Headlines – Week of April 18, 2010

April 24, 2010

Troubled Banks Double in 2010

More than twice as many federally insured banks have failed this year (through April 12th).  Based upon information provided by MortgageDaily.com  42 banks failed so far in 2010 compared to only up by this time last year,.

At the same time, this year has seen a big decline in the number of “non-bank” mortgage lenders to close down.

Notable institutions include Florida Community Bank, with losses projected at $353 million; Appalachian Community Bank, which the FDIC expects will lose $419 million; and Horizon Bank, projected to lose $539 million.
Even more significant were the closings of First Regional Bank, with expected losses of $826 million; Community Bank and Trust, which the FDIC expects to lose $828 million from; and La Jolla Bank, FSB, where $882 million in losses are projected.

Credit union failures jumped by half from 2009.

One notable non-bank closing was that of Equitable Reverse Mortgage Co., which claimed to be “the 14th largest reverse mortgage lender in the nation.” Another company, Assurity Financial Services LLC, touted its standing as a “Top Non-Imploded” lender before throwing in the towel.

Type

Through 4/12/10

Through 4/6/09

Full-year 2009

Nonbank

7

25

69

Banks

42

21

140

Credit Unions

6

4

20

Total

55

50

229

 

 

 

 

 

 

Complete details about all failed companies are available at the following link

 Realtors®’ report underscores need to revitalize commercial real estate(from the National Association of Realtors)

According to data from the 2010 National Association of Realtors Commercial Member Profile, high unemployment rates and tight credit conditions were some of the challenges that Realtors® who practice commercial real estate faced last year.

According to NAR’s 2010 Commercial Member Profile, commercial members completed a median of five sales transactions in 2009, down from eight in 2008. The median sale volume was $1,767,900 among those engaged in sales transactions (14% of NAR’s commercial members did not complete a sales transaction in 2009). The median leasing volume was $330,200 in 2009 among those engaged in leasing business; 42% of commercial members had no leasing transactions in 2009.

Median gross annual income for Realtors practicing commercial real estate has been declining since 2006, when it was $115,600. In 2009, the median income was $68,600. Commercial practitioners with less than two years experience earned a lower median income than those with more than 26 years experience; $35,300 versus $112,500.

The NAR 2010 Commercial Member Profile was based on a survey of 881 commercial practitioners.

Full Profile

 Commercial Real Estate Starts to Perk Up (from USA Today)

According to an article in USA Today, the troubled commercial real estate market may be clearing up a bit.

Prices of commercial property are up slightly compared with last fall. Loan modifications have risen sharply the past six months. Commercial mortgage-backed securities (CMBS), a big funding source that was comatose for two years, has come to life recently.

Developers put up too many commercial buildings earlier this decade and paid the price when the economy wilted as vacancies rose and rents fell. Default rates jumped to 3.8% from 1.6 % in 2009 and will hit 5.1% this year according to Real Capital Analytics.

Many large transactions were financed by CMBS loans during the peak of this decade. Investment banks bundled loans for several projects into securities they sold to investors. A record $230 billion in securities were issued in 2007 vs. $3 billion last year according to Commercial Mortgage Alert.

Already in 2010, $4 billion in deals have been completed and Trepp  predicts about $25 billion in CMBS in total will be issued in 2010.

However, the new money isn’t rescuing distressed properties, it’s refinancing high-quality loans as they mature. Even borrowers who bought projects before the real estate bubble have had a hard time refinancing because of scarce funding and lenders demanding higher down payments.

Deutsche Bank predicts most of the $1.4 trillion in mortgages maturing by 2013 won’t qualify for refinancing unless borrowers put up more cash.

Other good signs:

  • Commercial real estate values have edged up 6 percent in recent months according to Real Capital Analytics. They fell 45 percent from 2007 to 2009.
  • About $13.7 billion in loans were modified the past six months.

 Full Article

Posted by Scott R. Lodde

Fishkind Presentation – February 2010

April 18, 2010

On February 25th, I attended a presentation by Hank Fishkind sponsored by the Naples Area Board of Realtors in Naples, FL.  The firm’s principal Dr. Henry Fishkind, Ph.D. is the principal of Fishkind & Associates, Inc., an economic and financial consulting firm with offices in Orlando, Naples, and Port St. Lucie, Florida. The company was formed in 1987, and has extensive experience in economic and fiscal impact analysis, forecasting and finance throughout Florida and the United States.  Dr. Fishkind was formerly an associate professor of economics at the University of Florida, and Director of the University’s forecasting program.

Dr. Fishkind spoke to a group of about 220 Realtors as part of an annual market forecast event held at the NABOR office. His projections included national and statewide trends, as well as Southwest Florida information.

During his presentation, Dr. Fishkind painted a less than rosy picture of Collier County’s current economic condition describing it as a kind of financial Hurricane Andrew.

As usual during his presentation, he provided a number of slides which provided historical as well as forecast information on various economic indicators. 

The following slide presented his summary for the U.S. during the next three years:

 U.S. Forecast Summary 2010 – 2013

Recovery underway but will underwhelm

  • Economy is slowly but steadily recovering
  • Job growth very modest – strong enough to sustain the recovery but not strong enough to reduce unemployment until 2011
  • Financial system remains impaired

2011-2013 Paying the Bills

  • By 2011 the recovery will pick up steam
  • Fed will end extraordinary measures
  • Deficit remains large
  • Interest rates rise significantly

Main forecasts risk – run away deficits and a collapse in confidence in the dollar collapse in confidence in the dollar

The following slide presented his forecast for the State of Florida:

Florida Summary

  • Worst Recession since 1975 – bottoms in 2010
  • National recession focused on households and banks
  • Soft housing markets limit migration into Florida 2010
  • Broken nest eggs
  • Hometown Democracy

Since the official start of the current recession in December 2007 to the “so-called” end in November 2009, the country has seen a 23 month of consecutive drop in the Gross Domestic Product, the longest slide in U.S. history.  The average for all previous recessions was 10 months.

florida-summary-post-war-recession-in-us

 Stronger Growth 2011-2013

  • Improving migration trends
  • Stronger housing markets
  • Higher rates limit the expansion

 

Paradigm shift – Florida less attractive

  • Average annual population growth 300,000 +/- 50,000 depending on business cycle
  • Still Florida remains one of the fastest growing state east of the Mississippi

The declining economy led to a huge slowdown in population growth between 2007 and 2008 and a population loss between 2008 and 2009. The loss was the first since military personnel left the state at the end of World War II.

florida-population-growth

Florida is expected to add about 23,000 residents between April 1, 2009, and April 1, 2010, following a loss of almost 57,000 residents the previous year, according to projections released by the University’s Bureau of Economic and Business Research.

Despite these gains, the report states Florida will not return to its average annual increase of 300,000 until 2014 or 2015. 

florida-growth-forecast

In 2006, the state gained 129,300 jobs, only to then lose 140,100 jobs the following year. In 2008, a stunning 346,700 jobs were lost, followed by 235,000 jobs in 2009.

From a real estate perspective, Fishkind believes Florida might have lost its “competitive edge” compared to other states. Some of the reasons he pointed to include:

  • 1. Some attractive areas built out
  • 2. Unbridled impact fees
  • 3. Poor land use policies
  • 4. Faulty property insurance market
  • 5. Faulty property tax system
  • 6. High cost/duplication local government services (police, fire, EMS, planning)

Dr. Fishkind summary of the commercial retail and office market in Collier County was startling.  In 2009, rental rates for both retail and office were the lowest since 2005-2006 with vacancies approaching the highest levels ever seen.  Both of these property types saw negative absorption during a significant portion of 2009.

Posted by Scott R. Lodde

Headlines – Week of April 11, 2010

April 18, 2010

Office Vacancy Rate Hits New High (from Reuters News)

The office vacancy rate in the United States reached 17.2 percent in the first quarter, the highest since 1994, according to research firm Reis Inc.

The rate was 2%  higher than it was a year ago as asking rents fell 4.2% and effective rent was down 7.4%  from a year ago.

Reis analysts said they expected that rents will continue to decline and vacancies rise through 2010 and probably 2011.

But over the long term, Reis points out that tight credit markets have slowed office construction. This year, only 3.6 million square feet of new office space will be added, the lowest number of completions since Reis began keeping track of this data in 1999.

Full Article

Experts aren’t ready to make the call on recession (from USA Today)

The National Bureau of Economic Research (NBER), the group that formally declares the beginning and end of recessions, said Monday it isn’t ready to declare that this downturn is over, though many leading economists firmly believe it is.

The NBER is a panel of academics and said most economic indicators “have turned up.” The panel noted that the data is quite preliminary and will be revised.  They stated that pinpointing the month the slump bottomed “would be premature.”

Nearly all the indicators, including economic growth, industrial output, income and retail sales, have been trending upward in recent months. The economy grew 5.6% in the fourth quarter and even added 162,000 jobs in March which the first significant gain since the recession started in December 2007.

A big reason for caution in calling an end to the recession is that the job market has yet to show two consecutive months of big increases.

Many economists believe it ended in June, meaning it lasted 18 months.

There is still a chance the economy could slip back into recession, though most economists say the risk has been shrinking. The committee pronounced the 1980 recession over in July that year, waiting a year to make the call.

It’s not uncommon for the panel to be slow to call the start and finish of recessions. It took a year, 21 months and 20 months, respectively, to declare the 1980, 1991 and 2001 recession history. The 1991 and 2001 recessions were also plagued by job markets that lagged overall recoveries as employers learned to produce more with fewer workers.

Full Article

Commercial mortgage delinquencies spike in March (from ABC News/Money)

The delinquency rate for commercial mortgage-backed securities posted its largest increase ever in March, Moody’s Investors Service reported Wednesday, blaming most of the gain from the collapse of a $5.4 billion housing deal in New York.

The ratings agency said that the rate rose 69 basis points in March, a $4.3 billion increase as 343 loans became delinquent.

But 45 of the basis points were attributable to the loan for the Peter Cooper Village and Stuyvesant Town housing project in Manhattan. A $3 billion loan for the development moved into delinquency in March.

The project, which would have been the most expensive real estate deal in U.S. history, fell apart in January when a developer team could not make a $16 million loan payment. The team, led by Tishman Speyer Properties and BlackRock Realty, turned the 110 buildings that make up the complex over to creditors, saying it was the only alternative to bankruptcy.

Commercial mortgage backed securities have suffered with the sharp downturn of the market for properties like offices, retail centers and multifamily housing.

Moody’s wrote that some sectors have shown some signs of life, such as loans for multifamily projects and hotels. The rate of increase in delinquencies has slowed in recent months. But the rate of increase for projects like office and real estate continues to rise unabated.

Even with the Peter Cooper Village default, the eastern region remains the best-performing part of the country. The south holds the largest percentage of delinquent loans.

In other news about commercial real estate loans, Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel said that by the end of 2010, about half of all commercial real estate mortgages will be underwater.  Most of these loans are concentrated in the mid-sized banks.  She stated there are now 2,988 bank that have dangerous concentrations in commercial real estate lending. Her interview was seen on CNBC.

Full Article

Posted by Scott R. Lodde

Will hotel supply and demand levels ever return?

April 18, 2010

In an article written for Hotel & Motel Management, Senior Editor, Jason Freed ponders the question above as hotelier’s bank on a break in one of the worst industry recessions ever.

Each time occupancy levels dip and hotel owners and managers aren’t meeting forecasted revenues, analysts and investors are assured the hotel industry is cyclical by nature and will surely rebound.

But after two years into a downturn that many are calling the worst in history, hoteliers are again left pondering the same harsh realities regarding supply and demand.  Are we in a business model that is a “new normal?”

The same thing happened after 9/11 and everyone said nothing would ever be the same again.

From firsthand experience, I can feel everyone’s pain since I opened a new 126-room Hilton Garden Inn here in Fort Myers a week after 9/11.  The years following were the worst I ever experienced … until now.

But I don’t buy into the belief that there is some type of “new normal”.  Eventually things will get better, financing will come back and there is a light at the end of the tunnel.

The article in Hotel & Motel Managementwrites about the twenty-five history of information collected by Smith Travel Research. Since the company began collecting data in 1986, there has never been a larger decrease in year-over-year revenue per available room than the 15.9% DECREASE from January 2008 to January 2009. The closest revenue losses were from January 2001 to January 2002, when RevPAR fell 13.2%.  By 2003, the industry had rebounded rather quickly, posting a 2% year-over-year increase in January.

Again, I can personally vouch for the fact since our Hilton Garden Inn recovered nicely and in 2004 the hotel had its best year ever.  Shortly thereafter we sold the property for high price as buyers replenished there cash positions and cap rates plummeted.

However, as the article points out, this time things are different.  From January 2009 to January 2010, RevPAR was down an additional 7%.

Although the economy can be blamed for both business and leisure travelers cutting down on trips, excessive supply has much to do with the current downturn as well. In Lee County Florida, the hotel base ballooned in 2009 as some 1,300 hotel rooms were opened.  This in an area of the country where no more than 200 new rooms would be acceptable.

Some blame can be pointed at the franchisors who proliferated the market with subsets of their brands and then “went wild” approving licenses. And developers who did not understand the local markets were getting capital so easily that they weren’t restrained by good underwriting.

It’s going to take us a while to reach a level of occupancy that’s going to sustain an increase in profitability.

How long it will take to reach a level of occupancy that will sustain a level of profitability is uncertain but will definitely be tied to the growth in GDP and a drop in unemployment.

What is for certain is that new hotel construction has dropped like a brick. 

According to the March 2010 STR/TWR/Dodge Construction Pipeline Report released this week, the total active U.S. hotel development pipeline includes 3,399 projects comprising 354,538 rooms.  This represents a 35.7% decrease in the number of rooms in the total active pipeline compared to March 2009.

us-hotel-pipeline-march-2010

Fifteen of the Top 25 Markets have more than a 50% decline in year-over-year rooms in construction.

The same phenomenon occurred following 9/11 and as a result occupancy eventually came back to sustainable levels.  As occupancy levels increased, average daily rates rose as well.

It will happen again this time around … it just may take a little longer.

Posted by Scott R. Lodde

Headlines – Week of March 28, 2010

April 2, 2010

Sunbelt Growth Slows Down (from the Associated Press)

The U.S. Census recently released figures indicate that Baby Boomers are staying put in traditional big cities to hold onto jobs, creating slowdowns in population growth at once-popular retirement destinations widely found in the South and West.

In the next few years, the number of older workers will increase by 11.9 million, making up nearly 1 in 4 workers by 2016 as more seniors hold onto jobs due partly to shriveled home values and decreased stock portfolios.

The census shows that the growth of traditional retirement destinations slipped from 3.1% between 2000 and 2007 to 1.7% between 2007 and 2009, even though significant numbers of baby boomers passed age 60 during those years.

The report noted that 126 of the 440 retirement counties surveyed lost population during the recession, many of them in Sunbelt areas such as Florida, Arizona, New Mexico and California. In Florida, 33 of its 43 retirement counties grew more slowly, while seven others, led by Daytona Beach in Volusia County, lost population.

The one exception in the survey was Texas, a Sunbelt state that saw substantial gains due to a stronger labor market and immigrant growth. For the second year in a row, Dallas-Fort Worth and Houston ranked first and second among metros with the most numerical gains, each adding more than 140,000 people.

Las Vegas, Orlando, Phoenix, Atlanta, and Raleigh, N.C., all lost population in 2009, while New York, Los Angeles, Boston, and Chicago gained population. Cleveland and Philadelphia decreased in population.

Full Article

Vacation-Home Sales Increased in 2009 (from NAR)

According to the National Association of REALTORS® (NAR), vacation-home sales recovered in 2009 while investment sales fell sharply.

NAR’s 2010 “Investment and Vacation Home Buyers Survey,” covering existing- and new-home transactions in 2009, shows vacation-home sales rose 7.9% to 553,000 last year from 513,000 in 2008, while investment-home sales fell 15.9%to 940,000 in 2009 from 1.12 million in 2008. Primary residence sales rose 7.1 percent to 4.04 million in 2009 from 3.77 million in 2008.

The typical vacation-home buyer is making a lifestyle choice, with nine out of 10 saying they intend to use the property for vacations or as a family retreat. Investment buyers primarily seek rental income, with six in 10 planning to rent to others, although one in five wants a family member, friend, or relative to use the home.

Half of vacation homes purchased last year were in the South, 21 percent in the West, 17 percent in the Midwest and 12 percent in the Northeast. Seven out of 10 were detached single-family homes.

Here is a breakdown of statistics from the survey:

Vacation-Home Buyers

  • Only one in four vacation-home buyers plan to rent their properties to others.
  • 26% of vacation-home buyers intend to use the property as a primary residence in the future.
  • The vacation-home market share rose a percentage point to 10%.
  • The median transaction price of a vacation home was $169,000 in 2009, compared with $150,000 in 2008.
  • Three out of 10 vacation-home buyers in 2009 paid cash for their properties
  • The typical vacation-home buyer in 2009 was 46 years old, had a median household income of $87,500, and purchased a property that was a median distance of 348 miles from their primary residence

Investment-Home Buyers

  • One in five investment buyers plan to use their homes for vacations or as a family retreat.
  • 8% of investment buyers intend to use the property as a primary residence in the future.
  • The market share of homes purchased for investment was 17% in 2009, down from 21% in 2008.
  • The total share of second homes declined from 30% of sales in 2008 to 27% in 2009.
  • The median investment property sold for $105,000 last year, down 2.8% from $108,000 in 2008.
  • Half of investment buyers paid cash.
  • Investment-home buyers last year had a median age of 45, earned $87,200, and bought a home that was relatively close to their primary residence – a median distance of 24 miles.
  • Roughly one in four investment buyers purchased more than one property in 2009.

Full Article

Markets: 10 Fastest-Growing Small Towns in U.S. (from Forbes.com)

According to a recent article at Forbes.com, towns all over the country grew during this decade as retirees and others sought attractive and uncrowded places to live and vacation.

Early U.S. Census Bureau projections identify these towns as America’s fastest growing between 2000 and 2010. Some of them are distant suburbs of large cities, but others are in sparsely populated rural areas where new residents enjoy pastoral beauty.

To derive the information, Forbes received information from the U.S. Census Bureau which broke down population growth by its source: net domestic migration, net immigration and new births. Forbes then added the number of newcomers minus the number of people moving out between 2000 and 2008.

Retiring baby boomers, snowbirds and young professionals, drawn by the warm climes and once-plentiful jobs, flocked to Florida towns over the past decade. Sumter County, which includes the municipality of Wildwood and the unincorporated community The Villages, showed new migrants as 34% of the population. Lake County, an exurb of Orlando comprising a handful of small communities, has a 32% migrant population; Southeastern St. John’s County, where vacation destination St. Augustine and the town of Hastings are located, has 32% in-migration.  Flagler County, the No. 1 county on the list had almost half of current population come from newcomers.

Economists expect growth to slow in the next decade as people stay closer to jobs and because they can’t sell their homes. Meanwhile, here are the top 10 rural and suburban counties that enjoyed the most growth in the last decade:

1. Flagler County, Fla.
2. Kendall County, Ill.
3. Rockwall County, Texas
4. Pinal County, Ariz.
5. Sumter County, Fla.
6. Forest County, Pa.
7. Forsyth County, Ga.
8. St. John’s County, Fla.
9. Lake County, Fla.
10. Lyon County, Nev.

Full Article

Posted by Scott R. Lodde

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