Real  Estate   Record





AND BUILDERS^ GUIDE.





Yol. XX.





NEW YOEK, SATUEDAT, NOYEMBEE IG, 1877.





No.  504





Published Weekly by

TERMS.
ONE YEAR, in advance....$10.00.

Communications should be addressed to

C.  W.   S'WEET,

Nos. 345 AKD 347 Broadway.





STANDARDS OF VALUE.
That exceUent newspaper, the New York Times,
recently undertook to wrestle with the subject of
real estate values in connection with the mort¬
gage loans of institutiqns. We have reason to
believe that The Recorb is regularly perused by
the Avriters of that great journal, and we, there¬
fore, take more than a passing interest in its
expression of views upon subjects of real estate.
We cheerfully assume the responsibility of pro-
■viding the daily press with the latest and most
reliable information upon all matters connected
with our specialty, and are contented to have
om- matter dilated upon or reproduced in whole
or in piecemeal, with or without credit. In the
present epoch of our city's history, we consider
it of the highest importance that the public
mind should be accurately and intelligently
informed upon the leading movements of real
estate, and made acquainted with the principles
underlying them. We intend The Recobd shall
be a perfect vade tnecum of this special interest or
group of interests, so that New York, in
its real estate transactions, may be like a city set
upon a hill -which need not be ashamed.

In view of the course of reasoning, and the
conclusions adopted in the article in question, we
are somewhat disappointed to flnd that our past
efforts in expounding and elucidatmg the twin
subjects of values and mortgage loans should
have so far failed in laying the foundation for
correct and sound ideas in reference to them.
If we rightly apprehend the purport of this arti¬
cle, the writer seems to have become losfc in a
maze of the standards of values, of the percent¬
ages of those values which mortgage loans should
represent, of the principles which should guide
the selection of mortgages, and of the desu-abil-
ity of the mortgage loan as an investment of
trust funds.

We are ready to concede that real estate values
are less definable and determinable, in the aggre¬
gate, than are the values of many other articles
commonly dealt in, such as merchandise and
active securities. A truer approximation to intrin¬
sic value may be arrived at in the case of im¬
proved property than in vacant property, unless
the latter is very eligibly situated and near the
latest improvements, otherwise it loses the ele¬
ment of even approximate certainty, through
lack of use or demand aud absence of transac¬
tions.

The whole subject of real estate values is em¬
braced in the statement that there are different
standpoints from which the same real estate may
be regarded, and the multiplicity of these points
of view tends to create this condition of seeming
uncertainty, or-ldck 6f definition in regard to





values. This kaleidoscopic character of real
estate closely resembles the many facets of a
diamond, each face revealing some peculiar
merit or charm of the precious stone, but all pre¬
senting combined variations of one and the same
valuable commodity. These various phases of real
estate are perfectly legitimate, indeed belong
naturally to the subject, and within the
sphere of each separate view, the element of un¬
certainty becomes weU nigh lost, values for
each specific object or purpose becoming easUy
determinable and definable by experts.

We must enter our protest against the con¬
clusion, that there is no valuation of real estate
sufficiently practical and effective to make it
serve as a proper basis for mortgage loans; and
we equally protest against the proposition that
insticuticns shall be limited bylaw to lending one-
quarter of their assets upon mortgages, or shall
voluntarily adopt this limit. The mortgage loan
valuation constitutes one of those separate views
of real estate which is perfectly well understood
and recognized among competent persons, and is
among them regarded as the most sound, cautious
and reliable gauge that can be appHed to the
value of real estate. Speculative considera¬
tions are entirely foreign to it, and the chances of
many possible catastrophes that may happen
through a term of years are intended to be amply
provided for in it.

The losses on mortgage loans, arising from
honest faults of judgment on the part of compe¬
tent managers, are comparatively few. The
heaviest losses' are referable to the fact that
some managers of institutions became themselves
identified largely with speculative movements in
real estate, and did not scruple to make use of the
power entrusted to them, in their official capacity,
to further their speculations. The most notorious
and disastrous losses growing out of real estate
mortgages, are attributable to the criminal and
corrupt perversion of official trusts. Therefore,
it is not the matter of these investments which
should be assailed, but the mannei' of executing
theih. The secret history of corporate manage¬
ment during the past ten years would shed a flood
of light upon the endless stream of foreclosure
suits that have been instituted during the past
three years. Because malfeasance in office has
been the rule during this long period, there is no
reason why the subject matter of investments
should be suddenly changed. We have simply to
return to the primitive method of corporate
management which takes security as the guiding
star in preference to large bonus or interest. In
the hands of careful and prudent managers like
Mr. Macy of the Seamen's, Mr. Stewart of the
United States Trust, aud Mr. Parish of the New
York Life and Trust, an application for mortgage
loan is determinable almost upon sight as to its
intrinsic merits. The loans that pass the ordeal
of their examination and judgment are generally
reliable and secure, thi'ough prosperous and
adverse times. Of the Seamen's Savings Bank, it
is credibly stated that, during a period of twenty-
five years, not more than five pieces of property
were taken in under foreclosure, and the infre-
quency of foreclosure suits on the part of the
three iriBtatutions just named, and of mianyother





prominent and reliable corporations similarly
managed, serves to demonstrate the unimpeach¬
able security which attaches to the weU selected
mortgage loan. When security and permanence
of investment are the sole objects in view, there
vdll be little occasion to criticise adversely the
character of the loan. The thought furthest
from the mind of a corporate manager should be
that of making loans for the purpose of being
able to appropriate the property mortgaged at
some future time. This sort of speculative invest¬
ment is sure to result in disappointment. It leads
the manager to loan an unwarrantable percentage
of the appraised value of the property, ^nd when,
finally, it is brought to foreclosm-e sale, it is no
longer worth the loan, and affords no inducement
to the original owner to protect and carry it.
Where the loan is made for security, the margin
exacted precludes the risk of foreclosure and com¬
pels and keeps alive the interest of the owner,
who is apt to guard his equity with as much care
as the institution does its mortgage loan. Where
the loan is carefully and prudently selected, the
chances of foreclosure not only become remote,
but when the property falls accidentally into the
hands of the mortgagee, it is generaUy found to
be no intolerable burden, because the amount in¬
vested in it was gauged so nicely at the inception
of the loan, that, under the most unfavorable cir¬
cumstances, it is not likely to represent more than
the true value of the property.

Institutions are, or ought to be, managed by a
system of mechanism veith checks and balances
that ensure success. The ordinary course of pro¬
cedure in obtaining a mortgage loan is to present
a formal application, which is scanned closely by
the principal officers, and if whoUy objectionable
is declined at once, but if thought to be eligible
for acceptance, the property is first appraised by
the expert appraiser employed by the institution
and his report, together with the application, is
laid before the Finance Committee at its regular
meeting. Here, the loan passes into the hands of
a sub-committee of one or more persons, where it
undergoes another examination with the view of
determining what percentage of the appraised
value may be safely loaned. It is at this critical
juncture that the merit or demerit of the pro¬
posed loan is apt to be defined. If, through
undue influence, or lack of experience and fore¬
sight, a large percentage, say sixty or seventy
per cent, of appraised value is determined upon
as the loanable amount, the investment -wiU be
lacking in the element of ample security. If the
lower scale of forty or flfty per cent, is adhered
to, such being the recognized standard of the
most carefuUy managed institutions, it is certain
that no harm can arise from such an investment.
It is a misfortune in some of our larger institu¬
tions, that the business of loaning money faUs
into the hands of inexperienced persons, mer¬
chants and others, who have only a superficial'
and passing acquaintance with matters of real
estate. Besides large experience in the uses of
property and in the fluctuations of prices, the
pi-incipal qualifications necessary for a loan man¬
ager are common sense, practical judgment and
average honesty. These will enable him to resist
all corrupit and undue influences calculated to