Page 26: of Marine News Magazine (September 2018)

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COLUMN FINANCE

Apples and Oranges

When it Comes to Vessel Finance

Companies, lenders, and their auditors worldwide need vessel appraisals that can be relied upon when put into legal documents. As the offshore energy support markets awaken, this is more important now, than ever.

By Norman Laskay

While a great deal of shipping ? nance as a control within the United States, the scope of today’s is done at a 10,000’ level, with bond commerce has rapidly become worldwide. Abroad, a Brit- deals and equity swaps, the value of the ish group, the Royal Institute of Chartered Surveyors assets found on ground level are still very (RICS), which has been in existence for almost 150 years, important. There are taxation issues, has a set of ethics that are in many ways similar to USPAP. insured value, public reporting, and al- This is called the Red Book. While there are some RICS location of purchase price, where the members all over the world, these scattered sources of uni- value of individual vessels is important. ? ed organizational ethics cannot serve a ? nancial web now

Companies, lenders, and their auditors connected to every country in the world.

Laskay worldwide need vessel appraisals that This is where the apples and oranges come in. The Unit- can be relied upon when put into legal ed States and the United Kingdom have similar ? nancial documents. How can an owner, lender, or auditor depend foundations and regulations, and with exceptions, a simi- on values that may have been gathered from varied sources? lar language. Once we move into many other countries,

Uniformity in appraisal process started domestically with the similarities end. The Mideast looks at debt in a differ- the collapse of the U.S. savings and loan market due to de- ent way than the West. Japan has no history of asset based regulation and fraud, among other causes. The involved lending. So, how does a lender in London feel comfortable parties, lenders and appraisers, in order to avoid direct gov- with an appraisal report from Zaire? ernment regulations, formed The Appraisal Foundation in In the early 1980’s, a group called The International order to self-regulate. This started in 1986 with multiple Asset Valuation Standard Committee formed to develop appraisal organizations starting to write the Uniform Stan- consistent standards for worldwide real property appraisal. dards of Professional Appraisal Practice (USPAP), and By 2008, it had morphed into the International Valua-

U.S. Congress, in 1989, passing the Financial Institution’s tion Standards Committee. As of 2017, it included over

Reform, Recovery, and Enforcement Act (FIRREA), of- 70 appraisal organizations worldwide, all who want their ? cially making The Appraisal Foundation the overseer of country and their appraiser members to have recognized appraisal standards and appraiser quali? cations. appraisal reporting standards and ethics. When a lender

Today, in every state, any real property appraisal, resi- anywhere in the world reads an appraisal report, they want dential or commercial, has to be done to USPAP standards to feel that the standards, language, descriptions, and eth- by USPAP certi? ed appraisers. While this began as the ics being used are apples to apples or oranges to oranges.

standard for real property, appraisal organizations followed The current 2017 International Valuation Standards suit and made USPAP the standard for any appraiser mem- (IVS) are in most ways similar to USPAP and the RICS Red ber, be they appraising gems and jewelry, antiques, factory Book. While the ethics portions are very similar, the rules for equipment, construction equipment, entire factories or re- the appraisal processes are not as tightly drawn to allow ap- ? neries, business organizations, or even intangibles, such praisers in some foreign countries to comply with local laws.

as copyrights, patents, and stocks and bonds. Now U.S. Beside the compliance with ethical standards and avoid- banks have operational standards that require a USPAP ance of bias, all compliant appraisal reports, be they US- compliant appraisal report for asset-based loans and other PAP or IVS, must be transparent so that even a third party transactions that require auditing. reader can follow the process that developed the value or

While the Appraisal Foundation and USPAP work well values, and even some well written appraisals may end up

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