how our appraisers treat effective age. Often the effective age is estimated to be less than the actual age, without proper rationale applied as to why. In theory, if a building is (say) seven years old and no capital improvements have been invested, the effective age should be seven years. It is not unusual, however, to see the effective age at five years or less. Estimating effective age is inherently subjective and contingent on the property’s appearance, level of maintenance on the mechanicals (not apparent from a typical inspection), utility relative to other properties, and other factors. The estimate can be complicated – the owner is relatively new to the project and historical maintenance and capital improvement information is unavailable. In general, unless details on the property’s renovation history and maintenance program are available, the subject’s effective age should be at or near its chronological age. While exceptions clearly exist and the appraiser’s judgment is critical, this general guideline should be followed when estimating effective age.

GRAMMAR & STYLE Tip No. 36 – Decade References (excerpted from Cushman & Wakefield’s Style Guide) • In text, write out phrases like “1998 to 1999;” do not use dashes in such phrases (e.g., 1999-2001). • Do not use apostrophes when referring to decades (e.g., 1990s, not 1990’s). • Do not abbreviate decades (e.g., 1980s and 1990s, not 1980s and 90s, or Eighties and Nineties). • In tables and graphics, dashes are acceptable in decade ranges, but decades should still not be abbreviated (e.g., 1998-1999 instead of 1998-99). As a result, do not remove any watermarks or other information from the images. If the photos do not include a watermark, we must note that the photo is from Costar adjacent to where the picture is displayed within the appraisal report. Please contact Tinequa Hunt if you have specific questions. CoStar Photographs There has been some confusion about whether we can include Costar photos in our appraisal reports. Based on our most recent contract, we are allowed to include the pictures, but we must also include proper attribution that the photos are from Costar.

General shortcuts: Navigate to Next Break Select While Navigating

Ctrl + Arrows

Ctrl + Shift + Arrows

Open a Cell to Edit

F2 (ESC to close)

Change Cell Reference (in a formula)


Open Cell Formatting Box

Ctrl + 1 Alt + =

Auto Sum

Trace Formula Precedents/Antecedents (in a formula)

Ctrl + [ or ]




by Jim Morrissey

Performance Report from JP Morgan Chase We recently conducted a “touch-point” call with managers from JP Morgan Chase to discuss our performance in completing assignments for them over the past year. The following summarizes the conversation. Timing – Turnaround times continue to compress, and it is critical that appraisal vendors adhere to due dates to help ensure that the bank can properly service its clients. In general, we are meeting the bank’s deadlines, but it is critical to inform them when delays are expected due to lack of receiving data in a timely manner, or for other reasons. QC – Our QC reviews need to be more robust, and the clients cited recent assignments where quality need to be improved. As a general rule, the following concerns need to be addressed: • We often do not properly explain some assumptions to the reader. The addition of one or two sentences would be adequate to help the reader understand the appraiser’s rationale. • Appraisers and QC reviewers sometimes need to step back and consider if the value conclusion makes sense. It is easy to focus solely on the assumptions and not consider the big picture. • We often include too many sales in what appears to be a data dump from our extensive database. Including too many sales is not useful, and it complicates their review process. • We need to “streamline the story” overall. They are aware that we have “amazing” data, and that is one reason they hire us; however, the reports often include information overload. All sections of the report must be concise and linked to the subject property. Market Analysis – It seems that our market analyses and cash flow assumptions are written by different people. Sometimes they do not agree and, worse, can appear to conflict. One example given was concluding in the market analysis that the market remains soft, but then growing market rent each year throughout the forecast. While there may be valid reasons for this, no connection is made in the report. Argus Enterprise – The bank reviewers have now completed training and expect to begin using the software in December. Cushman Contacts – The client asked for a list of area leaders, office managers, and practice group leaders, including their contact information. The list was compiled by Marketing and sent to the clients. Collateral 360 – The bank is moving to a new bidding and awarding system known as Collateral 360. The software should be fully rolled out in Q1 2018. Data Mining – JP Morgan Chase is looking to collect data from each appraisal for inclusion in its database for benchmarking and risk management purposes. They asked that we work with EDR (developer of Collateral 360) to construct an automated interface to seamlessly upload the information to their database. Conflicts – We absolutely must avoid conflicts when accepting assignments from the bank. JP Morgan Chase considers brokerage relationships as potential conflicts, so we must disclose any such connections relating to a subject property to allow them to decide if a conflict exists in their view.

First, I’d like to welcome Andrew Sherman to the VARA team. Andrew is focusing on research and analytics for commercial and retail properties in Manhattan and the outer boroughs. He graduated from the University of Pittsburgh with a Bachelor of Science in Communication and is currently working toward a Master of Science in Real Estate at New York University with an expected completion date of 2018. Everyone should have received an email from Moody’s to sign up for online access. We changed from an intranet link to a log-in because the intranet link we were using needed an approved IP address – and not only did that present a problem for many of you who want to access Moody’s from home, but on occasion, IP addresses can change for an entire office, and many of you were often unable to access the reports you needed. If you did not get an email from Moody’s, please check your junk or clutter folders. If you still don’t see it, try going to www.economy.com and use the change password option. Your email address is already in the system so you should get an email within a few minutes that will instruct you how to set-up a password. If you are still having problems, please reach out to me, not Moody’s, and I will KnowledgeVault, I’d like to encourage all of you to reach out to your local VARA to assist you with any questions you may have or any comp runs you may need. The VARAs were an integral part of the testing process, so they are very familiar with the product, and they can assist with any training you may need as well. Lastly, I am renegotiating our Reis contract with procurement. There appear to have been a lot of requests that went to directly to them that I did not know about. This has caused some issues in the negotiation process, so I’d like to ask each of you to please contact me if you need something from Reis, and I will work with them directly to get you what you need. Thank you! get you up and running. As we move forward with



Staff achievements this quarter include: • Michael Comstock (Los Angeles) – Received his MRICS designation • Eric Garfield (Los Angeles) – Received his CRE designation

• Steven Henry (Irvine) – Appointed SCCAI Chapter Secretary for 2018 • Steven Henry (Irvine) – Appointed the 2018 LDAC Vice Chairperson • David Koller (Chicago) – Accepted the Chapter of the Year award on behalf of the Chicago Chapter at the ASA International Conference (see photo below) • Michael Tidwell (Los Angeles) – Appointed SCCAI Chair of the Southern Branch in 2018, in addition to a SCCAI Regional Representative • Gwen Walter (San Diego) – Received AI Student Scholarship this past quarter and will receive free AI classroom instruction for 12 months • Shelly Chen (San Diego) – Received AI Student Scholarship this past quarter and will receive free AI classroom instruction for 12 months


Clarke Lewis, MAI clarke.lewis@cushwake.com Scott Schafer, MAI, MRICS scott.schafer@cushwake.com Sid Womack, MAI, AI-GRS, FRICS sid.womack@cushwake.com QUALITY QUARTERLY EDITORIAL STAFF Scott Schafer, MAI, MRICS scott.schafer@cushwake.com Clarke Lewis, MAI clarke.lewis@cushwake.com Sid Womack, MAI, AI-GRS, FRICS sid.womack@cushwake.com Timothy Barnes, CRE, FRICS timothy.barnes@cushwake.com Joseph Dondiego, MAI joseph.dondiego@cushwake.com Jim Morrissey jim.morrissey@cushwake.com QUALITY QUARTERLY COPY EDITORS Kim Gaube kim.gaube@cushwake.com Samantha Krajczynski samantha.krajczynski@cushwake.com

Anniversaries in Q3 2017

20 year • James Pike (Los Angeles, CA) 15 year • Brian Royce (Stamford, CT) • Sally Biestek (Houston, TX) • Ian Lopez (Irvine, CA) 10 year • John Walsh (San Francisco, CA) • Farah Garcia (Seattle, WA) • April Cochran (Carlsbad, CA) • Shawn Venstrom (Carlsbad, CA) • James Stuckey (New York, NY) • Colleen Buford (Phoenix, AZ) • Katie Parsons (Seattle, WA) • Sean Kelly (Phoenix, AZ) 5 year • Josh Ward (Charlotte, NC) • Blake Fertitta (Atlanta, GA) • Didi Yep (New York, NY) • Ben Wernberg (New York, NY)

David Koller accepts Chapter of the Year award at the ASA International Conference


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