#GregoryWilliamsMAI - FRG Consultants

The Price of Contamination

An Ohio village of less than 5,000 people became the epicenter of an EPA disaster. On February 3^rd (2023) a Norfolk Southern train with 150 cars derailed on the outskirts of East Palestine, Ohio. East Palestine is approximately 90 miles from metro Cleveland and 50 miles from metro Pittsburgh. Eleven cars containing hazardous materials were a part of the derailment. The EPA along with multiple local, state and national offices immediately began working to remove the contaminated soil and water.

The US is averaging a hazardous material spill on land and waterways every day and a half impacting residents, natural resources, and property values. This statistic does not consider intended and naturally occurring contaminations from mineral extraction, flooding, illegal dumping, and agricultural chemical use.

Contaminated property can pose significant health, financial, and legal risks. Working with experienced professionals, including environmental consultants, attorneys, and appraisers, can help to develop a comprehensive plan for remediation and minimize the impact of the contamination. Although the EPA and federal government are tracking contaminants to humans, the impact of depreciation to property values before and after remediation are not specifically quantified and can affect the use and development of the property.

Valuing contaminated property can be a complex process that requires a specialized understanding of environmental regulations, remediation costs, and market conditions.

The cost approach considers the cost of cleaning up the contamination and restoring the property to a usable condition.
The sales comparison approach compares the contaminated property to similar properties that have sold in the same market. The appraiser adjusts the sale prices of comparable properties based on the extent and type of contamination and other factors, such as location and property condition, to estimate the value of the contaminated property.
The income approach is used for income-producing properties, whereby the appraiser estimates the potential income that the property could generate if it were not contaminated, and then subtracts the costs of remediation and other expenses to arrive at an estimated value.

In addition to these three approaches, appraisers may also consider other factors, such as the property’s zoning, development potential, and legal liabilities, when valuing contaminated property. Valuing contaminated property can be challenging due to the complexity and uncertainty involved in estimating remediation costs and other factors. Thus, it’s important to work with an appraiser who has experience and expertise in valuing contaminated properties.

FRG’s appraisers have extensive experience valuing contaminated properties, as well as completing due diligence. For almost ten years, FRG has assisted the state of Ohio in identifying the owners of abandoned underground storage tanks (e.g. fuel tanks) who are responsible for removal of the tanks and as needed remediation efforts.

So, remember, if you buy contaminated property, you might be responsible for the remediation of the property. The extent and type of remediation required will depend on the nature and extent of the contamination, as well as any regulatory requirements. Be informed and seek professional help before you buy.

Multifamily Housing: What to Expect in 2021

The COVID-19 pandemic is impacting every aspect of our economy. First it was the hospitality and travel industry; then retail; and now it is the real estate sector, more specifically multifamily housing.

According the to the United States Postal Service since the start of the pandemic ~16M people have moved. Some people are moving back in with their parents and others are moving to rural co-living spaces. CoStar data shows that many are moving to the suburbs where rents are holding, while rents are falling in urban and downtown areas.

All of this pandemic moving is having adverse effects on the multifamily housing (MFH) market. Overall multifamily transactions have sharply declined due in part to the difficulty of securing site visits and inspections to complete transactions; lenders pulling back from debt and equity; and a growing uncertainty in the underwriting of future cashflows for income producing properties. In addition, landlords are increasing their payment leniency requests of banks as the federal eviction moratorium significantly reduces their income available to cover loan payments. As a result, financial lenders are starting to place MFH properties into their highest-risk categories.

In addition, we are experiencing an investment shift. MFH investors are moving from the urban core to inner ring suburbs. According to commercial real estate research firm Yardi Matrix since the start of the pandemic apartments sales in midwestern urban areas declined 41% while the decline is not as steep in the suburbs at 26%.

Exploring and Inspecting Properties

To effectively complete a commercial appraisal or multifamily housing rent comparability study we are required to conduct a thorough exterior and interior inspection of subject properties. COVID-19 has presented challenges but has not stopped the FRG team from completing comprehensive site inspections.

In the late Spring, as the country began to slowly re-open our client requests increased. FRG team members often take multi-day trips many times via air travel to complete site inspections. In early June, FRG had a client commitment requiring an inspection of a property on the border of the states of Wisconsin and Michigan. Having previously completed projects in the same area, I knew the fastest route to the site was via a one-hour direct flight from Cleveland to Milwaukee and 2.5-hour car drive north of Mitchell Airport to the site.

As I explored this travel option, I found direct flights were no longer available. As well, my preferred airline only had two flights leaving each day with Milwaukee as the destination. And the available flights had a total travel time of almost six hours. Further, both flights would require an overnight stay in Milwaukee.

I needed to find another travel option.

I considered driving and discovered a one-way trip to the site from Cleveland would be a ten-hour drive. Further, this option would require an overnight hotel stay. At that time, many hotels, especially those in rural areas were struggling with remaining open and offered few amenities. Thus, I did not see a hotel stay as a viable option.

Podcast: Real Estate News We Can All Use

COVID-19

Feasibility Research Group (FRG) is a privately-owned real estate services company specializing in commercial real estate appraisal, inspection, and research. Like many small businesses, FRG has been impacted by COVID-19.

However, the services that we provide are deemed essential by most states and thus we remain willing and able to assist you with your appraisal services and market research needs.

FRG practices social distancing. Currently, all employees are working from remote locations. Further, if an FRG appraiser is conducting an on-site inspection he/she will practice social distancing during the subject property inspection.

The FRG appraiser conducting the inspection will:

Maintain six feet distance from all property contacts
Request that only one person accompany the appraiser on the inspection
Not touch any fixtures, door handles, light switches, etc in the facility
Require unobstructed access and views of the interior of the building
Wear protective covering including but not limited to gloves and face masks

Further, as much as possible FRG appraisers will seek to conduct virtual interior inspections leveraging technology such as Skype and/or FaceTime*.

FRG will continue to monitor the coronavirus and its impact very carefully and provide updates as needed.

*NOTE: USPAP does not require a physical inspection. Appraisal Foundation Statement

The Appraisal Foundation, Fannie Mae, Freddie Mac and the Appraisal Institute have deemed virtual inspections to be acceptable.

The Struggle to Find Home Sweet Home

As our MAI appraisers complete multifamily housing commercial appraisals and rent comparability studies (RCS) for HUD and private clients, FRG has extensive multifamily housing knowledge. And as a result FRG has a great deal of interest in remedies to the affordable housing shortage.

I can still remember signing my first apartment lease. I was 19 years old and excited to move into my very own 500 sq-ft, one bedroom, one-bathroom home. Well it wasn’t all mine, because I could not afford the apartment, thus I had a roommate. Even with a roommate, this was the first time I felt like a responsible adult.

Unfortunately, many today are struggling to find a place to call home. Nationally, the number of renters has reached historic highs, and as a result it is becoming increasing difficult for many to find safe, quality affordable housing. In fact, according to a Harvard University Housing Study the availability of affordable rental housing is being affected by:

High rental demand and low vacancy rates, which allow landlords to continually increase rental rates
Demand from higher income renters is driving the construction of luxury vs affordable multifamily rental housing

A recent Ohio Housing Finance Agency report that assessed the state’s housing needs noted that lower income Ohioans are struggling to pay for housing as they spend more than 30% of their income on housing. The agency discovered that there are only 43 available and affordable rental units for every 100 extremely low-income renter. And these extremely low-income renter households are typically made up disproportionately with seniors and/or small children.

My 1st Leadership Development and Advisory Council Session

For more than 85 years, the Appraisal Institute (AI) has been a global professional association of real estate appraisers. AI works to develop real estate industry leaders and establish an appraiser presence in the United Stated Congress through its Leadership Development and Advisory Council (LDAC). The Council is a group of dedicated appraisers who together once a year in Washington DC to generate solutions to challenges facing the appraisal profession.

Last month, I had the pleasure of attending my first LDAC session in Washington DC. I entered with no expectations other than using it as an opportunity to learn more about the Appraisal Institute and offer up a thought or two on promoting our industry. By the end of the week, I walked away from LDAC exceeding those expectations.

The LDAC discussion sessions afforded the opportunity to engage and brainstorm with appraisal professionals from all around the country. The sessions served as opportunity for us to come together to generate actionable ideas to solve some of the appraisal industry’s toughest problems. Serving as a member of the Ohio Chapter’s education committee I was very passionate about the education discussions. Based on my experience, I know that AI’s educational offering is superior to other competitive offerings. Our group discussed ideas on how to not only get non-AI members to take AI courses but to also use our education offering to entice non-members to become members.

Affordable Multifamily Housing

According to the United States Department of Housing and Urban Development (HUD), today there is nowhere in the U.S. where a full-time, minimum wage worker can afford the local fair-market rent for a two-bedroom apartment.[i] Communities across the nation are reporting high levels of evictions, homelessness, and a lack of affordable housing.

So, let’s talk about affordable multifamily housing.

Affordable housing means different things depending on if you are an investor, property manager, tenant or government agency. For me, a commercial appraiser, affordable housing represents complex property types with a myriad of funding, ownership, and rental structures that require careful consideration to define property values, fair market rents, or physical conditions. Or put more simply, affordable housing can be very complicated!

And lining up the financing for affordable housing can seem more insurmountable than trying to convince your wife Valentine’s Day is a made-up holiday– what’s the point in even trying? There are several available sources of funding including bank loans, municipal loans, Low-Income Housing Tax Credits (LIHTC), Community Development Block Grants, tax abatements, and other local subsidies or support provided by Community Development Corporations, and other specialized subsidies, tax credits and financing such as assistance by the USDA Rural Development Office (in rural areas).

While there are a lot of possible funding sources, there are often not enough to cover the development costs and it can be tricky to qualify or take a long time to get approved.

As a commercial appraiser, I understand the financial hurdles overcome by developers and providers of affordable housing and in my work, I strive to support the financial well-being of these developments in several ways: