Thursday, February 26, 2009

Credit Crunch Forces Hotel Developers to Think Smaller

Credit Crunch Forces Hotel Developers to Think Smaller
Feb 26, 2009
By: Tonie Auer, Contributing Correspondent, Commercial Property News

While many hospitality developments have been halted or postponed, projects like the new four-story aloft hotel in Bolingbrook, Ill., continue moving forward. McShane Construction Co. topped out the project this week for developer LTD Management Co.While that project is slated for a July completion as part of a mixed-use development featuring more than 1 million square feet of shopping, dining and entertainment in a pedestrian-friendly environment, other projects are moving forward, too, albeit scaled back to a certain degree.

Hotel development is being challenged by today's rigid credit markets, but projects that can be developed in the $10 million to $20 million range are getting financing, John Russell, CEO of NYLO Hotels, told CPN on Jan. 30.

“It's many larger projects that are having trouble," Russell said. While NYLO originally planned to add 50 hotels by the end of 2010, they reduced that goal to 40.

Concord Hospitality Enterprises recently secured a $13.4 million loan to build a 124-room Courtyard by Marriott in Pittsburgh, Concord president & CEO Mark Laport told CPN.

Concord has 11 hotels under construction, and Laport said he believes this is an excellent time to develop. Interest rates are at rock-bottom levels, land prices have come down, and construction material prices have also moderated. In addition, architects are less busy than they were during the boom years, so design plans can be finished quickly. Also, contractors are now looking for work, and competing with each other on price, a good situation for a developer.

Meanwhile, Carlson Hotels Worldwide added 89 new properties in 2008 and plans to debut 300 new properties between this year and 2013, according to a Jan. 27 CPN report. Carlson has plans 36 new Country Inns & Suites By Carlson to open this year.

On Feb. 6, CPN reported that HEI Hotels & Resorts plans to shell out around a billion dollars this year on acquisitions and developments. HEI Hospitality Fund III L.P., a fund of HEI Hotels & Resorts, has approximately $500 million in equity and plans to purchase and build between $1.5 billion and $2 billion in hotels and resorts over the next two years.

Steve Mendell, HEI's executive vice president of acquisitions and development, pointed out that the firm is now in search of full service upscale hotels in areas with high barriers to new development. He also noted that “for the first time in about 16 months, we are beginning to see hotel prices come in line with market expectations as the expectation gap narrows between buyers and sellers.”

Tuesday, February 24, 2009

Renters Lose Edge on Homeowners Cost Gap Returns to Historical Norms in Some Markets as House Prices Drop

By NICK TIMIRAOS, Wall Street Journal

The relative cost of owning versus renting is swinging back in favor of homeownership in some U.S. markets, buoyed by several quarters of sharp declines in home prices.

At the height of the housing boom, as home prices surged, demand for rentals started to rise as the gap between owning and renting widened significantly. Even after the housing market soured, apartment demand grew as former homeowners became renters, allowing landlords to push healthy rent increases.

Now, after two years of rapid home-price depreciation, the relationship between the cost of rental payments versus after-tax mortgage payments is tilting toward ownership in a number of metropolitan areas.

Over the past 18 years, after-tax mortgage payments have averaged 26% more than rent payments, according to Green Street Advisors, a real-estate consultancy based in Newport Beach, Calif. In 2006, at the height of the housing bubble, mortgage payments reached as high as 66% more than rent payments. But by the end of 2008, average monthly rent for the largest 50 metropolitan areas was $1,045, compared with after-tax mortgage payments of $1,300, assuming a rate of 5.5% on a 30-year fixed mortgage. That means mortgage payments averaged just 24% more than rent payments, the narrowest gap since 2001.

In more than half of the top 50 U.S. housing markets -- including Los Angeles, northern Virginia and Las Vegas -- the ratio is now below its 18-year average. In Los Angeles, for example, mortgage payments averaged 60% more than rent payments between 1990 and 2008. Now, those payments average 30% more than rent.

"We're not saying on an absolute basis that it's cheaper to own a home, but on a relative basis...owning is looking much more attractive than it has in a long time," said Andrew McCulloch, a Green Street analyst. While the shift doesn't mean that renters will rush to buy homes soon, "it's not a 'no-brainer' anymore if they're going to rent versus own," he said.

If mortgage rates fall to 4.5% -- and some economists have called for the government to push rates to that level to ease the housing crisis -- mortgage payments would average 14% more than rent payments, a level last reached in 1998.

While lower rates could further boost home affordability, that may not be enough to overcome a psychological barrier for many would-be buyers who believe homes will become even more affordable. "One of the challenges in the housing market is not only affordability but also willingness to buy," said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. "People are still worried about falling prices."

And lending standards are much tighter than they were during the housing boom, when less-creditworthy tenants left apartments in droves to take advantage of no-money-down financing. At the housing market's peak, nearly one in four renters left to buy homes, said Richard Campo, chief executive of Houston-based Camden Property Trust. That rate fell to near its historical norm of around 12% by the end of 2008. "The nonqualified renters are not moving out this time," said Mr. Campo.

A separate report by Moody's Economy.com also finds that home prices relative to rents are more in line with their historical relationship. Using data that measure average home prices and rent payments for 54 metro areas between 1984 and 2004, Moody's Economy.com estimated that eight markets are "undervalued." In those eight markets, home prices relative to rents are below or within 5% of their historical levels. "The bottom is coming into view," said Mark Zandi, chief economist at Moody's Economy.com, "But we've still got a ways to go."

The report notes that home prices relative to rents remain well above historical levels in 30 markets, including Philadelphia; Portland, Ore.; and Virginia Beach, Va.

Lower prices and interest rates are spurring some buyers to get off the sidelines. Jason Schanta, 37, an independent contractor, has been ready to buy for three years, but he said he waited because Southern California home prices had become "outrageous."

"I'm not an economic guru but I knew the bubble was going to burst," he said. He is ready to buy a $500,000 home if Bank of America Corp.'s Countrywide Financial unit approves a short sale on the property in San Juan Capistrano, Calif. (In a short sale, the lender agrees to sell a home for less than the value of the mortgage.) Mr. Schanta currently rents a three-bedroom house for $2,250 a month, and says that he will pay just $150 more in mortgage payments and taxes for a house that has an additional bedroom and 350 more square feet. "Renting now costs just as much as buying," he said.

Others are finding that they could pay less on their mortgage than they would on rent. Carla Zeineh, 22, and her husband recently began shopping for a home in Irvine, Calif., and discovered that with a 5% mortgage rate, her monthly payment on a $350,000 two-bedroom home with 20% down could be less than the $1,800 month that they pay in rent on their two-bedroom condo.

Write to Nick Timiraos at nick.timiraos@wsj.com

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

Utah's home values continue to tumble

Utah's home values continue to tumble
National trend » From lofty heights, state shows one of the biggest drops.

By Lesley Mitchell, The Salt Lake Tribune
Posted: February 24, 2009

Utah's home-price appreciation, among the highest in the country less than three years ago, now is 16th worst among all states.

Home values dropped 6.6 percent from the fourth quarter 2007 to the fourth quarter 2008, according to a report issued Tuesday by the Federal Housing Finance Agency, which tracks state values based on appraisals made during home purchases.

Utah is among 44 states with a home-price decline -- or negative appreciation -- during that time period. Nationwide, home values were off an average of 8.3 percent, according to the agency's House Price Index report.

The falling prices are affecting Utahns in different ways. Some owners, especially those who purchased in the past year or two, now owe more than their homes are worth. As a result, many are being told they cannot refinance their properties; others cannot sell them without a short sale, in which a lender agrees to accept less than it is owed.

Some owners, such as Jeff Chatelain of Salt Lake City, are being cut off by worried lenders from their home equity line of credit -- an important source of financing in a crisis.

Chatelain said he's also trying to sell a home he and a friend had built in hopes of selling at a profit. When it was finished early last year the property appraised at $1.2 million; today he thinks he'd probably get about $850,000 -- if he found a buyer.

So he's renting out the home, waiting for a recovery. "Maybe next year, things will be better."

But will thing turn around next year? Economists have predicted a rebound in Utah may not begin until after 2010. Even normally optimistic real estate professionals aren't sure the market -- and specifically in the Salt Lake area -- will recover anytime soon.

"We know at some point home prices will stop falling, we just don't know when," said Ryan Kirkham, president of the Salt Lake Board of Realtors. "At this point, we're just hoping for the best."

In the report released Tuesday, the biggest drop in home values was in Nevada, which registered a 28.2 percent decline in the year-over-year period, followed by California (25.5 percent), Florida (24 percent) and Arizona (20.6 percent). Utah fared better than Oregon, where prices fell by a higher margin -- 7.1 percent -- but was slightly worse than neighboring Idaho (6.5 percent).

Among nearly 300 metro areas, Logan ranked No. 32, with a home-price increase of nearly 2 percent. Decatur, Ala. was No. 1, with a 6.6 percent increase.

Salt Lake City ranked a much-lower No. 171, with a 3.4 percent decline in prices, followed by Provo-Orem, at No. 191, with a 4.5 percent decline. St. George ranked a dismal No. 248, with a 13.3 percent drop in prices. In the metro areas, rankings are based on appraisals made during home purchases and refinancings.

Utah's comparatively low rankings contrast sharply with its stellar performance less than three years ago. The state first topped the nation in appreciation in the fourth quarter 2006 and remained at either No. 1 or No. 2, with double-digit annual increases in home values, until late 2007.

By last year, smaller appreciation numbers gave way to no appreciation, and now, falling prices.

"Conditions have deteriorated in Utah," said Andrew Leventis, senior economist with the Federal Housing Finance Agency. He noted, however, that very few areas of the country have escaped the effects of the housing downturn.

Even North Dakota, which tops the nation in home price appreciation, saw a less-than 2 percent increase in values in the past year. Aside from Wyoming, which had a 1.5 percent increase, all other states either had no appreciation or various degrees of home-price declines.

As in other parts of the country, Utah's housing downturn stems from tighter lending standards put in place after the subprime lending crisis. And despite low mortgage rates, years of home-price run-ups in recent years have put home ownership out of reach of many Utah families.

Adding accelerating job losses, plunging stock prices and an overall weak economy to the mix hasn't helped. In fact, even those with the means to buy a home are putting off purchases out of the expectation prices will fall even more.

lesley@sltrib.com

Economic expert James Wood provides SLC housing forecast

Economic expert James Wood provides SLC housing forecast

James Wood, director of the University of Utah’s Bureau of Economic and Business Research, said during an economic forecast presentation in early February that he expects real estate sales and new housing construction starts to find a bottom in 2009 with a trough in prices following.

“I think we will probably see a little bit more weakness this year in the median price of homes sold, but by the end of the year and into next year, we will begin to see some stabilization in this market,” Wood said.

To help predict what to expect for the future, Wood compared today’s real estate market to the situation Salt Lake faced in the 1970s. During the ’70s, home sales climbed for several years before hitting a peak but then took four years to establish a trough. Wood compared that housing cycle to the one we’re in today, which saw its peak in 2005. With three years of declines behind us, Wood is predicting just one more year of sales decreases.

“I expect it’s going to be similar to what we had in the previous cycle, where it was a four-year down,” Wood said. “So we’re probably in for another weak year, but I don’t think it’s going to drop like this last year.”

So far, sales have already dropped 44 percent compared to the total 55 percent decline seen in the 1970s cycle, he said.

To see a video of Wood’s entire presentation, visit the uarnews channel on YouTube or request to become friends with Ut Assoc Realtors on Facebook.

Report: Housing affordability up in Utah

Report: Housing affordability up in Utah

Housing affordability was up in all major metropolitan areas in Utah during fourth quarter 2008, the result of both lower home prices and cheaper mortgage financing, according to The National Association of Home Builders/Wells Fargo Housing Opportunity Index, which measures the percentage of new and existing homes sold in a given area that are considered affordable to those earning the median income.

The index reported the biggest quarterly affordability gain in St. George, where the percentage of affordable homes increased from 33.8 percent to 41.7 percent. The Provo-Orem metropolitan statistical area saw the second-biggest gain, with 53.3 percent of homes sold considered affordable, compared to the previous quarter’s 48.2 percent. The Salt Lake MSA came in third with affordability increasing from 55.3 percent to 58 percent. Finally, the Ogden-Clearfield MSA had the state’s smallest quarterly affordability gain but remained the state’s most affordable metro overall, according to the index. During the fourth quarter, 69.6 percent of Ogden-Clearfield homes were considered affordable, up from the previous quarter’s 67 percent. The HOI does not track affordability in the Logan metro area.

UAR releases fourth quarter home sales statistics

UAR releases fourth quarter home sales statistics

Fourth quarter 2008 Utah home sales dropped about 17 percent, and average prices were down about 10 percent compared to the final quarter of 2007. Excluding Park City numbers that can inflate the average, prices were down almost 4 percent statewide. Year over year, home sales were down in every area of the state except in Utah, Morgan, San Juan, Carbon and Emery counties. The only areas to see single-family price increases were Brigham/Tremonton, Cache/Rich, Carbon/Emery, Central Utah and San Juan County. Utah and Davis were the only counties to see increases in condo prices. To see a complete listing of market statistics, click here.

Prudential Gives ABCs of Investing During Market Turmoil

Prudential Gives ABCs of Investing During Market Turmoil
Feb 23, 2009
By: Barbra Murray, Contributing Editor, Commercial Property News

The current market can be a feast for those entities that still have funds on hand, and institutional investors are among the few. For them, this turbulent market is a fertile ground for opportunity but, according to a new report by Prudential Investment Management, certain steps must be taken to achieve maximum results.

The report was released the same week as a Jones Lang LaSalle report that claimed the investment market will soon be rife with bargains available to firms with capital to spend.

Most Institutional investors have a leg up on certain other investment vehicles like, for example, REITs--the Morgan Stanley REIT index plummeted 38 percent during 2008--because the majority of them did not rely heavily on leverage and, therefore, are not forced to sell large chunks of their portfolios for far less than they would have commanded two years ago. Alas, prospects are abundant.

As outlined in the PIM report, "Turbulent Markets: Challenges and Opportunities for the Institutional Investor," the first step to be taken toward successfully capitalizing on today's market mayhem is the reassessment of portfolio strategies. In the case of plans with liabilities that exceed assets, a decision must be made whether to invest aggressively in order to eliminate funding gaps, or focus on liability-driven spending as a means of reducing risk. Alternatively, fully funded plans have the option of pursuing liability-driven investing, which would lessen potential volatility down the road.

The next step calls for the fortification of risk management tools. Specifically, institutional investors should broaden scenario analysis to take into consideration previously unimagined risk factors, such as those that led to the current market situation. Additionally, they would be well advised to strengthen credit risk evaluation and avoid relying on rating agencies and fixed-income markets, which, when liquidity has vanished, do not supply information that can normally be culled from market prices.

Finally, the report turns the spotlight on the management factor, advising institutional investors to put in place a diverse group of internal and external managers with deeper and broader levels of expertise. Also of great importance in terms of managers is enhanced transparency. "The days of 'trust me' fund-raising are surely at an end, and managers unwilling or unable to provide insight into their investment process and positions will be at a disadvantage," PIM CEO Charles Lowrey noted in a prepared statement.

PIM is the investment management arm of Newark, N.J.-headquartered Prudential Financial Inc. and, as of the close of 2008, boasted a multi-faceted management portfolio valued at $395 million.

Plentiful but Fleeting Investment Opportunities Await, JLL Study Says

Plentiful but Fleeting Investment Opportunities Await, JLL Study Says
Feb 23, 2009
By: Paul Rosta, Senior Associate Editor, Commercial Property News

The commercial real estate investment outlook for 2009 looks grim at best, but there is more to that picture than meets the eye, contends a just-published capital markets report from Jones Lang LaSalle Inc. Smart players who can bring plenty of cash to the table will be poised to reap a once-in-a-generation bonanza.

In the years to come, the report states, this year may “be most remembered for presenting some of the most attractive investment opportunities in living memory for astute investors who are very focused on quality assets in the market and armed with large amounts of equity at their disposal.” However, timing will be of the essence. Investors will need to be not just savvy but also nimble, since the window will stay open only briefly: “Once the yield ceiling is set, the crowd will inevitably follow.”

Those opportunities will emerge from conditions that will remain rocky at best throughout the year. On the heels of last year’s 71 percent drop in transaction volume, sales might fall another 30 to 40 percent in 2009. On a more positive note, Jones Lang LaSalle contends that the bottom appears to be in sight. Perhaps the greatest influence on timing will be how quickly the expected flood of forced sales begins.

On that score, the big variable is how soon--and how willingly--large numbers of buyers and sellers will find the middle ground. “Although potential sellers are anecdotally beginning to accept the severe nature of the re-pricing that is occurring,” the report notes, “there remains little evidence to suggest that an urgency to dispose of assets will materialize in the first three quarters of the year.” As for prospective buyers, even deep-pocketed investors will be wary of deals as long as real estate market fundamentals continue to slide.

That said, markdowns have already begun and will keep gathering steam throughout the year. Although a relatively small volume of trades makes it difficult to pin down trends, the forecast suggests that a 20 percent to 25 percent decline in values has hit most property sectors and geographic areas. “Plenty of anecdotal evidence points to cap rates that have increased by a minimum of 200 basis points,” the report states. Cap rate increases have been much higher in secondary and tertiary markets and for lower-quality assets, the study pointed out. In this climate, both institutional owners and open-ended funds will concede that their assets have lost significant value.

Also shaping the volume of distressed assets will be the enormous volume of hard-to-refinance CMBS mortgages coming due. Through 2012, loans valued at $300 billion are expected to mature annually. An increasing level of forced sales will set long-awaited price benchmarks that will finally start to open the market. Meanwhile, debt will be tough to come by, despite the federal injection of capital into commercial banks. The Jones Lang LaSalle study cites a Federal Reserve Bank survey indicating that 87 percent of banks were tightening lending standards during the fourth quarter of 2008.

Monday, February 23, 2009

General Growth Properties Posts Drop in Key Measures

General Growth Properties Posts Drop in Key Measures

By KRIS HUDSON, Wall Street Journal

General Growth Properties Inc. posted declining fourth-quarter results late Monday, showing that the recession is hampering the mall owner's operations as the company works to mollify its lenders and avoid bankruptcy.

General Growth, based in Chicago, posted a 7.7% decline in funds from operations to $266 million, or 83 cents per share, after factoring out one-time items such as advisory fees and the settlement of a lawsuit. The decline in funds from operations resulted primarily from a decrease in so-called overage rents, or rents tied to retailers' sales growth; lower parking and promotional revenues and higher interest costs. The company posted a net loss of roughly $1 million for the quarter, or breakeven on a per-share basis, compared to year-ago income of $58.7 million, or 24 cents per share.

General Growth also registered a decline in occupancy at its more than 200 U.S. malls to 92.5% from 93.8% in the year-ago period. Sales generated at its malls on a per square foot basis declined by 4.2%. Several other U.S. mall owners posted fourth-quarter declines in those categories as shoppers curtailed their spending and retailers closed stores. In a bright spot, General Growth reported new leases and renewed leases at rates averaging 15.6% more than expiring leases.

General Growth noted in a release issued Monday night that it continues to negotiate with its lenders on nearly $1.2 billion of past-due debt and another $4.1 billion of loans that lenders can declare to be in cross default. The lenders have not yet called the loans due or opted to foreclose on properties pledged as collateral. The company repeated a warning from past disclosures that it "may be required to seek legal protection from our creditors" if it can't win extensions of payment deadlines on the debts.

Among the several one-time charges that General Growth incurred in the fourth quarter were $30 million in fees charged by advisers helping it manage its debt troubles, $24 million in cancelled development projects and a $15.4 million charge related to loans to executives. Those loans were made by General Growth's founding Bucksbaum family to the company's chief operating officer and former chief financial officer to cover losses on their General Growth stock.

General Growth's stock closed Monday at 36 cents, down 10 cents, in 4 p.m. composite trading on the New York Stock Exchange. The stock has declined by more than 98% from a year ago.

Write to Kris Hudson at kris.hudson@wsj.com
Printed in The Wall Street Journal, page C3

Bad economy can't beat nature

Bad economy can't beat nature

By Lee Davidson, Deseret News
Published: February 23, 2009

As the economy has soured, visits have soared at Utah's national parks and monuments, as more locals apparently are vacationing nearby to spend less on travel.

"People certainly are staying a little closer to home and making a lot of shorter trips," said Paul Henderson, spokesman for National Park Service sites near Moab. He said the lion's share of visits there come from people nearby in Utah and Colorado.

The 13 National Park system units in Utah reported 8.8 million recreational visits overall in 2008. That was up by a quarter-million visits over 2007 (or 3.2 percent), and up by more than a half-million visits over 2006 (or 6.8 percent), new data shows.

Henderson is also acting superintendent of Arches National Park, which set an all-time record with 928,000 recreational visits last year. That was up by 68,000 visitors (or 8 percent) over 2007, and up a whopping 200,000 visits (or 25 percent) in the past five years since 2004.

"I think it's a combination of several things," including people from the growing Wasatch Front in Utah and Colorado's Front Range traveling more to nearby Moab, he said.

"There's a whole lot of people who have figured out that Moab's only four or five hours away. So our season now tends to start earlier in the spring … and it goes longer into the fall," he said. "A lot of that is regional travel. It's folks who realize that when you've still got a couple of feet of snow on the ground, they're golfing in Moab."

Another twist of the recent bad economy also has fueled more visits to Utah parks.

"The dollar was weak against European currencies. There were times in July last summer that you could go into City Market (in Moab) and not hear English. I mean, there was very strong foreign visitation here," Henderson said.

The increased visits also come while funding in most Utah parks has dwindled. The Deseret News last summer reported that visitation in Utah parks was up more than the national average from 2003-07, but cuts in employees were deeper than average — and operations budgets in most Utah parks fell further behind inflation than average nationally.

In 2008, the most-visited park in Utah was Zion, which had 2.7 million recreational visits, up 1.2 percent (or an extra 33,000 visitors) from the previous year.

Zion finished No. 8 among all national parks in the country for recreational visits behind, in order, Great Smoky Mountains, Grand Canyon, Yosemite, Olympic, Yellowstone, Cuyahoga Valley and Rocky Mountain.

While Arches had the biggest increase among Utah parks by number of visits, Rainbow Bridge National Monument had the biggest increase by percentage: up 17 percent to nearly 95,600. That came as waters in Lake Powell, used by many boaters to access the monument, rose from severely low levels in recent years that had been caused by drought.

Visitation to Glen Canyon National Recreation Area, the formal Park Service name for Lake Powell on the Utah-Arizona border, was up by 53,400 visitors last year (2.8 percent) for a total of 1.9 million visits, the second-highest total among National Park units in the state.

Amid the overall increase in visitors statewide, some Utah parks managed to lose visitors — sometimes a lot.

For example, visitation to Dinosaur National Monument has plummeted in recent years as its main attraction — a visitor's center that encloses a cliff face where hundreds of dinosaur fossils were carefully revealed in place — has been closed as unsafe for years. Rep. Jim Matheson, D-Utah, has said money from the new stimulus bill will help with repairs there.

In the meantime, visitation at Dinosaur fell to just 202,000 people last year — down 13 percent from 2007. It is down 44 percent (almost half) since 2005, when the park had 361,000 visitors.

Visitation was also down by 11 percent (to 40,000 visitors) at Golden Spike National Historic Site, and by 3 percent (to 25,000 visitors) at remote Hovenweep National Monument.

Visitation at other park units was up by 50,000 visitors (9 percent) at Capitol Reef National Park, up 9,000 visitors (8 percent) at Timpanogos National Monument, up 19,000 visitors (5 percent) at Canyonlands National Park, up 2,600 visitors (5 percent) at Cedar Breaks National Monument, up 133 (4 percent) at Natural Bridges National Monument and up 30,800 to 1.04 million at Bryce Canyon National Park.

Not included in the National Park Service numbers is Grand Staircase-Escalante National Monument, because it is administered by the U.S. Bureau of Land Management.

E-mail: lee@desnews.com
© 2009 Deseret News Publishing Company | All rights reserved

Saturday, February 21, 2009

Most favor extending TRAX and Frontrunner, but balk at bonding for freeways.

Poll finds Utahns want more commuter trains
Most favor extending TRAX and Frontrunner, but balk at bonding for freeways.


By Brandon Loomis, The Salt Lake Tribune
Posted: 02/19/2009 06:35:01 PM MST

If laying the first tracks didn't settle the debate a decade ago, riding the trains since then would seem to have done it: Utahns like light rail.

A survey by the University of Utah's Center for Public Policy & Administration finds overwhelming public support for continued investment in rail transit projects. Among 1,002 residents polled statewide, 79 percent said continued funding for rail projects either is very important or somewhat important.

Among the 546 interviewed within the Utah Transit Authority's service area, that support spurted to 81 percent, said Jennifer Robinson, associate director for the U.'s center.

It's no surprise to Wasatch Front Regional Council Director Chuck Chappell, who said nine-plus
years of riding the rails have convinced once-skeptical Utahns that they need transportation choices.

"There's huge support for that on the part of the council and now, apparently, the public," he said. "I think it's [because of] experience with congestion on the highways and the need for alternatives in the peak periods."

Robinson said it also may be because skyrocketing gasoline prices last summer boosted the number of riders, exposing more people to TRAX and FrontRunner rail service. UTA recorded a 12 percent jump in passengers during 2008, though January's numbers -- a few months after gas prices plunged -- were back near last year's numbers, up just 2.4 percent. Light rail continued to gain popularity, though, up 16 percent from a year ago while bus ridership fell.

The poll was conducted by Dan Jones & Associates from Jan. 29 to Feb. 7 and has a margin of error of plus or minus 3.1 percent.

Support for bonding to build new freeways was more lukewarm in the poll. Only 38 percent backed bonding for the proposed Mountain View highway in western Salt Lake County, and 48 percent favored bonding for reconstruction of Interstate 15 in Utah County.

Utahns interviewed downtown Thursday said they value light rail and commuter rail. Scott Jubeck said he wishes he could commute to his tech-industry job in Lehi -- a wish that will come true when UTA completes FrontRunner south into Utah County.

UTA also remains on track to extend light rail to Salt Lake County's west side, Draper and the international airport.

Many of those who opposed sales taxes to build light rail in the first place remain unconvinced, though. Activist Janalee Tobias still prefers highway spending, perhaps coupled with better bus service or private vans. She's not surprised, though, at the support for subsidized transit.

"They don't have to pay the full cost of light rail," she said. "If they had to pay the full cost of a ticket, they wouldn't ride."

bloomis@sltrib.com

Are Utah banks lending? Depends who you ask

Are Utah banks lending? Depends who you ask
Credit crunch » Businesses say money tight; banks say it's flowing

By Paul Beebe, The Salt Lake Tribune

If anyone qualifies for a business loan, it might be Frank Dsouza.

His Salt Lake City-based import, manufacturing and distribution company, Seaich Corp., is doing just fine, notwithstanding the worst recession since the 1930s.

But four banks have turned down his request for $500,000 to expand his company further -- even as they insist they are making loans to creditworthy borrowers with good business plans.

"The banks say that they have money? I'll say give it to me. I've got a plan," Dsouza said last week.

"We've been profitable. Our business was up about 26-27 percent last year, as opposed to 2007. And I've got all the financial [evidence] to prove it to them," he said.

Dsouza, 48, is the human toll of the gummed up credit markets. He can't get a loan to expand Seaich, despite an excellent credit history with several banks in the Salt Lake valley and a sheaf of purchase orders from Wal-Mart and Sam's Club that could increase his sales almost as much in 2009.

The dearth of commercial credit is a wrenching turnabout from last year. While credit began to tighten in 2007, it didn't freeze up until mid-2008. Since then, $350 billion authorized by Congress to inject fresh capital into banks and restart lending hasn't managed to break through the logjam.

Yet banks insist they are lending. Zions Bank, which received $1.4 billion from the U.S. Treasury Department in October, said it provided $4.6 billion in credit, including $2.7 billion in new loans, during the final three months of the year.

For the year, Zions' loan volume was up 15 percent, spokesman Rob Brough said.

"We have been aggressively marketing the fact that we have money to lend, particularly to small businesses. We have been the No. 1 small-business lender in the market for 15 years and continue to provide that financing," he said.

Jill Taylor, president of KeyCorp.'s KeyBank operations in Utah, said money is flowing to borrowers. But it comes with higher interest rates that she said better reflect the risk KeyBank takes when it lends money, even to long-time clients.

"We are talking to business owners and we are really having frank conversations as to what that [risk] is. But we are very much lending," Taylor said.

According to KeyBank, commercial loans increased by 8 percent last year and loans to small businesses went up 14 percent. Taylor said those figures were higher than in the previous year.

"It's ludicrous to think we're not lending any more because it's the only way we make money," she said.

Nationally, there is evidence that lending may be starting a slow recovery.

On Tuesday, the Treasury Department said lending to businesses and consumers by the 20 largest banks that received government rescue funds rose in December, although lending was down slightly in the final three months of the year.

"Overall, loan origination and underwriting activities were weak from October to November 2008 but picked up from November through December, fueled by falling mortgage interest rates and the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program," the department said.

Among those banks are Wells Fargo, US Bancorp and KeyCorp, which received a total of $34.1 billion.

Ron Vallone, a Taylorsville home builder, said he detected a thaw when he sat down with a Zions loan officer last week.

"It turned out better than I expected," said Vallone, who had spoken to Zions three times and to three other banks before without a favorable outcome before the latest meeting.

"I told him that in about two months I'd be coming to him for [a debt consolidation] loan. He seemed to think that was possible, only because we've never been late [on payments to the bank]."

Vallone has built over 400 homes in his career. Last year he bought three building lots in Salt Lake County for about $450,000, using lines of credit at five banks. When the housing market collapsed, the value of the lots plummeted. He is trying to sell them for $90,000 apiece, but hasn't received any calls from possible buyers.

Now, at 56, Vallone is edging toward bankruptcy. He continues to make payments on the properties, but it gets harder every month because home building has dried up and his savings are nearly exhausted. He has turned to remodeling jobs, but they are becoming scarce, too.

The meeting with Zions was a rare piece of good news. Vallone said the bank is eager to see what effect the $787 billion stimulus package passed by Congress will have and may be willing to consolidate his loans.

"I was able to lay the groundwork to see if they were willing," Vallone said. "I was encouraged by that."

While some businesses may be heartened by the prospect of easier credit, others continue to see no relief ahead.

Kathy Romero, 53, who owns Creative Graphics in Murray, has been unable to persuade a bank to consolidate several credit card balances and lines of credit.

Her 14-year-old company is a screen print and embroidery business, whose clients include high schools and National Basketball Association teams. Sales were down 25 percent last year. To cope, she laid off three people last month. In August she moved to a smaller building, which saved $2,100 a month.

"Since I do have a track record of paying my bills and the minimum payments are more than if I could get a consolidation loan, it seems as though someone would give me a chance. I just have been unable to find a way," Romero said.

Thursday, February 19, 2009

Moody's: Hotel Values Could Tumble 30% or More This Year

Moody's: Hotel Values Could Tumble 30% or More This Year

Feb 18, 2009 - CRE News

Hotel values could tumble more than 30 percent this year, according to Moody's Investors Service.

The rating agency bases its prediction on an expected free-fall in hotel fundamentals. That is exacerbated by rising capitalization rates that are the result of the difficulty in accessing debt financing.

It further said that the hotel industry's current drop in fundamentals has already exceeded the industry's previous decline, in 2001-2002, and that it will last longer. It noted that the industry's 10 percent drop in revenue per available room during 2008 compares to a 7 percent drop during 2001. It used data from Smith Travel Research for its projections.

PricewaterhouseCoopers' hotel practice has predicted that RevPAR would drop another 11.2 percent this year, while PKF Hospitality Research has predicted a 9.8 percent drop.

Using a hypothetical full-service hotel with a 22 percent net cash flow margin as its benchmark, the ratings agency said that an 11.2 percent drop in RevPAR this year would result in a 25 percent drop in net cash flow. That would translate to a 25 percent value drop if cap rates for hotel sales do not change. It further predicted that an 11.2 percent RevPAR drop would result in a 32 percent value drop if cap rates increased 100 basis points and a 37 percent drop if cap rates climb 200 bp.

A 7 percent drop in revenues, according to Moody's, would result in a 16 percent drop in values if there was no change in cap rates. But values would drop 24 percent if cap rates rise 100 bp and they would fall 30 percent if cap rates climb by 200 bp.

Meanwhile, cap rates for hotel investment sales rose 91 bp to exceed 9 percent in the fourth quarter and continue on an upward trajectory, according to Real Capital Analytics. But the New York research firm's data is based on what amounts to a near-dearth of transactions. Investors might actually be looking for substantially higher cap rates.

Moody's warned that its projected drops in hotel values would obviously further cripple investors' ability to finance properties.

The issue would be especially thorny for properties with loans placed between 2006 and 2008. Many of those hotel loans were underwritten based on projected financial performance, which has yet to materialize.

Moody's also warned that CMBS with high or exclusive concentrations of hotel loans may be subject to cash-flow volatility. That issue would be particularly troublesome for loans underwritten with low debt-service coverage ratios.

The Plasencia Group previously projected that revenue drops of just 7.8 percent in 2009 would likely result in debt-service shortfalls for hotel loans underwritten with coverage levels of 1.4x or less.

The CMBS universe includes 957 hotel loans with a balance of $18.9 billion that have such coverage levels, according to Realpoint's Lead Generator. Of those, 616 loans with a balance of $15.3 billion were originated between 2006 and 2008.

Plasencia used a 7.8 percent drop as its benchmark because that had been PKF Hospitality's original prediction for RevPAR this year. It later revised that prediction to 9.8 percent.

Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

Wednesday, February 18, 2009

Land-Locked Warehouses Lead Overachievers

Land-Locked Warehouses Lead Overachievers
Feb 17, 2009
By: Paul Rosta, Industrial Editor, Commercial Property News

As the vacancy rate for distribution facilities edged up nationwide in 2008, one category beat the long odds. Almost all the locations that trimmed warehouse vacancy were hundreds or thousands of miles removed from the nation’s struggling coastal ports.

Inland markets were the surprise standouts during a year when the national warehouse rate rose from 7.9 percent at the end of 2007 to 9.1 percent during the fourth quarter. Of the 54 major warehouse markets surveyed by Colliers International, 12 reduced vacancy last year. Detroit cut vacancy from 13.2 percent to 11.5 percent, Minneapolis vacancy dropped 60 basis points to 10.4 percent and Memphis shaved its rate 27 basis points to 11.9 percent. Among the other mostly Midwestern markets that lowered vacancy were Cleveland, Kansas City, Little Rock, Louisville and St. Louis.

Only three coastal markets managed to move vacancy downward in 2008: Seattle and Portland, Ore., on the Pacific Coast and Hartford on the Atlantic. Vacancy crept upward in all other coastal markets. Atlanta edged up 110 basis points to 12.6 percent and Northern New Jersey from 6.1 to 6.4 percent. Even in the nation’s tightest distribution market, Los Angeles, vacancy eased by 90 basis points to end the year at 3.8 percent. Nor did every market in the nation’s central regions thrive in 2008. Chicago’s vacancy rate ticked up 170 basis points to 10.3 percent and Denver’s from 6.6 percent to 8.2 percent.

Colliers International executive vice president & director of market and economic research Ross Moore speculated that a handful of non-coastal warehouse markets may continue to outperform their competitors in 2009. The recent swing in energy prices may benefit manufacturers in the United States by demonstrating that ordering goods from presumably lower-cost markets like Asia still involves unpredictable transportation costs, he noted. That may prompt some U.S. companies to step up orders from domestic manufacturers, which would help demand for distribution space in some Midwestern markets.

Tuesday, February 17, 2009

We’ve Still Got Room to Spend Those stories about a consumer debt crisis are overblown.

We’ve Still Got Room to Spend
Those stories about a consumer debt crisis are overblown.

Zachary Karabell, NEWSWEEK, From the magazine issue dated Feb 23, 2009

It's become a mantra: American consumers have been living beyond their means, borrowing promiscuously, and now the bill is coming due. Having nearly drowned in a sea of debt, U.S. consumers must now repair their finances, spend more prudently and recognize the wisdom of past generations: spend only what you earn. But while endlessly repeated by financial gurus, politicians and the media, the belief that American consumers as a whole have been living beyond their means is a myth. Wall Street was massively overextended, but on average, consumers are not.

As we now know, Wall Street financial institutions were able to borrow in excess of 30 times their capital, which meant that for every dollar they had, they could borrow more than 30. That level of debt far exceeded anything an individual consumer could take on. It's true that certain groups of individuals were allowed to take on unreasonable levels of debt—mainly speculators and lower-income people. But taken as a whole, when compared with Wall Street, individual American consumers are the soul of prudence.

Consider the hard data. At the end of 2007, consumer debt stood at $2.6 trillion, which translates to $8,500 per person. That number includes car loans, student loans and credit cards, but not mortgages. In 2003, the figure was $2 trillion, so the total amount of debt did go up during the height of the housing bubble. Mortgage debt, meanwhile, more than doubled, from just under $5 trillion in 2000 to more than $10 trillion in 2008. But during this time, rates were also stable and low, so while the absolute dollar figures of debt increased, the percentage of income that households spent to service their debts—including mortgage payments—nudged up only a small amount, from 13 percent in 2000 to 14.3 percent in early 2008. So while Wall Street was leveraged 30-1, in the middle of 2008, household net worth was $59 trillion (including homes, pensions, stocks and cash), while total debt was about $13 trillion. Even though that household net-worth figure has been sharply reduced in recent months, the debt-to-worth ratio was never even 1-1. That's how stark the contrast is between consumers and Wall Street.

OK, but what about those tens of millions of people falling behind on their credit-card payments or mortgages, people we read about daily? There again, the numbers reveal a more nuanced story. What they show is that lower-income people tend to rent their homes and have higher "financial obligations" than those who own. They spend a higher percentage of their income on shelter, which makes the national average look worse.

That belies the popular perception that a broad swath of the population was buying homes with too easy credit and too little income. The problem is that a few million were, just as millions did spend way beyond their means and have defaulted on their loans, whether because of health issues or sudden unemployment or bad decisions. But the vast middle, the 90-plus percent who are current on their mortgages, are not the ones skewing the overall statistics or creating the general impression of overextension.

The squeaky-wheel principle applies: it is the horror stories that garner the attention, not the mundane—and there are tens of millions of horror stories in a country of 300 million people. But thanks to the fiscally fit majority, the picture for Main Street is not as grim as it is for Wall Street, even with rising unemployment. More sour mortgages threaten to plunge banks into insolvency, but hundreds of millions of consumers have already been paring back their spending, paying off debt and boosting their savings at rates not seen in the history of record keeping. Once they regain some financial stability, they will undoubtedly begin consuming again, pushing the economy forward, with less giddiness, but with the prudence that most have had all along.

Karabell is president of New York–based River Twice Research.

Link to Pew Research Center actual study

More information on the NYTimes article. Here's the actual study results published by the Pew Research Center.

http://pewresearch.org/pubs/1096/community-satisfaction-top-cities

Fascinating!

Pew Research study on where Americans want to live - NYT

I Dream of Denver

By DAVID BROOKS, Op-Ed Columnist, The New York Times

You may not know it to look at them, but urban planners are human and have dreams. One dream many share is that Americans will give up their love affair with suburban sprawl and will rediscover denser, more environmentally friendly, less auto-dependent ways of living.

Those dreams have been aroused over the past few months. The economic crisis has devastated the fast-growing developments on the far suburban fringe. Americans now taste the bitter fruit of their overconsumption.

The time has finally come, some writers are predicting, when Americans will finally repent. They’ll move back to the urban core. They will ride more bicycles, have smaller homes and tinier fridges and rediscover the joys of dense community — and maybe even superior beer.

America will, in short, finally begin to look a little more like Amsterdam.

Well, Amsterdam is a wonderful city, but Americans never seem to want to live there. And even now, in this moment of chastening pain, they don’t seem to want the Dutch option.

The Pew Research Center just finished a study about where Americans would like to live and what sort of lifestyle they would like to have. The first thing they found is that even in dark times, Americans are still looking over the next horizon. Nearly half of those surveyed said they would rather live in a different type of community from the one they are living in at present.

Second, Americans still want to move outward. City dwellers are least happy with where they live, and cities are one of the least popular places to live. Only 52 percent of urbanites rate their communities “excellent” or “very good,” compared with 68 percent of suburbanites and 71 percent of the people who live in rural America.

Cities remain attractive to the young. Forty-five percent of Americans between the ages of 18 and 34 would like to live in New York City. But cities are profoundly unattractive to people with families and to the elderly. Only 14 percent of Americans 35 and older are interested in living in New York City. Only 8 percent of people over 65 are drawn to Los Angeles. We’ve all heard stories about retirees who move back into cities once their children are grown, but that is more anecdote than trend.

Third, Americans still want to go west. The researchers at Pew asked Americans what metro areas they would like to live in. Seven of the top 10 were in the West: Denver, San Diego, Seattle, San Francisco, Phoenix, Portland and Sacramento. The other three were in the South: Orlando, Tampa and San Antonio. Eastern cities were down the list and Midwestern cities were at the bottom.

Finally, Americans want to go someplace new. The powerhouse cities of the 20th century — New York, Los Angeles, Chicago — are much less desirable today than the ones that have more recently sprouted up.

In short, Americans may indeed be gloomy and hunkered down. But they’re still Americans. They are still drawn to virgin ground, still restless against limits.

If you jumble together the five most popular American metro areas — Denver, San Diego, Seattle, Orlando and Tampa — you get an image of the American Dream circa 2009. These are places where you can imagine yourself with a stuffed garage — filled with skis, kayaks, soccer equipment, hiking boots and boating equipment. These are places you can imagine yourself leading an active outdoor lifestyle.

These are places (except for Orlando) where spectacular natural scenery is visible from medium-density residential neighborhoods, where the boundary between suburb and city is hard to detect. These are places with loose social structures and relative social equality, without the Ivy League status system of the Northeast or the star structure of L.A. These places are car-dependent and spread out, but they also have strong cultural identities and pedestrian meeting places. They offer at least the promise of friendlier neighborhoods, slower lifestyles and service-sector employment. They are neither traditional urban centers nor atomized suburban sprawl. They are not, except for Seattle, especially ideological, blue or red.

They offer the dream, so characteristic on this continent, of having it all: the machine and the garden. The wide-open space and the casual wardrobes.

The folks at Pew asked one other interesting question: Would you rather live in a community with a McDonald’s or a Starbucks? McDonald’s won, of course, but by a surprisingly small margin: 43 percent to 35 percent. And that, too, captures the incorrigible nature of American culture, a culture slowly refining itself through espresso but still in love with the drive-thru.

The results may not satisfy those who dream of Holland, but there’s one other impressive result from the Pew survey. Americans may be gloomy and afraid, but they still have a clear vision of the good life. That’s one commodity never in short supply.

Copyright 2009 The New York Times Company

Utah Incentive Program Keeps Utah Competitive in Business Recruitment, Retention Efforts

Utah Incentive Program Keeps Utah Competitive in Business Recruitment, Retention Efforts

Economic Development Corporation of Utah, Feb 17, 2009

In 2006, Barnes Aerospace, a business unit of Barnes Group Inc, was out of space in its Ogden facility and couldn't grow, despite its desire to bring more work to Utah. The company was contemplating a capital expansion that would create approximately 474 new jobs and retain 145 existing jobs--an enticing prospect for governments as far away as Singapore, which offered Barnes a seven-year, tax-free deal followed by a 20 percent corporate tax incentive valued between $20 and $30 million.

If Barnes were to stay in Utah, the company would make a $12 million capital investment at Business Depot Ogden, generate nearly $8 million in new state revenue and more than $150 million in new state wages over a 15-year period -- just the type of project the Governor's Office of Economic Development (GOED) and EDCUtah wanted to win.

Consequently, the GOED Board offered an Economic Development Tax Increment Financing (EDTIF) incentive totaling approximately $2 million over a 15-year period, the maximum not to exceed 20 percent of new state revenues over the same period. What's more, Barnes had to commit to keep its operations in Utah for 15 years, create some 474 new jobs over the same period and pay new employee salaries that would average at least 125 percent of the then current Weber County median of $36,550. Thanks to the incentive program and other competitive factors, Barnes selected Utah for its expansion and completed construction of its new facility in the Business Depot Ogden in 2008.

While the conditions that influence a company's final decision vary, a key factor that plays into nearly every expansion or relocation equation is government-sponsored financial incentives. Site-location competition is intense, especially in our volatile economy, as cities and states try to retain and recruit jobs. Companies interested in relocating or expanding expect to be courted by local, regional and state economic development organizations and it is often the combined cooperation of such entities--plus incentives--that seal the deal.

"Once a company makes its short list, incentive programs come into play," says Derek Miller, managing director of recruitment and incentives for the Governor's Office of Economic Development (GOED). "Utah is almost never the highest bidder, but if we are on the short list we almost always win and get the company here."

It wasn't always so. When Utah's incentive program began in the 1990s the state was not nearly as competitive as other, more aggressive states; however, in recent years the Utah Legislature has made significant revisions to state incentive policies for relocation and expansion, which has allowed GOED to be much more aggressive in a transparent, consistent and predictable incentive process -- all with no risk to taxpayer dollars.

"The real genius of the program that the State of Utah has created is that every incentive given is post-performance," says Jeff Edwards, EDCUtah president & CEO. "It may sound simplistic, but we don't give away one penny in Utah without first receiving one dollar in new tax revenue. Having studied other state level incentive programs, I truly believe that ours is the best thought out, best functioning one in existence. It allows us to be competitive in high value projects, while at the same time not mortgaging our future."

Miller says the state's financial incentives program targets select business relocation and expansion projects that create new, high-paying jobs to help improve the standard of living, increase the tax base, attract and retain top-level management and diversify the state economy. Incentives are offered as either tax credits or grants. The incentive amount and duration is decided by the GOED Board and Executive Director Jason Perry, based upon statutory guidelines and evaluation criteria that includes the financial strength of the company, the number and salary of jobs created, amount of new state tax revenue, long-term capital investment, competition with other locations and whether the company is in a targeted cluster, as identified by Governor Jon Huntsman in his cluster initiative.

Targeted clusters include the following:

  • Software and Information Technology
  • Defense and Homeland Security
  • Aviation and Aerospace
  • Corporate Headquarters
  • Energy and Natural Resources
  • Financial Services
  • Life Sciences
  • Outdoor Products and Recreation

The two main incentive programs used to recruit or retain businesses are Economic Development Tax Increment Financing (EDTIF) tax credits and Industrial Assistance Fund (IAF) grants. EDTIF incentives are post-performance, refundable tax credits for up to 30 percent of new state revenues (including state corporate, sales and withholding taxes) over the life of the project (typically five to 10 years). IAF incentives, on the other hand, are post-performance grants for the creation of high-paying jobs. GOED has the flexibility to offer either of the incentive types or a blend of both. For a complete description of the various incentives and their requirements, follow this link.

Of course, not every company offered an incentive will end up coming to Utah, and Miller says GOED isn't willing to sell the farm to win a relocation or retention project. Still, GOED has been extremely successful with the incentive program.

IAF and EDTIF Incentives Offered in Fiscal 2008

GOED awarded four IAF grants totaling $2 million during 2008. The companies involved include:

  • Delta Air Lines, awarded a $250,000 incentive over 16 months to develop its direct trans-Atlantic flights from Salt Lake City to Europe, with an estimated economic impact greater than $90 million and estimated local job creation of at least 1,100 jobs.
  • FiberTek, awarded $1.25 million for its new manufacturing facility in Nephi, Juab County, with the estimated creation of 99 new jobs, $13,612,000 in new state revenue, $32,500,000 capital investment, and $36,589,000 in new state wages.
  • Southern Classic Foods, awarded $300,000 over 10 years for its new manufacturing facility in Ogden, with an estimated 94 jobs created, $1,262,000 in new state revenue, $10,260,000 capital investment and $22,332,000 in new state wages.
  • Barnes Bullets, awarded $200,000 over 10 years for the relocation and expansion of its operations to Mona, Juab County, with an estimated 42 new jobs and 53 retained jobs, $446,000 in new state revenue, $5,000,000 capital investment and $13,370,000 in new state wages.

GOED awarded 11 EDTIF incentives totaling more than $170 million in 2008 with estimated new state revenue of $615,903,302. The companies offered EDTIF incentives include:

  • FiberTek, awarded $2.75 million over 10 years to build a new manufacturing facility in Nephi, Juab County, with an estimated 99 new jobs, $13,612,000 in new state revenue, $32,500,000 capital investment and $36,589,000 in new state wages.
  • Barnes Aerospace, awarded $2 million over 15 years to relocate and expand its current Ogden, Weber County, operations with the creation of 474 new jobs and 145 retained jobs, $7,927,000 in new state revenue, $11,800,000 capital investment and $150,221,000 in new state wages.
  • Thermo Fisher Scientific, awarded $2,735,000 over 10 years for its new manufacturing facility and research laboratory in Logan, with 196 new jobs created, $ 9,118,000 in new state revenue, $21,100,000 capital investment and $68,054,000 in new state wages.
  • The Procter & Gamble Company, awarded $85,000,000 over 20 years to build its new manufacturing facility in Box Elder County, with 1,185 new jobs created, $280,739,000 in new state revenue, $540,000,000 capital investment and over $1.25 billion in new state wages.
  • Hershey, awarded $2,600,000 over 10 years for its new western distribution center in Ogden, with 123 new jobs created, $13,009,000 in new state revenue, $38,000,000 capital investment and $48,860,000 in new state wages.
  • Goldman Sachs, awarded $20,000,000 over 20 years to expand its current Salt Lake City facility, with the creation of 375 new jobs, $81,763,000 in new state revenue, $20,200,000 capital investment and $886,727,000 in new state wages.
  • Disney Interactive, awarded $5,250,000 over 10 years to expand its existing Salt Lake City operations, with 565 new jobs created, $16,989,000 new state revenue, $15,100,000 capital investment and $330,678,000 in new state wages.
  • Oracle, awarded $15,124,000 over 12 years to build its new data storage center in West Jordan, with 100 new jobs created, $50,415,374 in new state revenue, $260,000,000 capital investment and $73,574,249 in new state wages.
  • eBay, awarded $27,277,000 over 10 years to build its new data storage center in Salt Lake County, with 50 new jobs created, $109,110,945 in new state revenue, $436,000,000 capital investment and $23,799,980 in new state wages.
  • Cementation, awarded $3,317,000 over 10 years to locate its new USA corporate headquarters operation in Sandy, creating 422 new jobs, $16,585,538 in new state revenue, $5,500,000 capital investment and $130,226,301 in new state wages.
  • Fresenius, awarded $4,157,611 over 10 years to expand its current Ogden facility, creating 1,111 new jobs, $16,630,445 new state revenue, $340,000,000 capital investment and $303,339,000 new state wages.

Incentives Used as a Stimulus

Miller says the incentives are used by the companies as a stimulus. Once the incentives are accepted, GOED continues its work with the companies involved through quarterly and annual reports to maintain the integrity of the incentive offered, both for the taxpayer and company.

"The state's goal with incentives is two-fold: first, to place Utah in a competitive and viable position with other states; second, to offer an incentive formula based on an economic model that promotes healthy, sustainable relocation or expansion into Utah. This stimulates job growth and expansion of the capital investment," he adds.

Edwards says business incentives have become an essential part of the process of recruiting companies. Moreover, Utah's incentive programs are very competitive on a national scale and have proven effective in helping to make business decisions in our favor while shifting the risk to the company and away from the state. If the company doesn't perform to the agreed upon benchmarks, the incentive is never given.

While financial incentives are an important part of the process, they are not the ultimate factor in a business location or retention decision.

"It doesn't matter how much money a state throws at a company, if other factors are not in place. Utah is fortunate to have many natural incentives, such as a highly educated workforce, some of the lowest tax rates in the country, great quality of life, some of the lowest utility costs in the nation and a low cost of living. These natural incentives combined with financial incentives are what put Utah at the top for best states for business," says Miller.

Monday, February 16, 2009

States Recruit Worried Californians - WSJ

States Recruit Worried Californians

Several Western states are launching aggressive efforts to poach jobs, talent and industry from California, sensing an opportunity to capitalize on the Golden State's current political and financial woes.

Colorado is the first out of the box with a Valentine-themed banner that will trail behind an airplane circling rush-hour traffic in Los Angeles on Friday morning, urging Californians to give Colorado a try. Ads in newspapers from San Diego to San Jose will feature a Cupid in ski boots over a bold-faced tease: "California, can you feel Colorado's love?"

Hundreds of California CEOs will receive flowery Valentine's Day cards proclaiming, "Mile High State Seeks Sea-Level Executive." The campaign even includes a YouTube video of Tom Clark, executive vice president of the Metro Denver Economic Development Corp., kissing the envelopes before depositing them lovingly into a mailbox. (Watch the video | Read more from the campaign.)

Right behind Colorado are Arizona, Nevada, Oregon and Utah -- all planning to make similar runs at luring corporate executives, venture capitalists and manufacturers who might be fed up with California's political gridlock or anxious about potential tax hikes and deep cuts to schools, parks and other services.

"What's going on in California is very exciting for us because it looks like a tipping point will soon be reached," said Somer Hollingsworth, president of the Nevada Development Authority.

During California's energy crisis a decade ago, when executives feared the state might not be able to provide reliable and affordable power, Oregon reaped a bumper crop of recruits. Such instability "is really good for our state," said Tim McCabe, director of Oregon's economic development department. His recruitment budget is tight, but Mr. McCabe said Oregon won't let California's current struggles go to waste: "We're redoubling our efforts."

California's business boosters say they will be hard-pressed to respond. At the Los Angeles County Economic Development Corp., Jack Kyser is preparing to mail thousands of postcards to local business owners, offering the services of a "business ombudsman" to help them cut red tape or find trained workers. He has never taken such a step before, he said, adding that he hopes it will build loyalty to California.

But he isn't betting on it. In this atmosphere of uncertainty, with the state facing a staggering $42 billion deficit, Mr. Kyser said he has little ammunition to beat back crossborder raiding parties. "We know they're out there," he said. "California offers rich pickings. It definitely is a concern."

States have been vying to lure businesses from one another for decades, and California has often made a tempting target. But John Boyd, a corporate relocation consultant based in Princeton, N.J., says he senses a new eagerness among his California clients to look for greener pastures.

"The tilt of corporate investment out of California is accelerating," he said.

Colorado hopes to attract some of that exodus with the $100,000 Valentine's Day campaign, which included a Valentine, written in red ink, tweaking California Gov. Arnold Schwarzenegger for his state's troubles. "Get well soon!" it said. "Colorado loves California." Mr. Clark, the economic development official, said he hoped the tone would come across as whimsical, not mean-spirited. "Burn and pillage is not really how we want to portray ourselves," he said.

Over the years, many states have lured jobs and investment from California. But economist David Neumark has concluded that corporate moves accounted for only a fraction of the total jobs lost in California earlier this decade.

Especially in this recession, with major corporations shedding jobs by the tens of thousands, poaching a company here or there won't show up as "anything but a drop in the bucket," said Mr. Neumark, a professor at University of California, Irvine.

For all its difficulties, California retains some distinct advantages -- and not just the beaches. Zach Nelson, the CEO of software firm NetSuite Inc., recently opened a regional hub in Denver and says it has been great for his sales. But he wouldn't consider moving his headquarters out of San Mateo, Calif.

"From a DNA standpoint, all people do in Silicon Valley all day long is think about starting a company," Mr. Nelson said. "They don't think about skiing."

Write to Stephanie Simon at stephanie.simon@wsj.com

Printed in The Wall Street Journal, page A3

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

Fannie Mae Makes Adjustments for 2009

Fannie Mae Makes Adjustments for 2009; Agency's 2008 figures highlight critical role of DUS lending in multifamily arena.

Source: MULTIFAMILY EXECUTIVE News Service
Publication date: 2009-02-12

By Les Shaver

For those concerned about where Fannie Mae is going in 2009, the GSE says not to worry, it will be around. But that doesn't mean there won't be changes.

Fannie plans to stimulate its mortgage-backed security (MBS) and delegated underwriting and servicing (DUS) business and broaden the investor base. Its focus will shift from primarily being a multifamily portfolio lender to acting as a lender that provides liquidity to the multifamily market primarily through MBS issuance. It's already reaching out to its DUS lenders and dealers to increase interest in this execution.

This is good news, says Ed Pettinella, CEO of Home Properties, a REIT in Rochester, N.Y., and a big Fannie borrower. "They are just reiterating their continued support of the multifamily sector and that they are going to put more emphasis on the DUS lending program, which should be good news of us."

Matt Wanderer, principal of Miami-based Alterra Capital Group, is seeing increased debt service ratios and lower loan-to-value ratios from both Fannie Mae and Freddie Mac, reducing the gap between agency and conventional lenders. He also thinks that Fannie and Freddie entering into the secondary MBS market might have the potential to help revive the MBS markets.

"Maybe it will establish a middle ground between Fannie and Freddie pricing and bank pricing," Wanderer says.

Already, the DUS business is responsible for the lion's share of Fannie's business. Of 2008's $35.5 billion in multifamily housing with debt financing through lender partners and bond purchases, $33.3 billion came through Fannie's DUS lender and $21.8 billion of that amount was in DUS product. DUS lenders have more financing flexibility than conventional lenders.

"Fannie Mae provided liquidity and stability to the multifamily market almost exclusively through its DUS lenders in 2008," says Phil Weber, senior vice president of multifamily at Fannie Mae. "The demand for DUS product from borrowers substantially increased in 2008."

Fannie is also making changes in expectation of a bloodbath in 2009. Economic struggles are expected to worsen in 2009, creating even more of a challenge for Fannie. With job losses adding up, household formations will slow, and apartment owners will suffer.

"In the near term, fundamentals of the multifamily market will come under pressure, and Fannie Mae is taking steps to mitigate risks associated with weak rental demand," said David Worley, senior vice president of risk management for housing and community development at Fannie Mae, said in a statement. "We are committed to maintaining strong credit standards with a greater focus on loans with higher debt service coverage and lower loan-to-value ratios. We have also boosted our asset management team."

That's a good thing, says Dan Fasulo, managing director for New York-based research firm Real Capital Analytics. "The one item that differentiates the multifamily sector from the other property types is the availability of GSE debt," Fasulo explains. "The multifamily market is the closest thing we have to a normal market because the government is in there lending. It's the only game left. Some regional banks and local banks are lending for their own portfolio, but those types of institutions only have a finite amount of capital that they can put out."

Still, if Fannie's plan to stimulate the MBS market works, the industry could eventually see more players in that market.

Here's a look at the other highlights from Fannie's 2008 figures, reported earlier this week:

    • Fannie saw strong demand from its Early Rate Lock (ERL) product because borrowers were concerned about rates rising. Those ERL loans rose from $4.6 billion in 2007 to $10 billion in 2008, a 116 percent increase.
    • Of the units financed by Fannie in 2008, 89 percent were affordable to families at or below the median income of their communities.
    • About 54 percent of Fannie's units served special affordable families (low- and very-low-income families in low-income areas).
    • Nearly 58 percent of the multifamily units financed by Fannie in 2008 were in underserved markets.

Multi-Housing News: January 2009 Market Pulse

January 2009 Market Pulse
Published: January 02, 2009

Multifamily Starts: You have to go back to January 1994 to find 5+ multifamily starts numbers that are lower than those for November 2008. So the near-15-year boom cycle is clearly slamming to a halt—helped along by banks that are either refusing to make construction loans, calling loans on work in progress, or refusing to lend to consumers who want to buy condos&hellipor all three. The problem with this scenario is that the pipeline for 5+ multifamily construction is quite long, and the industry may find itself with sharply restricted supply in three years.

Multifamily Starts

CPI vs. Rent: Preliminary numbers show that the overall Consumer Price Index is still dropping fairly significantly, at 3.6 percent. But rents are dropping much more slowly—just 1 percent. That would suggest that the current economic situation is less onerous for owners and managers of rentals—for the moment, at least. And if starts stay low in the near term, as it seems they will, buildings should remain fairly full, and rents should stay stable.

CPI vs. Rent

Building Materials: Preliminary numbers for both softwood and plywood are continuing a downward trend, with last month's softwood number being revised significantly lower—the negative 4.1 percent preliminary figure reported last issue is now final at a negative 7.5 percent. And this month's preliminary number shows a drop of 2.6 percent beyond that. Cement prices continue to go up and down by small amounts, and gypsum prices are trending upward, with five of the last six months showing rises.

Building Materials



To comment, contact Keat Foong at keat.foong@nielsen.com.

Saturday, February 14, 2009

Utah County 'rolling along economically,' commissioner says

Utah County 'rolling along economically'

Published: February 14, 2009

PROVO — While much of the country faces difficult financial times, Utah County is "rolling along economically," said County Commissioner Gary Anderson.

Anderson and fellow Utah County Commissioners Steve White and Larry Ellertson were optimistic during their state-of-the-county remarks Friday to the Provo/Orem Chamber of Commerce.

Anderson said the economy in Utah County is strong and backed by great universities, a great work force and a tremendous atmosphere for manufacturing, business and services.

"I would say we're the hottest in the state, and the state's the hottest in the nation," he said. "So it's an exciting place to be."

Anderson cited plans for a Duncan Aviation maintenance facility at the Provo Municipal Airport as an example of the type of economic growth Utah County is anticipating in the near future.

"You'll see in the next months some incredible announcements in terms of economic development," he said.

Transportation, however, remains a challenge for Utah County. Anderson said he was troubled by recent talk that a planned widening of I-15 in Utah County was no longer financially possible.

"We've sat back and been very supportive (as) Salt Lake County and Davis County built their freeways and infrastructure, and we've waited our turn," he said.

In response, county leaders banded together with Utah County mayors and legislators to stand up in support of projects in Utah County, including I-15, Pioneer Crossing, County North Boulevard, 400 South in Springville and better access to Eagle Mountain and Saratoga Springs, Anderson said.

"Things are happening in Utah County transportation that have never happened before," he said.

Even with so much growth anticipated in Utah County — particularly in the southern and western parts of the county — commissioners are taking steps to be as frugal as possible.

Throughout the county's budget development process, county leaders had the opportunity to review budget items with department heads, White said.

"Mostly, we just say no," he said, "because what we're trying to do is get more efficiency. We're privatizing everything we possibly can— take it out of the public sector and put it into the private sector. That supports the chamber, that supports small business."

White said the county is doing everything it can to respond to the residential and commercial growth in Utah Valley. Through it all, the county hasn't raised property taxes since 1995, when extra funds were needed for the Utah County Jail in Spanish Fork.

The county also is operating with about 50 fewer employees than it was a year ago, which White says is evidence of the county's commitment to efficiency.

In addition to Utah County's economy and transportation issues, Ellertson discussed senior citizen programs and jail statistics. He also made note of upcoming plans for Utah Lake, trail systems and a county dispatch center.

E-mail: jdavis@desnews.com

Thursday, February 12, 2009

Treasury Expands Loan Facility to Include CMBS

Treasury Expands Loan Facility to Include CMBS

Feb 10, 2009 - CRE News

The Department of Treasury is expanding the government's Term Asset-Backed Securities Loan Facility to include CMBS.

The move was outlined this morning by Treasury Secretary Timothy Geithner as part of a broad expansion of what had previously been called the Troubled Asset Relief Program and is aimed at jump-starting credit markets. Equity markets scoffed at the massive plan, with the Dow Jones Industrial Average plummetting 382 points to less than 7,900.

It's new effort, the Financial Stability Plan, is a multi-pronged attack that calls for increased transparency among financial institutions, more forward-looking risk evaluations by bank regulators and a capital-assistance program through which the Treasury would make investments in banks in need of added capital to weather the economic downturn.

"To get credit flowing again, to restore confidence in our markets, and restore the faith of the American people, we are fundamentally reshaping the government's program to repair the financial system," Geithner said.

The inclusion of CMBS in the lending facility, under which financing would be provided to investors in the highest-rated securities, was long sought by industry groups, including the Commercial Mortgage Securities Association and the Real Estate Roundtable.

"Treasury is pursuing the right strategy now to help avoid a potential foreclosure disaster in the commercial real estate sector, which is a cornerstone of the economy ... Left unchecked, this could have extremely negative implications for local communities, jobs, and investors," said Jeffrey DeBoer, chief executive of the Real Estate Roundtable.

But the plan still falls short.

According to a briefing by Real Estate Economics, "Significant impediments to lending and securitization remain unaddressed." It cited as challenges limiting TALF's effectiveness the "misalignments of incentives" for originators, issuers and rating agencies and restrictions against the modification of securitized mortgages.

"Any program that fails to address these and other structural impediments to the renewal of CMBS activity will fail to improve appreciably upon the current shortfall in securitization activity and overall commercial mortgage credit availability," it said.

The plan was originally for the Treasury to make available $20 billion of financing, which could be used to leverage up to $200 billion of investments. That has grown to $100 billion, which theoretically could be used to make $1 trillion of investments.

"CMSA is very hopeful with Secretary Geithner's comment today that 'no plan will be successful unless it restarts the securitization markets,'" said Kenneth Reed, the trade group's spokesman. "If it's implemented effectively, the TALF extension to CMBS should help restore liquidity and address the billions in commercial real estate loans coming due in the next several years."

Besides expanding the lending facility, the Financial Stability Plan proposes forming a public-private investment fund with $500 billion of capital that could be used to help private entities acquire "legacy assets", primarily real estate, from lenders. The idea is to "help start a market for the real estate related assets that are at the center of this crisis," Geithner said. The fund could grow to $1 trillion.

"This initiative will kick-start the secondary lending markets," Geithner said, "to bring down borrowing costs and to help get credit flowing again."

Treasury also established a Web site, www.financialstability.gov, through which it says people would be able to see whether restrictions tied to the plan are being met and whether they are impacting the volume and cost of borrowing.

Copyright © 2009 Commercial Real Estate Direct, a service of FM Financial Publishing LLC. All rights reserved.

CPN: Economic Update -- Grocery-Anchored Centers Maintain (Relative) Edge

Economic Update -- Grocery-Anchored Centers Maintain (Relative) Edge
Feb 12, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

Are grocery stores and grocery-anchored centers immune to the slings and arrows of outrageous economic fortune? Or at least better prepared to weather the recession by virtue of the fact that people have to eat?

Maybe, maybe not. Earlier this week, Citigroup downgraded Kroger to "hold" and Safeway to "sell," and share prices in those companies and other grocery specialists fell in response. The thinking is that imminent price wars among the major grocery chains are going to hurt the business, with the likes of Costco already cutting prices on staples such as milk and eggs.

Still, retail space brokers are reporting leasing deals in grocery-anchored centers, though naturally they're considerably harder to do than even a year ago. For example, at the Shoppes at Fairhope Village, a grocery-anchored center until construction in Fairhope, Ala., not far from Mobile, McConnell Training Systems, a personal training studio, has inked a deal for 2,500 square feet. The center, which measures 84,700 square feet, is anchored by a 54,300-square-foot Publix Super Market.

"Well-located grocery-anchored shopping centers traditionally do well when it comes to leasing activity, and that's still the case," Doug Clyburn, a senior leasing agent for developer Regency Centers, told CPN. "For other retailers in the center–both current and prospective–a steady stream of shoppers provides an opportunity to attract new customers to their businesses, a comforting thought given the realities of today’s economic environment."

It was an ashes-and-sackcloth day on Capitol Hill on Wednesday. Sure, we're lending (no, really!), an assortment of banking bosses, such as Bank of America's Ken Lewis, told the House Financial Services Committee. Others said they were so sorry, so very sorry, about the whole situation, while others (such as Citigroup CEO Vikram Pandit) said they were foregoing salaries until the heat was off--that is, until their companies returned to profitability. Some members of Congress, and the public too, might suspect that the bankers' contrition will last about as long as a credit-card teaser rate.

Elsewhere in the halls of Congress, the conference committee working on the stimulus package agreed with unusual speed on a $789 billion bill, after removing some billions of earlier versions of it. Virtually everyone also has an opinion on whether it will "work" or not, but certainty is in as short supply as credit.

On Wall Street, it was yo-yo day. Tuesday's sharp drop wasn't recouped, but things did trend upward in a volatile sort of way. The Dow Jones Industrial Average ended up 50.65 points, or up 0.64 percent. The S&P 500 was up 0.8 percent, and the Nasdaq gained 0.38 percent.

The Mayor of Las Vegas is steamed at President Obama for suggesting that paying for meetings in Vegas might not represent the most productive use for federal bailout money. Recently the president said, "... you can't go take a trip to Las Vegas or go down to the Super Bowl on the taxpayer's dime." In a letter to Obama, Las Vegas Mayor Oscar Goodman said, "I... understand the need for accountability, but your comments are harmful to the meetings and convention industry as a whole and Las Vegas specifically."

Vegas has had troubles enough lately when it comes to its main industry, tourism. The number of visitors to the city dropped 4.4 percent in 2008 compared with a year earlier, according to the Las Vegas Convention and Visitors Authority, which has also reported steep decline in '08 for hotel room rates, the number of conventions and meetings, and in the number of passengers using McCarran International Airport. No word from bookmakers on the odds of the president retracting his comments.

Wednesday, February 11, 2009

CPN: Silver Linings for Commercial Real Estate

Finance CMBS
Silver Linings for Commercial Real Estate
Feb 11, 2009
By: Suzann D. Silverman, Editor-in-Chief

While commercial real estate like other asset classes has been suffering in this recession, there are silver linings, according to Jay Brinkman, Mortgage Bankers Association chief economist, and Jamie Woodwell, vice president of commercial real estate research, speaking during the second opening session of the MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo yesterday.

For one thing, the absolute levels of loans are well below what they were in the late ‘80s and early ‘90s, Woodwell noted. What makes things more difficult this time is the higher levels of complexity brought on by the greater splitting up of risk this time.

In addition, a lot of the pain has already been felt, Woodwell noted. Among other parameters. CMBS deals have already been repriced and in fact are probably way overpriced.

Another plus for commercial real estate, he noted, is that “there’s a ‘there’ there.” The fact that there is a discernible asset that can be valued and that has measurable cash flow makes commercial real estate more likely to attract investors sooner than less palpable assets.

And finally, Brinkman predicted, Treasury spreads are not likely to widen further this year, as they have already widened artificially and compression in credit spreads is likely to offset the Treasury rate. “Over time we will see the normal patterns re-emerge, but probably not this year,” he said.

CPN: Job Losses Hit Commercial Real Estate--Hard

Business Management Executive Q&A
Job Losses Hit Commercial Real Estate--Hard
Feb 11, 2009
By: Barbra Murray, Contributing Editor

January was a bloodbath for the job market with 598,000 losses. The staggering number has the obvious immediate negative consequences--and then there is the secondary impact. With the slashing of jobs comes the slashing of occupancy rates in most sectors of commercial real estate. Hessam Nadji (pictured), managing director of research services with Marcus & Millichap Real Estate Investment Services, spoke to CPN about how employment's devastating nosedive is impacting commercial real estate.

CPN: The consequences of massive job losses have trickled down to the real estate market, but have all sectors of the industry been equally impacted?

Nadji: The hardest hit sector is still retail because of overbuilding between 2005 and 2007, consumer spending and the effect it's had on tenant bankruptcies and retrenchment among retailers. The second hardest hit is the office sector, which is experiencing a rapid rise in sublease space. Because of job cuts, we expect the vacancy rate to remain very high for the next two to four months. The lag effect on occupancies will really begin to show in the second and third quarters of 2009. With the hotel sector, there are three negative forces; overbuilding, business travel is way down and consumer travel is way down. The effect on the hotel market has been profound. Hotels react to the economy very fast because they are daily operations. The hotel sector is in for a very tough year in 2009, but because of its correlation to the economy, it will come back soon after the economy recovers, but we're looking at 2011 or 2012 before we see that kind of improvement. The psychological shift doesn't happen overnight; it takes people time to have the confidence to spend again.

CPN: And what about the industrial market? There is a much shorter turnaround for developing an industrial property compared to, say, an office property; there's a little more advance notice of market conditions, so is the industrial sector comparatively better off than other sectors of the commercial real estate market these days?

Nadji: Industrial was doing well through the end of 2007, but there was some overbuilding between 2005 and 2007 because the market had become very tight. There's a high degree of functional obsolescence, so there's more of a need for new construction.

CPN: At first glance, it seems no sector of the commercial real estate market is going unscathed as jobs vanish by the hundreds of thousands, but are some sectors faring better than others?

Nadji: The apartment market is experiencing the lowest vacancy rate among all property types at 6.7 percent, so it is comparatively better. But it's not immune to the downturn, so expect the vacancy rate to close down at 7.8 percent in 2009.

CPN: While apartment vacancy rates are relatively low, why would they increase, considering that the single-family housing crisis is forcing many to rent?

Nadji: We've studied patterns of prior recessions and when job losses are moderate, it doesn't have a significant impact on absorption. But when it's extreme, people tend to double up, move in with family and postpone plans for forming rental households.

CPN: Is there any sector of the commercial industrial market that is not taking a bit of a beating?

Nadji: Specialty niches of real estate tend to be a little less affected by the economy. Seniors housing, in general, is in good shape because it was not overbuilt and the demand side is positive due to the aging population. In the self-storage sector, people tend to cut back when losing jobs, but there's always a baseline level of need for people to store their goods. And the reversal in home ownership because of foreclosures or downsizing does create demand. Also, manufactured housing and mobile homes are holding up well. They become more attractive when people are making less money and have less to spend on rent.

CPN: So, with no to job losses in sight, what can we expect in the commercial real estate industry?

Nadji: Looking at the economy this minute, no sectors are showing they're going to be driving a lot of growth. Normally, a recession automatically creates pet up demand--financing and jobs become more available and that drives demand and recovery. This time, we're trying to correct a high level of consumer borrowing and corporate growth from the last five to seven years. We have a ways to go before we create pent up demand.

CPN: Any uplifting news?

Nadji: Historically, when there have been extreme levels of contraction, they have been followed by extreme levels of expansion. Normally, you get a pop, but we just don't know if this time around there's reason to think we're going to get a pop; however, there is a tremendous level of liquidity that will be pumped into the economy, and a tremendous amount of stimuli that will be put in the system. The liquidity injection, the stimuli and the initiatives to create jobs--that effect hasn't been felt yet. Banks still aren't really lending. But when those changes take effect, they'll be very positive and we'll start to recover in 2010.

CPN: Just speculating, what does the future look like?

Nadji: Commercial real estate lags the economy by about six to nine months, so it will take six to nine months of a sustainable pattern of creating jobs for real estate to recover. The apartment market will be the first to benefit from recovery, as it tends to show reaction the quickest, followed by office and industrial. The sector we're really worried about is retail. Retail had overbuilding going in, and it's facing structural change, not just cyclical change. For example, how you replace department store demand that's vanished; and you have to take time to overcome the obsolescence of retailers like Circuit City. Redefining retail will take longer than the cyclical downturn of the office and industrial markets. We went from having a recession to having a financial crisis in fall 2008; the commercial paper market froze and short-term operational financing was interrupted, and that has a lot to do with the high level of job cuts. Higher vacancies have already started and will continue through 2009.

Tuesday, February 10, 2009

Obama's bank rescue plan & stimulus package

About the bank rescue plan announced today.... is that all you've accomplished since election day on the #1 issue facing the country? I, for one, thought you'd be much further along in the process and have something to announce today. I realize it's a big deal to get right and incredibly complicated but, we need to be done planning and well into the implementation phase by now.

About the stimulus package, what happened to all the bipartisan talk? I thought you were going to involved Republicans in drafting the legislation. Not just ask for their vote to what the House Democrats put together. And please don't try and scare everybody into liking it by trumpeting the impending doom if it doesn't pass immediately. That was a Bush tactic and you are all about hope, not fear.

Rookie mistakes. Everyone is allowed a few, though we expected more from you. Make it happen.

Economist optimistic about Utah

By Brice Wallace, Deseret News

Published: Tuesday, Feb. 10, 2009 9:41 p.m. MST

Utah is seeing obvious economic troubles because of the national recession, but a couple of state economic officials believe Utah is weathering the storm better than most other states and is positioned to prosper when it passes.

Mark Knold, chief economist for the Utah Department of Workforce Services, and Jason Perry, executive director of the Governor's Office of Economic Development, were optimistic Tuesday in discussing Utah's economy with the House Workforce Services and Community and Economic Development Committee.

"I still am very much positive on the long-term aspects of Utah," Knold said. "I still wouldn't want to be anywhere else other than here basically, even in this downturn. But it is a strong one."

Knold said Utah's population growth eventually will boost demand for products and services and help pull the state out of the downturn.

"We're anticipating that we'll still have population growth going forward — maybe not as strong as the last few or the middle years of this decade — but the point is that at some point in 2011 or 2012, we're going to be back to that pent-up demand shooting out the other side of the strong economic growth and housing activity and so on," he said.

When the economy recovers, "the demographics of this state are such that when the economics are right that that (housing) inventory will be absorbed rather quickly and we'll be back to building homes again," he said.

Knold is predicting Utah's unemployment rate could top out at 7 percent.

A report this past week from economic consulting firm Moody's Economy.com said Utah will lose 31,016 — or 2.5 percent — of its jobs in 2009. In only 13 states is the projection the same or worse.

Utah's current 4.3 percent unemployment rate is testament to "just how tight our labor market was" and Utah's "powerful momentum" entering the downturn, Knold said.

"We're in the heart of the downturn right now," he said.

He expects job losses will stop by the second half of this year. The current recession differs from others in the past, in part because Utah will experience two consecutive years of job losses and in part because Congress is considering an economic-stimulus package, he said.

"This is going to be something that's going to slide across quite a few quarters of the calendar year," Knold said. "We'll look back on this one and see that this one will go down as the benchmark going forward."

Despite the downturn, Utah is swamped with companies considering expansions or relocations, Perry said.

"In terms of business recruitment, which is part of our office, we have never been busier," Perry told the committee, adding that 120 companies are interested in relocating operations to Utah or expanding their existing activities in the state. "That's a big deal, considering what you might expect from what's happening in our economy."

Even in the downturn, he said, companies are still looking to expand or relocate, and Utah "is increasingly seen as one of those safe places to invest."

Utah's low cost of doing business, its young and educated work force and the state's incentive programs are among reasons companies are interested, and his office is trying to lure the proper industries and jobs to the state, he said.

The committee's chairman, Rep. Steve Mascaro R-West Jordan, said the information from Knold and Perry will help legislators make budget decisions.

E-MAIL: bwallace@desnews.com

Utah's job outlook grim; '09 losses will be worse than in other U.S. areas, economic consultants say

By Lois M. Collins, Deseret News
and Barbara Hagenbaugh and Barbara Hansen, USA TODAY
Published: February 10, 2009

Utah will be among the harder-hit states in terms of job losses in 2009, according to a grim prediction from economic consulting firm Moody's Economy.com, which says every state and 95 percent of the nation's metropolitan areas will end 2009 with fewer jobs than at the year's beginning.

The report says Utah will lose 31,016 — or 2.5 percent — of its jobs. In only 13 states is the projection worse.

The pain exists to some degree everywhere, so people who lose jobs in one state won't simply be able to relocate to find work. That lack of mobility will make it harder to pull out of the downturn, say economists at Moody's Economy.com, Wachovia and others. Education and health services and government are the only sectors expected to add jobs.

The prediction for Utah is "in the ballpark" with local projections, says Mark Knold, chief economist in Utah's Department of Workforce Services. "We have it at about 2.3 percent (of jobs lost) across all sectors, led by construction."

So far, many of the jobs already lost in Utah have come from the housing-construction sector, he says, but that's fallen about as far as the experts believe it will go, with close to 13,000 jobs lost. Not so with non-residential construction, which is expected to be well off the 2007-2008 peak in dollar value, which reached $2.1 billion and is likely this year to be only $1.6 billion.

Utah Gov. Jon Huntsman Jr. has said he wants to see roads projects finished. That would stop some job losses, but will not change the projections, Knold says. And while folks are hoping that a new economic-stimulus plan will jump-start the economy, Knold says the effects won't be felt for at least the next few months.

Things that make a difference quickly don't last long, and those that do take time to be felt. "If you put a lot into rebuilding roads, rail lines and infrastructure things, that takes time to work into the system. But once you do them, they are incredible assets to the economy that give back for years and years and years," he says.

Even if the stimulus package — which contains some tax cuts, money to bolster key government programs like unemployment, Medicaid and Medicare and new jobs building infrastructure — passed this week, Knold says, "it will take a couple of months before it starts to have a ripple effect through the economy. We're living now on decisions made two or three months ago — and no decisions were made then."

Moody Economy.com's chief economist, Mark Zandi, describes the national situation as "nowhere to hide in this economy. If you lose your job, it's not clear where you should move to find one or even what training or education you need to retool yourself," he says. "The hallmark of the current downturn is that it is so broad-based across industries, occupations and regions of this economy."

Workers in some states certainly will be better off than others. Employers in six states — Washington, Texas, North Dakota, Colorado, New Mexico and Nebraska — and Washington, D.C., are expected to shed less than 1 percent of their workers this year.

At the same time, Ohio, Missouri, Florida, Connecticut, Hawaii and Michigan are forecast to lose the greatest proportions of their states' jobs. Michigan, hit hard by a rapid decline in the U.S. automotive industry, is expected to shed more than 175,000 jobs this year, a 4.3 percent decline, according to Moody's Economy.com.

Nationwide, employers are expected to cut 2.7 million jobs this year after eliminating more than 2 million positions in 2008, according to Moody's Economy.com.

The year is already off to a bad start. Firms cut 598,000 jobs in January, the most since 1974, the Labor Department said Friday. The unemployment rate rose to 7.6 percent, the highest in more than 16 years.

The most recent Workforce Service numbers put Utah unemployment at 4.3 percent.

More than 11.6 million people were unemployed last month nationally, up 54 percent from a year earlier and the most since December 1982.

Including people who were working part time even though they wanted full-time work, and those who had given up on finding a job, the rate of "underemployment" was 13.9 percent in January, up from 9 percent a year earlier and the highest since the Labor Department began tracking the number in 1994.

This month isn't looking much better. Already, household names such as Macy's, Electronic Arts and PNC Financial Services have announced thousands more layoffs.

Conference Board chief economist Bart van Ark attributes the uniformity of the downturn to the financial industry's crisis, which has led to tighter or more expensive credit for businesses and consumers no matter where they are located.

E-MAIL: lois@desnews.com
© 2009 Deseret News Publishing Company | All rights reserved

Tuesday, February 3, 2009

Stimulus could bring 33,000 jobs to Utah

By Matt Canham and Thomas Burr, Salt Lake Tribune

Posted:02/03/2009 06:29:00 PM MST

Washington » Utah could gain about 33,000 jobs under President Barack Obama's stimulus plan, the White House said Tuesday, but the state would lose out on billions in transportation funding because federal officials don't want to change how they normally divvy up cash.

Utah has nearly $11 billion in "shovel-ready" projects -- more than any other state -- though it is expected to receive only a fraction of that because Congress plans to dole out the money based largely on population.

Obama's top economic adviser, Lawrence Summers, said Tuesday that the president considered giving preference to projects that could launch quickly, but asking Congress to come up with a new plan to distribute funds could have taken months.

"What's crucial is there's funding at levels that would have been unimaginable even a year ago for all states," Summers, the director of the National Economic Council, told a group of regional reporters.

The House approved an $819 billion stimulus package last week in a strict party-line vote that saw every Republican oppose it. Now the Senate is wrangling over a similar, $900 billion stimulus bill, which among a bevy of tax cuts and spending programs would include about $41 billion for road, transit and water projects.

A proposal that would have boosted that infrastructure figure by another $25 billion fell two votes shy Tuesday of overcoming procedural hurdles in the Senate. Utah Republicans Orrin Hatch and Bob Bennett were among the senators who opposed raising the amount.

Bennett didn't like that the amendment only added more money to the bill, instead of cutting it from other areas. He also has been a vocal critic of how the program would determine each state's portion of the infrastructure cash, saying he wants the Senate to create "an additional item of criteria" benefiting states that could move more quickly to start construction projects.

"Utah would fare better," he noted, "because we are closer to being ready than anyone else."

An organization representing state transportation agencies conducted a nationwide survey of road projects ready to go within the next six months. Despite topping the list, Utah is slated to receive only about $221 million in road funding.

Utah Department of Transportation spokesman Nile Easton said that isn't enough to start one of the major construction projects, such as expansion of Interstate 15 in Utah County or creation of a new west-side highway in Salt Lake County. Instead, the money would go toward road and bridge-maintenance projects spread throughout the state.

That still would put road crews to work, and Easton said the projects could start almost immediately.

A White House analysis, released Tuesday, shows that Utah would gain 33,000 jobs under the president's stimulus bill.

"What this does," Summers said, "is bring the people without work together with the work that needs to be done."

White House officials stressed that the analysis, conducted by administration economists, was "tentative" and would change as Congress and the president continue to tinker with the plan.

But the number is far higher than that released last week by House Speaker Nancy Pelosi, D-Calif. Relying on numbers generated by Mark Zandi, of Moody's Economy.com, House Democrats expected Utah to pick up about 22,500 jobs under the stimulus plan.

The administration's goals with the package are far-reaching and stretch beyond job creation. It wants to prop up struggling states, expand educational access, boost renewable energy, make homes and government buildings more energy efficient and take major steps toward nationwide use of electronic health records. Some of this is expected to offer a short-term economic boost, while other pieces are meant to put the country in a better position years from now.

"Make no mistake, though, these problems were not created in a day or a month or a year," Summers said, "and they will not be solved in a day or a month or a year."




Under the House-passed stimulus bill, Utah would get about $2 billion in federal money. Of that, more than $310 million would go toward infrastructure improvements.

Roads » $221 million to repair roads and bridges.

Transit » $60 million to speed up light-rail expansion.

Water » $31 million to modernize water delivery.

Source » House Democrats, public officials
Where Utahns stand

Senate » Utah Republicans Bob Bennett and Orrin Hatch oppose the Senate stimulus package in its current form. A vote could come this week.

House » Utah Democrat Jim Matheson voted for the stimulus boost last week, while Republicans Rob Bishop and Jason Chaffetz lined up against it.

Banks Adopt Tighter Terms for Lending, Survey Says

By SUDEEP REDDY, MARSHALL ECKBLAD and DAN FITZPATRICK

Most U.S. banks tightened lending to consumers and businesses in recent months, an ominous sign for an economic recovery pegged to easing the flow of credit to borrowers.

In a survey of banks released Monday, the Federal Reserve said about two-thirds of banks' loan officers reported that they tightened terms for business loans over the past three months. While that was better than the 85% reporting in October that they had tightened terms -- such as the cost of credit or collateral requirements -- over the prior quarter, the survey still shows how strict lending standards instituted in the wake of last fall's credit freeze continue to block potential borrowers from accessing credit.

The sentiment also underscores troubles with the government's Troubled Asset Relief Program, or TARP, which doled out more than $200 billion to troubled financial institutions with the goal of lending out fresh capital and jump-starting the economy.

Businesses said that has hardly been the reality.

"I find it ironic" that TARP money was supposed to ease credit, said 51-year-old Christian book publisher Jeffrey Campbell, owner of the two-person Tau Publishing in Phoenix. "It is only tightening it up. I don't think it is working the way it is supposed to be working."

Mr. Campbell said he and his wife have credit scores well above 700, own two homes that are worth more than what they owe and pay their credit cards "as soon as we get the bill." Yet his business credit cards have seen their limits slashed -- his Bank of America Corp. card was nearly halved from $15,000 to $8,800, while another line of credit from another provider was eliminated altogether -- even as rates have gone up.

With less credit, Mr. Campbell said he won't be able to purchase additional book-binding equipment and will have to seek outside vendors to do the job, thereby raising his expenses.

"There is really something wrong with this picture," he said.

Bank of America declined to comment on Mr. Campbell's situation, but spokesman Scott Silvestri noted that in the fourth quarter the company's small-business banking unit extended nearly $1 billion in new credit to more than 47,000 new customers, and the bank made more than $115 billion in new loans across all categories.

The Fed, in its quarterly senior-loan-officer survey, said banks "pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards and terms" on business loans. Most loan officers also cited worsening industry-specific problems and their banks' reduced tolerance for risk.

For their part, banks point to a drop-off in demand for the pullback in lending. They also said they haven't had enough time to make new loans.

According to the Fed survey, about two-thirds of banks said demand for business loans had actually weakened in the prior three months, with less than 10% reporting that demand had risen. Most banks that reported a drop in demand said customers cut investment in equipment and plants.

Deepening trouble throughout the financial system and the economy has spurred banks to become more cautious about lending practices, directing loans to the most creditworthy customers. The tightening policies are weighing on economic activity and threatening to worsen the recession, which is entering its 15th month.

The government has rolled out numerous programs to grease credit flows to businesses and consumers. The first half of the $700 billion financial-sector rescue to the banking system was intended to spur more lending from financial institutions. But with banks proving slow to ramp up lending, lawmakers now want to place requirements on firms that receive taxpayer funds.

The latest government effort, by the Treasury Department and Fed, is expected this month to promote consumer lending in a market from which many investors who buy packaged loans have fled.

Loan demand from consumers didn't fall as rapidly as it did for businesses, or as much as it had in the prior survey. About 40% of banks said demand for prime mortgages -- for customers with the best credit -- became weaker during the survey period into mid-January, while almost a third said demand became stronger. That is probably the result of falling mortgage rates after the Fed announced plans in November to buy mortgage-related assets.

Still, almost half of all banks said they tightened credit standards on prime mortgages. Almost 60% tightened standards on consumer loans such as credit cards. Almost half reported tightening terms and conditions for existing consumer credit-card accounts, and roughly the same share reported raising the minimum required credit score.

About 40% said they raised interest rates over their cost of funds for individuals' credit cards. For business loans, about 90% of banks said they increased the spread, or interest rate, on loans over the cost of funds.

Banks are pulling back, in part, to respond to earlier loosening of loan terms.

Bank of America, for instance, pushed further into small-business lending by reducing its underwriting standards in order to write more loans. Until August of 2006, the company lent money only to businesses that had existed for at least two years. But just more than two years ago, the firm started offering unsecured credit lines of up to $100,000 to start-ups.

From October through December of last year, Bank of America said it took permanent losses on about 2.9% of its outstanding small-business loans, an annual loss rate of almost 12%. As of one year ago, the Charlotte, N.C., bank's permanent loss rate on small-business loans was about half its current level, or about 6%.

Small-business owners who still can get credit said the standards are getting tougher.

"They're making us jump through a few more hoops," said Patrick Ryan, co-owner of Ryan Brothers Ambulance Service, of Madison, Wis. Mr. Ryan said his longtime lender asked for more information than normal on his last visit: "Our banker just said...'We normally don't do all this research,'" but that the bank was performing more due diligence even for the banks longstanding customers.

Despite Federal Aid, Many Banks Fail to Revive Lending

By Binyamin Appelbaum
Washington Post Staff Writer
Tuesday, February 3, 2009; A01

The federal government has invested almost $200 billion in U.S. banks over the last three months to spark new lending to consumers and businesses.

So far, it hasn't worked. Lending has declined, and banks that got government money on average have reduced lending more sharply than banks that didn't.

Consider the case of Bethesda's EagleBank, which received $38.2 million from the Treasury Department in early December.

The company, which focuses on lending to local businesses, was delighted to get the money, executives said. Its nine-member board convened an impromptu conference call during the week of Thanksgiving to approve the deal.

But EagleBank used roughly half the money to digest the acquisition of Fidelity & Trust Bank, a Bethesda rival with financial problems.

And it has struggled to use the rest to increase lending.

The government investment boosted EagleBank's capital, a cash reserve that regulators require banks to hold as a cushion against losses. More capital meant EagleBank could make more loans, but the company has not been able to take advantage. Lending also requires deposits, the money that banks give to borrowers, and EagleBank's deposit base shrank over the past three months.

"You look around and everyone is saying, 'Banks are not lending,' " said Ronald Paul, EagleBank's chairman. "Well, we'd like to. I could grow my loan base considerably if I just had the deposits."

EagleBank's struggles are part of a broader national pattern and illustrate the complexity of the government's attempt to prop up the economy. Rather than investing in the banks best equipped to increase lending, the government invested disproportionately in banks that needed money to solve problems. Those banks often were ill-equipped to increase lending because of financial limitations such as a lack of deposits.

Senior administration officials have said, though, that they are largely satisfied with the results of the first round of investments. They say the true achievement is something that did not happen: The banking system did not collapse.

But the volume of loans outstanding from U.S. banks fell about 1 percent during the last three months of the year, according to Federal Reserve data. The decline was more than twice as large among banks that accepted taxpayer funds, according to an analysis of fourth-quarter financial reports from 115 companies. The Fed reported yesterday that most banks have continued tightening lending standards.

Some of the first banks to get funding, such as Citigroup and J.P. Morgan Chase, have reported the sharpest drops in lending. In the face of public pressure to use the money, Citigroup plans to announce today that it will spend $36.5 billion on increased lending because of the government's investment in the company.

"You can't just snap your fingers and make this happen," said William Beale, chief executive of Virginia-based Union Bankshares, which got $59 million from the government in mid-December after trying to raise private capital for more than a year. "It's going to take some time for us to raise deposits," Beale said, "and then we can deploy some loans."

Several recipient banks in the Washington area are digesting acquisitions. Bank of Essex, a subsidiary of Community Bankers Trust of Glen Allen, Va., for example, has bought two failed banks from regulators, including a deal announced Friday for Suburban Federal Savings Bank of Crofton.

Others are dealing with problems of their own making. Recipients of government investments in Virginia and Maryland -- no District bank has received money -- on average had lower capital levels than banks that have not received money. Community Financial of Staunton, Va., said the government's money restored its status as a "well-capitalized" bank.

The local pattern is a miniature of the national. Taxpayer money made possible the mergers of Merrill Lynch into Bank of America and National City into PNC Bank, among others. Citigroup was sick enough to need a second helping, and, without taxpayers, Wells Fargo would not be "well-capitalized."

The Obama administration is preparing to deploy the second half of the $700 billion rescue plan. Treasury Secretary Timothy F. Geithner is expected to detail those plans in a speech early next week.

Members of Congress from both parties and several agencies appointed to oversee the program have argued that the government should force increased lending, in part by tracking how banks use the money they get.

Rep. Barney Frank (D-Mass.) said on ABC's "This Week" on Sunday that he expected the Obama administration to push banks harder to increase lending. He said the initial government bailout should have come with a tighter condition that they do so. Frank, who chairs the House Financial Services Committee, plans to hold hearings on the subject today.

But some banking regulators and administration officials continue to oppose such measures, saying that banks could be forced into risky lending and that the government should not run banks. Regulators have not instructed banks on how to use the money, local executives said.

"They have not given us any guidelines on how the money should be used," said Thomas Bevivino, chief financial officer at Severn Bancorp. The Maryland company got $25 million from the government, then raised an additional $7.5 million from investors to further bolster its capital reserves. The company said its lending has remained basically flat.

The Capital Purchase Program was announced in October after then-Treasury Secretary Henry M. Paulson Jr. forced nine of the nation's largest banks to accept $125 billion in capital. Paulson said that the rest of the nation's 8,300 banks could apply for a portion of the remaining $125 billion. More than 300 have since received investments.

From the start, Treasury officials took pains to describe the program as focused on "healthy, viable banks" and to proclaim the stated purpose repeatedly: "Increasing the flow of financing available to small businesses and consumers."

Even during a recession, local banks say that loan demand remains strong. And deposits are flowing into the banking system, a pattern that financial analysts attribute to a flight from riskier investments. Federal Reserve data show that deposits in U.S. banks rose strongly in the fourth quarter.

But in the Washington area, the banks that got federal investments mostly were not those that reaped the deposits.

The deposits flowed disproportionately to the strongest banks and the weakest. The strongest banks, which tended not to apply for government money, attracted customers seeking safety, and customers seeking loans, by demanding that borrowers also become depositors. The weakest banks attracted customers by offering eye-catching interest rates. National companies called deposit brokers funnel money to the banks that offer the highest rates, and executives say competition in recent months has been fierce.

"It's a war out there right now," said W. Moorhead Vermilye, chief executive of Shore Bancshares in Easton, Md., which expanded its deposits by less than 1 percent. "It's very, very difficult, but what we're doing is insisting that borrowers bring all their deposits to the bank. If you're going to bank with us, you need to bank with us."

Companies such as EagleBank were caught in between, neither strong nor weak enough. The bank held about $1.1 billion in deposits at the end of September and slightly less at the end of December. About a third of banks nationwide that received a government investment in the fourth quarter also reported a decline in deposits.

Paul, EagleBank's chairman, said he regularly hears from board members who know someone who wants a loan. Increasingly, the conversations don't end productively. The supplicants facing the longest odds are residential and commercial developers and landlords, bank executives said.

Debbie Shumaker, EagleBank's director of business development, said the bank's sales force keeps lists of clients they can't help right now. They send keep-in-touch notes and plan to circle back once the bank has more money to lend. But she acknowledged that it's hard to build a relationship from a rejection.

"It's very frustrating," Shumaker said. "Someday banks are going to go back to these clients, and they're not going to forget these hard days."

Banks blame government for lack of lending

The Associated Press
updated 6:43 p.m. MT, Mon., Feb. 2, 2009

NEW YORK - Banks that are being scolded by the government for not lending are blaming a new obstacle: The government itself.

Fearing more bank failures, federal regulators are forcing institutions to hold more money in reserve and scrutinizing loans. But bank executives complain that the extra oversight thwarts their ability to quickly pump billions of bailout dollars into the ailing economy.

Banks say they are caught in a frustrating Catch-22: How can they make more loans when creditworthy borrowers are scarce, their balance sheets are saddled with bad debt and regulators are hounding them to horde cash?

“We want to lend, but the regulators are flat-out telling us, ’Get your capital up.’ Then there’s Congress telling you to lend it all out,” said Greg Melvin, a board member at FNB Corp., a Hermitage, Penn.-based bank that got $100 million in bailout money.

“Two arms of the government are saying exactly the opposite thing — it’s ridiculous,” added Melvin, who is also chief investment officer at investment firm C.S. McKee.

Regulators say they are only being careful, and they deny slowing lending.

“We don’t believe that prudence and increased lending are mutually exclusive — they go hand in hand,” said Andrew Gray, a spokesman for the Federal Deposit Insurance Corp.

The tit-for-tat marks the latest problem for the government’s financial bailout, known as the Troubled Asset Relief Program, or TARP.

The government rolled out the $700 billion bailout late last year, hoping that injecting money into banks would expand lending and ease the credit crisis. But in a survey released Monday, the Federal Reserve said many banks are making it harder to get credit cards, mortgages and other loans.

Regulators have long required banks to keep a minimum level of capital on their books to stay in business. It was typically a figure equal to 10 percent of assets.

But as the financial crisis has worsened, many banks say they have been told to keep capital equal to at least 12 percent of assets. At the same time, regulators are combing through banks’ loan applications and flagging those considered too risky.

It’s unclear how broadly the stricter rules are being applied. But interviews with bank executives indicate that both healthy and troubled banks are facing more stringent oversight, regardless of whether they have received bailout money.

The goal is to keep banks from getting into more trouble. But to comply, some banks say they have little choice but to scale back lending — sometimes even to creditworthy borrowers.

Four government regulators oversee the country’s roughly 8,500 federally insured banks and thrifts: the FDIC, the Office of Thrift Supervision, the Federal Reserve Board, and the Office of the Comptroller of the Currency.

Regulators shut down 25 banks last year and closed three so far this year because their capital levels fell too low. Meanwhile, regulators have ordered several banks to stop lending until they get more capital.

But the credit crisis has made it harder for banks to raise private capital. And the government doesn’t want to give bailout money to banks that might later fail.

The harsh climate has taken a toll on banks such as Los Angeles-based First Federal Bank of California. It was forced to halt lending last month after its regulator, the Office of Thrift Supervision, said it needed more cash to absorb future losses on adjustable-rate mortgages.

Chief executive Babette Heimbuch said her bank wanted to keep lending but had a “difference of opinion” with the OTS over what its cumulative losses were and how quickly it will see them.

“They basically told us to stop lending,” she said.

While the Treasury wants banks to lend, “the regulators have a whole different mindset: They want to protect the insurance funds,” Heimbuch said, referring to money that regulators use to insure bank deposits.

Regulators see things differently.

William Ruberry, a spokesman for the OTS, said its No. 1 mission is to safeguard the institutions it oversees. He denied that such efforts were slowing lending.

“We want our institutions to lend, but we want them to lend in a safe and sound way,” Ruberry said. “We think creditworthy borrowers shouldn’t have a hard time finding loans.”

But banking professionals say it’s inevitable that tougher capital requirements for banks will reduce lending.

“There’s just no doubt,” said Stephen Wilson, CEO of LCNB National Bank in Lebanon, Ohio, which got $13.4 million in government capital. “If regulators tighten lending standards,” fewer loans will be made.

Some of the banks’ biggest critics reject that argument.

“I’m skeptical,” Democratic Rep. Barney Frank of Massachusettes, chairman of the House Financial Services Committee, told The Associated Press in an interview. “If you’re a bank that has TARP money, then you have more capital and you should be able to lend.”

Frank said the Obama administration would push for more lending by banks that get bailout money. But others fear such efforts could backfire by forcing banks to lower lending standards.

“We’re trying to get out of a credit problem, so the last thing you want is for banks to go out and make more bad loans,” said Bert Ely, a longtime banking analyst in Alexandria, Va.

William Dunkelberg, chairman of Liberty Bell Bank in Cherry Hill, N.J., said regulators have forced his bank to set aside more capital in case their loans go bad — “even though we don’t have any problems.”

“We argued like crazy, but they’re just being very cautious,” Dunkelberg said.

Could the Obama administration and Congress simply tell regulators to lighten up on the banks?

Technically, yes.

Eugene Ludwig, a former comptroller of the currency, has advocated a “capital holiday” that would temporarily let banks draw down their capital and unclog lending.

But that plan carries risks, too. With less money on their books, banks will have a smaller cushion to protect themselves against losses. They would be at greater danger of failing if the economy worsened.

In the meantime, banks are adjusting to life with regulators constantly looking over their shoulder.

At First Federal Bank of California, Heimbuch said business is running as normal — albeit with no lending. She said her bank is trying to attract more capital. But she conceded there were no guarantees.

“You never know when a regulator is going to say enough is enough,” she said.

© 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Utah Business Conditions Index worsens to record low

Published: February 3, 2009

It's a new year, but the same old poor business conditions for Utah's small businesses.

That's the summary for January, according to the Utah Business Conditions Index released Monday by the Goss Institute for Economic Research. The institute said January's figure for Utah fell to a record-low 36.5. The index uses a range from zero to 100, with a figure above 50 indicating an expansionary economy during the next three to six months.

Utah's figure is derived from a survey of supply managers. Utah's 36.5 in January compares with 38.4 in December and 44.4 in November. Components of the overall index are new orders at 37.5, production at 44.4, delivery lead time at 41.7, inventories at 21.5 and employment at 37.6.

"Durable-goods manufacturing firms reported significant declines in January business activities," Ernie Goss, the institute's director, said in a prepared statement. "Pullbacks were especially significant for firms heavily dependent on international sales. The state's unemployment rate has climbed by 1.4 percent over the past year. I expect Utah's seasonally adjusted jobless rate to expand to 5.2 percent by the end of the second quarter of 2009."

The three-state Mountain State region — consisting of Utah, Colorado and Wyoming — saw its index also hit a record low in January, at 31.6. That compares with December's 41.3 and November's 46.2. The January number is "pointing to a deepening recession for the region through the second quarter of 2009, and potentially stretching well into the second half of the year," the institute said.

"For the third straight month, the index dipped below growth neutral. Our survey results and very negative government data point to a significant economic downturn for the region," Goss said. "While growth in the region's large energy sector had helped the area evade the national recession, a weakening manufacturing sector, especially for firms heavily dependent on international sales, has pushed the region firmly into a recession."

Goss said that while the three-state region's employment index was up slightly, it was "still weak."

"In previous months, growth among firms with ties to the region's large energy sector supported the area economy. However, even firms in this sector are experiencing pullbacks in economic activity," he said.

Colorado's index fell to a record low of 30.5 in January, compared with December's 41.5 and November's 44.3. Wyoming's figure also was a record low, at 35.3. That compares with 47.5 in December and 51.4 in November.

The Goss institute uses the same methodology as a national index. That index, also announced Monday, rose in January from a record low but still posted the 12th straight month of contraction amid a global recession.

The Institute for Supply Management, a trade group of purchasing executives, said that its manufacturing index rose to 35.6 in January from an upwardly revised 32.9 in December. The January reading was above the 32.6 that economists surveyed by Thomson Reuters had expected.

While the increase in the index for January showed a significant improvement, "it is still a sign of continuing weakness in the (manufacturing) sector," Norbert Ore, chairman of the institute's manufacturing business survey committee, said in a statement. Executives surveyed said "that it will take a recovery in automobiles and housing for the manufacturing sector to once again prosper."

On a more positive note, Ore said the index continues to show significant deflation of the prices manufacturers must pay for materials, which ultimately should help consumers.

E-mail: bwallace@desnews.com