Pursuant to California being out of compliance with the Federal Clean Act, the California Air Resources Board (CARB) has been developing the nation’s most stringent new emissions regulations pertaining to diesel engines. CARB is responsible for developing statewide programs and strategies to reduce the emission of smog-forming pollutants and toxics by diesel-fueled sources. Many industries—from commercial trucking to agriculture and marine to off-road vehicles—will be impacted by these actions.

The current municipal diesel fleet regulations have required the early retirement of many vehicles to out-of-state buyers. This has resulted in selling prices significantly below market. The off-road diesel regulations were officially written into California law on June 15, 2008.

CARB is currently developing regulations that could significantly affect diesel powered trucks and buses in use on California’s roads, highways and farms. Owners of these engines will be required to replace or retrofit critical assets in their businesses in a few years. This could likely result in a large volume of “non-compliant” equipment becoming available on the market, reducing the market prices.

A representative from CARB will discuss the timing and enforcement of the rules, types of equipment affected, projected economic impact, and the timing of the relevant rules. He will also direct attendees to the appropriate reliable resources to get more detailed information.

A representative from the Construction Industry Air Quality Coalition (CIAQC) will discuss concerns about the effects of the CARB off-road regulation on construction company assets and bonding capacity. Many companies are pursuing a strategy of shrinking their fleets in order to reduce their fleet emission average and save money on the cost of retrofits and re-powering equipment. This has caused a significant reduction in the selling price of off-road equipment and has driven down the market prices of all fleets. These reductions have reduced the asset value of the companies and as a consequence limited the collateral available for bonding of construction work.

The likely end result will be a significantly reduced off-road construction fleet in California (CIAQC estimates a 20% reduction); a reduced capacity of the industry to perform construction work; a reduced asset value of the fleet; and a significant reduction in collateral available to support performance bonds.

Presenters: Erik White, Chief, Heavy-Duty Diesel In-Use Strategies Branch California Air Resources Board
Mike Lewis, Senior Vice President, Construction Industry Air Quality CoalitionSend Money, Money Transfer - PayPal http://www.paypal.com/

“CARB Diesel Regulations and Consequences”

Erik White, CA Air Resource Board & Mike Lewis Construction Industry Air Quality Coalition (CIAQC):

Erik White, Chief, Heavy-Duty Diesel In-Use Strategies Branch of the California Air Resources Board (CARB) will discuss the timing and enforcement of the rules, types of equipment affected, projected economic impact, and the timing of the relevant rules. He will also direct attendees to the appropriate reliable resources to get more detailed information.

Mike Lewis, Senior Vice President, Construction Industry Air Quality Coalition (CIAQC) will discuss concerns about the effects of the CARB off-road regulation on construction company assets and bonding capacity. Many companies are pursuing a strategy of shrinking their fleets in order to reduce their fleet emission average and save money on the cost of retrofits and re-powering equipment. This has caused a significant reduction in the selling price of off-road equipment and has driven down the market prices of all fleets. These reductions have reduced the asset value of the companies and as a consequence limited the collateral available for bonding of construction work.

CARB:

Erik White, an equipment engineer and chief of CARB’s Heavy-Duty In-Use Strategies Branch, told Equipment & Maintenance Update the latest plan seeks to encourage as many truckers as possible to buy new, compliant engine systems rather than retrofit.

"Small companies make up a great proportion of trucks on our roadways, and they tend to keep their trucks much longer than in other parts of the country," White said.

White said California truckers would have to spend $3.6 billion to $5.5 billion to conform to the proposal, but he had no estimate for out-of-state operators.

As for retrofit costs, "most over-the-road trucks will be able to use filters that run in the $8,000-to-$10,000 range," White said, "though some vehicles will require a somewhat different type of filter that is more expensive â€" $20,000."

CARB also would require devices that reduce output of nitrogen oxides formed during combustion. White said he had no idea how much they would cost.

Dave Lewis, ASA:

“Let me assure you that repowering or retrofitting most of the estimated 180,000 heavy duty diesel engines in California by 2010 or earlier is a big deal both from the standpoint of availability and economic impact on the buyer.

RSVP
Thursday, November 13

2008 6:30 pm (mixer)
7:00 (dinner)
Board Meeting 5:30 all members are welcome to attend

Place: L’Olivier Restaurant, 465 Davis Court, San Francisco in the main dinning room. (415-981-7824) The restaurant is easily accessible via BART (Embarcadero Station) and $5 valet parking is available.

NOTE: The dinner is being partly subsidized by the chapter, so the cost is a low $35, which includes tax and gratuity.

RSVP please by November 6 to Secretary Gil Mitchell at gil.e.mitchell@gmail.com and let him know you are coming. Do not reply to the newsletter email address—Gil is the one who needs to know!

NEW! Pre-pay by cash or credit card at www.paypal.com. “Send Money” to asa.norcal@gmail.com. Give it a try, it’s easy!

President’s Message

An old Chinese curse states: “May you live in interesting times”. That we do, that we do.

Our economy is in the midst of its most serious turmoil since the Great Depression. The more the Fed pumps money into the financial system, the tighter it seems to get. The money is there, confidence is not.

Yet, out of the midst of the Great Depression came the American Society of Appraisers, founded in 1936. More specifically, it was The American Society of Technical Appraisers (ASTA) and the Technical Valuation Society (TVS), which were organized in 1936 and 1939 respectively, and then consolidated, creating the American Society of Appraisers (ASA), incorporated in 1952. ASA is the oldest, and only, appraisal organization to represent and incorporate all the appraisal disciplines. The goal was to instill ethics, integrity, professionalism, confidence, and credibility into the appraisal profession. And that we do, that we do!

But, what will this slide into economic malaise yield this time? In the background is something referred to as the “think tank”, a group of appraisal guru’s who are working diligently towards what may become an entirely new appraisal organization unifying ASA, The American Farm Managers and Rural Appraisers (ASFMRA), and the Royal Institute of Chartered Surveyors (RICS), based on London. ASA is already an international organization, particularly as an educator. For instance, our chapter’s own Bob Podwalny regularly teaches in Russia. But the RICS component in an alliance will catapult the entire industry and profession into the global arena with even greater impact. RICS has over 140,000 members worldwide. We live in a global economy. We may as well realize that we appraise in a global economy, and our market is a global economy.

Out of the ashes of this financial collapse may come the RICS North American Valuation Council. It may be the next major milestone in the ongoing history of the appraisal profession. More is yet to come on this issue. We may all be able to say that we were there at the creation of something even bigger and better than what we have now.

Still, most of us work in local markets, so we must be mindful of local conditions, economics, and clients, while being ever vigil of the international influences on our profession.

Speaking locally, kudos to Dave Lewis, ASA, for an excellent presentation at our October 9 dinner meeting, on “The Trouble with Easements”. Easement analysis and appraisal is a complex art form few are able to grasp, but Dave hit all the highpoints in a brief amount of time. A four hour seminar is yet to come, as well as Dave’s highly anticipated full day seminar on “Zoning and Site Analysis” in the Spring months.

And big kudos to those who hosted the ASA booth at the California Bar Association Annual Meeting in Monterey September 25-27. Past President James McCann, ASA did the primary organizing, with help from past President Ray Mattison, ASA (and his wife Ursula). Others who helped host the both include William Fowler, AM, Clark Savage, ASA, Frank May, AM, Joseph Rogers, ASA, and Robin J. Erdmann, ASA.

Our BOD meeting focused on discussing the need and role of an administrative assistant, and how this fits with our goals and finances. We had an excellent proposal from Suzie Roget, who also provides this service for the CA ASFMRA chapter. We are making progress on this issue.

Chuck Warren, ASA, reported that, disappointingly, Governor Schwarzenegger vetoed AB 1867, which would have removed language in state statutes that stipulates only those appraisers with an MAI designation are qualified to perform state contracts. The logic for this decision appears, at least to me, to be 180 degrees in relation to reality. But what do I know about state politics, other than that I have worked in state government, and have a master’s degree in Public Policy and Administration?

I reported on my attendance at the CA ASFMRA chapter BOD meeting in Shell Beach (Pismo Beach) on October 2. I made a formal request that the ASA NorCal chapter and CA ASFMRA seek ways in which to cross-market our courses and seminars. I am hoping this will come to fruition. I have reached out to the Real Estate Appraisers Association (REAA), located in the North Bay and Sacramento areas to do the same, and it will be discussed at their next BOD meeting.

Next month, our dinner speakers will be two individuals who will inform us on both sides of new air quality regulations, and how these impact appraisal issues, especially within the Machinery and Technical Services Discipline. This presentation should be VERY interesting!

Finally, a prayer for James A. Schilt, ASA, our BV Discipline Director, who has been battling cancer. Jim has a long and storied history with ASA. His contributions to the discipline have been enormous over the years – no – decades. We wish him well.

Robin J. Erdmann, ASA MRICS MAI

President, NorCal Chapter, American Society of Appraisers

ASA at State Bar of CA in Monterey

ASA at State Bar of California Meeting
Members of the San Francisco Chapter and its Sacramento and San Jose Branches, including Ray B. Mattison, ASA (San Francisco) and William K. Fowler, AM (Sacramento; at right), manned a booth for ASA at the 2008 State Bar of California 81st Annual Meeting and Exposition in Monterey, CA on September 25-28. Past Chapter President James E. McCann, ASA took charge of coordinating the event, and helped staff the ASA exhibitor's booth along with current Chapter President Robin J. Erdmann, ASA. Also representing ASA at the meeting were Frank O. May, AM and Clark L. Savage, ASA, both of the San Jose Branch, and Joseph W. Rodgers, ASA of the Sacramento Branch. The event provided attorneys and appraisers a welcome opportunity to renew and establish professional contacts.

Ray Mattison, ASA & wife Ursula

William Fowler, ASA & Ray Mattison

Legislative Corner

Theory of Crisis

Charles B. Warren, ASA

How does this work... in theory?

In the confusion of the moment it is hard to step back and try to see the big picture. First mortgage securities, houses, now stocks and even bonds are dropping in price or even becoming hard to sell at all.

Illiquidity. We've all heard about it, but this is the first time in a generation that we've had to live with it. Further, the illiquidity problems seem all pervasive. That's sort of a good news-bad news story.

The good news is that with all of the various countervailing bets and guarantees that are in place, the number of outright and obvious failures is few. The bad news is that if few are identified, many are suspected. Therefore interbank and other normal sorts of short term money flows are getting expensive or even difficult to arrange. Most of the recent headlines have been about the Treasury or Federal Reserve trying to restore some liquidity and confidence to those markets. There is a valid worry here. As early as 2003 the Bank for International Settlements published a working paper hypothesizing that the Great Depression was a credit bubble problem*.

Appraisal theory offers a term, illiquidity premium; the amount by which a rate of return has to be enhanced to compensate for the difficulty of marketing the investment. Unfortunately in the real world that premium is cyclical, non-existent in good times and asymptotically high in bad.

For a generation, enjoying relatively liquid markets, appraisers have fixated on price. Market value is often defined in terms of "most probable price", following the latter works of Richard Ratcliff.

Presently and in the near future that may no longer be as relevant, even if price becomes predictable. It was said of the stock market crash of 1929-32 that those who had enterprise had no money and those who had money had no enterprise**. The illiquidity premium curve had become vertical. As prices are the inverse of rate of return, prices approached zero. Radio Corporation of America (RCA) topped at a PE ratio of 73 and price of 529 in 1929. By 1932 it had fallen to 2.

The New York, Rio and Buenos Aires Airline was gobbled whole by Juan Trippe's Pan American. The NYRBA had scheduled international passenger service. Pan Am had a few float planes, a US Mail contract and the money to run NYRBA.

Housing had a similar experience. There basically was no market.

Foreclosures pretty automatically went to the bank unless neighbors intervened, bidding a dollar at the auction. At one point Bank of Italy (now America) was the biggest property owner in California.

*BIS Working Paper 137 - The Great Depression as a credit boom gone wrong, Eichengreen and Mitchener, 2003, http://lsb.scu.edu/~kmitchener/research/work137.pdf

** attributed to Benjamin Graham author, with David Dodd, of "Security Analysis", 1934

(Part I of three parts. . .)

Ed note: Charles’ article will continue in the following two newsletters.

Upcoming Events

October -- Gems & Jewelry Workshop: Conquering Comps

The Northern California Chapter of The American Society of Appraisers will offer a one-day Gems & Jewelry Workshop -- Conquering Comps: Market Modeling -- on Saturday, October 25, 2008 from 8:00 am to 4:00 pm at the L'Olivier Restaurant. The workshop will explore selecting and modeling comparables, reaching an opinion of value, and writing the appraisal report. It will be taught by Nancy Stacy, ASA, Master Gemologist Appraiser®.

Nancy Stacy is the principle of Jewels by Stacy Appraisals, Nancy Stacy, ASA which serves the San Francisco Bay Area from its Walnut Creek offices. Specializing in the appraisal of jewelry, diamonds, gemstones and watches, she has written and taught valuation courses for the ASA and at universities across the country and in China. Her Conquering Comps workshop answers the question "What Is A Comp?" and, using actual data, shows how to fine-tune comparables, using market level, whole property, dollar and percentage adjustments to model the valuation market. It concludes by explaining how to analyze the results and prepare a professional narrative report.

The program qualifies for seven hours of ASA Continuing Education Credit. Attendance certificates will be distributed during the program. All ASA members and interested parties are invited to attend.

Tuition for the course, including lunch, is $195 for ASA members, $225 for all others. The registration form and additional information about the program is available in the workshop brochure. To register, contact Carole Richbourg, ASA (408-219-1175) or Nancy Stacy, ASA (925-939-4367) by phone or email. Early registration for this exciting workshop is strongly recommended.

NorCal Officers

L	L to R: Bob Lentz, Treasurer, Gil Mitchell, Secretary; Robin Erdmann, Chapter President, Jim Brown, Region 5 Governor, Will Schnitzer, Immediate Past Chapter President, Doug Baxter, Chapter Vice-Chair

Chapter officers:

Chapter President Robin J. Erdmann, ASA (RP)

Chapter Vice President Douglas S. Baxter (PP)

Chapter Secretary Gil Mitchell, ASA (MTS)

Chapter Treasurer Robert P. Lentz III, ASA (BV)

Chapter Past Chair William C. Schnitzer, ASA (RP)

Discipline Directors and Associate Directors:

Business Valuation    Jim Schilt, ASA               /    Alan Karbousky, ASA
   Gems & Jewelry     Nancy Stacy, ASA          /              Maury Woulf
                             Master Gemologist Appraiser
                  MTS     Gil Mitchell, ASA             /                           tba
Personal Property     Roger Rapport, ASA         /                           tba
      Real Property     Will Schnitzer, ASA         /                           tba

We need more Associate Directors. Anyone interested in being an active participant in the chapter should contact Robin J. Erdmann, MAI ASA at robinerdmann@comcast.net

Images

Photos from October meeting