A Word about some of my competitors

/>

It should be no secret that many of my international appraisal assignments come from on-line search engines. While I still get top of front page results on Bing and Yahoo and Yandex (Russian search engine), I’ve slid down to the 4^th page on Google, where I am dismayed to find myself ranked below ads placed by trolls – unnamed middlemen who create fanciful web sites with very little information, if any, about who works there, who’s in charge, and what is their experience? These trolls then call me and other real international appraisers to get us to bid on serving the suckers who got attracted to their fake sites. Trolls. Middlemen.

They may have fanciful names such as “Mega World Appraisal Valuation”, but disclose nothing about their staff, their leadership, and their assignments.  Do not be fooled. Call a real appraisal firm and find out who will be doing your international assignment. If you call The International Appraiser, I promise that I will personally appraise and inspect your properties based on 41 years of appraisal experience.  I have no other staff and don’t farm out work to contractors, but I do confer with and sometimes hire appraisers in other countries. I write the reports, though, and make the final value conclusion.

How Wildfires Reduce the Value of Land

The denuded hillsides have created flash floods and rock slides

 Living in California for the last 37 years, I have witnessed several wildfires and sometimes find myself traveling to affected areas.  Los Angeles County experienced unprecedented wildfires last month (January 2025), and I was able to see the Eaton fire from my home in Los Angeles, just as I remember watching the same area burn back in the mid-1990s.

The Los Angeles County Assessor is working on assessed value reductions for as many as 19,000 properties.  These “decline-in-value assessments” will be automatic, but interestingly enough, the Assessor said that these declines in value will only apply to the “Improved Values” of the affected properties, not the land values.

This presumes that land cannot burn down or be devalued by a fire because land is so permanent.

In many cases, in flat urban neighborhoods of California, if a house burns down it can be redeveloped with a more valuable one as well as two accessory dwelling units (now permitted by California state laws superseding local zoning), so it seems logical that such land would not usually go down in value.

On the other hand, in the hilly areas in the suburbs and mountains, fire can seriously reduce the value of the land, even when it is vacant.

The typical value-reducing problems include:

·       Flash flooding from denuded slopes. Live trees take up rainwater through their roots, whereas dead roots result in rain runoff continuing downhill, sometimes escalating to destructive speeds.

·       Pollution from the flash flooding, not only on the subject property, but the properties below.

·       Toxic runoff can also potentially poison wells in the area.

·       Rockslides can be particularly dangerous as storm runoff loosens the soil.

·       Particularly hot fires can actually burn all the organic matter in the soil.  This could delay the soil’s recovery for up to 20 years.

Here are some photographic examples from my work:

The home itself was built in a large clearing in the forest, but more than 90% of the trees in the surrounding 5400 acres were destroyed, and there are many dead trees upslope from the home. Also read my blog post: The Peculiarities of Appraising and Investing in Log Homes .

Behind the home you can see two years worth of rock slides plus a stone retaining wall to deflect sheet flooding from the denuded hillside above.

The creek downhill from the home is now clogged with debris from several flash floods.

The well should be tested for pollutants after several flash floods.

The ranch was originally listed for sale for $16 million before the fire, with the price reduced to $8 million afterwards.

For more information, go to my upcoming blog at www.FireAppraiser.com .

10 Mistakes that Other International Appraisers Make

 

1.     1.  No boots on the ground.

T    The above photo was taken from Isla de Mujeres, Mexico.  It might look like a fertile agricultural field from several feet above, but it was actually a mangrove swamp, as can be seen in the photo below.  One rule I insist on when I inspect is that I must actually set foot on the property, but I always tell my hosts that my client requires this so that I don't seem like a jerk. 

Sometimes an appraiser is taken on a helicopter ride for the same reason.  A property in Fiji I toured by helicopter was also a mangrove swamp, but I stayed at the nearby Sheraton Denarau Resort and took a short walk later to discover that the fertile-looking field was also a mangrove swamp. I also remember appraising beachfront property in the Dominican Republic and inspecting it on foot, discovering it to be part mangrove, while a competing appraiser was taken on a helicopter ride and steered to the wrong property to declare it to be completely solid land ready for residential construction. She may have been wearing heels.

In two cases in Mexico, the developers took me to an offsite high point to view the property, including the situation above, in which they originally took me to a tower.   In another case, in Acapulco, they pointed at the property from a main road, and I commented that the site looked landlocked.  When forced to drive me to the actual site, people came out from the nearby jungle to advocate that they were ejidatarios (campesinos who had already taken legal possession of a vacant site) who now actually owned the site.  This happens often in Latin America when vacant land becomes occupied by squatters.  The law often favors the rights of squatters over absentee gringo landlords. Who is right and who is wrong? 

2.   Getting steered to the wrong property.

Make sure you study the maps beforehand.  Sometimes a developer trying to finance a Phase 2 will show an appraiser the completed Phase 1 instead.  Caveat: If you are being shown Phase 2, be sure to see Phase 1 too.  In a couple of occasions I found that a Phase 1 was not actually built.

3.  Getting the measurements wrong.

Always check with the local municipal jurisdiction, not the fanciful maps or declarations of the loan applicant. Most foreign jurisdictions now have official ownership maps on the Internet.

4.    Getting the ownership rights wrong.

There should always be a deed or escritura.  If the owner or his/her representative is not present at the inspection, contact should still be made. In one situation in Mexico, the buyers simply presented a "power of attorney" signed by the owner in the 20th century.

5. Verifying that all development entitlements are in place.

When in foreign lands, this might entail extensive use of Google Translate on the development regulations specified on-line.  Be careful in Costa Rica!

6.  Not verifying broker-supplied information.

This applies in any appraisal assignment.  Examples: A broker selling a rural hotel site claimed there were 32 fishing tournaments per year across from the hotel.  Not true. The closest tournament was several miles away on an island in which the fishermen simply brought their RVs (recreational vehicles) to stay in.

7. Footwear.

In many cases you will need boots.  You might be criticized when saying "I can't walk on that!" Then someone might say that you refused to see the best part.

8. Not meeting and verifying the owner.

This is similar to proviso #4 above. At the worst you may be enabling an illegal sale; you may also discover that the owner and buyer are related parties.  Besides, if the owner knows the most about the property, shouldn't you talk to him or her?

9.   Not consulting Google Earth.

We have been warned about crooked realtors, crooked property owners, crooked inspectors, crooked appraisers, etc., but who suspects the land surveyor?

His measurements were:

Cliff top (highlands) 446,328 square meters 

                                                                Cliff face                  257,242 square meters 

                                                                Beachfront               426,430 square meters 

To                                                           Total          1,130,000 square meters (113 hectares)

     The above is the site map for a beachfront hotel.  Now let us look at the Google Earth map.

While the surveyor measured beachfront area as 42 64 hectares (about 94 acres), Google Earth measured all land at less than 50 feet in altitude as 34.45 acres, and the mountains are considerably closer to the water than in the survey map.  What is even odder is that 25.72 hectares were assigned to cliff face area, which is horizontal. I have never seen this done by a surveyor before.

      10. Failure to use language translation applications.  Google Translate is what I use, but I understand that Bing also offers such.  Google Translate is not 100% perfect, but it has been solid for me in translating Spanish, and I have also used it for Portuguese, French, German, Korean and Chinese. The Asian languages are more difficult to translate. Years ago I found GT through an unlikely source, a mortgage broker who couldn't speak Spanish but was insistent about dating Colombian women.  He had a computer terminal at home which was constantly set at Google Translate. He was a happy man.

      11. 

5

10

The Peculiarities of Appraising and Investing in Log Homes

  11,000 square foot log home in Montana, appraised in 2017

Log homes were originally built in Scandinavia and Eastern Europe as early as the Bronze Age (thousands of years ago), due to the abundance of softwood timber such as pine, cedar and spruce in these locations. These softwoods are easier to cut and built with than hardwoods. 

Scandinavian craftsmen brought such construction techniques to the United States, where such homes became popular in the Western and Southern states, where softwood conifers were more abundant. 

The advantages of log home construction are thermal insulation properties and the beauty of the materials. Log homes stay warmer in the winter and cooler in the summer, and I only first saw them on family vacations to Colorado from childhood homes in Texas and Iowa. 

 Imagine my surprise when I moved as an appraiser from Texas in 1988 to work for the largest and loan association in the U.S. in California (Home Savings of America), to find that the lender refused to lend on such properties. 

As it turns out, there are disadvantages to log home construction that impair their long-term financial viability and make them foreclosure risks. Log homes are often desired for their beauty and their thermal insulation qualities, but such homes also have less marketability compared to conventional homes for the following reasons: 

 • Higher expense of upkeep, such as the need for annual exterior cleaning (power washing) to wash out insects and fungus (that occurs from rot and ultraviolet damage), and increased dusting on interior wall surfaces that are not vertical

•Higher insurance costs (due to the need for specialists to do repairs) 

• Insect infestations 

• Rot 

• Inability to obtain mortgage financing. Log homes seem to become more likely to become foreclosures due to unanticipated costs and inability to refinance or sell. 

• Fire risk is actually not considered to be worse than conventional homes on conventional wood stud frame homes.

Insect bore-hole

Wood rot 

For these reason, any lender wanting an appraisal of a log home should insist that all of the comparable sales be similar log homes.

An Appraisal in Alaska

 

Although I devote this blog to foreign appraisal assignments, I find appraising in Alaska not so different from appraising in a foreign country, due to low population, lack of data and government, and thinly traded  markets.

Alaska divides itself into “boroughs”, analogous to counties in other states, except that some of these boroughs, rural in nature, have no government or municipal services because almost all of the land is owned by the U.S. government. No local services are needed independently of what the U.S. government is already providing, which in the Borough of Yukon-Koyokuk are mostly road maintenance.  No schools or hospitals.  No tax assessor. Yukon-Koyokuk is also the largest county or county-equivalent in size in the USA, being larger than the state of Montana.

Yet its Census 2020 population was just 5343 residents.

The subject property consisted of several hundred acres along a riverfront, a modest single-family residence and an airstrip in a town with a census population of less than 20 residents, more than one hundred miles from Fairbanks.

The loan applicant wanted to contain the appraisal cost by requesting a desktop appraisal, meaning that I appraise the property remotely using Google Earth and other photographs. This is a service that I sometimes provide in land appraisals (usually small urban lots) under the theory that land doesn’t change -- but sometimes it does.  I search for evidence of fires or floods.  In this case, the subject property abutted a river that flooded in May 2022 due to an “ice floe jam”, a common type of flood in northern latitudes, including the upper Mississippi River. The flood killed fish due to the toxic contaminants in the water, including fuel oil, gasoline, antifreeze and sewage, some of which got into local homes.

Value of off-grid living

The home was also advertised as offering “off-grid living”. The supposedly exciting advantage of off-grid living is not having to pay local public or private utilities (of which there are none in this region) .  The disadvantage is having to maintain the utilities yourself or find maintenance in the wilderness.

The home has complete solar and wind power, although solar power can be greatly diminished during winter months at this 65-degree northern latitude, not far south of the Arctic Circle. It is difficult to find data on the value created by living off grid in Alaska. Living off grid may not really be cheaper. Transportation costs to the subject property are much higher, including the necessary cost of maintaining an air strip and clearing roads. There are potentially enormous savings on electric bills, but batteries will eventually need to be replaced, which costs thousands of dollars, similar to electric vehicles. While there are no water or sewer bills, pumps will sometimes need to be replaced, also at great expense. Trash removal will also be more difficult. At this latitude, power during the winter can be problematic. The homeowner can chop down trees for firewood on site, but this takes manpower and truck power.  A homeowner may be better off just buying propane, but that must be transported in.

The airstrip might seem like a luxury to some readers, but at this latitude, it can be the only dependable transportation during the winter. Private air transportation is quite common in Alaska.

What finally killed the deal, though, was the expected marketing or “exposure time”. When comparable sales take 5 years to sell, private lenders ask me to discount the value to the time it would take to sell in 6 months. That results in a nasty discount.

Yes, I am a certified general appraiser in Alaska.

The Effect of Chinese Government Policy on the Failures of High-rise Residential Towers in Los Angeles and Other World Cities

Graffiti-clad Oceanwide Towers in LA

In March 2019 I reported on the failure of three 40-story residential towers being built in downtown Los Angeles. (https://www.internationalappraiser.com/search?q=oceanwide) Lendlease, the Australian general contractor, had rocked the LA real estate world by announcing that it had halted construction on Oceanwide Plaza over unpaid bills. The interior remains to be built. There were rumors that the lender had pulled out of the project, but no explanation of why. A press release from China Oceanwide explained the need for capital restructuring and that construction would resume in February 2019. With my own eyes I see the project rotting and covered in graffiti five years later in February 2024. Its location is less than ideal, being across the street from a sports and concert arena occasionally plagued by basketball riots.

At the same time, similar residential towers in LA, New York, Malaysia, Australia and Vietnam, among other countries, have also been failing, towers which were effectively being built for Chinese millionaires trying to get their money out of China. Most did not intend to occupy their new condos.

The Towers of the Waldorf Astoria, developed by Chinese Developer Dajia, is one such project that is also languishing without sales for its 374 units. The Chinese government seized the insolvent Anbang Insurance Goup to sell off its U.S. hotel assets, acquired for $7.45 billion during 2014 to 2016, which includes the Waldorf Astoria Hotel in New York at a price of $1.95 billion. 

One of my first blog posts in 2010, now deleted, was the Forest City development on the Iskandar peninsula of Johor Bahru, Malaysia, and directly across the strait from Singapore. This particular luxury project was also directed towards Chinese investors. I went to an international property buyer conference in Singapore in 2010 and found this to be the most heavily promoted project at the conference, but the scale seemed outrageous in scope -- $100 billion to build 300,000 homes on 4 man-made islands off the southern coast of Malaysia close to Johor Bahru, a bedroom community to Singapore. I deleted my post after being told “Don’t count out Chinese investors!” 

Nowadays, only a fraction of these homes have been built, and most that have been built are still vacant. In hindsight I was really being told not to count out lemmings, even though lemmings can be counted on to eventually jump off the cliff. 

There are two major Chinese government policies that have slowed the demand and financing for such projects:

1. Chinese capital controls on citizens, instituted at the end of 2016 by Chairman Xi Jinping, are preventing the necessary funds from leaving China. The purpose of the new regulations was to reduce “irrational outbound investment.” China has been cracking down on capital flight, characterized by Chinese investors purchasing foreign condos, perhaps to place ill-gotten gains away from capture or perhaps due to distrust of the government. The PRC wants the money back. One expert estimated that the ratio of outbound Chinese capital (back to China) to inbound capital was about 10 to 1 at the time of my last blog post in March 2019. These same controls have caused other Chinese developers to place their North American assets for sale. Greenland, developer of a similar project called Metropolis, a few blocks north of Oceanwide Plaza, placed one of their three residential towers plus their Indigo hotel for sale. 

 2. The “Three Red Lines” policy. This might sound like a cute maxim from Chairman Mao, but it is actually sound banking policy instituted by Chairman Xi Jinping back in 2020. The three red lines are: debt-to-cash, debt-to-equity, and debt-to-cash. If a developer wants a loan from a Chinese bank, these tests must be met. These new controls have sent some major Chinese developers, such as Evergrande and Oceanwide, reeling into bankruptcy.

3. The Communist Party policy switch to "Common Prosperity" in August 2021.  This follows the famous open door policy started by Chairman Deng Xiaoping in 1978, igniting unbridled capitalism with the proclamation, "It is glorious to be rich!" The switch to "Common Prosperity"  is to "reasonably regulate excessively high incomes, and encourage high-income people and enterprises to return more to society.” This might not be good for real estate developers.

Indeed, the Minister for Housing and Urban-Rural Development promised no bailouts for real estate developers, stating "For real estate companies that are seriously insolvent...those that much go bankrupt should go bankrupt or restructured."

"We must avoid herds and bubbles"

Now China and Chairman Xi are facing an American-style real estate collapse, too. The Chinese government did what they had to do, but too late. It was like taking the punchbowl away from a festive party that was already out of control. 

As for the outcome of Oceanwide Plaza, I laid out the following scenarios back in 2019: 

1. A white knight lender from outside China will provide necessary funds to finish this project, 

2. The property will need to be auctioned off to a more solvent owner, 

3. Or in the worst case, if building and safety laws were allowed to continue to be violated, Oceanwide Plaza could end up being 3 decaying 40+ story hulks sullying the downtown L.A. skyline. Scenario number one was a possibility back in 2019. I had at least two inquiries as to whether I wanted to appraise the property, but the clients changed their minds. So, what we see today is Scenario number three, with 40-story towers covered in graffiti and serving as jumping bases for wannabe “spidermen” and their YouTube audiences.

Another land appraisal in Costa Rica

 

Here was a property that measured 4 square miles of ocean view land, of which there are plenty in Costa Rica due to the sloping topography. It is not uncommon for properties this size to be marketed to developers, but they are not necessarily publicly marketed, making comparable properties, particularly closed saled, hard to find.

This particular property, at its closest point to the ocean, extended as close as 1000 feet to the water. As is often the case, the developers of such a parcel try to secure a beach parcel, too, often with the label “Beach Club”, to establish an identity as a beachfront property, but such a parcel is not necessarily contiguous, as was in this case, so the developer of an ocean resort property with a noncontiguous beach club has the added difficulty of purchasing a connecting easement or parcel, or else have the added burden of transporting hotel guests to the beach. In this case, the distance was slight. In Costa Rica, the best beach parcels (closest to the water) are on leasehold parcels on "concession land" which is owned by the municipality and typically leased at favorable rates. This "concession land" is the land belt immediately inland from the undeveloped "Maritime Zone" preserved as public beaches. 

Comparable sales ranged from $12,200 per hectare to $19,500 per hectare (indicating a significant discount for extra large size), and could be adjusted for distance from beach, with the cheapest parcel being no closer than 2 kilometers to the water, but still possessing ocean views.

Appraisal of a Residence in Cuba

In the almost 14 years of writing this blog, my practice has shifted from large international projects financed by big lenders to smaller properties involved in estates and divorces. It’s often the case that the bereaved family or the spouse does not even know what Dad’s property or the other spouse’s property in the Old Country looks like, but they need a valuation, and don’t want to spend the money for me to make the trip there. This home in Cienfuegos, Cuba, is such an example. I sometimes have to turn to remote valuation methods instead. 

Google Earth sometimes works wonders but is not as complete or even available in some countries, such as Iran, Morocco or Cuba. In this instance I hired an English-speaking tour guide to visit the address and discreetly take photographs. It worked well because Cienfuegos is a tourist town on Cuba’s south coast. 

Another complicating factor was the need for a retrospective appraisal report for a date 3 years ago in a country which has no public database available and only a fledgling home sales industry. In situations like these I like to turn to Internet archives and hope to find real estate listings relatively close to the date of value. 

In this case, I was able to get my comparable listings from the DetrasDeLaFachada.com web site archives within a month of the date of value. Homes for sale at that time were listed in the Cuban Convertible Peso currency. From 1994 to the end of 2021, Cuba had a special currency, “Convertible Peso”, pegged to the U.S. dollar. The regular Cuban Peso is a completely different currency and is much less in value. The advantage of this pegged currency is that one is likely to be looking at the same value as if the home is sold in US dollars. 

Aerial photos were also helpful in comparing the locational differences of the comparables. Two larger homes in the Historic District were both for sale for about 714 CUCs per square meter, whereas a smaller home inland in La Gloria neighborhood was listed for only 500 CUCs per square meter. In coastal areas property values lessen as one travels inland, and one advantage of being closer to the water for many Cuban citizens is the refreshing sea breezes that can cool down the heat in homes without air conditioning. The Historic District, on the other hand, was judged to be slightly superior to the subject neighborhood.

The lesson learned here is that there are an increasing number of Internet tools available to help with remote valuation – Google Earth, Google Translate, Internet archives, real estate listings, ads from tour guides, English teachers, real estate salespeople, etc.

German Property Portfolio Valuation

 

Four story commercial property in downtown Hannover 

The actual valuation assignment was to appraise a one-half ownership interest in four rental properties in the cities of Hannover and Kiel in Germany. These were multifamily, mixed use and one retail property. 

These interests were inherited by a U.S. citizen, but the other half owner is German. 

To value a partial interest, one has to discount for an owner’s lack of liquidity, lack of control, lack of marketability and lack of mortgage financing. 

Finding comparable sales is extremely difficult, especially in a country of such strict privacy laws as Germany, and because only about one out of about every 500 property sales in western capitalist societies are of fractional interests. 

The ultimate intended user of the appraisal was the Internal Revenue Service, so the appraisal report had to be an English language report done by an IRS “qualified appraiser” who prepares an appraisal report compliant with USPAP, the Uniform Standards of Professional Appraisal Practice. Much of my international work is this kind – inheritances, gifts and the increase in tax basis to spouses of decedents. 

I used a technique known as “factor-based fractional discounting”, a technique developed by the Appraisal Institute, in which individual value factors are quantified and discounted, such as asset risk, profitability, condition, liquidity, diversification, size of interest, lack of control, quality of management and growth potential. I also had to do this method in my last jobs in Korea and Mexico as well as one of the French properties I handled in 2017.

The trip to Germany took place during the New Year Holiday, and it rained every day I was there.  I bought a raincoat of the German fashion name "Camp David", no relationship to the U.S. President's weekend white house. Here I am displaying it.

 

I finished the trip in the charming city of Hamburg. Perhaps John F. Kennedy would have said "Ich bin ein Hamburger!"

"Today is the Day, Club Wyndham!" Why Timeshares, Fractional Vacation Home Ownerships and Condotels are a Bad Deal

 

        Condotel unit in Waikiki

By now there are millions of disappointed investors in these types of properties. The most important investment lesson learned is that these buildings are deteriorating assets that have ever increasing maintenance needs.

When timeshares and other forms of fractional vacation ownership became popular in the 1970s, the U.S. economy was experiencing a high rate of price inflation. Real estate was known to provide protection from inflation, because property values were increasing at a similar rate of return, and leveraged rates of return were even higher. In the early 1980s, condotels had also become the rage in Miami Beach.

My mother was a realtor in the 1980s, and she and her fellow agents were all directed by their broker to buy timeshare units at a resort in western North Carolina. They were told that they were fixing their vacation costs at 1980s prices while their investments would continue to appreciate in value as vacation travel would become more expensive in the future. 

By 2007, my mother was retired and living on a limited fixed income. The maintenance fees on the timeshare had increased to $40 per month and she asked me to take over the deed and use the unit as I wanted. I never visited the actual unit, but since it was part of Club Wyndham, I exchanged my week for other places each year – Hawaii, San Francisco, New York, San Antonio and Mexico. My week only counted for 3 days, though, for a stay in Honolulu, San Francisco or New York.

Now the maintenance fees have increased to $139 per month, meaning that I would be paying $1668, or $556 per day, for annual 3-day stays in Honolulu, San Francisco or New York, which I could get for a lesser cost without any sort of vacation club ownership. Since 2007, these maintenance fees have increased at an 8.66% rate of annual inflation in a period in which the U.S. CPI has increased at only a 2.4% rate of annual inflation.  But this is not fraud, it is the simple arithmetic of property depreciation.

Why are timeshares and  condotels a bad deal?

It's the maintenance fees, Stupid!

This leads me to an important concept that gets forgotten in the real estate investment world, that buildings are deteriorating assets. Over time, income for a real estate asset will increase approximately at the rate of inflation, while expenses increase at the rate of inflation plus the rate of depreciation. Anyone who tells you differently, including Wall Street, is selling something, paid to sell something, and paid to deny arithmetic.

Hospitality assets deteriorate even faster than most other real estate assets because of the exacting standards of the hospitality industry, under constant pressure to renovate. This is why maintenance fees are always rising so much faster than consumer price inflation for timeshares and condotels and other fractional vacation interests. And you, the investor, will be contractually obligated to pay these increasing maintenance fees for the rest of your life and the lives of your heirs! Thanks, Mom.

Meanwhile, an excess of vacation properties was built between 2005 and 2008, and values plummeted after the Global Financial Crisis of 2008 and some have not yet recovered due to the oversupply. 

As for condotels, I first witnessed them in the early 1980s, spurred by the 15-year Accelerated Cost Recovery System enacted by the Economic Recovery Tax Act of 1981, but the Tax Reform Act of 1986 took away these benefits, and the burgeoning oversupply of vacation units killed the condotel industry, a historical fact that keeps getting forgotten after each time this industry collapses.

Constant problems with condotel investments include 1) high maintenance fees, many more than $10 per square foot per year, 2) having to share 35 to 50% of revenue with management without any guarantee of occupancy, 3) having to compete for occupancy with other owners, 4) having to frequently buy new furniture packages to comply with the hotel franchise rules, 5) HOA dues, 6) housekeeping fees, 7) special assessments, and 8) elevated insurance costs. On top of that, this is an investment type that rarely experiences capital appreciation. If capital appreciation was reasonably expected, the developer would never have wanted to sell units prematurely, right?

Condotels continue to re-emerge as a brilliant new concept before crashing in flames yet again and then forgotten. Some friends of mine were just pitched by WorldMark this week for a condotel investment in the California Wine Country.

Industrywide failure to consider buildings as deteriorating assets

The real estate industry in the 1980s newly embraced a valuation method called “Discounted Cash Flow Analysis”, in which valuations were based on 10-year cash flow projections. The only problem was that most of the DCF practitioners inflated income and expense projections at the same identical rate of inflation, not acknowledging that buildings were deteriorating assets in which operating expenses increase faster than income over long term. Every DCF valuation thus became inflated, and hundreds of millions of dollars were lost in the collapse of the commercial real estate and savings and loan industries in the late 1980s and early 1990s.

As for Club Wyndham, I was satisfied with the exchange possibilities, but displeased with the high-pressure sales tactics used on me whenever I showed up to peacefully use my reserved unit. 

Twice when I stayed in Manhattan, for instance, the unit was not ready on time, even if I arrived at 8:30 pm, and then I would be handed off to a high-pressure salesperson trying to convince me to buy more points or I would never be able to stay in New York City again. 

There were also the mandatory Information Breakfast Meetings I was supposedly required to attend during every stay at any Club Wyndham property. The first time, in Hawaii in 2007, I showed up and was denied admission because I did not bring identification, which was fine with me. They must have thought I was a cheap tourist attempting to steal their orange juice and plastic-wrapped muffins.

In San Antonio, Texas, I attended their Information Meeting on a Sunday morning, to which I was bussed several blocks away to assure that I would not escape during the brutal Texas summer heat. The speaker casually chatted with me before the Meeting started, mentioning that he had been a flight attendant before entering the esteemed career of timeshare sales. I had orange juice and muffins and scrambled eggs. 

When he started the Information presentation, the only information he provided for the first 15 minutes was about himself, in which he had elevated himself to the status of being a former airline pilot. Then he asked all of us to chant the phrase “Today is the Day!” I felt like I was trapped in an Amway sales rally and quietly left, walking several blocks back to a very nice unit on the San Antonio Riverwalk. 

When I returned to my building, the doorman had already been alerted in advance of my escape. He asked me if there was a reason why I left the Information Meeting so suddenly. I just said, “Today is not the day.”

PS: See the film Glengarry Glen Ross. Watch this film about desperate timeshare salesmen even if only for the outstanding acting performances of the late Jack Lemmon, Al Pacino, Alec Baldwin, Alan Arkin, Kevin Spacey, Ed Harris, etc.