When we look back over our shoulders 10 years or so, it appears the government's role in regulating clean air and clean water actually improved both, as well as the public mindset towards a cleaner and healthier environment.
While the government did intervene for the public good it won't be as effective in the upcoming years...at least not as effective as the economic marketplace can prove to be.
During the recent Counselors of Real Estate conference on the environment, several amazing scientific opinions representing the entrepreneur's approach to the new age of environmental sensitivity were presented. The most sensible definition presented identified pollution only as ?a resource out of place." If we would bring ourselves around to accepting this basic definition, we will find answers to the tug-of-war between the mindsets unable to define the problems.
In this country we are sure the water is cleaner and the air is cleaner than ten years ago, however we are becoming a nation of people trying to profit from one environmental crisis after another. The answers presented by free-market environmentalists deserve attention and will prove to be the most effective in maintaining the world's highest levels of pollution-free living.
Look back to the $100 to $150 billion asbestos scare to remove it from public schools. Certainly, at high levels and for extended exposures (10 to 15 years) asbestos may be a dangerous in-the-air substance, but experts agree today the removal of asbestos in the schools has only made the schools more asbestos-dangerous when compared to leaving it in place. Radon gas may cause miners who smoke to be affected, but the bodies of most all persons reading this article are able to reject low levels of radon gas. The dioxin and cellular phone panics, the lead-based paint mandate and others defined in magazines and newsletters just aren't being taken seriously by those in everyday business activities.
Environmental revolutions rest with government and its environmental waste and the monopolistic generation of energy. Advanced energy-efficiency by the leading generators of electricity is to be applauded after years of wasteful over-investment. Pacific Gas and Electric, we are informed, has no proposed power plants----reduced from 17 or so just a few years ago. This insightful utility has recognized consumers don't want electricity, they want user-friendliness and lower cost comfort. The so-called megawatt revolution will certainly point out exemplary design as mandatory in new buildings. Our real estate industry has over invested $1 trillion in air conditioning alone according to Amory Lovins of the Rocky Mountain Institute. Equipment costs is 1/3 of this over-investment and power supply comprises another 1/3 of the waste. We are spending $150 billion less this year when compared to energy costs since 1973, but nearly $300 billion continues to be wasted according to Dr. Lovins. New technology for efficient end-use of electricity causes us to save twice the amount as five years ago even at 1/3 the cost savings. All power plant expansion of capacity is today provided by consumer efficiency. This form of economic-driven conserving will continue to expand in the next few years.
Free-market environmentalism will provide answers to the several questions posed by the scare scientists. Milton Friedman once stated, ?I don't have faith in the market, I have evidence." Of course we should follow basic standards of environmental practice. We should cause no harm to others; and we should recognize nature as being complex. We don't really know how to alter or reverse it. We should include humility in our personal environment. The use of risk analyses forms the basis for arriving at logical environmental clean-up standards and resulting solutions. All risk can not be eliminated and the benefits of spending money should be considered when calling for action of minimal hazards to be cleaned-up.
This thought of free-market environmentalism is supported by the belief of looking after the poorest citizens and the rest of the population will take care of themselves. People Magazine can no longer be our source of emotional scientific decision-making profit-driven environmentalism.
Based on the fact that people look out for their own interests, Jane Shaw of the Political Economy Research Center (PERC) in Bozeman, Montana cites why private property rights will be the cause for improvement to our environmental concerns: 1) pollution is waste; waste is expensive. There is an incentive to improve waste 2) lack of invasion by pollutants is a protection granted us, and we respect the rights to be protected 3) once our basic needs are reached, people want more environmentally-improved things around them.
In the days of forming our independence our founders feared force being used to quarter soldiers against the will of property owners. Now we face a far-worse situation, that is being forced to quarter endangered species. It seems the Department of Defense respects property rights and the Department of Fish and Wildlife does not. We need to convince the White House writers of this Endangered Species Act that no seizure of lands without compensation still is the purpose of the 5th Amendment to the Constitution. The use of budget restraints and financial feasibility should be considered also. A private means for protection of endangered species is needed. If the landowner knew the land was not to be seized by the government, he would welcome, rather than dread, the find of an endangered species. If we respected the property owner's right against harm from pollutants, the process of environmentalism would work.....which is certainly in contrast to the Department of Fish and Wildlife Service's attitude of ?land use taking" not being a taking away what wasn't yours anyway....so its not a taking. If you find this thinking to be confusing, you're not alone. Emotional environmentalism is reinforced by actions such as these involving endangered species.
The political lobbying processes which have pleased property owners in the past won't be effective in the future. Scott Jenkins of the Scripps Institution of Oceanography aptly states: "you can not buy political solutions to problems like these, you can only rent them." The uncertainty of political positions can no longer be relied upon.
>From the industrial side, Robert Campbell, Chairman of Sun Company, says ?In February 1993 Sun Company became the first Fortune 500 company to endorse the Coalition for Environmentally Responsible Economies (CERES). This is a very dedicated social activist group comprised of consumers, environmentalists, religious organization and stock portfolio mangers. When we studied the 10 CERES Principles we found that most of them matched what we already believed. There were, of course, differences, but it was not a stretch for us. It was, instead, a logical extension of our existing commitment to preserve and protect the environment."
Chairman Campbell further states, "In our company we'll pay and extra $50 million to reformulate our gasoline to meet the 1995 requirements. Then we'll spend a couple of hundred million more dollars to achieve the 1998 standards."
This type of sincerity illustrates industry's commitment to environmentalism, but in my opinion the reasoning and methodology should remain in the hands of these market-driven entrepreneurs rather than with the governmental agencies. The past actions which have caused leaks are more of a problem than today's business practices. The new underground monitoring systems stop long-lasting leaks which contaminate groundwater.
Consumers have resisted the industry's quest for lifestyle changes, but they have strongly called for restrictions on autos and fuels. They will call for a car redesign by General Motors which may cost millions of dollars but will resist auto inspections at the local service station.
Many large non-point pollutants such as storm sewers and water treatment facilities are being focused upon in the re-authorization of the Clean Air Act (Section 319). Management practices are being defined also. The run-a-way status of perceived authority by the Department of Fish and Wildlife Service, coupled with the unrestrained expansion of the Endangered Species Act is not a solution that will be good for any landowner or for the endangered animal. Richard Stroup of PERC states the lack of compensation for taking of land not only violates private property rights but leads to "Shoot, Shovel and Shut Up" practices. The taking of land used by endangered species is understood by the the wildlife service to mean no harassing of the animal by the landowner as well as the landowner's obligation to take care of it.....no matter what the cost. This most current "save the planet" approach by government is going to do more harm to the endangered species population than good.
There are no interesting and headline-type solutions to a problem known as environmentalism; which in itself still awaits definition. The tug-of-war between a generation of rampant consumers is being pulled the other way by a generation of caring conservers. The age of these caring conservers is upon us. The dreams which drove the 1950's industrial expansion and the expansion of the suburbs are quickly ending. New dreams to drive us towards this "caring conserver" mindset are apt to redefine the contributions to the next economy. The cost to landowners and their private property rights will be great. The movement is one that wants solutions but is unable to define the problems.
John M. Thistlethwaite, CRE, SRS, SRI, CEI, CES
Real Estate Consultant and President of National Assessment & Review Services, Inc. which performs environmental site assessments for Lenders, Developers and Brokers
3401 Lake Avenue Fort Wayne, Indiana 46805
260-426-7134
For the past several years consultants performing Environmental Site Assessments (ESAs) have wandered without an agreed-to methodology for performing ESAs on commercial real estate properties. Now, the American Society for Testing and Materials (ASTM) has published Standards for these assessments as well as a procedure called Transaction Screen Process for less influenced properties.
The purpose of the Standard Practice for Phase I Environmental Site Assessments and the Transaction Screen Process is to define good commercial and customary practice throughout the nation for conducting assessments of parcels of commercial real estate with respect to the range of contaminants within the scope of the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and petroleum products.
As such, this practice is intended to permit a user to satisfy one of the requirements to qualify for the innocent landowner defense to CERCLA liability: that is, the practices that constitute "all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice" as defined in federal regulations.
An environmental site assessment is usually requested by a lending institution or the buyer's attorney to protect the buyer in case of contamination. Confusion has certainly been enhanced by environmental issues in states (including Indiana) which have enacted property transfer laws concerning environmental concerns. Since May 1990 when Governor Bayh signed into law the Indiana Responsible Property Transfer Law (IRPTL) all sellers are required to notify the buyer and lender of underground storage tanks, presence of hazardous chemicals in reportable quantities or of the property's listing on the Superfund clean-up list.
The two recent developments of the ASTM standards for site assessments and the property transfer law, while unrelated in use by buyers and sellers are becoming more familiar to all parties involved in commercial real estate transactions.
ASTM Standards on Environmental Site Assessments for commercial real estate were developed by the Committee E-50 on Environmental Assessment. ASTM is a not for profit standards writing organization that published specifications, tests, and practices concerning engineering materials, manufactured products and the environment. ASTM standards are written by voluntary members located around the world in commercial organizations, governmental bodies, and academic institutions. Committee E-50 on Environmental Assessment is the largest of 132 ASTM standards writing committees. It currently has 700 members who formally meet twice a year. They include environmental engineers, real estate and insurance professionals and government representatives. Besides commercial real estate assessments, the committee is also developing standards for storage tanks, pollution prevention, recycling and environmental efficiency, environmental regulatory programs, wetland ecosystems and green buildings. The full 33,000 persons membership of ASTM approved the formation of this environmental committee in May 1990 and the standards were first circulated in mid-May 1993.
No reference or attention is focused towards asbestos containing materials, radon gas, lead-based paint, lead in drinking water and wetlands.
A number of public and private institutions over the last few years attempted to focus the ESA process, if only for their own use, however none have expended as much effort, or have the clout or recognition of ASTM. This standard will certainly be the accepted format by lending institutions and all involved in real estate transactions.
The National Data Processing Division for computer access to limited EPA files was implemented in October 1992. This data base allows on-line access to the EPA's Facility Index System (FINDS) which is the inventory of information on facilities regulated/tracked by EPA programs. A number of fee-based data bases have appeared to assist in providing information which is site specific. Lists and data bases accessible from private vendors include the National Priorities List, CERCLIS Sites, Resource Conservation and Recovery Act (RCRA) listing of hazardous generators, Emergency Response Notification System (ERNS) data base used to collect information on reported releases of oil and hazardous substances, list of Open Dump Sites, State Priority Sites, Leaking Underground Storage Tank Sites and lists of registrants of underground storage tanks.
For a copy of the standards titled Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (Designation E 1527-93) and Standard Practice for Environmental Site Assessments: Transaction Screen Process (Designation E 1528-93) you can contact ASTM at 1916 Race Street, Philadelphia PA 19103 or telephone 2150 299-5487. Copies are $23.00 each.
John Thistlethwaite, CRE, SRS, SRI, GAA, CEI, CES is a real estate consultant and appraiser specializing in income-producing real estate and is President of National Assessment Review Services, Inc. which performs site assessments and appraisals for lenders, developers and brokers. Mr. Thistlethwaite holds the designations of Certified Environmental Inspector (CEI) and Certified Environmental Specialist (CES) granted by the Environmental Assessment Association.
Contact: John Thistlethwaite
3401 Lake Avenue Fort Wayne, Indiana 46805
(260) 426-7134
This information deals with the March 22, 1994 modification the USPAP which attempts to define the use of "limited appraisals" and the Proposed Advisory Opinions as provided in the enclosed copies for you. Remembering the "appraisal" is the process of performing the valuation; and the "report" is the document delivered to you will be very helpful in trying to understand this confusing issue of type of reports and type of report formats. The October 27, 1994 Interagency Appraisal and Evaluation Guidelines as issued by OCC, FDIC, Federal Reserve Board and OTS are also provided.
A seminar sponsored by the Appraisal Standards Board on June 27th which exposed this concept of Permitted Departure from Specific Guidelines in Real Property Appraisals. Licensed and Certified appraisers apparently are not permitted to utilize the Departure Provision in the development of any appraisal performed for a Federally related transaction ----causing the Limited Appraisal to be inappropriate. A Complete Appraisal is the result of an appraisal assignment being performed without invoking the departure provision during the appraisal process (which is actually the ?appraisal") and being reported to the client in three acceptable report formats: Self-Contained, Restricted and Summary.
These Proposed Advisory Opinions would continue to allow you to engage an appraiser to perform an appraisal and report it in one of the three report formats. In instances where you desire the opinion of an appraiser but are not required to engage an appraiser, you may want to consider the ?engagement for complete appraisal utilizing the Summary or Restricted reporting format" for De Minimis loans and other appropriate situations where a cost savings is realized due to reduced report production. The Self-Contained report is the most descriptive and the most complete reporting format.
The use of "drive-bys" or "evaluations" or "limited appraisals" are terms which should not be used by lenders. With the acceptance of the enclosed Proposed Advisory Opinions we will become familiar with the terms Summary Appraisal Report and Restricted Appraisal Report formats.
In my opinion the acceptance of these Advisory Opinions will continue to give lenders the elbowroom needed with the raising of the De Minimus level from $100,000 to $250,000. This confusion will continue for some time, and I thought you might like to see the enclosed Advisory Opinions being proposed.
JOHN M. THISTLETHWAITE INTERESTS
John M. Thistlethwaite CRE, GAA, SRS, SRI, CES, CEI
3401 Lake Avenue Fort Wayne, Indiana 46805
Telephone (219) 426-7134
We've heard and heard and heard again our agent's desires to be viewed as professionals in providing services to our clients and customers.
But how can this happen if our company's most important asset becomes eroded by our own sending of messages of unethical behavior? Every act and every action of salespeople, managing brokers and company leaders sends out a message about our ethics and our values.
During a recent Counselors of Real Estate (CRE) conference dealing with The Ethics of Organizations, I was exposed to the rethinking and reshaping of the connections between individuals and their institutions. The concept of moving beyond "compliance-only" behavior within the limits of the law and into the coming age of ethics was introduced.
Believe it or not, our real estate practices are quickly becoming the subject of social auditing by all of those who know of or use our services.
It's easy to convince most of us of the concept of Moral Progress of the Individual following a complaint against a salesperson to a grievance committee. The difficult task is creating a training session in the company to shield against unethical value-related decisions and behavior.
Ethics requires us to give up the idea that an act is proper simply because it is permissible or that sometimes is ethical so long as it is legal. Some ethicists believe the quality of family life and parental skills form the basis for individual character. Tolerance towards "let us do our own thing" or "what's the big deal" has destroyed values and has contributed towards an unwillingness to stand-up for what's right.
We have extended unethical behavior and values into our businesses by telling the managers they are paid to make decisions-----so when important ethical decisions are needed, make them. But no longer, according to Gary Edwards of the Ethics Research Center, "Companies are now informing their executives on how to make moral and ethical decisions."
So, just what are other professionals and companies doing? In 1979 nearly 73% of the Fortune 500 companies had written Codes of Ethics according to Edwards. These were, for the most part, reactive documents to the scandals of the 1970's written by lawyers for other lawyers.
By 1984 those Fortune 500 companies grew only to 74% of all companies with a Code of Ethics. This decade produced no meaningful change. But this 1974-1984 period was a period of training for most companies; and 1988 surveys showed (following the 1980's Wall Street scandals) that 85% of the 2,000 companies surveyed had brought the lawyers back into the code of conduct writing mode.
Today 11% of those 2,000 companies surveyed have formed ethics departments. How do companies deal with misconduct in 1995? What happens when you appoint a "blow the whistle" ombudsman? Well, the heads of ethics departments claim their ethics programs have had an effect on employee behavior, but so far it's not enough. Why? Because for most it's coming too late.
Many times serious misconduct in organizations reaches ordinarily good people trying to keep the required performance (job security). This results in the need to do something they know is wrong. Decent people under pressure to perform (years ago this pressure was referred to as temptations) can make wrong decisions which can wreck the best of business reputations.
Many decisions dealing with business leave the person's personally-high ethical standards and values at the door to the office. Managing-brokers and owners many times create an environment where decent people can't perform to expectations. Setting objectives that require compromise doesn't create better business.
The era of decision trees, model forecasting, goals by statistics, proformas and other performance-oriented goals can be a fundamental cause of illegal and unethical behavior.
Ethics is sometimes defined as "where the law ends". Stepping into mis-conduct to avoid punishment has been the reaction to goals dictated by many managers in the past, but it should continue no longer.
Rule of thumb tests for ethical behavior according to Edwards include "how would it appear on the front page of the newspaper" or "can you tell your children what you did at work today?". Admittance of the importance of profitability in many large companies has contributed to the "nervousness of ethics".
"People feel comfortable judging other people's ethics" says Michael Josephson of the Josephson Institute in Marina del Rey, California, "but everyone is ethical in his or her own eyes". Ethics has been defined by Josephson in terms of moral duties and virtues that flow from six core ethical values, which he calls the Six Pillars of Character: Trustworthiness, Respect, Responsibility, Justice & Fairness, Caring, Civic Virtue & Citizenship.
Today's more complex task of performing real estate services requires you to think before you act; consider the consequences on all people affected; think for the long term; be reliable; be accountable; accept responsibility for the consequences of your choices and set a good example for those who look up to you. These attributes, according to Josephson, form the basis of responsibility.
Harvard Business School's Tom Piper claims confidence in business ethics has dropped from 55% in the 1960's to less than 20% today and there's been a breakdown of trust in the business community. "Young people have a great fear of appearing naive" says Piper. The fear of failure as perceived in their eyes coupled with inadequate goals supports the younger business people's unwillingness to fail for anything they believe important. But failure in the eyes of those that are judging may easily be calculated at a higher tolerance level than those set by these younger business workers.
So, with this downward trend in our outlook towards business ethics, how important are these issues to our services, our institutions and our communities? How do we replace cynicism with a voice of hope or a sense of purpose to turn this trend away from our real estate office?
According to Ron Green of Dartmouth College, ethics in the real estate profession is based on 1) our defense of the claim that we are professionals, 2) stress on ethical behavior, and 3) minimizing that stress by managing items that cause diversion to ethical practice. As REALTORS® we are committed to high standards of conduct by adherence to our professional standards. We are trusted to place the client's interest before our own. Our quality of service can cause a major impact on the client's well-being, states Dr. Green. We are into whose hands the client typically entrusts confidential information or other resources of value.
The move of real estate services to a fiduciary relationship with individual clients will require stricter adherence to the Code of Ethics that supports and justifies this client trust. Inherent conflicts of interests are in our daily activities. What about government mandates which literally force non-compliance? This activity can set a model of action by employers that is exactly what our efforts in ethical behavior are trying to eliminate.
Emotional fueling of perceived lack of due care will become more prevalent. Connie Bagley of Stanford University suggests case law has developed in deciding issues and what effect a transaction may have on shareholders, customers and clients, and requires ?what is in the best interest of others". More than half the states in the nation have constituency statues which are permissive to looking at other stockholders. The "you didn't think about me" argument is becoming more common in complaints.
The legal profession's practice of teaching the calculus such as "what are the chances of being caught" shouldn't be continued. Bagley argues, "blaming the lawyer is a typical reaction to bad ethics, but the client usually knows what the lawyer is doing. But should we make unethical acts unlawful? No, the law is too blunt an instrument".
"If compliance with the law in your business is all you have, then you haven't done the job on business ethics" suggests Kirk Hanson of Stanford University. "We must train our employees (agents) to see the ethical dilemma in their jobs" Hanson insists. The executive's task of managing and communicating values is carried out through simple things such as newsletters and the creation of mission statements. How the leader talks and how the leader performs defines the values and trains the employees to identify these ethical dilemmas. Hanson states, "constant reinforcement is required. How you handled conflicts in the past and communicated values builds positive aspects of organizational integrity". Years of reinforced integrity pushes most beyond simple compliance with the law.
Tom Donaldson of Georgetown University comments on the compromising of fundamental values, "we are conducting business across the borders of many communities and cultures. Not all clients are like us. We try to translate our language to other cultures, and to others that don't understand our business." It is important to recognize the ethics of your buyer or seller. Donaldson provides the following guidance on ethical behavior: "Before judging try to understand. When you hit a wall, seek creative solutions. Remember that sometimes there is no compromise."
Complaint hot-lines, formation of an ethics department or just having an "open door" policy can be appropriate initial steps. But how do larger manufacturing/marketing companies as well as local real estate offices combat the disconnection of profit performance and corporate ethics? Hanson suggest you evaluate your company's management practices against your credo, mission statement or company objectives. Take tremendous action now. Hanson states "anyone can do it after a disaster. They are prepared to discuss it then; but to take action now is the tough job."
In our business, as in all businesses, ethics needs definition. If you make a determination of what ethics is for ourselves as well as those who work for and along side us, then you can expect them to at least understand what level of performance or behavior is expected the next time the situation is presented. Set up your ethical guidelines before the disaster occurs. Don't make those in your ?community" guess at what you expect from their behavior. They want to be told. They should be told where ?the line is drawn."
So, the next time, when a pal in the competitor's office simply asks you to initial your seller's verbal acceptance, or when you "let it slide because it's only a contract sale" or you clearly know your customer doesn't understand the agency relationship you have with the seller, just remember others are watching and learning from your behavior.
Contact: John M. Thistlethwaite, CRE, GAA, SRS, SRI, CEI, CES
John M.
Thistlethwaite Interests
3401 Lake Avenue Fort Wayne, Indiana 45805
(219) 426-7134
John M. Thistlethwaite, CRE is a Counselor of Real Estate in
Fort Wayne specializing in real property counseling, appraisals, environmental
site assessments and contamination influence analyses.
Overview and Delineation of Market Area
Nature of Assignment
Areas of Commercial and Industrial Action
Residential Development
Influencing factors (major employer, natural barriers)
Economic and Demographic Data Illustration & Interpretation
Sources of Information
Chamber or Commerce
Business Associations (e.g.downtown association)
City and County Government
Real Estate Brokers
History of Development
Industrial Development
Retail Development
Residential Construction
Multi-Family (both market and subsidized units)
Office Users
Quantitative and Qualitative Description of Industrial, Retail and Residential Facilities
Overview Description
Inventory Prepared by Others
Identification of Obvious Trends or Personal Observations
Two to Three Year Activity if Possible
Description of Segments of Real Estate Market
Industrial
Retail
Office
Multifamily
Residential Dwelling and Subdivision Development
Identification of Each Market Segment Activity and Importance in Lending Decisions
Valuation of Family Limited Partnership Interests with consideration given to restricted rights of the limited partners.
Two recent accounting-real estate related topics have been requiring professional real estate counseling and appraisal services, they include:
FASB Statement 121: Accounting for the Impairment of Long-lived Assets
Valuation of Family Limited Partnership Interests with consideration given to restricted rights of the limited partners.
With 30 years experience in real estate consulting and appraisals as well as my involvement in the real estate securities industry as a DPP Broker Dealer Registered Representative and Sponsor of Real Estate Limited Partnerships, partnership manager as well as consultant to lenders, brokers, trusts, investors and buyers, we are competent to provide these services:
FASB Statement 121 causes impairment to real estate assets to exist in cases where a significant decrease in the market value of the asset has been experienced. Many times the environmental influences on the property or even the stigma can be the basis of impairment. Wetland and other government restrictions to use, including presence of endangered species can be subject to the definition of impairment.
Family Limited Partnerships are constantly relying on discounted values of the restricted use characteristics of the limited partner's interests. Concluding a value by use of a competent real estate consultant/appraiser is certainly an advantage.
John M Thistlethwaite
(260) 426-7134
Fax (260) 420-9033
E-mail
address
