Showing posts with label appraiser mexico. Show all posts
Showing posts with label appraiser mexico. Show all posts

Monday, April 10, 2017

Appraisal of a Fractional Interest in Acapulco




Most of the inquiries I get about my foreign appraisal services are of properties that are not large enough to justify the expense of my trip, such as individual lots or homes. The above home is a 12-bedroom home, used for vacation rentals, located in the prestigious cliffside neighborhood of Las Playas in Acapulco. This home was used in the film “Blow”, starring Johnny Depp and Penelope Cruz. I’ve visited this neighborhood before, too, as a tourist coming to visit the Quebrada, the famed diving cliff.

The actual valuation assignment was to appraise a one-third ownership interest in the home, which made it an even smaller assignment from the standpoint of a client’s cost limits, but a more difficult assignment because a partial interest has to be discounted for lack of liquidity, lack of control, lack of marketability and lack of mortgage financing. Finding comparable sales is very difficult, because only about one out of about every 500 property sales are of fractional interests.

When I appraised in Acapulco before, I collaborated with a local appraiser, Arquitecto Hector Huerta. (Most professionally recognized appraisers in Mexico are either trained architects or trained engineers.) To keep the cost down for the client, I suggested that they hire him to do the appraisal of the residence and then have them send the report to me for translation into English and application of the partial interest discount. The ultimate intended user was the Internal Revenue Service, so it had to be an English language report done by a “qualified appraiser”.

I used a technique known as “factor-based fractional discounting”, a technique developed by the Appraisal Institute, in which individual factors are quantified and discounted, such as asset risk, profitability, condition, liquidity, diversification, size of interest, lack of control, management and growth potential.

Liquidity was most difficult to measure. On the one hand, the ownership structure was corporate in nature, with any owner allowed to sell the shares any time. On the other hand, Acapulco has suffered through a shocking crime wave between the years 2009 and 2016, with drug gangs battling even in the tourist areas of the town, with about 3 murders per day. By comparison, Chicago, America’s murder capital and 4 times as large, averages less than 2 murders per day. The crime wave reduced Acapulco tourism by 85%. Local lodging occupancy averaged only 27% in 2014 but increased to 40% in 2015, as late in 2015 the governor called in the Mexican military to restore security to the city. So the liquidity situation was “easy to sell”, but “would there be buyers”?

As the security situation improves, there should be a return of travelers to this beautiful resort city, and vacation home ownership is conducive to fractional ownership.

And the client saved money on appraisal fees.

Thursday, October 31, 2013

Appraisal of land near Cancun, Mexico


Mangrove

This is the second time this has happened to me in Mexico.  The borrowers wanted to take me to a distant spot and then point to their property without having to take me to the actual property being appraised.  I hope this is not how land is usually appraised in Mexico.

I was told that the property was adjacent to a prestigious beach resort with $500 per night rates, which I verified through Hotels.com.  The land was actually across a lagoon to the west and took about 20 minutes to reach by car, but the biggest surprise was that the land was composed almost entirely of dense mangrove swamp (known in Spanish as "mangle" or "manglar").  From the air it appears as green fields, but when inspected more closely one finds that it is all swamp and no solid ground.  Furthermore, mangroves are legally protected in Mexico, as are the crocodiles that inhabit them, and I witnessed at least one crocodile warning sign.  (For more info on why most governments protect mangroves from destruction, read http://www.internationalappraiser.com/2012/02/effect-of-mangroves-on-valuation-of.html .
 
Adjacent properties were also undeveloped mangrove swamps, and the only human activity appeared to be the presence of squatters.
 
In a previous appraisal assignment in Acapulco, a parcel was represented as being along the road to the airport.  The owner took me to another parcel along this road and then pointed to his property in the distance.  I asked him if his property was landlocked, but he assured me that there were roads leading to his property. I said “Let’s go there,” and found the property to be an ecological preserve covered with mangrove swamp, situated next to a garbage dump. Moreover, we were politely accosted by residents, either squatters or ejidatarios, who claimed the land as their own. Furthermore, the water had been polluted by a former Pepsi manufacturing plant.  The property also had crocodiles.
Landfill next to appraised property in Acapulco


In a recent post I was critical of an appraiser who performed her property inspection in the Dominican Republic by helicopter.  This is not the way to appraise land. From the air, dense mangroves can appear to be lushly vegetated solid ground. Here is what the property near Cancun looks like from above:
 
Here is what the property looked like from below:
 
 
Nothing substitutes for “boots on the ground” when conducting land appraisals, and one should wear boots for land inspections. They keep your feet drier and also protect you from snake bites.

This was not the only trick these loan applicants tried to play.  The deed showed that they were not the owners, nor did they possess a purchase contract.  Rather, they claimed they had the owner's permission to mortgage this property to finance an unrelated venture, but the contract supporting this claim seemed to be hastily and amateurishly prepared, and stated the property owner's attorney as the owner of the property.

When questioned about this, they stated that the attorney was a Mexican government official who really owned the site, using the registered owner as a proxy in order to hide his assets.  I googled the attorney's name but did not find any information on his government position. I never met or communicated with him or the registered owner. 

Saturday, May 18, 2013

Avoiding Cultural Gaffes while Appraising Abroad

British innkeeper Basil Fawlty [actor John Cleese] is confronted with an "ugly American"
 
 
One day in Perth, Australia, my Australian hosts and I had some time to kill between property inspections and we settled at a pleasant riverfront café at about 11 am.  Not quite ready for lunch, but having already had breakfast, I asked only for orange juice.  Then I immediately asked if it was “fresh-squeezed”.
 
My hosts immediately asked if I was trying to re-create a classic scene from the BBC sitcom Fawlty Towers, the famous 1979 “Waldorf Salad” episode in which an obnoxious American comes to visit.  I even remembered that episode, particularly since it was the first time I had seen Americans parodied in foreign media. This American from California was portrayed as demanding and belligerent, finishing his demands with the phrase, “or I’ll bust your ass!” And he and his wife insisted on fresh-squeezed orange juice. That episode was hilarious, but it did make me feel uncomfortable wondering if that was how the rest of the world perceived Americans.
 
As a southern Californian, I perceive one dividing line between better-quality and lower-quality restaurants is whether the orange juice is fresh-squeezed.  God knows we have enough oranges in this state, so when the waiter pours the orange juice out of a carton that says “Florida” I judge the restaurant to be “not really trying”.  Traveling in Mexico, I have found that restaurants there would never even think of not squeezing oranges. Naturally, I do not expect oranges to grow in England, but Perth, Australia looks so similar to a California city, with its palms and eucalyptus trees and waterfront, similar to San Diego or Long Beach, that I was disarmed into thinking that fresh oranges would be present.

We had a good laugh, but it was not the only cultural gaffe I’ve made while traveling in Australia.  On one hand, I have found Australians to be refreshingly down-to-earth and approachable, but have mistakenly assumed that this informality extended to attire. Last year, for instance, I again found myself in Perth on a 40 degree Celsius day (104 F), wearing a tank-top, and I spied a lively bar with a t-shirted crowd across from my hotel and tried to enter, but I was refused admittance by the doormen.  At first, I couldn’t even understand what they were talking about, as they use an Australian slang word for tank top, but then I realized that I had seen no one wearing a tank top that day and that I was underdressed for summertime Australia. Bear in mind that I live in a city (L.A.) in which I can dine at a $100 per person restaurant and not have to wear socks.  (We have a surreal culture which has adapted to the demands of imperious Hollywood stars.  If Rob Lowe doesn't have to wear socks at a 5-star restaurant, why should the rest of us?)
 
Likewise, I have been glad that I packed a business suit on my Australian trips, as there are more situations requiring it over there than here in the U.S. I even did a couple of guest lectures at an Australian university and noticed that the Australian faculty wore suits and ties.  If only they could see how California college professors dress – not much differently than their students.
 
Mexico
 
There are many Americans who misunderstand Mexico.  Despite negative portrayals of Mexico in our news media, the concept of courtesy is stronger there than it is in America.
 
Even the poor people practice courtesy.  Once, when I was inspecting a contested property with a Mexican appraiser and his colleagues, we were greeted by residents of a local ejido, a commune composed of agrarian peasants, who politely asked why we there.  When we explained that we were performing a valuation for the owner of the property, they courteously explained that the property belonged to them instead.  No shouting or cursing was involved, unlike the last time I inspected a trailer park in Bakersfield, California.
 
Another time I was traveling in Mexico with another American (not my employee) and three Mexicans, and I felt like my American colleague was raising their eyebrows with his bossy behavior, calling the shots on when and where we would meet and eat and pause for souvenir shopping.  We met for breakfast on the second morning, and although I ordered bistec ranchero (steak ranchero), I received huevos rancheros (eggs ranchero) instead.  My American companion was outraged for my sake and thought I should have had the meal returned to the kitchen, but I was satisfied to eat huevos rancheros to avoid an international incident and any unfavorable impression of Americans, all the while understanding that he came from a city where it is acceptable behavior to stand up and shout “Where’s my f***ing cheese steak?”

Every culture has its blind spot, including our own. Once I was with an American who expressed his moral indignation at the sport of bullfighting. A Mexican responded with "We Mexicans find it strange that you Americans treat your house pets better than you treat your own children."  Touche'.

Traveling abroad, I am sometimes offered food that could be considered strange to Americans, particularly when traveling in China, where I’ve been served snake, dog and donkey meat, but I cheerfully eat it and say “Thank you.  It’s delicious.  I consider respect for other cultures to be part of appraiser professionalism.  It is also keeps an appraiser's mind open to differing concepts of value in other cultures.

 

 


Sunday, November 18, 2012

Mexico's La Riviera Maya: Ruins from a post-Columbian Race


Storm clouds gather at El Cañón de los Condos, Cozumel

























Many tourists are drawn to Mexico's Riviera Maya to visit ruins from a pre-Columbian civilization known as the Mayas, a civilization thought to be the most sophisticated civilization in the western hemisphere prior to the arrival of Columbus, with surprisingly advanced knowledge of astronomy, mathematics, medicine and engineering. Legendary L.A. schoolteacher Jaime Escalante referred to Mayan mastery of mathematics to instill confidence in his Mexican-American students.  

Unlike the Aztecs, the Mayan civilization reached its zenith 6 centuries before the arrival of Columbus and then fell into a mysterious decline. The reason for this decline is not yet understood, and their ruins leave us curious to know more about them.

In my valuation work in Latin America, I have encountered equally interesting ruins from a post-Columbian race of people, a people I label as desarrolladores especulativos (“speculative real estate developers”). Although always present in the indigenous population, their numbers exploded during the first decade of the 21st century, with a significant influx from North America, but this race curiously disappeared after 2008.

One builder's abandoned hommage to the Mayan ancestors, Playa del Carmen













As an appraiser-anthropologist, I have actually met and worked with these people and participated in their beer-drinking  and overeating rituals afterwards. The desarrolladores especulativos were of diverse ethnicity, with some being Latino and others being North American. The one thing they seemed to have in common is that they were all middle-aged and older males. Could this gender imbalance be a biological reason for the disappearance of this race?

No, because this race is not actually extinct, but is instead just hiding from creditors.

Still, there is little left to understand these people other than the ruins they left behind.

La Piscina para los Dioses









As the 21st century began, the desarrolladores greatly increased in numbers. Many came from English-speaking countries. Some called themselves “developers”; others called themselves “renowned developers”. Members of this latter group had sometimes produced only one successful development. (Would Trump need to describe himself as "renowned"?) Some had no actual development experience, and when asked about what other projects they had built, they responded evasively with answers such as “I’ve been in this business 20 years” (most likely in real estate sales).

"La Torre Disponible" peeks out of the jungle much like pre-Columbian ruins in San Miguel.  






Some historians speculate that the Mayan civilization fell due to an unknown cataclysmic event in about 900 A.D. Similar to this theory of Mayan destruction, the desarrolladores especulativos disappeared in an event known as el día en que murió préstamos “the day the lending died”, which can be narrowed down to some time in late 2008.
Here I am surveying an airplane wreck at la Playa del Cid La Ceiba. Could this have been a high-flying developer who found himself "underwater" in his development loans?
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Tuesday, April 17, 2012

Latin American Land Grabs from Absentee Owners

Squatter housing in Mexico

When performing market research in Latin America, I heavily consult broker web sites, some of which require me to identify myself and provide contact information.

As a result, I find my e-mail inbox filled each day with “Retire in Paradise” promotions, written with the same tired old marketing vernacular, frequent underlining, bolding and exclamation marks!!!, used to also peddle miracle weight loss or genital enlargement pills.

Included are elated testimonials from retirees living like kings on $800 per month, describing cheap, delicious local food, friendly locals and $10 visits to U.S.-trained doctors. There are no traffic jams, but one still has to drive slowly in order to avoid hitting one of the many unicorns jumping over rainbows. Then there is the exhortation to buy now, before prices go up, because Latin America is running out of land, and the Baby Boomers just started hitting age 65 last year.

So you make up your mind to buy a foreign property now for when you retire in 5 years. You go down there, find some run-down property or vacant land advertised at a bargain price, hire a local attorney to verify clear title, pay the money and then leave. Everything is OK, right?

What sometimes happens is that the absentee owner arrives five years later to find squatters living on the property. When you call the police to have the squatters removed from the property you rightfully own, you find out that squatters often have occupancy rights under various “adverse possession” or "prescriptive easement" laws meant to protect landless campesinos from homelessness and starvation.

Even the United States has adverse possession and prescriptive easement laws, which recently became problematic in several states, such as Colorado, Florida and Texas, where squatters have seized unoccupied homes and transfered title to themselves, including a case in which the owner was absent only because he was being treated for cancer in Houston, 250 miles away. "Adverse possession" is different than "prescriptive easement" in that it extinguishes title for the former owner,
and in most U.S. cases, the title has been transferred illegally, as the minimum period of occupancy required in any state is 7 years. That's somewhat irrelevant, though, in removing squatters, as even American state laws protect squatters' rights until the matter has been adjudicated.

This squatter problem may be a somewhat recent problem in Latin America, which was largely ruled by heartless fascist dictatorships 50 years ago, but has recently been experiencing a democratic renaissance. Democracies give poor people a voice, effecting legislation sympathetic to their interests, including adverse possession laws.

If taken to a court of law, who would be the more sympathetic party in front of a jury or a judge -- the barefoot campesino who just wants a place to raise his chickens? -- or the rich gringo who didn’t even live on the property, letting the space just go wasted?

On the other hand, adverse possession can sometimes be a scam organized by a wealthy land grabber. Consider the case of Sheldon Haseltine, an absentee UK investor with prime land next to Costa Rica’s finest marina. He found squatters on his land in 1998 and tried to have them legally removed. He later found a billboard advertising a Wyndham hotel to be built on his site. He found out that the campesinos had been paid to occupy his site by another wealthy landowner and even found a copy of the cancelled check to the campesinos, in the amount of 100 million colones (about $200,000). His litigation has now lasted 14 years.

How could adverse possession be avoided?

1. Buy in an already-gated community (not accepting the promise that it will be gated some day).
2. Try to get some type of title insurance to protect against adverse possession (not sure if this exists). Title insurers, please comment.
3. Buy only when ready to move in.
4. Do not necessarily believe that prices will be increasing in the near future. In most countries I visit, property prices have been decreasing. There may still be opportunities available at the time when you are ready to occupy or develop your foreign property.
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Wednesday, August 17, 2011

Appraisal in Tepotzotlan, Mexico


The story sounded compelling: 26 hectares of flat, residentially zoned land at the northern periphery of the Mexico City metropolitan area, not far from the Autopista, the major north-south highway leading to Mexico City, 42 kilometers south. Next door was said to be a gated subdivision with a golf course. The owners claimed to have had a bank appraisal in 2006 establishing a value of 177 million pesos, equivalent to about $16 million USD at that time.

The idea of the site’s potential for residential subdivision seemed plausible at first. As modern life takes over Mexico City, it has increasingly grown like an American city, with residents fleeing to growing suburbs and the city population actually declining, similar to Chicago, Detroit or Baltimore. The subject property initially sounded like an ideal location for a new housing subdivision.

The paper chase

One of the documents I requested from the landowner was the most recent predial (property tax receipt). I use it to double-check items such as owner, location, tax ID number (clave catastral), and assessed value, which I hope might point me in the right direction of true market value.

I was provided instead with a predial from 1992, indicating an assessed value of 87,696,000 pesos. Why would they do something like that?

At today’s exchange rate of 12.18 pesos to one dollar, the land would have been worth $7,200,000 back then, but that would be in nuevos pesos, which were not established until 1993, after a period of hyperinflation, when Mexico issued the “new peso” to replace and be valued at 1000 old pesos. The exchange rate on the date of the predial would have been 3064 “old” pesos to one dollar, with the assessed value being equivalent to only $28,621 USD!

Thus, the purpose of providing a predial dated prior to 1993 was an attempt to confuse me. The alleged bank appraisal from 2006 never materialized, either.

The property inspection

After exiting from the Autopista, we traveled another half hour on roads that progressively got narrower and rougher, making numerous turns as we traveled through residential neighborhoods with speed bumps on every block. The paved roads then ended and we traveled on narrow, rutted dirt roads.

Arriving at the site, I found it to be a hillside. The elevation dropped by 150 feet from top to bottom.


Immediately west was a neighborhood of makeshift shacks and dirt roads.
Immediately south was a neighborhood of modest, concrete block structures on small lots, served by paved roads. Graffiti was prevalent.



Immediately north was the countryside. Immediately east was the gated subdivision I had heard about.

Neighboring gated community

After walking about the subject property, we drove to the gated community next door to perhaps give me some idea of the residential development potential of the subject site.

The guardhouse was closed. One of the four gates was open to traffic, however. Once inside, I saw mostly vacant lots, a few structures, some which appeared to be vacant, and no golf course. Census data indicated that only 18 households live in this subdivision. The developer is still advertising to build attractive new 3-bedroom homes of 2500 to 2600 square feet for 1.2 million pesos unfurnished or 1.5 million pesos furnished, equivalent to about $98,000 and $123,000.

Comparable properties

Sales of large parcels were not to be found, so I turned to listings. The most similar property in terms of size and proximity was in the next town west, but its H500A (municipality of Tepotzotlan) zoning allowed 5 times as much residential density as the subject site – 20 dwellings per hectare or 8 dwellings per acre. Its listing price translated to about $72,000 per hectare, for five times the allowable density. Other local parcels were priced as low as $20,000 per hectare (although that one was in a more remote location).

It soon became apparent that the appraised value was going to fall far short of the $16 million that the lender was led to believe. Moreover, this particular lender’s minimum loan size is $1 million with a maximum loan-to-value ratio of 50% for raw land, so there was no real possibility of getting a deal done here.

Saturday, January 1, 2011

Title Problems and “Lack of Transparency” in Latin American real estate

Ejido de Llano Largo, Acapulco
One reader commented to me about the lack of real estate market transparency in the Dominican Republic and particularly warned me about title problems. He referred me to his web site www.DominicanWatchdog.org which contains the following warnings about title issues:

"1. Before signing any contracts or paying any money you must use a trusted lawyer to make a "deep" local title search. It's not enough to check if the title is "Clean", the ownership history must also be investigated as there has been and still is a lot of fraud with titles in the Dominican Republic.


2. If you are buying land you must use an independent surveyor to re-measure the land and confirm the position (the lawyers know which one to use in the area). Do NOT buy any land with squatters on it and make sure that no squatters are moving into your land as it's impossible to remove them later on."

The US Department of State has issued its own warning about the DR:

"Real estate investments in the Dominican Republic require a high level of caution, as property rights are irregularly enforced and investors often encounter problems in receiving clear title to land. Consultation with an attorney is recommended before signing documents or closing on any real estate transactions. Real estate investments by U.S. citizens have been the subject of both legal and physical takeover attempts. Absentee landlords and absentee owners of undeveloped land are particularly vulnerable. Investors should seek solid property title and not just a “carta de constancia,” which is often confused by foreigners with a title. An official land registry measurement (also known as 'deslinde' or 'mensura catastral') is also desirable for the cautious overseas investor. Investors should also consider purchasing title insurance. Squatters, sometimes supported by governmental or non-governmental organizations, have invaded properties belonging to U.S. citizens, threatening violence and blocking the owners from entering their property."

Market transparency

A transparent market is a market where relevant information is fully and freely available to the public. Jones Lang LaSalle, a major international brokerage (and former employer), published a Global Real Estate Transparency Index 2010 ranking countries according to the transparency of their real estate markets. Canada (no. 2) and the United States (no. 6, impaired by numerous “nondisclosure states”) ranked high in transparency and led the western hemisphere, while the Dominican Republic ranked 77th out of 81 countries and ranked last in the western hemisphere. (This list is not necessarily comprehensive; I once had to turn down a valuation assignment in Liberia, Africa, which is not ranked and seems to suffer from title anarchy.)

Squatters and "land reform"

In countries like Peru and Brazil there are vast shantytowns (AKA “pueblos jovenes” in Peru and “favelas” in Brazil) that are illegally erected on private land and extraction of squatters can also be legally difficult, as it is in the Dominican Republic and Mexico. The DR has also recently had a problem with an influx of Haitian refugee squatters after the earthquake in 2010. As Latin America has finally shaken off fascist governments, the new reality is that democratically elected governments are often more sympathetic to squatters and their alleged rights.

The government of Mexico, in carrying out land reform after the Mexican Revolution, re-instituted an Aztec agrarian communal system of ownership called the “ejido” in which campesinos share ownership of a large tract of land, land which is usually expropriated from the previous owner. A resident of an ejido is known as an ejidatario. Ejido parcels in Mexico cannot be sold, mortgaged or rented. The Mexican Constitution of 1917 promised to restore ejidos, and the expropriation of land for ejidos began in 1934 and continued until 1991, when President Carlos Salinas abolished the practice in order to ratify NAFTA, as American companies did not want to build plants on land that could conceivably be expropriated.

Llano Largo, Acapulco

As an example of the title issues inherent in the ejido system, I once appraised a parcel of land within the city of Acapulco, a few hundred meters north of the Boulevard de las Naciones which bounds the prestigious Zona Diamante section of town. The evening before I was to meet the landowner, I hired three Mexican real estate agents, including one appraiser, to accompany me to the property and share their opinions. While present on site, we were soon approached by several peasants from a neighboring shantytown. They politely asked what our interest in the land was and then claimed that the land belonged to them as part of an “ejido” granted to them. That introduced the possibility of a title problem. What was further perplexing was that the government had placed a sign on the property declaring it to be a “Reserva Ecologica” (ecological preserve).

The next morning the landowner/loan applicant drove me to a parking lot on the Boulevard de las Naciones and then pointed to his property across a grassy field. “Why can’t we go to it?” I asked. He reluctantly drove me to the western edge of the property, the only accessible edge, and when we disembarked, we were immediately approached by ejidatarios. Instead of talking to them, the landowner immediately summoned me back into his truck and we drove off. He called the ejidatarios “squatters who will be removed soon.”

The landowner further damaged his credibility when he presented me with an “Uso de Suelo” (a document certifying the permitted land use) for another parcel instead, a parcel described as being right on the Boulevard de las Naciones.

The need to use attorneys and title insurers

It is essential to use an honest, local attorney that has been carefully vetted. Several years ago, for instance, a Venezuelan friend of mine sold his business in Houston in order to retire in Costa Rica. He selected a house/restaurant on a cliff and was guided through his purchase by a local Costa Rican attorney. Unfortunately, he did not buy title insurance and the attorney he hired was in league with the swindler who claimed to own the property. My friend lost his life savings and ended up having to sleep on other people’s couches.

Two American title companies, Stewart Title and First American, now offer title insurance in Latin America. Be sure to specifically ask for coverage against squatters, too, or you may face years of litigation in a foreign land.

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