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Real estate record and builders' guide: v. 20, no. 504: November 10, 1877

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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