How appraisers and property owners find a price that’s right for their project
Appraisers skirt conflicts of interest to stretch fortunes, shrink tax payments and divvy up inheritances in the real estate industry
At Donald Trump’s 11-week civil fraud trial, the bombastic ex-president would have taken center stage had it not been for the commercial real estate appraisers.
Appraisers are supposed to give unbiased, trustworthy valuations for lenders, partners and the taxman. But these often anonymous middlemen have amassed outsized power to stretch or shrink fortunes according to their clients’ will.
In 2014, the Trump Organization hired valuation experts at Cushman & Wakefield to determine the worth of the Trump National Golf Course in Los Angeles. Trump was donating a conservation easement at the course and wanted to get a tax break.
The size of the write-off depended on the value of a particular driving range. The easement would reduce the property’s value as a future development site; every dollar Trump could claim was lost from the value of his golf course would be a dollar added to the size of his donation — and the larger his tax benefit would be.
“Trump is fighting for every $1,” Cushman’s lead appraiser, Richard Zbranek, wrote to a colleague, according to the civil complaint from New York Attorney General Letitia James.
Zbranek, James argued, was under pressure from the Trump Organization to increase the value of the donation.
The attorney general said the appraisers did so by overstating how quickly the site could be developed, and by failing to value a reduction in affordable housing requirements.
“The Cushman appraisers made these misstatements in an atmosphere of pressure applied to them by the Trump Organization,” James wrote.
The trial showed off the underbelly of the real estate business, where shady valuators — deal enablers, “friendly” appraisers, people who “know how to play ball” — bend the facts to match their clients’ wishes.
Some do it because of a moral culture where the appraisers who go with the flow are the ones rewarded with more assignments. Others engage because they work at large, multidisciplinary firms where valuation work is a foot in the door for bigger leasing and management fees.
Their calculations have real impact. Appraisals determine the size of a loan owners can get or, as in the Trump case, how much they pay in taxes. They’re used to compute the price of an investor’s shares and determine which bondholder has the controlling class in a CMBS deal.
By tweaking an assumption about future cash flows here, or stretching a best-use case there, a friendly appraiser can help property owners choose the net worth they like, at least on paper.
But proving that a commercial appraisal is biased is hard, said Amrik Singh, a professor at the University of Denver’s Daniels College of Business, who studies exactly this topic.
“I don’t think it’s explicit pro quo unless the lawyers can get to the emails to prove it,” he said.
How to play ball
When the wealthy investor Sol Goldman died in 1987, he left his vast real estate empire to his heirs. They later set up a system to cash out their shares in the portfolio, which spans more than 150 properties.
There was just one problem. The heirs didn’t know how much the portfolio was worth. To determine the value of those shares, they needed to order an appraisal.
Sol’s daughter Jane Goldman, who runs the family company, hired a veteran appraiser at Newmark named Doug Larson, an alumnus of Cushman & Wakefield who had done valuation work for Trump.
Larson initially valued the Goldman empire at about $2.6 billion. The portfolio includes properties like the ground underneath Empire State Realty Trust’s 1350 Broadway office building and the Gramercy Park Hotel, in addition to numerous rental buildings.
This was much too low, according to Jane’s sister and nephew, who disagree with the way she ran the firm. They claim that Newmark came up with a series of deductions to drive down the value so Jane could buy the shares back on the cheap, according to a lawsuit they filed in November.
“Trump is fighting for every $1.”
They hired the Big Four accounting firm EY to check the report. The EY team found more than $558 million worth of deductions Larson had applied that it considered questionable, including a discount that assumed the portfolio would be sold to a single investor instead of being split up, and a deduction for management fees it’s not clear a new buyer would be required to pay.
Jane “exert[ed] pressure on the appraiser to revise its valuation to a lower figure,” said Jane’s sister Amy Goldman Fowler and her nephew Steven Gurney-Goldman. They say Larson and his firm had a conflict of interest because Jane had hired Newmark to represent her company on other properties.
When notorious landlords the Podolsky brothers struck a deal to sell 17 run-down buildings in Brooklyn and the Bronx to the city for use as homeless shelters in 2019, they also needed a price.
The brothers hired appraiser Joel Leitner, who had served as president of the Metropolitan New York chapter of the Appraisal Institute industry group.
Leitner shared an unsigned draft copy of his report with the Podolskys, which raised some red flags. There’s an ethical gray area when it comes to an appraiser giving a client a sneak peek at findings before signing off on them.
“It’s a way for the client, the property owner, to control the process,” Michael Vargas, president of the Vanderbilt Appraisal Company, told the Daily News at the time. “It’s kind of like talking to the client and asking him, ‘Let me know if I should change the value to your liking.’”
Leitner disagreed with that interpretation and said it was not uncommon for appraisers to share a draft for clients to proofread for errors.
It’s up to the appraiser to resist any pressure from the client to make inappropriate changes when reviewing a draft, he said.
“Any time you’re doing something that involves a legal situation, you want to make sure all the T’s are crossed and I’s are dotted. You’re giving the client or their lawyer a chance to change a sentence that isn’t grammatical,” he said. “It’s not about changing the value. We’re all grownups.”
Foot in the door
The real conflict in the industry, Leitner said, exists at the big full-service firms where the valuations practice is secondary to revenue-generating divisions like leasing, sales and property management.
“Newmark, Cushman and Wakefield, Jones Lang [LaSalle] … in the appraisal business, the fees are a loss leader because they don’t want to jeopardize the real big things,” he said.
It’s not just the big national firms that have potential conflicts.
Appraisal startup Bowery Valuation, founded in 2015, pitches itself as a nimble, tech-enabled alternative to traditional advisory firms. But one of the company’s investors is Capital One Ventures, and Bowery lists Capital One as one of its clients.
That raises the question: Would Bowery ever be pressured by one of its investor clients to come up with a biased result?
Bowery spokesperson Camille Phillips wrote in an email that Capital One Ventures and the bank’s lending/appraisal departments operate separately, “so there’s no conflict of interest.”
Part of the difficulty in rooting out bias in appraisals is that the process involves so many subjective factors in the first place. Experts have to make assumptions about things like future cash flows, and small changes can have big impacts on the end result.
“It’s kind of like talking to the client and asking him, ‘Let me know if I should change the value to your liking.’”
The University of Denver’s Singh said the big question is whether those assumptions are based on market facts, or are slanted to end up at a preconceived outcome — and he acknowledged that there’s a gray area. He said the main factor that drives bias is the threat of losing future business or other opportunities.
Appraisers who bend the rules can get repeat business for their trouble.
But so can the experts who adhere to their profession’s standards.
“If you have been working with an appraiser for a number of years and you trust the expertise and judgment of the appraiser and you know the person is certified expert, acts with integrity, has done a great job for you and complies with all the ethical and professional standards used by many other clients … it is going to be hard to argue that the appraisal is biased,” Singh said.
Letter of the law
The rules governing appraisal ethics and standards are laid out in the Uniform Standards of Professional Appraisal Practice, commonly referred to by its acronym, pronounced “Use-pap.”
When it comes to a conflict of interest, the big issue is whether an appraiser receives an assignment that is contingent on something like the promise of more work in the future, said Lisa Desmarais, vice president of appraisal issues at the Washington D.C.-based Appraisal Foundation.
The ethics rule says an appraiser cannot agree to take on an assignment where future work is contingent on the appraiser’s opinions.
“However, the prohibition here is not against all forms of dependency, but only those that involve events that are themselves unethical,” she wrote in an email.
If, for example, an appraiser needs to complete the work to get paid, that’s a contingency — though not an unethical one barred by the rules. But if the appraiser’s pay is contingent on reporting a certain result, “then the contingency is prohibited, because the ethics rule prohibits the development or reporting of biased results,” Desmarais wrote.
The issue of bias is sometimes addressed with disclosures. In their final reports, appraisers are supposed to make a list of certifications, including that their results are unbiased and that they did not have a contingency.
But appraisers are also bound by confidentiality. If appraisers previously did work for a seller under a confidentiality agreement, for example, they would not be able to disclose that in a report that might be used by a potential buyer.
“If the client has requested anonymity, the appraiser must use care when identifying the client to avoid violations of the confidentiality section of the ethics rule,” according to the industry standards.
Star turn
In a business that makes celebrities out of mogul developers and rock-star brokers, appraisers are usually just one notch up from accountants in terms of name recognition.
But a few have risen to name-brand status.
One is Robert Von Ancken, whose list of assignments reads like a register of New York City’s iconic buildings. He has valued Rockefeller Center, Madison Square Garden, the Chrysler Building and the Empire State Building.
But few people spend more than five decades in the appraisal business without raising some eyebrows.
When Trump’s niece Mary Trump sued Trump and two of his siblings in 2020, claiming they cheated her out of millions in a family settlement, she alleged that it was a biased appraisal by Von Ancken that helped drive her stake down.
“He had worked with [the Trumps] for decades as what might charitably be called a ‘friendly’ appraiser: Rather than valuing an interest according to professional standards, he would inflate or deflate the valuations, manipulating his methodologies and inputs, in accordance with the Trumps’ desires,” she wrote in her case, which was later thrown out.
Von Ancken said it was the dilapidated state of Fred Trump’s low-rent buildings that led to his findings — nothing more.
“I’ve had clients who tried to appeal to me to come up with a higher number. I either didn’t do it or I dropped them,” he said. “I always felt that my reputation was more important.”
For Von Ancken, success came from his integrity, he said. But that’s not the reputation all clients seek.