Zions' executive survey takes a turn toward optimism

Zions' executive survey takes a turn toward optimism

By Lois M. Collins, Deseret News
Published: Tuesday, May 26, 2009 10:04 p.m. MDT

Utah business executives are feeling more optimistic about their companies's financial futures — the first improvement in what has been an increasingly gloomy past two years.

That's according to a survey of Utah bosses conducted by Dan Jones & Associates for the latest Zions Bank Quarterly Economic Forecast, released Tuesday. It looks at the state's economy through the eyes of business executives. Zions has a pool of 1,169 executives it surveys, and several hundred of them respond for each quarterly report.

More than 40 percent said this may even be the time for entrepreneurs to start a business in Utah, taking baby steps and testing along the way, while about one-fourth see an opportunity to take advantage of the current market opportunities, including a broader pool of potential employees.

"It is a better place to do business than most anywhere else," wrote one executive. "This is an available, trained work force, and the state is very supportive of growth."

Added another, "I would say that if I were to start a business, today would be the time. Start out slow, and run with the economic rebound."

The current mean score of those surveyed is 6.22, which rates out as "somewhat optimistic," compared to the 7.87 standard that was set when the surveying began in 2006. The low point was last quarter, at 5.86. While the new score is below that of most quarters, the increase represents an 18 percent recovery of the points lost and marks the first move upward following a long line of declines.

"Somewhat better" or "much better" is the prediction for economic health that 41 percent of the executives made about their companies, while only 18 percent believe things will get worse to some degree. The same percentage of optimists, 41 percent, believe that government efforts to stabilize the economy will help their businesses, while 32 percent believe it will harm them.

The vast majority — 78 percent — are optimistic about the long-term financial future of their businesses.

The top concern remains the cost of employee health insurance — 5.26 on a scale of 1 to 7. That has remained either No. 1 or No. 2 in every survey.

The full report for first quarter 2009 is online at utaheconomicforecast.com.

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

Economic Update - CRE Sees First-Quarter Downtick in Brokerage Activity

Economic Update - CRE Sees First-Quarter Downtick in Brokerage Activity

May 21, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

Commercial real estate has had that sinking feeling all year so far, and on Wednesday the National Association of Realtors quantified things: brokerage activity in the commercial sector dropped 4.8 percent in 1Q09 compared with 4Q08. Compared with the first quarter of 2008, brokerage activity is down 12.9 percent.

Moreover, the NAR is predicting down time for a while yet, since real estate is a lagging indicator behind a broader economy that's still lagging itself. "Because commercial real estate always lags an overall economic recovery, it will take some time for the commercial real estate market to rebound," said Lawrence Yun, the organization's chief economist, in an unsurprising statement.

NAR further posited that U.S. office vacancies will average 16.1 percent by the end of this year, up from 13.4 percent last year, and that retail vacancies will hit 15.8 percent by year's end. That's quite a jump: At the end of 2008, 9.7 percent of U.S. retail space was vacant, according to the NAR.

"Better than expected" struck again with Wednesday's quarterly numbers from Target Corp., which didn't show great or even improving sales, but instead profits that were "better than expected." Target has tightened its grip on expenses since last year and has started promoting itself as a discounter--a far cry from the days when Target wanted to be thought of as better than that Arkansas-based chain whose name starts with "W," but not necessarily as inexpensive.

But cheap is chic in our time. Gregg Steinhafel, Target chairman, president & CEO, said during the company's 1Q09 conference call on Wednesday that "our new broadcast campaign conveys the connection our guests feel towards 'expect more and pay less' and talks to them in an authentic Target voice that we believe will attract savvy price-sensitive consumers."

On the labor front, meanwhile, the Federal Reserve is now predicting an unemployment rate between 9.2 and 9.6 percent by the end of 2009, which replaces the central bank's embarrassingly optimistic prediction at the beginning of the year of an 8.5 to 8.8 percent jobless rate by year's end. The U.S. unemployment rate is currently 8.9 percent, and unless space aliens land and start recruiting human workers, the rate isn't going to go down this year.

The Fed has also re-adjusted its outlook for U.S. gross domestic product. Now it thinks GDP will contract as much as 2 percent this year, instead of the range it previously predicted, 0.5 to 1.3 percent. The central bank did not, at its April meeting, move its key interest rate from near 0 percent.

Wall Street was in positive territory most of the day Wednesday, but then dipped at the last minute, with the Dow Jones Industrial Average ending down 52.81 points, or 0.62 percent. The S&P 500 slid 0.51 percent and the Nasdaq lost 0.39 percent.

Signs of Life Emerging for Multifamily Capital Markets

Signs of Life Emerging for Multifamily Capital Markets
Access to debt and equity is slowly improving for the multifamily industry.

By Jerry Ascierto, Housing Finance News

While credit availability for multifamily borrowers is still constrained, there have been some recent glimmers of hope that the capital markets are starting to stabilize.

Lender spreads are coming down for the first time in years; the pricing gap between buyers and sellers is slowly closing; and underwriting standards are beginning to stabilize. Taken together, these measures indicate that the bottom of the market may not be far off.

Interest rates on standard 10-year deals have been improving the past few months. Loans done through Fannie Mae’s mortgage-backed securities platform are pricing in the mid-5 percent range, thanks to renewed investor interest in the securities. And Freddie Mac recently lowered pricing on its Capital Markets Execution (CME) program to bring it more in line with Fannie Mae’s. What's more, lender spreads on standard 10-year agency loans have fallen from a high of around 380 basis points (bps) to the mid-200 bps range today. Today’s all-in rates in the mid- to high-5 percent range are a contrast to just three or four months ago when the GSEs were pricing out in the low to mid- 6 percent range.

“If you look at the trend line over the past six months or so, there’s no question that spreads have contracted from their highs, and that is a very positive thing for our industry,” says John Cannon, executive vice president and head of agency lending at Horsham, Pa.-based Capmark Finance. “For two years, we were in an ever-increasing-spread environment, so having six months’ worth of spread contraction has definitely helped.”

And while transaction activity has ground to a halt, there is some indication that the pricing gap between buyers and sellers is starting to close. Sellers are beginning to bite the bullet and accept higher cap rates as the level of distressed assets continue to pile up. “It looks to me like buyers and sellers are becoming more aligned,” says Mike May, senior vice president of multifamily for McLean, Va.-based Freddie Mac. “Some of the cap rates we’ve seen on recent property sales have been more in line with where we think cap rates are. It’s not a blistering pace, but over the last month or so, I’ve seen some acquisition deals that kind of surprised me.”

Another encouraging sign emerged in a recent Federal Reserve Senior Loan Officer survey. The survey found that most banks did not tighten credit standards in April—the first time in more than a year that the majority of banks kept their underwriting standards unchanged. About 60 percent of the nation’s 53 largest banks kept their existing credit standards last month, while 39 percent of the banks tightened up.

And borrowers are generally reporting better liquidity availability. The National Multi Housing Council measures access to debt and equity through a quarterly survey of borrowers, and its most recent survey offered some hope: Nearly half of all borrowers surveyed in April said that equity financing conditions were unchanged from the previous quarter, the highest response in seven quarters. And more than half said that availability of debt was unchanged in April, with 14 percent saying that last month was a better time to borrow than January.

The recent “stress tests” on the nation’s 19 largest banks also offered a slight case for optimism. The results were better than many investors had expected: While 10 of the 19 banks needed to raise more capital, institutions such as JPMorgan, Goldman Sachs, and American Express were deemed adequately capitalized to ride through the storm. The tests found that in a worst-case scenario, those 19 banks would lose about $53 billion in commercial real estate loans in 2009 and 2010 combined. But losses on residential loans could number $185.5 billion, while bad consumer loans and credit card loans could cost those banks about $83 billion each in that time-span. In other words, commercial real estate is not the loss leader.

So, while the apartment market will continue its bumpy ride through the remainder of the year, there are indications that the bottom is close. And in today’s economy, a slowdown in bad news is akin to good news indeed.

Overlooking the Mormon Temple, a New Center

Overlooking the Mormon Temple, a New Center

By LINDA BAKER, New York Times
May 13, 2009

SALT LAKE CITY — While the economic crisis has silenced hundreds of real estate projects around the country, 1,100 construction workers are toiling on a 20-acre development here that is springing up across the street from the Mormon Temple in the center of downtown.

A private development of the Church of Jesus Christ of Latter-day Saints, City Creek Center will be the largest mixed-use project in Salt Lake City. When completed in 2012, it will encompass 900,000 square feet of retailing, including an outdoor pedestrian shopping mall capped by 115 apartments; 1.6 million square feet of office space in eight buildings; a grocery store; and five residential towers with about 600 condominiums.

The development, which is within sight of the Mormon Tabernacle, will also feature six acres of public spaces and a retractable glass roof over the retail component. A man-made creek will run through the property.

The Mormon Church, which has its headquarters in the city, is investing “hundreds of millions of dollars” in the project, said Mark Gibbons, president of City Creek Reserve Inc., a real estate arm of the church, while declining to be more specific. The project will reshape downtown, Mr. Gibbons said. “We believe there won’t be anything anywhere that compares with it,” he said.

City Creek is not immune to the recession, Mr. Gibbons conceded. But he said the church has always had a “debt averse” philosophy that is proving especially helpful in the current climate.

“For which of you intending to build a tower does not first count the cost to see if he have money to complete, so he doesn’t look like a fool,” said Mr. Gibbons, paraphrasing Luke 14:28-29. “We set aside reserves to build this project, we counted the cost before we started, and we have the resources to complete.”

Bounded by the Great Salt Lake and the Wasatch and Oquirrh mountain ranges, Salt Lake City is home to 200,000 people, about 40 percent of them Mormons. It is a center for outdoor recreation, with several ski areas within 30 minutes of the city; a financial services hub, and a film festival mecca.

But the Mormon Church also wields considerable clout as the city’s largest employer and landowner. “We don’t have a Microsoft or Coca-Cola,” said Jason Mathis, executive director of the Downtown Alliance. “In many ways, the L.D.S. church fills that role.”

Now the church is a bringing a high-density, mixed-use project to Salt Lake City, with its own imprint: outsized, environmentally friendly and with a history of controversy. Two other companies have taken relatively small stakes in parts of the project.

Located at the intersection of the city’s primary commercial and ecclesiastical corridors, Main and South Temple Streets, the City Creek site, which is owned by the church, previously housed two poorly performing malls.

When Nordstrom, which anchored one of the shopping centers, threatened to leave seven years ago, Mormon leaders decided it was time for a makeover. The mayor at the time, Rocky Anderson, called enclosed malls “a failed paradigm,” and the church eventually agreed to a design that is much more open than the former malls.

To integrate the project with the surrounding neighborhood, City Creek planners put all parking underground and carved new streets into Salt Lake City’s monolithic 10-acre blocks — a legacy of the church’s founder, Joseph Smith, who developed a plan for the “City of Zion” in 1833.

The project features sweeping promenades and urban plazas “in line with the great plazas in Italy,” said Joe Collins, a project architect with Zimmer Gunsul Frasca. Fountains that include fire and bells — designed by the company responsible for water features at the Bellagio hotel in Las Vegas — will grace one of the plazas. “It’s going to be marvelous,” Mr. Gibbons said.

City Creek’s two-story 100-store retail center consists of several structures and will be developed by Taubman Centers, a developer based in Michigan, which is investing $75 million.

Its chief operating officer, William S. Taubman, said he had re-signed Macy’s and Nordstrom as anchor tenants, but declined to comment on the number of additional commitments he had secured. The center, which will open in 2012, will provide more upscale shopping than currently found in Salt Lake City, he said.

Nationwide, about 12 other major shopping centers were scheduled to open in the next year, Mr. Taubman said, but almost all of them have been delayed. City Creek is one of the few that has not been hampered by the economic downturn, he said.

Signs of the church’s financial strength — and managerial approach — abound. City Creek’s retractable glass roof will provide protection for shoppers during inclement weather. It would not be feasible without the deep coffers of the church, Mr. Collins said.

In keeping with religious dictates, the mall will be closed on Sundays, and only a few establishments, located on land whose title is held by Taubman Centers, will be allowed to serve alcohol.

Elements of the project are controversial. Some people scoff at the plan to use potable water to evoke City Creek, which determined the location of the city but which will remain underground.

“It’s the Disneyfication of what for many of us who are not members of the church find to be our sacred places, the natural environment,” said Stephen A. Goldsmith, a former city planning director who first approached the church with the mixed-use proposal for the City Creek property in 2002.

A sky bridge to be built over Main Street, where a light rail train operates, has also drawn criticism on the grounds it would mute street-level activity.

But Mr. Goldsmith, who now teaches at the University of Utah, is in favor of many aspects of the project. “To think we are going to have thousands of people living downtown — it’s something we only dreamed about,” he said

About 30 percent of the condos in City Creek’s Richards Court, a 10-story twin tower opening this year, have sold, Mr. Gibbons said. So far, most of the buyers are church members who will pay more than $900,000 for a one-bedroom unit with a view of the temple. “It’s the equivalent of living across the street from the Vatican or the Wailing Wall,” said Babs De Lay, a local real estate agent. “They will pay anything for this location.”

To accommodate the retail and residential components, City Creek developers demolished two office buildings. The ensuing demand led to the construction of 222 South Main Street, a $125 million tower a block from City Creek that will open in November.

Downtown Salt Lake has always had “good bones,” Mr. Gibbons said. But multiuse development is the future of the city — and the church, he said. “The existence of the temple dictates that our headquarters always be here,” he said. “We have a vested interest in making certain the vitality of this area.”

Copyright 2009 The New York Times Company

Fed expands real estate securities

Fed expands real estate securities

By Jeannine Aversa, Associated Press
Published: Tuesday, May 19, 2009 9:18 p.m. MDT

WASHINGTON — The Federal Reserve starting in July will include a wider variety of commercial real estate securities in a program that's intended to spark consumer and business lending.

Under the program begun in March, the Fed has provided $17 billion in loans to investors to buy newly issued securities backed by auto and student loans, credit cards, business equipment or guaranteed by the Small Business Administration.

The program already is scheduled to expand in June to include newly issued commercial real-estate securities. That could help prevent defaults on office parks and malls, and facilitate the sale of distressed properties.

The Fed said Tuesday the program would be expanded further to include existing high-quality commercial real-estate securities that were created years ago.

The latest change is designed to bolster the market for existing commercial real estate securities, which were hard hit by the financial crisis. It should ease pressure on banks and other financial institutions that hold these securities, the Fed said. That, in turn, should help borrowers finance new purchases of commercial properties or refinance existing mortgages on better terms.

Lawmakers and investors had urged the Fed to make the change.

The Treasury Department welcomed the move, saying it will help "small and midsize banks" and other holders of existing commercial mortgage-backed securities that want to "clear their balance sheet for new lending."

The program is called the Term-Asset-Backed Securities Loan Program, or TALF. It figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. The TALF has the potential to generate up to $1 trillion in lending for households and businesses, according to the Fed.

Starting in July, the Fed will include existing commercial real-estate securities that were issued before Jan. 1, 2009. Those securities will need at least two AAA ratings from among the major ratings agencies, the Fed said. The agencies the Fed cited are: DBRS, Fitch Ratings, Moody's Investors Service, Realpoint or Standard & Poor's.

Lawmakers also have raised concerns about whether the Fed is ensuring that credit-rating agencies are accurately assessing collateral for the loans. Credit-rating failures contributed to the financial crisis that plunged the country into recession.

The Fed said Tuesday it's in the process of determining which agencies will be allowed to grade eligible collateral in an array of Fed programs designed to loosen credit.
© 2009 Deseret News Publishing Company | All rights reserved

Salt Lake County hotel occupancy levels fall 12 percent in April

Salt Lake County hotel occupancy levels fall 12 percent in April
Recession » Fewer rooms filled nightly.

The Salt Lake Tribune
Updated: 05/20/2009 05:53:51 PM MDT

Compared with figures from the same month a year earlier, April's hotel occupancy rates in Salt Lake County took their biggest monthly plunge of this recession era.

Salt Lake area hotels filled only 58.9 percent of their rooms last month, far below the 71.1 percent occupancy rate in April 2008. Last month's percentage was the lowest since 2003 (58.3 percent) and also markedly below other years earlier this decade -- 65.7 percent in 2007, 69.5 percent in 2006, 67.6 percent in 2005 and 60.4 percent in 2004.

April's occupancy levels were even lower statewide, 56.5 percent, but that was down just 8.3 percent from the same month a year earlier, according to the Denver-based Rocky Mountain Lodging Report.

For the year's first four months, Salt Lake County's hotel occupancy rate is at 64.1 percent, compared with 72.3 percent for the same period in 2008. Statewide, is it at 58.1 percent, down from 66.4 percent a year ago.

Average nightly room rates and the revenue available to hoteliers per room also dropped last month. Room rates slipped from $101 to $96 in Salt Lake County, statewide from $110 to $105. In both areas, hoteliers took in slightly more than $61 per night, down from $73 the previous April.

Within Salt Lake County, hotels in West Valley City filled the most rooms (62.5 percent), while those around Salt Lake City International Airport had the lowest occupancy rate (56.6 percent).

That was still higher than occupancy levels in some other parts of Utah -- 38 percent at mountain resorts, 44 percent in Logan, 48 percent in Cedar City and 56 percent in Ogden. Hotels in Davis County and areas of Utah outside of major cities had 63 percent occupancy last month, while St. George was at 61 percent.

Mike Gorrell

Fed Widens Effort to Back Commercial Real Estate Loans

Fed Widens Effort to Back Commercial Real Estate Loans

By Neil Irwin, Washington Post Staff Writer
Wednesday, May 20, 2009

The Federal Reserve yesterday broadened a key lending program to support more commercial real estate loans, expanding its rescue of the financial system to deal directly with some of the assets weighing down banks.

The move is the Fed's first attempt to use its unlimited lending capacity to try to support markets for "legacy securities," or those that were created months or years ago. Previously, the Fed program supported only new commercial real estate lending.

Many legacy loans are clogging balance sheets of banks and other lenders. There are few buyers or sellers for these assets, even those that are generally regarded as safe investments. Government officials have been seeking ways to buy up these and other assets, thus removing them from bank balance sheets. But the programs, announced in March, have been slow to get rolling.

Starting in July, the Fed will allow investors participating in its Term Asset-Backed Securities Loan Facility to purchase existing securities backed by loans for apartment complexes, office buildings, retail shopping centers and other commercial property. In effect, the Fed will provide investors with large loans to buy highly rated securities.

The TALF program, which originally supported mainly consumer lending, uses Fed and Treasury money, and could reach $1 trillion.

If the Fed's efforts to start up commercial real estate lending works, it could begin to help an industry that many analysts believe is on the verge of massive losses. Between this year and 2011, $814 billion in commercial real estate loans are expected to mature, research firm Foresight Analytics estimates.

With banks reluctant to lend, the market for so-called commercial mortgage-backed securities is virtually moribund. And with operating earnings from many commercial properties plummeting, there could be a wave of foreclosures on office, retail and other commercial properties absent new sources of lending.

Fed officials are also hoping that their new steps will create a more active market for commercial mortgage securities, giving banks and others more leeway to sell them or hold them on their books at a price that reflects their long-term value, instead of what they would currently sell at in a distressed market.

Moreover, they argue that by helping restart the market for existing CMBS, lending will be more widely available for new commercial real estate loans, allowing owners to refinance as their loans come due.

"I think the Fed's actions will have an impact, but in and of itself they're not enough to move the market enough to fix the problems," said Matthew Anderson, a partner at Foresight Analytics. One reason the Fed programs are no panacea for the industry: They provide backing only for securities rated AAA by major rating agencies, which excludes many hardest-to-value assets.

What the Bank 'Stress Tests' Tell Us About Commercial Real Estate

What the Bank 'Stress Tests' Tell Us About Commercial Real Estate
Most Potential Harm Seen Coming From Housing, Consumer Loan Defaults, Not Office, Industrial and Retail Property Loans

By Mark Heschmeyer, CoStar
May 13, 2009

If the current economic malaise brings down any of the largest banks in the country, commercial real estate likely WON'T be the culprit. Office, industrial and retail properties specifically are even less likely to bring down the nation's top banks.

The 19 largest U.S. banks, which account for 70% of the bank holdings of this country, were the focus of the U.S. Federal Reserve 'stress tests' results released this past week. Under the worst case scenarios envisioned for the current recession, commercial real estate losses would cost those banks $53 billion in losses this year and next.

While that is a lot of money, it still pales in comparison with residential loan losses, which still would make up the bulk of the projected losses, $185.5 billion. In fact, exposure to commercial real estate loans falls way down the line in terms of producing projected losses for banks. Trading and counterparty investments would lose $99 billion; consumer loans $83.7 billion; credit card loans $82.4 billion; business loans, $60.1 billion; only then comes commercial real estate.

The two-year loss estimates totaled about $600 billion in the more adverse scenario for the 19 bank holding companies.

Estimated losses on residential mortgages are substantial over the two-year scenario, consistent with the sharp drop in residential house prices in the past two years and their projected continued steep fall in the more adverse scenario. The effects of reduced home prices on household wealth and the indirect effects through reduced economic activity, also push up estimated losses on consumer credit, including losses on credit cards and on other consumer loans. Together, residential mortgages and consumer loans (including credit card and other consumer loans) account for $322 billion, or 70% of the loan losses projected under the more adverse scenario.

Even in terms of percentages of losses, commercial real estate loans hold up better on the banks' books than its other assets and investments. About 22.5% each of residential real estate loans and credit card loans would go bad but only 8.5% of commercial real estate loans would go bad.

To cover those potential losses, the Federal Reserve has asked the 19 banks to raise $75 billion in additional common equity by next November.

"This was a carefully designed, credible test," said U.S. Treasury Secretary Tim Geithner. "Banks supervisors applied a historically high set of loss estimates on securities and loans, as well as a conservative view towards potential earnings that could act as a buffer against those losses."

"These are estimate of potential losses and earnings that could occur in the event of a more severe recession. They are not a prediction of where the economy is headed," Geithner added. "The results are less acute than some had expected, in part because concern about the risk of a more severe recession have diminished, market have improved, and banks, in anticipation of the release of the stress test, have acted in the last few months to increased capital."

The stress test process involved the projection of losses on loans and investment assets, as well as the firms' capacity to absorb losses. To analyze commercial real estate loans, the bank holding companies were asked to submit detailed portfolio information on property type, loan to value (LTV) ratios, debt service coverage ratios (DSCR), geography, and loan maturities.

Loss rates on commercial real estate loans reflected realized and projected substantial declines in real estate values. However, federal supervisors analyzed loans for construction (both residential and construction) and land development, multifamily property, and non-farm non-residential projects separately. And the bulk of the projected losses in the commercial real estate come from the construction and land development loans. Income producing properties fared much better.

The stress tests projected a baseline loss of 9% to 12% for construction loans and a worse case scenario of 15% to 18%; multifamily losses had a projected baseline loss of 3.5% to 6.5% and a worse case loss of 10% to 11%; office, industrial and retail properties had a projected baseline loss of 4% to 5% and worse case loss of 7% to 9%.

The results of the stress tests "were good news and were generally received as such, although it is important not to take excessive comfort from what remains essentially a highly educated guess as to the future of the banks in a very uncertain environment," concluded Douglas J. Elliott , a fellow in economic studies at The Brookings Institution. "The test appears to be somewhat tougher than the base case of the International Monetary Fund, but not nearly as harsh as the most pessimistic analyses."

"This implies that while we may well have turned the corner, we can be far from certain that the solvency crisis in banking is over," Elliott wrote in a paper this week. "Even if it is, the stubborn credit crunch will last for considerably longer. The banks will be in a better position to lend more freely as a result of the modest influx of new capital and the greater benefit of the confidence boost from passing the tests. However, the depth of this recession and the shattering of the securitization market will keep credit tight for some time."

One unintended side effect of the results of the stress test, Elliott said is that they will work against the government's plan to encourage investors to buy toxic assets from the banks.

"The government's reassurance that these banks have, or will soon have, the capital to handle even the stress scenario without selling their toxic assets makes it harder for the regulators to pressure the banks to actually sell," Elliott concluded. "This matters because the banks generally believe that even with government incentives the private investors are looking to pay unreasonably low prices for these assets."

The banks would generally prefer to hold onto the assets until they can get a better price, Elliott reasoned.

Generally across the board, the 19 bank holding companies put to the stress tests, said they believe the stress test assumptions were unreasonably conservative and actual losses will be far less than projected.

Regions Financial Corp. in Birmingham, AL, questioned whether it should be required to raise additional capital now to provide for a two-year adverse economic scenario, particularly in view of the fact that Federal Reserve Chairman Ben Bernanke this past week said that he expects the economy to begin recovering during 2009.

Regions said it believes that the stress test results do not accurately reflect the loan losses that Regions is likely to experience even in the "more adverse" economic scenario. In particular, the anticipated two-year cumulative loss ratio of 13.7% projected on its commercial real estate is sharply higher than Regions' actual annualized loss ratio on its portfolio in the first quarter and sharply higher than that projected for the other banking companies.

Bank of America Corp. in Charlotte, NC, was projected to have a 2-year loss rate on its commercial real estate loans of 7.4%, or 3.7% per year. Bank of America said its actual first quarter annualized loss rate on the equivalent portfolio was 1.68%. So, loss rates would have to more than double to 3.9% and remain there for the remaining seven quarters to reach the FRB's projections.

Additionally, the FRB's loss rate is well above the combined commercial and commercial real estate peak loss rate experienced by Bank of America in either the 1991 recession or the 2002 recession.

Individual CRE Stress Test Results

Company Est. Worse-Case CRE Loss As a % of Loans Bank of America $9.4 billion 9.1% Wells Fargo & Co. $8.4 billion 5.9% Regions Financial $4.9 billion 13.7% BB&T Corp. $4.5 billion 12.6% PNC Financial Services Group $4.5 billion 11.2% JPMorgan Chase & Co. $3.7 billion 5.5% U.S. Bancorp $3.2 billion 10.2% Fifth Third Bancorp $2.9 billion 13.9% SunTrust Banks $2.8 billion 10.6% Citigroup $2.7 billion 7.4% KeyCorp $2.3 billion 12.5% Capital One Financial $1.1 billion 6.0% MetLife Inc. $800 million 2.1% Morgan Stanley $600 million 45.2% GMAC $600 million 33.3% State Street $300 million 35.5% Bank of New York Mellon $200 million 9.9% American Express not applicable not applicable Goldman Sachs Group not applicable not applicable

Beehive state No. 6 for residents faced with losing homes

Beehive state No. 6 for residents faced with losing homes
Economy » Jump in foreclosure-related filings, dip in retail sales halt stock market rally.

Salt Lake Tribune Staff And News Services
Updated:05/13/2009 09:20:45 PM MDT


Utah, which had an increase of 120 percent in foreclosure-related filings over the past year, now has the sixth-highest rate among all states, according to a report released Wednesday.

The housing news, combined with reports of disappointing retail sales nationally for April, prompted investors to retreat from the stock market Wednesday and put a two-month rally on hold amid concern that an economic recovery won't come as fast as hoped. The Dow and other key indexes dropped at least 2 percent.

The Commerce Department said retail sales fell 0.4 percent last month, while economists had expected sales to be flat. Investors watch these numbers closely because consumer spending accounts for about two-thirds of U.S. economic activity. Without improved spending, the economy is more likely to remain mired in a recession.

Adding to the worries, the foreclosure report, by RealtyTrac, shows that the number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April, compared with the same month last year. Utah is among nearly one dozen states showing a year-over-year increase of more than 100 percent.

Nationally, more than 342,000 households received at least one foreclosure-related notice in April, RealtyTrac Inc. said. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since the listing firm began its report in January 2005.

In Utah, nearly 3,000 households received a foreclosure-related filing, which translates to one in 312 households. The filings include a range of actions, from default notices in which home owners are simply behind on their payments but not in danger of losing their properties to notices that a bank is taking possession of their home.

Salt Lake City economist Jeff Thredgold, a consultant to Zions Bank, said he isn't surprised because Utah's economy is experiencing "the worst economic downturn in 50 years."

And even though the Utah's economy is faring better than many other states -- unemployment is much lower, for example -- Utah families have some distinctive characteristics that make them especially vulnerable to financial distress in bad times.

"You have fewer two-income households in Utah and more large families," he said.

Utah's foreclosure-related filings still are better than Nevada, where one in every 68 households receive a notice last month -- the nation's highest rate. In No. 2 Florida, one in every 135 households received a filing. For California, the rate was one in every 138 households.

Utah is No. 6, also behind Arizona and Idaho. Rounding out the top 10 are No. 7 Georgia, followed by Illinois, Colorado and Ohio.

Nationally, April was the second straight month with more than 300,000 households receiving a foreclosure filing.

"We've never seen two consecutive months like this," said Rick Sharga, RealtyTrac's senior vice president for marketing. "It's the volume that's surprising."

Although total filing activity was up, the number of repossessions by banks was down on a monthly and annual basis to their lowest levels since March of last year, RealtyTrac said.

But that is far from positive news. Because much of the foreclosure activity in April was in the default and auction stages -- the first parts of the foreclosure process -- it is likely that repossessions will increase in coming months, RealtyTrac said.

Help might be on the way. The Obama administration announced a plan in March to provide $75 billion in incentive payments for the mortgage industry to modify loans to help up to 9 million borrowers avoid foreclosure. But the extent of the relief remains unclear, with questions lingering about how much the lending industry will cooperate in modifying loans.

Overlooking the Mormon Temple, a New Center

Overlooking the Mormon Temple, a New Center

By LINDA BAKER, NY Times

SALT LAKE CITY — While the economic crisis has silenced hundreds of real estate projects around the country, 1,100 construction workers are toiling on a 20-acre development here that is springing up across the street from the Mormon Temple in the center of downtown.

A private development of the Church of Jesus Christ of Latter-day Saints, City Creek Center will be the largest mixed-use project in Salt Lake City. When completed in 2012, it will encompass 900,000 square feet of retailing, including an outdoor pedestrian shopping mall capped by 115 apartments; 1.6 million square feet of office space in eight buildings; a grocery store; and five residential towers with about 600 condominiums.

The development, which is within sight of the Mormon Tabernacle, will also feature six acres of public spaces and a retractable glass roof over the retail component. A man-made creek will run through the property.

The Mormon Church, which has its headquarters in the city, is investing “hundreds of millions of dollars” in the project, said Mark Gibbons, president of City Creek Reserve Inc., a real estate arm of the church, while declining to be more specific. The project will reshape downtown, Mr. Gibbons said. “We believe there won’t be anything anywhere that compares with it,” he said.

City Creek is not immune to the recession, Mr. Gibbons conceded. But he said the church has always had a “debt averse” philosophy that is proving especially helpful in the current climate.

“For which of you intending to build a tower does not first count the cost to see if he have money to complete, so he doesn’t look like a fool,” said Mr. Gibbons, paraphrasing Luke 14:28-29. “We set aside reserves to build this project, we counted the cost before we started, and we have the resources to complete.”

Bounded by the Great Salt Lake and the Wasatch and Oquirrh mountain ranges, Salt Lake City is home to 200,000 people, about 40 percent of them Mormons. It is a center for outdoor recreation, with several ski areas within 30 minutes of the city; a financial services hub, and a film festival mecca.

But the Mormon Church also wields considerable clout as the city’s largest employer and landowner. “We don’t have a Microsoft or Coca-Cola,” said Jason Mathis, executive director of the Downtown Alliance. “In many ways, the L.D.S. church fills that role.”

Now the church is a bringing a high-density, mixed-use project to Salt Lake City, with its own imprint: outsized, environmentally friendly and with a history of controversy. Two other companies have taken relatively small stakes in parts of the project.

Located at the intersection of the city’s primary commercial and ecclesiastical corridors, Main and South Temple Streets, the City Creek site, which is owned by the church, previously housed two poorly performing malls.

When Nordstrom, which anchored one of the shopping centers, threatened to leave seven years ago, Mormon leaders decided it was time for a makeover. The mayor at the time, Rocky Anderson, called enclosed malls “a failed paradigm,” and the church eventually agreed to a design that is much more open than the former malls.

To integrate the project with the surrounding neighborhood, City Creek planners put all parking underground and carved new streets into Salt Lake City’s monolithic 10-acre blocks — a legacy of the church’s founder, Joseph Smith, who developed a plan for the “City of Zion” in 1833.

The project features sweeping promenades and urban plazas “in line with the great plazas in Italy,” said Joe Collins, a project architect with Zimmer Gunsul Frasca. Fountains that include fire and bells — designed by the company responsible for water features at the Bellagio hotel in Las Vegas — will grace one of the plazas. “It’s going to be marvelous,” Mr. Gibbons said.

City Creek’s two-story 100-store retail center consists of several structures and will be developed by Taubman Centers, a developer based in Michigan, which is investing $75 million.

Its chief operating officer, William S. Taubman, said he had re-signed Macy’s and Nordstrom as anchor tenants, but declined to comment on the number of additional commitments he had secured. The center, which will open in 2012, will provide more upscale shopping than currently found in Salt Lake City, he said.

Nationwide, about 12 other major shopping centers were scheduled to open in the next year, Mr. Taubman said, but almost all of them have been delayed. City Creek is one of the few that has not been hampered by the economic downturn, he said.

Signs of the church’s financial strength — and managerial approach — abound. City Creek’s retractable glass roof will provide protection for shoppers during inclement weather. It would not be feasible without the deep coffers of the church, Mr. Collins said.

In keeping with religious dictates, the mall will be closed on Sundays, and only a few establishments, located on land whose title is held by Taubman Centers, will be allowed to serve alcohol.

Elements of the project are controversial. Some people scoff at the plan to use potable water to evoke City Creek, which determined the location of the city but which will remain underground.

“It’s the Disneyfication of what for many of us who are not members of the church find to be our sacred places, the natural environment,” said Stephen A. Goldsmith, a former city planning director who first approached the church with the mixed-use proposal for the City Creek property in 2002.

A sky bridge to be built over Main Street, where a light rail train operates, has also drawn criticism on the grounds it would mute street-level activity.

But Mr. Goldsmith, who now teaches at the University of Utah, is in favor of many aspects of the project. “To think we are going to have thousands of people living downtown — it’s something we only dreamed about,” he said

About 30 percent of the condos in City Creek’s Richards Court, a 10-story twin tower opening this year, have sold, Mr. Gibbons said. So far, most of the buyers are church members who will pay more than $900,000 for a one-bedroom unit with a view of the temple. “It’s the equivalent of living across the street from the Vatican or the Wailing Wall,” said Babs De Lay, a local real estate agent. “They will pay anything for this location.”

To accommodate the retail and residential components, City Creek developers demolished two office buildings. The ensuing demand led to the construction of 222 South Main Street, a $125 million tower a block from City Creek that will open in November.

Downtown Salt Lake has always had “good bones,” Mr. Gibbons said. But multiuse development is the future of the city — and the church, he said. “The existence of the temple dictates that our headquarters always be here,” he said. “We have a vested interest in making certain the vitality of this area.”

Copyright 2009 The New York Times Company

Apartment Transactions Fall 86 Percent

Apartment Transactions Fall 86 Percent
Only 152 apartment properties sell nationally in the first quarter of 2009.

By: Les Shaver, Multifamily Executive

With fewer than 50 apartment properties trading hands each month, it's little surprise that apartment sales fell dramatically in the first quarter of 2009. Yet the scope of the fall is still staggering.

In the first quarter of '09, only $1.8 billion in apartment assets (totaling 152 properties) changed hands, according to Real Capital Analytics, a New York-based research firm that tracks commercial real estate. That’s a drop of 86 percent from a year ago. Volume fell 61 percent from the fourth quarter of 2008 and offerings outpaced closings by five to one.

“We’re basically at zero,” says Dan Fasulo, managing director at Real Capital Analytics.

Even in seemingly strong markets, such as the Washington D.C. metro area, things ground to a halt. The region saw its first large sale of the year last week—GlobeSt.com reported that Cambridge Court, a 544-unit garden and mid-rise apartment complex in White Marsh, Md., was sold for $65 million.

“It really has been quiet since the fourth quarter,” says Grant Montgomery, a vice president at Delta Associates, an Alexandria, Va.-based firm that tracks real estate in the Washington D.C. and Baltimore areas. “There were things on the market, and there were rumors, but nothing happened.”

Only Los Angeles (with more than $200 million in sales), Manhattan, Northern New Jersey, and Indianapolis (because of a large transaction by Denver-based REIT AIMCO) had more than $100 million in sales. Real Capital Analytics said most properties that did sell in the first quarter were between $5 million and $10 million. The firm attributes that to the continued presence of Fannie Mae and Freddie Mac in the sales of smaller assets. Cap rates for properties with a price tag of more than $30 million have risen 120 basis points, while they haven’t moved much for properties below that threshold. Only 8 percent of first quarter sales were for more than $50 million. Garden apartments pulled the market down, dropping 68 percent to only $1.3 million in volume from the fourth quarter of 2008.

“We’re seeing a crisis of confidence,” Fasulo says. “Investor confidence drives transactions. It’s not uncommon for there to be no investor confidence at the bottom.”

If Real Capital Analytics’ Troubled Assets Radar is any indication, we may soon hit that bottom. A whopping 420 properties (totaling $4.9 billion) pushed the total value of assets on the radar up by 50 percent. Real Capital Analytics says there were $11 billion worth of multifamily assets in default, foreclosure, or bankruptcy at the end of March.

Other research firms say the same thing. Reis said that CMBS delinquencies rose from 1.14 percent to 1.76 percent, or $10.7 billion, in the first quarter. It notes that a third of these loans were in multifamily. And once those distressed assets hit the market, experts say the numerous multifamily vulture funds waiting to finally jump into the market will do so And ultimately, that's what will finally push up transaction figures.

S.L., Provo/Orem, Ogden rank high for expensive housing

S.L., Provo/Orem, Ogden rank high for expensive housing

By Jasen Lee, Deseret News
Published: Thursday, May 7, 2009 9:54 p.m. MDT

Three Utah cities ranked among the most expensive metropolitan areas in the nation for housing, according to a report released Thursday.

The Center for Housing Policy based in Washington, D.C., released "Paycheck to Paycheck: Wages and the Cost of Housing in America," which said that Salt Lake City and Provo/Orem — along with Miami, Chicago and Tacoma, Wash. — all tied for the 40th most-expensive metro area in terms of homeownership in 2008. All had a median home price of $225,000.

Salt Lake City's ranking was up from No. 51 the year before, with Provo/Orem up from No. 43. The 2007 median home price for Salt Lake City was $264,000, while Provo/Orem's was $274,000. Ogden went from 78th at $228,000 in 2007 to 61st at $200,000 in 2008, the study stated.

The study said that a household would need an annual income of at least $73,104 to afford a home with a median price of $225,000, while an income of $64,981 was needed for Ogden's median price of $200,000.

The annual income needed to qualify for a mortgage was calculated using the average prevailing interest rate, assumed a 10 percent down payment and the use of private mortgage insurance, and it included principal, interest, taxes and insurance.

The study looked at housing affordability — homeownership and rental — in 210 markets nationwide and compared the information to the wages of more than 60 occupations. This year, the study also ranked affordability and compared the findings to changes in prices for the year-over-year period.

San Francisco ranked as the most expensive metro area for the second straight year, with a median home price of $575,000 in 2008, needing an annual income of nearly $187,000, the study said. In 2007, a household needed to make an annual income of more than $252,600 to afford a home at the median price of $770,000 in the "City by the Bay."

Saginaw, Mich., and Youngstown, Ohio, ranked as the least expensive cities, with a median home price of $73,000 in 2008. Those residences needed an annual income of about $24,000, according to the study.

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

With Pool of Distressed Assets on the Rise, A10 Kicks Off $100M Lending Program

With Pool of Distressed Assets on the Rise, A10 Kicks Off $100M Lending Program
May 11, 2009
By: Barbra Murray, Contributing Editor, Commercial Property News

The number of distressed assets continues to grow and lenders across the country have been debuting new programs and establishing funds to provide loans for owners and buyers of these troubled assets in a climate where securing financing has become a monumental challenge. Now, Boise, Idaho-based A10 Capital has jumped on the bandwagon with $100 million in capital for the origination of first mortgage commercial real estate loans and the supplying of financing for commercial real estate-secured distressed debt acquisitions through its new Lending Group.

According to A10, it's all about foresight. Seeing the credit crunch on the horizon, A10 Capital raised the $100 million two years ago with the specific intent of positioning itself to make money available once lending options dried up. The moment is now here.

"We see a real need in the marketplace to fill the void between conventional lending sources and hard money lenders," Jerry Dunn, CEO of A10 Capital, told CPN. "Given the fact that CMBS markets have shut down and banks have made underwriting requirements much tighter, our program is a great opportunity for those who can't qualify for traditional loans."

Unencumbered by legacy loans, A10 Capital, having kept nearly all of its capital "powder dry," is now poised to make loans ranging from $2 million to $10 million through its new first mortgage loan program for the types of scenarios other financiers won't touch, such as assets with comparatively low occupancy, as well as lease-up and turnaround situations. Property types considered include office, industrial, retail and multi-family. But considering that cap rates are still relatively high, is the timing of the firm's launch of its capital market bridge program really right? "We still see a large gap between bid and ask price," Dunn noted. "We don't think we've hit bottom, but the market has become more clear than it was six months ago, so we're cautiously making loans."

Apparently, borrowers feel the introduction of A10 Capital's new alternative funding group is well timed, indeed. "We've gotten a lot of interest from property owners that have maturing CMBS loans, and for one reason or another are missing out on loans from banks and life insurance lenders," Dunn said. "With our program, they can buy themselves time until the market settles down. And we're also seeing commercial real estate owners who have the ability to get loans, but they're recourse loans. With our program, they're willing to take a little less leverage and pay a little more to get a non-recourse loan." However, A10 does offer recourse loans for its clients, as well.

A10 Capital is just one of a bevy of firms that have created new programs and divisions for making loans or direct investments in the mushrooming distressed asset market. As reported by CPN in April, Wrightwood Capital closed its High Yield Partners II Fund with $243 million in commitments for investing in recapitalizations, acquisitions and new development endeavors; capital will be provided as either mezzanine loan or a preferred equity investment. Also, aiming to capitalize on discounts, private real estate investment firm Rockwood Capital L.L.C. closed a $964 million investment fund. And Sycamore Urban Properties was formed for the express purpose of acquiring new and converted troubled condominium properties.

While targeting the troubled asset market is becoming increasingly attractive, there is still substantial risk involved, and A10 Capital believes it is well prepared to take certain chances. "We do a number of things to mitigate risk, but the biggest thing is our team," Dunn said. "Many of them went through the real estate downturn in the 1990s and have experience in appropriately assessing risk in this type of environment." And with the flexibility to expand is program, A10 Capital may ultimately dole out funds exceeding its current $100 million purse.

Retailers expand presence in Utah

Retailers expand presence in Utah

By Laura Hancock, Deseret News
Published: Wednesday, May 6, 2009 10:01 p.m. MDT

Foursquare Properties Inc., owner of Jordan Landing, is preparing for a handful of new tenants this spring and summer.

Also, Johansen-Thackeray Commercial Real Estate Services opened a $60 million project, The Commons at Southtowne, 10400 S. State, last week. Tenants include PetSmart, Staples, Nordstrom Rack, DSW Shoes, ULTA Salons, Cosmetics & Fragrance, Bed, Bath & Beyond and Sports Authority.

Could the new developments be a sign that the commercial real estate market along the Wasatch Front is turning around?

Maybe, if it were not for the Shops at Riverwoods in Provo, which is in foreclosure, and the former Cottonwood Mall, which was supposed to become a mixed-use development but is currently stalled as its owners, Chicago-based General Growth Properties LLC, are in bankruptcy.

Darrell Tate, a retail and land specialist with commercial real estate firm Commerce CRG, says the developments at Jordan Landing and The Commons at Southtowne may have been in the works for years, raising funds before the credit freeze. The Commons' developers said theirs was a 10-year project. "Those types of transactions take a very long time," Tate said.

Also, the relative strength of Utah's economy in comparison with other places is enticing to a retailer that wants to expand.

"When (retailers) look at where to expand, they're looking at relative strengths of markets right now," Tate said. "And Utah, we've certainly seen some impact from the overall economic climate. But if you are looking to expand, Utah does look like a relatively safe market, especially when you compare it to a Las Vegas or a Phoenix, where vacancies are higher and the housing market is worse."

The Jordan School District will occupy about 47,000 square feet of newly developed office building space at Jordan Commons. The school district could be in Jordan Landing as soon as July, according to a news release from the company, based in Carlsbad, Calif.

Susie's Deals discount retailer will be located near Rue 21 and Target. Red Rooster Waffle Co, Cafe Perk, Radio Shack, Gamestop and Sakana Sushi will open for business in late spring in the portion of Jordan Landing that is anchored by Sports Chalet and Michaels.

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

Small Banks Face Hits on Commercial Real Estate

Small Banks Face Hits on Commercial Real Estate

By LINGLING WEI, Wall Street Journal

Thursday's "stress-test" results will bring fresh scrutiny to the nation's biggest banks. They also are likely to highlight the woes from commercial real-estate loans that are piling up at large and small banks alike.

In the worst-case scenario, federal regulators examining the 19 largest U.S. banks are projecting losses of up to 12% on commercial real-estate loans over two years, according to a document viewed by The Wall Street Journal. The regulators are likely to cite commercial-property debt problems as a major reason why at least some of the large banks need additional capital.

Such losses likely would cause even deeper misery, and risk of failure, at small and medium banks because they tend to have disproportionally more exposure to commercial real-estate loans than giant institutions. While regulators have indicated they won't allow the 19 stress-tested banks to fail, that group doesn't include more than 500 banks with assets of less than $1 billion that have too much exposure to commercial real estate and are at the most risk of failing, according to an analysis by Foresight Analytics LLC.

During the housing boom, small and regional banks doubled down on lending to home builders and commercial-property developers and investors as they were largely squeezed out of the home mortgage market by large banks and Wall Street firms. Now many of those loans are going bad as vacancies rise, rents fall and developments open to anemic demand.

Analysts already had been forecasting hundreds of bank closures in the next five years. The stress-test assumptions, including a 10.3% jobless rate at the end of 2010, raise the specter that some of the failures could occur sooner.

The 12% loss rate being used by regulators to scrutinize commercial real-estate loans surprised some analysts because default rates on such debt remain lower than those on home mortgages. The loss rate implies that the nation's banks and thrifts, which hold $1.8 trillion of commercial real-estate debt on their books, would incur $216 billion in losses by the end of 2010.
[KeyCorp] Bloomberg News

KeyCorp is among 19 stress-tested banks with a large exposure to commercial real estate. Here, a KeyCorp branch in Upper Arlington, Ohio, in 2006.

With that loss rate, "you're talking about a depression in the U.S. economy and a major crisis in the banking system," says Richard Bove, an analyst at brokerage firm Rochdale Securities LLC.

In addition to the commercial real-estate loans clogging bank balance sheets, an additional $700 billion of those loans were packaged as securities and sold to investors. In light of plummeting property values and surging defaults, credit-rating firms have imposed downgrades on those securities. On Monday, Moody's Investors Service said it downgraded $52.9 billion in so-called collateralized debt obligations stuffed with commercial real-estate debt as part of its review of $83.1 billion in such CDOs amid worsening market conditions.

While bank regulators aren't immediately applying the stress-test criteria to small and midsize institutions, banks with high commercial real-estate exposures are drawing greater scrutiny from regulators. Nearly 3,000 banks and thrifts are estimated to have commercial real-estate loan portfolios that exceeded 300% of their total risk-based capital, according to Foresight. Regulators consider the 300% threshold as a red flag, although it doesn't necessarily mean all those banks are in danger of failing. Risk-based capital is a cushion that banks can dig into to cover losses.

While the failure of a single small bank is unlikely to cause systemic damage to the nation's financial system, such institutions could have a big impact as a whole. Banks with commercial real-estate loan portfolios exceeding 300% of their total risk-based capital have total assets of about $2 trillion, compared with $2.3 trillion in assets at Bank of America Corp.

Stress-tested banks that had a large exposure to commercial real-estate as of the end of 2008 include Regions Financial Corp., BB&T Corp., Fifth Third Bancorp and KeyCorp. "We are experiencing deterioration in other [commercial real-estate segments] such as the retail property group, which is dependent upon consumer spending to generally support rents," KeyCorp finance chief Jeffrey B. Weeden said in a conference call last month.

Commercial real-estate debt represented about 119% of the bank's total capital as of Dec. 31. "We remain well capitalized by any regulatory measure," Mr. Weeden said.

To be sure, banks wouldn't get hit as hard from commercial real-estate under rosier scenarios or if government programs succeed in pulling the U.S. economy out of its funk. The Federal Reserve, for example, announced on Friday new terms on one of its lending programs that officials hope will help revive the commercial real-estate market.

Since late 2007, 58 banks and savings institutions have failed, with assets totaling about $400 billion.

About a dozen of the failed banks, including Great Basin Bank of Nevada and First Bank of Idaho, had unusually high commercial-mortgage exposure, according to Foresight.

A bank currently on the ropes because of commercial real estate is Corus Bankshares Inc., a big condominium-construction lender. In a securities filing Friday, the Chicago-based lender said it was "undercapitalized" as of March 31. Regulators might place the bank "into conservatorship or receivership," according to the filing.

So far, banks have been generally reluctant to sell their troubled commercial-property loans partly because they would be insolvent if they sell at bargain prices being sought by investors. That might change if regulators put more pressure on banks to clean up their books.

From January 2008 to the end of February, the Federal Deposit Insurance Corp. sold about $1.16 billion of distressed real-estate and other types of commercial loans from failed banks for about 59 cents on the dollar, according to industry data.
—Damian Paletta and Nick Timiraos contributed to this article.

Write to Lingling Wei at lingling.wei@dowjones.com
Printed in The Wall Street Journal, page C1

Reckitt Benckiser bringing 200 jobs to Tooele County

Reckitt Benckiser bringing 200 jobs to Tooele County

By Jasen Lee, Deseret News
Published: Wednesday, May 6, 2009 10:39 a.m. MDT

TOOELE — Household products giant Reckitt Benckiser is coming to Utah.

The global company broke ground Wednesday on a $35 million custom-manufacturing and distribution center across the street from Miller Motorsports Park.

Construction of the 600,000-square-foot facility is scheduled to be completed during the first quarter of 2010 and is expected to bring about 200 new jobs to Utah.

Reckitt Benckiser makes Woolite, Lysol, Electrasol and other household products. The company has operations in 60 countries and sells its products in 180 nations.

The Utah center will be the distribution hub for the Pacific Northwest and western Canada.

The company decided to build in Utah after negotiations with the Governor's Office of Economic Development, the Economic Development Corporation of Utah and Tooele County.

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

Economic Update -- M-F Finance Deals Squeak Through

Economic Update -- M-F Finance Deals Squeak Through
May 4, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

Things are looking up a little for the U.S. apartment market, if the latest quarterly survey by the National Multi Housing Council, which queried 79 CEOs and other senior executives of apartment-related firms nationwide, is any indication. That isn't to say that conditions are strong in the multi-family rental segment--just better than in the early dark days of the Panic of 2008.

The NMHC's sales volume index, for instance, is at 30 as of April 2009, a considerable improvement from the October 2008 dismal reading of 4. A sales volume index reading above 50 means that sales volume around the country is increasing, while a reading below 50 indicates that sales volume is decreasing. A reading as low as 4 means boy, howdy, the market's tanked.

The organization's equity financial index likewise rose from 12 last October to 29 this April. The debt financing index fared even better, vaulting from 4 in October to 41 in April.

Still, lenders are a little leery about apartment lending. "The top concern among lenders right now is that there's going to be a further deterioration in revenue from multi-family properties, considering that there's downward pressure on occupancies and rents," Chris Black, vice president-loan origination with the Boston office of KeyBank Real Estate Capital, told CPN. "It's hard to know when the deterioration will stop, and in the meantime no one wants to catch a falling knife."

He adds that in spite of everything, there are strong multi-family rental properties out there. Recently KeyBank Real Estate Capital closed a $4.2 million Freddie Mac commercial mortgage to Truman Drive L.L.C. for Truman Park, a 284-unit apartment building built in 2002 in Largo, Md. Key provided a supplemental loan that allowed the owners to increase outstanding debt on the property, to take advantage of improved performance since the initial funding in 2004.

"The first note was conservative, and it's a well-located property," said Black. "And there hasn't been a dramatic drop in revenue. That's what lenders are looking for in apartment properties, and it isn't an impossible scenario, just a lot harder than it used to be."

Late last week, other closely-watched economic indices rose unexpectedly, thus entering the category of less-bad-than-previously. The Institute for Supply Management’s factory index rose from 36.3 in March to 40.1 in April, for one. Not only that, the Reuters/University of Michigan consumer sentiment index bounded upward by the most in more than two years, rising to 65.1.

Wall Street was indecisive on Friday, however, just barely ending in positive territory. The Dow Jones Industrial Average closed 44.29 points higher, or 0.54 percent, while the S&P 500 was also up 0.54 percent. The Nasdaq gained 0.11 percent.

Economic Update - Developers Plan for Eventual Rebound

Economic Update - Developers Plan for Eventual Rebound
May 6, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

In light of the current doldrums for both commercial and residential real estate, what's a developer to do? Be ready for the eventual turnaround, if possible. Development is typically a multi-year activity, after all.

It also helps to plan your project in an area that's more economically resilient than many others, due to relatively high household income. This week the village council of Winnetka, Ill., an affluent northern suburb of Chicago, granted approval of a 167,800-square-foot mixed-use development downtown. Construction won't begin for at least a year on the project's 31 condos and 35,300 square feet of retail or other commercial space, however.

"It's already been a lengthy process, and we certainly hope that when we're ready to begin, the demand will be there to support the property," Robert Goldstein, managing partner at developer New Trier Partners L.L.C., told CPN. "We believe it will, since Winnetka has one of the best suburban demographics in the nation."

The project will also dovetail with another trend in development, one stalled because of the recession, but which will eventually come back with considerable force: building sustainability. The Winnetka development will be the first structure in that suburb to obtain LEED certification.

The jury's still out on that broader economic turnaround, though there were a few more glimmers of it on Tuesday. The Institute for Supply Management's non-manufacturing index inched upward from 40.8 percent in March to 43.7 percent in April, meaning that a majority of firms surveyed still said business was getting worse, but not nearly as large a majority as in November 2008, when the index stood at an anemic 37.4 percent.

Federal Reserve Chairman Ben Bernanke also made some optimistic noises on Tuesday when he told the congressional Joint Economic Committee that he expects economic activity to "bottom out, then turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”

Then again, the results of the bank stress tests are due later this week. That could be something of a "risk event" to the economy, to use analyst terminology.

After Monday's vigorous upward spike, Wall Street cooled its jets on Tuesday. The Dow Jones Industrial Average dropped a slight 16.09 points, or 0.19 percent, while the S&P 500 lost 0.38 percent and the Nasdaq lost 0.54 percent.

Utah County commercial real estate market dealing with effects of recession

Utah County commercial real estate market dealing with effects of recession

By Kelly Lux, RealEstateNewsUtah.com

PROVO — Commercial real estate in Utah County is not immune to the effects of the recession, but local professionals in the industry are looking on the bright side.

“Be careful of the language of doom and gloom that you hear nationally,” Jon Anderson, partner and principal broker for Commerce CRG of Utah County, told attendees at the Utah County Commercial Real Estate Conference held Tuesday.

Anderson said he believes commercial real estate in Utah is doing better than the rest of the country — especially in the retail market, the strongest sector in Utah County, he said.

“Retail was the top performing market in 2008,” Anderson said. “Considering the times, the retail market tends to do very well here.”

Retail wasn’t the only good thing touted at the conference, which was held at Tahitian Noni in Provo. Lt. Gov. of Utah Gary Herbert, who was the keynote speaker, applauded the Utah State Legislature, (“You have a great state that has a very fiscally responsible attitude.”) and its ability to balance the state budget while retaining its Rainy Day Fund.

“This may not be the end of the rain,” Herbert said. “We may need some money to weather another storm or the same one.”

Herbert briefly expressed his opinion on the perceived state of the economy, saying it may be the worst since the 1980s, but it is not the worst since the Depression.

“Today is tough, but it is certainly not the worst,” he said. “In comparison to the Great Depression, we are doing phenomenal.”

Despite Herbert’s optimism, others at the conference spoke of the continuing decline in Utah County’s commercial real estate market.

Anderson, who said he would “try to minimize the bad news,” addressed vacancy rates in the retail market, estimating the rates had increased to nearly 6 percent — a rate that he believed was still surprisingly low considering the state of the economy. Land values, which were between $7 and $26 per square foot at the end of 2008, slid the most in the retail sector of the market, according to Anderson. Lease rates were between $7.58 and $34 per square foot. And CAP rate was between 6 and 9 percent in the retail market, Anderson said.

The office market is showing similar trends to the retail market, according to Cody Black, an office specialist for Coldwell Banker Commercial.

With many companies downsizing, vacancies in the office market are rising, Black said. Lease rates, on the other hand, are dropping. And new construction has slowed, he said.

“It doesn’t look great right now,” said Cody Black, an office specialist for Coldwell Banker Commercial. “We are hoping it will get better.”

Jarrod Hunt, vice president of CB Richard Ellis, has similar hopes for the industrial real estate market where construction is almost at a standstill and vacancy has nearly doubled. Tenants are also looking for smaller, more efficient spaces to meet their current needs, Hunt said.

“It won’t be before mid-year 2010 before we see a change in our industry,” Hunt predicted.

By Kelly Lux

Fed launching commercial real-estate lending program

Fed launching commercial real-estate lending program

The Associated Press
Updated: 05/01/2009 04:36:20 PM MDT

Washington » The Federal Reserve announced Friday that it will launch a much-awaited program in June to bolster commercial real-estate lending.

And to help make the program more attractive to investors, the Fed will provide longer, five-year loans.

Investors would use the money to buy securities backed by commercial real-estate loans.

The goal is to boost the availability of these loans, help prevent defaults on commercial properties like office parks and malls, and facilitate the sale of distressed properties, the Fed said.

The new commercial real-estate component is part of a broader program rolled out in March that aims to jump-start lending to consumers and small businesses called the Term Asset-Backed Securities Loan Facility, or TALF.

It figures prominently in efforts by the Fed and the Obama administration to ease credit stresses and stabilize the financial system. Those are critical elements needed to lift the country out of recession.

The TALF has the potential to generate up to $1 trillion in lending for households and businesses.

Earlier this year, the government said it planned to expand the TALF to include help for commercial real-estate lending.

"There's a looming crisis in commercial real estate whereby owners of shopping malls, hotels, rental properties and many other types of buildings are unable to refinance or to pay for new construction," Fed Chairman Ben Bernanke warned lawmakers on Capitol Hill in March.

The market for so-called commercial mortgage-backed securities, or CMBS, came to a "standstill in mid-2008," the Fed said Friday in announcing the launch of the new piece of the TALF program. The CMBS market accounted for almost half of new commercial mortgage originations in 2007, the Fed said.

Rents fail to fall as S.L. County vacancy rates rise

Rents fail to fall as S.L. County vacancy rates rise

By Jasen Lee, Deseret News
Published: Thursday, April 30, 2009 9:38 p.m. MDT

Apartment vacancy rates in Salt Lake County more than doubled from the first quarter of 2009 compared to the same period last year, according to a report released Thursday.

The CB Richard Ellis Apartment Report tracked rental rates for 140 apartment complexes with more than 100 units in Salt Lake County. Combined, they have 29,556 units.

The data showed that vacancies in the state's most populous county rose to 6.56 percent in the first quarter, up from 2.49 percent one year earlier.

"Landlords are increasingly losing renters because of increasing job losses," Seth Rossow, multi-family specialist at CB Richard Ellis in Salt Lake said in a news release announcing the figures. "In addition, many would-be renters in these challenging economic times are bypassing renting an apartment unit and instead moving in with friends or family."

He told the Deseret News that many renters are living in basements, doubling-up or opting to rent homes that are unable to sell in the current slow economic market.

"When these homes that are sitting on the market can't be sold, a lot of the owners are choosing to rent out these homes, so it's creating a 'shadow market' of rental units," he said.

Rossow added the rising apartment vacancy rate has led to a flurry of concessions aimed to entice renters to sign leases. Thursday's report stated that 64 percent of all units are offering concessions.

"Last year, there were virtually no concessions in the market," he said. "Today, landlords are offering everything from reduced rent to flat-screen TVs."

One property owner is holding a drawing to give away a new $30,000 car, he said.

"Instead of prices responding by decreasing, communities are offering concessions like these free giveaways," he said in an interview. "They are offering a free month's rent — or in some cases two months free."

The overall average rental rate for apartment communities with more than 100 units in Salt Lake County was $812 in the first quarter, virtually unchanged from a year ago, the report stated. The most expensive rents were found in northeast Salt Lake County at an average rate of $953, while the least expensive rents were found on the county's northwest side with an average of $686.

Rossow said that despite the rising apartment vacancies, many more new units will be coming online in the near future. For the near-term, vacancies will likely remain a bit higher as the market works to absorb the additional capacity in both the traditional and "shadow" rental markets, he said.

The rental market is in an awkward state, Rossow stated in the report.

"Job losses and home purchases are creating signi?cant softening in rental demand compared to 2007 and 2008," he said. "Renters are showing some resistance to signing a 12-month lease due to uncertainty with their current employment."

He said vacancy rates will likely trend upward with Utah's unemployment rate over the next year, with market rents remaining stable or decreasing slightly to allow for concessions to leave the market.

He noted, however, that the a 5 percent vacancy rate is typically considered full capacity, meaning the current 6.56 percent vacancy rate isn't considered all that alarming.

"It's still pretty healthy from a market standpoint," he said.

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

Utah business index plummets

Utah business index plummets

By Brice Wallace, Deseret News
and Martin Crutsinger and Daniel Lovering, Associated Press
Published: Friday, May 1, 2009 9:09 p.m. MDT

Utah's business conditions are worse now than at any point since at least 1994, according to a monthly economic gauge released Friday.

Based on a survey of the state's supply managers, the Utah Business Conditions Index fell to a record-low 32.7 in April, down from March's 41.9 and February's 45.5.

The index is compiled by the Goss Institute for Economic Research and uses the same methodology as a national survey done by the Institute for Supply Management. It uses a range of zero to 100, with an index over 50 indicating an expansionary economy over the next three to six months. Goss officials have conducted surveys in Utah, Wyoming and Colorado since 1994.

"The state's business-conditions index points to little relief in the state's economic downturn," Ernie Goss, director of the Goss Institute and director of Creighton University's Economic Forecasting Group, said in releasing the index figures.

Components of Utah's overall index were new orders at 27.3, production at 36.4, delivery lead time at 45.9, inventories at 18.2 and employment at 35.8.

"Since reaching a record high in late 2007, employment in the state has declined by almost 40,000 jobs," Goss said. "Our surveys indicate that job losses and rising unemployment will continue to characterize Utah in the months ahead."

The three-state Mountain States Business Index for April "points to continuing economic weakness and rising unemployment for the region over the next three to six months," the institute said.

The region's index fell to 37.8 from March's 39.2 and February's 44.6, but it was above January's record-low 31.6.

"While the region continues to experience job losses and rising unemployment rates, the economy has likely bottomed out," Goss said. "Thus, I expect the pace of job losses to slow in the months ahead, as the federal stimulus and accommodative economic policy of the Federal Reserve begin to have positive impacts."

Colorado's index fell to 38.0 from March's 41.3 and February's 43.5. Wyoming's moved above growth-neutral for the first time since November.

Nationally, the Institute for Supply Management, a trade group of purchasing executives, said Friday that its manufacturing index rose to 40.1 in April from 36.3 in March. Wall Street economists had expected the index to rise to 38 in April, according to a survey by Thomson Reuters.

As new orders rose, company inventories shrank for a 36th straight month — suggesting that future production will need to ramp up and eventually help stimulate the economy.

"Manufacturing remained in intensive care in April, but the pain has begun to ease," said Joel Naroff, chief economist at Naroff Economic Advisers. "Though the reading is well below the magical 50 level, which points to growth, it is the highest mark since September 2008, which is when the sky fell in."

The index, based on a survey of members group, which is based in Tempe, Ariz., had fallen steadily as the economy deteriorated late last year, hitting a 28-year low in December. The index covers indicators such as new orders, production, employment, inventories, prices, and export and import orders.

The ISM report for April showed that manufacturing inventories contracted for the 36th straight month, though at a slower pace than before. Smaller inventories are an important signpost, because they indicate that companies will eventually need to restock goods and boost production to meet new orders. That would help revive the economy.

The new-orders index reached 47.2, up 6 percentage points from March.

"The decline in the manufacturing sector continues to moderate," said Norbert J. Ore, chairman of ISM's manufacturing business survey committee. "While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again."

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

Monthly economic gauge hits bottom in Utah

Monthly economic gauge hits bottom in Utah

By Brice Wallace, Deseret News
and Martin Crutsinger and Daniel Lovering, Associated Press
Published: Friday, May 1, 2009 11:50 a.m. MDT

Utah's business conditions are worse now than at any point since at least 1994, according to a monthly economic gauge released Friday.

Based on a survey of the state's supply managers, the Utah Business Conditions Index fell to a record-low 32.7 in April, down from March's 41.9 and February's 45.5.

The index is compiled by the Goss Institute for Economic Research and uses the same methodology as a national survey done by the Institute for Supply Management. It uses a range of zero to 100, with an index over 50 indicating an expansionary economy over the next three to six months. Goss officials have conducted surveys in Utah, Wyoming and Colorado since 1994.

"The state's business-conditions index points to little relief in the state's economic downturn," Ernie Goss, director of the Goss Institute and director of Creighton University's Economic Forecasting Group, said in releasing the index figures.

Components of Utah's overall index were new orders at 27.3, production at 36.4, delivery lead time at 45.9, inventories at 18.2 and employment at 35.8.

"Since reaching a record high in late 2007, employment in the state has declined by almost 40,000 jobs," Goss said. "Our surveys indicate that job losses and rising unemployment will continue to characterize Utah in the months ahead."

The three-state Mountain States Business Index for April "points to continuing economic weakness and rising unemployment for the region over the next three to six months," the institute said.

The region's index fell to 37.8 from March's 39.2 and February's 44.6, but it was above January's record-low 31.6.

"While the region continues to experience job losses and rising unemployment rates, the economy has likely bottomed out," Goss said. "Thus, I expect the pace of job losses to slow in the months ahead, as the federal stimulus and accommodative economic policy of the Federal Reserve begin to have positive impacts."

Colorado's index fell to 38.0 from March's 41.3 and February's 43.5. Wyoming's moved above growth-neutral for the first time since November.

Nationally, the Institute for Supply Management, a trade group of purchasing executives, said Friday that its manufacturing index rose to 40.1 in April from 36.3 in March. Wall Street economists had expected the index to rise to 38 in April, according to a survey by Thomson Reuters.

As new orders rose, company inventories shrank for a 36th straight month — suggesting that future production will need to ramp up and eventually help stimulate the economy.

"Manufacturing remained in intensive care in April, but the pain has begun to ease," said Joel Naroff, chief economist at Naroff Economic Advisers. "Though the reading is well below the magical 50 level which points to growth, it is the highest mark since September 2008, which is when the sky fell in."

The index, based on a survey of members of the Tempe, Ariz.-based group, had fallen steadily as the economy deteriorated late last year, hitting a 28-year low in December. The index covers indicators such as new orders, production, employment, inventories, prices, and export and import orders.

The ISM report for April showed that manufacturing inventories contracted for the 36th straight month, though at a slower pace than before. Smaller inventories are an important signpost, because they indicate that companies will eventually need to restock goods and boost production to meet new orders. That would help revive the economy.

The new-orders index reached 47.2, up 6 percentage points from March.

"The decline in the manufacturing sector continues to moderate," said Norbert J. Ore, chairman of ISM's manufacturing business survey committee. "While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again."

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

Monthly economic gauge hits bottom in Utah

Monthly economic gauge hits bottom in Utah

By Brice Wallace, Deseret News
and Martin Crutsinger and Daniel Lovering, Associated Press
Published: Friday, May 1, 2009 11:50 a.m. MDT

Utah's business conditions are worse now than at any point since at least 1994, according to a monthly economic gauge released Friday.

Based on a survey of the state's supply managers, the Utah Business Conditions Index fell to a record-low 32.7 in April, down from March's 41.9 and February's 45.5.

The index is compiled by the Goss Institute for Economic Research and uses the same methodology as a national survey done by the Institute for Supply Management. It uses a range of zero to 100, with an index over 50 indicating an expansionary economy over the next three to six months. Goss officials have conducted surveys in Utah, Wyoming and Colorado since 1994.

"The state's business-conditions index points to little relief in the state's economic downturn," Ernie Goss, director of the Goss Institute and director of Creighton University's Economic Forecasting Group, said in releasing the index figures.

Components of Utah's overall index were new orders at 27.3, production at 36.4, delivery lead time at 45.9, inventories at 18.2 and employment at 35.8.

"Since reaching a record high in late 2007, employment in the state has declined by almost 40,000 jobs," Goss said. "Our surveys indicate that job losses and rising unemployment will continue to characterize Utah in the months ahead."

The three-state Mountain States Business Index for April "points to continuing economic weakness and rising unemployment for the region over the next three to six months," the institute said.

The region's index fell to 37.8 from March's 39.2 and February's 44.6, but it was above January's record-low 31.6.

"While the region continues to experience job losses and rising unemployment rates, the economy has likely bottomed out," Goss said. "Thus, I expect the pace of job losses to slow in the months ahead, as the federal stimulus and accommodative economic policy of the Federal Reserve begin to have positive impacts."

Colorado's index fell to 38.0 from March's 41.3 and February's 43.5. Wyoming's moved above growth-neutral for the first time since November.

Nationally, the Institute for Supply Management, a trade group of purchasing executives, said Friday that its manufacturing index rose to 40.1 in April from 36.3 in March. Wall Street economists had expected the index to rise to 38 in April, according to a survey by Thomson Reuters.

As new orders rose, company inventories shrank for a 36th straight month — suggesting that future production will need to ramp up and eventually help stimulate the economy.

"Manufacturing remained in intensive care in April, but the pain has begun to ease," said Joel Naroff, chief economist at Naroff Economic Advisers. "Though the reading is well below the magical 50 level which points to growth, it is the highest mark since September 2008, which is when the sky fell in."

The index, based on a survey of members of the Tempe, Ariz.-based group, had fallen steadily as the economy deteriorated late last year, hitting a 28-year low in December. The index covers indicators such as new orders, production, employment, inventories, prices, and export and import orders.

The ISM report for April showed that manufacturing inventories contracted for the 36th straight month, though at a slower pace than before. Smaller inventories are an important signpost, because they indicate that companies will eventually need to restock goods and boost production to meet new orders. That would help revive the economy.

The new-orders index reached 47.2, up 6 percentage points from March.

"The decline in the manufacturing sector continues to moderate," said Norbert J. Ore, chairman of ISM's manufacturing business survey committee. "While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again."

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