Now The World Is A Different Place
A report from the Star Tribune. “Warren Smith, chief financial officer of 1st American State Bank of Minnesota, sounded exasperated as he rattled off a long list of loans for commercial real estate projects that threaten to sink his bank. There was ‘Gold Mountain,’ a planned community of million-dollar homes just north of Phoenix that never got off the ground because it lacked a reliable water source; three condominium projects in and near Miami now in default; and a troubled condo and retail development, called ‘Founders Circle,’ in Apple Valley.”
“Smith said he spends ‘100 percent’ of his time trying to sort out loans that have gone bad. ‘I’ve got so much going on that it’s hard to keep track,’ he said. ‘It’s just a matter of coming to work and hoping that I can get through it.’”
“‘The banking industry, in general, has been waiting for commercial real estate to be the next shoe to drop,’ said Dennie Emmans, executive director of a trade association of about 250 bank holding companies in the Upper Midwest. ‘Well, now the shoe is dropping, and it’s dropping pretty hard.’”
The Des Moines Register. “Iowa banks are dealing with the devastating housing bubble that continues to pop in areas like Florida and Arizona. Several Iowa banks, including Liberty Bank of West Des Moines and Bankers Trust of Des Moines, tried to take advantage of the boom in high-growth states to expand business. ‘That’s what so many banks in the Midwest did because of the limited growth opportunities at home,’ said Ken Thomas, an independent bank consultant and economist. ‘They would go to the big cities, or they would open offices in Florida or Arizona. A lot of banks did that.’”
The Denver Daily News in Colorado. “City Park resident Sylvia Herring stopped paying her mortgage after she became suspicious of the subprime mortgage buyer who purchased her mortgage. Now Herring is attempting to halt the foreclosure proceedings on her home after the once Lafayette-based Jaguar Group was accused of defrauding several local banks out of millions of dollars.”
“Herring’s mortgage was not originally with the Jaguar Group. But as has been the case with the housing crisis in America, mortgages have been sold and packaged into bonds many times over. The practice has raised a possible defense for some borrowers, as was reported in last Monday’s Denver Daily News.”
“For Herring, the issue is a matter of principle. She says she isn’t going to give money to a company that has been accused of fraud. ‘I could have paid it and they could have kept screwing people,’ said Herring. ‘But a stop has to be made … I draw the line, I’ll make the sacrifice.’”
The Denver Post in Colorado. “Metro Denver suffered a record drop in sales of existing homes in 2009 amid the recession and tight lending conditions. For the year, 42,070 homes were sold in metro Denver, the fewest since 1997 and a 12 percent plunge from 47,837 in 2008, according to Metrolist data. The biggest percentage drop previously was a 4 percent decline from 2007 to 2008.”
“‘For 2010, we’re going to be looking at more of what we saw last year,’ said David Simonson, a Realtor with Re/Max Professionals. ‘I think you’re going to see lending continue to tighten up incrementally. You’re going to see the luxury-home market continue declining until people feel more secure with their jobs.’”
The Aspen Daily News in Colorado. “Overall, statistics paint a grim picture of 2009. Garfield County ended with a 5.8 percent unemployment rate…well up from 2008’s 3.1 percent. Real estate prices fell 10 percent last year, and the number of sales plummeted from a peak of nearly 2,500 in 2007 to fewer than 500 last year. Housing-unit building permits plummeted from 401 in 2008 to 60 in 2009.”
“‘I wouldn’t call it so much falling off a cliff rather than a pretty rapid slide down a mountainside,’ said Julia LaVigne, of New Castle-based Ribbon Demographics Housing Analysis, who compiled the statistics.”
“Construction, a backbone of Garfield County’s economy, is struggling. Construction job listings are few, and home values and lending policies have combined to discourage new big projects. ‘The reality is, speculative lending is pretty much nonexistent at this point,’ said Ian Exelbert, market president of U S Bank in Glenwood Springs.”
The Post Independent in Colorado. “According to LaVigne’s report, median and average residential real estate sales prices dropped 10 percent from 2008 through October 2009. However, according to Michelle James, co-owner and broker with Vicki Lee Green Realtors in Glenwood Springs, the numbers she’s seen indicate the decrease in sales prices to be more like 12 to 15 percent in the past year.”
“‘We’re seeing a higher drop,’ James said. ‘More like 1 to 1.5 percent a month.’”
The Arizona Daily Star. “Foreclosures in Pima County continued their skyward climb through the end of 2009. At the close of the year, trustee sale notices — filings that say an auction has been scheduled for a property because a borrower is in default — reached 12,184, a 36 percent increase from 2008. And that’s after foreclosures nearly doubled from 2007.”
“People who bought or refinanced their homes with adjustable-rate mortgages when the market peaked about three to four years ago are getting hit the hardest, said Richard Rhey, executive director of the Southwest Fair Housing Council. On top of that, many people are struggling with unemployment, he noted. ‘People made bad decisions. People always make bad investment decisions,’ Rhey said. ‘But they’re paying for it in a much more stringent way. It’s dramatic. Families are devastated’”
“James Wallace, a contractor, said he is working to stave off foreclosure on the Oro Valley home that he moved into in 1993. Wallace, said he was hit by a ‘double whammy’ as the housing-market slide hurt his business and he was afflicted by colorectal cancer…It became a struggle to keep up with his original mortgage and a second one he had taken out in 2002 to generate cash flow for his business.
Now, he’s working with Bank of America and Chase to negotiate modified loan payments. While Wallace doesn’t owe more than his home is worth, he was skeptical about finding a buyer if he put up for sale.”
“‘One way or another I will keep that house,’ he said.”
The Arizona Republic. “The empty Centerpoint high-rise condominium towers that loom over Tempe, once a symbol of the city’s downtown residential boom, have fallen into foreclosure. Centerpoint’s foreclosure is the second high-profile Valley development to be foreclosed on in less than two weeks.”
“The Tempe City Council waived height requirements to approve the 22 and 30-story buildings. Tempe leaders hailed the coming of hundreds of affluent condo dwellers and wagered Mill Avenue’s future on the promise of an urban mecca. Instead, weathered plastic tarps now drape the windowless towers, and the fenced structures have become shelters for transients.”
“Mark Winkleman, a chief operating officer for ML Manager, is part of the team representing the collection of real-estate moguls, Phoenix Suns players and the hundreds of other investors who had a stake in Mortgages Ltd. Winkleman said that buyers already are inquiring about Centerpoint.”
“‘It’s a high-profile project . . . in a terrific location that’s attracted the attention of major companies around the country looking for a project like this that needs to be completed,’ he said.”
“The Valley’s real estate boom-and-bust cycle left an almost unimaginable 80 million square feet of excess office, retail and industrial space on the rental market at the close of 2009 - the rough equivalent of 1,600 football fields.”
“‘As 2009 closed, the metropolitan Phoenix economy continued to feel the effect of the recession as both the commercial and residential real-estate markets were impacted by the deepest recession since the Great Depression,’ Jeff Cooledge, firm research manager, reported. ‘In an overbuilt market, any new construction is not expected for some time.’”
The Verde News in Arizona. “There are signs the market has begun to find the bottom. Prices have returned to levels not seen since the bubble began expanding 10 years ago. And sales are up because houses are affordable. In 2009, 51 percent, or 529 out of 1,038 homes that sold in the Verde Valley, were distress sales. And because the supply of distress sales remains high (251 of the 1,086 homes currently listed) most real estate brokers and mortgage lenders agree they will continue to drive the market into the foreseeable future.”
“Sedona, which has remained the most active home market throughout the downturn, has seen the median price of a home slip from $530,000 in 2006, to $359,000 this year. Similarly, Cottonwood has fallen from $215,000 to $135,000, Camp Verde has fallen from $225,000 just two years ago to $140,000 and the unincorporated area of Beaver Creek from $190,000 to $124,000 over the same period.”
“Cottonwood mortgage broker Mark Miskiel points out that the inventory of distress sales may not be what it appears to be and could continue to climb, or at least remain the same for some time, due to the way many lending institutions are handling their inventory of bad loans. ‘There is a ’shadow inventory’ of bad loans out there that is starting to get some notice. We know that foreclosures are increasing. We are even starting to see them in the prime market. And the banks realize that they are cutting their own throats by flooding the market with foreclosures.’”
“‘So some properties that have been foreclosed on are not being listed until months later, in an attempt to not flood the market. It’s hard to quantify how much of that inventory is out there but we know it exists. By my estimation it will remain a buyer’s market for years to come,’ says Miskiel.”
The Deseret News in Utah. “It is with a sense of uncertainty and pragmatic realism that had many industry insiders attending the Real Estate, Development and Construction Lending Summit at the Salt Palace Convention Center wondering ‘what’s next’ for Utah’s real estate industry. An audience of about 200 people listened to local analysts and association leaders express their thoughts on how the market arrived at its current state and where it could be headed.”
“‘All the things you want to occur in a down cycle like this are taking place,’ Michael Castleman, executive VP of national housing research firm Metrostudy said. The market is stabilizing itself by eliminating excess inventory, forcing prices down and pushing weaker players out, he added.”
“He said that while the market is working through its problems, some issues still need to be addressed, including the exorbitant price many developers paid for land during the real estate boom just a few years ago, making new residential construction exceedingly tough in today’s struggling market. ‘In very simplistic terms, too much money was chasing too few deals,’ Castleman said. ‘Too much debt was embraced on asset values that really weren’t sustainable.’”
“The president of the Utah Association of Realtors said the outlook for Utah’s real estate market this year is still not clear. ‘If (government-driven incentives) exit the market in a way that is market-friendly, and people understand that the adjustment is coming … the transition will be really good,’ Lerron Little told the Deseret News.”
The Salt Lake Tribune in Utah. “In a depressed housing market, one developer has turned to an auction in hopes of finding buyers for ritzy condominiums in a slope-side lodge at Deer Valley. Ironwood Resort Development has scheduled a Jan. 17 auction — just days before the Sundance Film Festival begins — to sell eight residences in Silver Strike Lodge at Empire Pass, a ski-in/ski-out condominium at the base of Deer Valley’s Silver Strike chairlift.’
“On the block are a pair of two-bedroom units, two three-bedroom and three four-bedroom residences, plus a two-story penthouse. Minimum bids will range from $1.15 million to $1.5 million each for these units, whose previous asking prices were from $2.4 million to $3.3 million.”
“‘We were holding open houses and they weren’t selling [enough] units,’ said Matt Mullin, a principal figure in Ironwood, which sold 15 of Silver Strike Lodge’s 34 units after construction was completed in August of 2008.”
“Ken Stevens, West Coast chief executive, said auctions appeal to both buyers and sellers. For sellers, he said, ‘an auction sets your project apart. There’s so much inventory across the country that, unless you have some sort of event-oriented focus on your community, you’re an also-ran. Sellers who haven’t bought the land too expensively are prepared to trust what the market delivers.’”
“In the past, Ironwood asked purchasers of other company projects what they liked and did not like and made changes accordingly, Mullin said. ‘But one thing we haven’t listened to them about is price. We did our research on the market and determined what we thought people will pay,’ he added. ‘But now the world is a different place.’”
“‘With this auction,’ he added, ‘we will be accepting what our buyers determine homes at Silver Strike Lodge are worth in today’s market.’”
The Nevada Appeal. “Reports that Nevada’s population growth stalled — and possibly has even been thrown into reverse — came as no big surprise to many Northern Nevada businesses. But the findings by the U.S. Census Bureau and the State Demographers Office provided factual confirmation to support the strong hunches of businesspeople who have struggled with declining markets.”
“The Census Bureau estimates that Nevada’s population grew by 1 percent from mid-2008 to mid-2009. State Demographer Jeff Hardcastle, meanwhile, estimated that Nevada lost 1 percent of its population — roughly 28,000 people in the past year.”
“George Shoenberger, whose Shoenberger & Shoenberger Inc. manages 650 apartment units in the region, says apartment owners have suspected for months that the region’s population may be declining. ‘My sense is that people are moving out of town,’ Shoenberger says. ‘If there aren’t enough people to go around, we’ll have vacancies.’”
“Vacancies in some smaller apartment complexes, he says, are running as high as 25 percent. Owners are scrambling to reduce rents and throwing in incentives such as free television sets to retain existing renters and attract new ones. ‘The apartment market has been impacted dramatically,’ Shoenberger says.”
“Kenneth Blomsterberg, who brokers apartment-complex sales and invests in Reno-area multi-family housing projects, says rising joblessness is a key factor. ‘They just can’t find any work,’ he says of hundreds of apartment tenants in the region. ‘They’re moving out.’”
“Even before the Census Bureau and State Demographer’s reports, some retailers were trying to figure how apartment vacancies could be rising at the same time that hundreds of homes stood vacant in the region. One explanation: Folks had doubled-up in apartments to save on rent or moved home. ‘But that didn’t explain the entire thing,’ says Kelly Bland, a senior vice president and specialist in retail at NAI Alliance in Reno. ‘It would not come as a surprise that we lost population.’”
“The president of the Reno-Sparks Association of Realtors says the group keeps an eye on population trends but doesn’t find the current situation alarming. The region’s underlying assets — its location and its business climate — will continue to be attractive to businesses, retirees and others, says the Realtors’ Ken Amundson.”
“But he says the long-term health of the economy and the return of a growing population depend on efforts to create more jobs in a diversified regional economy. ‘People go where the jobs are at any give time,’ Amundson says.”
The Mesquite Local News in Nevada. “In May of 2007 we had no shadow inventory; virtually everything listed was sold, including the few foreclosures, and banks were not holding them back off the market at that time. Many questions surround this so called shadow inventory supply of housing; some even dismiss the idea as a scare tactic and illusion.”
“Mesquite, Nevada real estate statistics since May of 2007 show a steady, dramatic, and continual climb in failed listings. These properties were active for sale and did not sell and are not actively for sale today.”
“Notice of defaults, those falling at least ninety days behind on their mortgage payments, has spiked to its highest level in the second half of 2009. Many of these will become short sales or foreclosed bank owned properties. Foreclosures and bank owned vacant properties in Mesquite continue to climb and the banks are not listing them.”
‘They appear to be holding them waiting for either a dramatic market change or more likely a change in government regulations regarding asset values and bank solvency, particularly ‘realized’ verses ‘unrealized’ losses on the books of the banks.”
“They may actually believe they can release these at a pace where they can control prices and manipulate the market. I know they have not acted rationally, but this would be off the scale of stupid.”
“During the boom years, the emphasis was ‘A Rich, Rewarding Lifestyle.’ ‘The Next Palm Springs’ was often heard around the city’s halls. Many larger and expensive homes were built. The bulk of the market selling today is the lower end; smaller, more efficient homes. The 2009 median price for all housing sold and closed in Mesquite was $165,000. If you are builder, there is a target number for you.”
“Mesquite’s challenge will be to bring a product to the market in the future that will meet the needs of this retiring generation. Affordable housing must top the list of priorities (think $110 per square foot), along with solar orientation, efficiency, comfort and livability.”
“Some may say that Mesquite was built for the wealthy and must remain that way; I say, if that is to be the case, it is going to become mighty lonely around here.”
