Monday, June 22, 2009

Utah continues to lose jobs, but there are signs of recovery

Utah continues to lose jobs, but there are signs of recovery

By Lesley Mitchell, The Salt Lake Tribune
06/19/2009 07:08:06 AM MDT

Could Utah's economy finally be on the mend?

The state job report out Thursday wasn't exactly upbeat. Utah's economy has lost 41,800 jobs -- 3.3 percent of the state's total -- over the past year, pushing unemployment up a bit higher in May.

That said, there are signs that the state's downturn may be bottoming. One of the strongest signs is that initial unemployment insurance claims are beginning to slow, said Mark Knold, Utah Department of Workforce Services economist.

"We are not out of the woods yet, as employment is one of the last areas to recover once the business climate improves, but there is a feeling that the economy is close to turning a corner," he said.

About 74,800 Utahns were unemployed in May, pushing the state's unemployment rate up to 5.4 percent from 5.2 percent in April. Last May, about 45,400 Utahns were out of work when the state's unemployment rate was only 3.3 percent, according to the Utah Department of Workforce Services.

Utah is still faring better than much of the rest of the country -- the U.S. unemployment rate in May reached 9.4 percent -- a 25-year high. Many economists forecast the rate could reach 10 percent by the end of the year.

But on the brighter side, unemployment benefit claims nationally dropped for the first time since January, one indication that the U.S. economy is stabilizing after the worst recession in half a century. Other positive news: The average number of claims over the past four weeks also has fallen to the lowest level in four months.

The same trend is occurring in Utah. Initial unemployment insurance claims, made by those who have just lost jobs, peaked at a weekly rate of about 5,300 in early January. The weekly claims rate remained high -- in the range of 3,000 to 4,000 per week for much of this year. But in the past four weeks, those claims are now down around 2,700, the state said.

"It's still very high. You want to see these down to about 1,000 a week," Knold said. "But the trend is in the right direction."

Any recovery, though, will be very gradual. Knold said Utah's job losses and unemployment rate may still get worse in the coming months. To see those numbers improve, companies have to stop laying off people and start hiring again.

Consumers, strung by the bad economy, aren't going on a spending spree anytime soon. And companies are likely going to be slow to hire new employees.

So when will it happen ?

Conference Board economist Ken Goldstein said if those trends continue, a "slow recovery" should start before the end of the year, but he cautioned that the job market will take longer to rebound. Knold said the same holds true for Utah.

The Associated Press contributed to this story.

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Monday, June 15, 2009

Global Picture Offers Hopeful Glimmers: Cushman & Wakefield

Jun 15, 2009
By: Paul Rosta, Senior Associate Editor, Commercial Property News

Signs that the global economic slowdown is easing could point to recovery starting late this year or in early 2010, according to new reports by Cushman & Wakefield Inc.

Still, the firm’s analysts warn against premature celebration. Referring to the United States, the report on North America states, “The best that can be said about the current environment is that it won’t get any worse, and is more likely to show improvement sometime in late 2009.” That said, the U.S. economy is showing signs of improvement on several fronts. The spread between the three-month LIBOR rate and Treasuries has shrunk from 4.57 percent last October to below 1 percent at most recent report. The housing market may be bottoming out, and consumer confidence is edging up. And surveys from such sources as the Federal Reserve and Moody’s economy suggest that the wave of pessimism among businesses is also subsiding.

Meanwhile, rising oil prices are benefiting several North American markets, particularly Houston, Mexico City and Alberta, Cushman & Wakefield notes. Among Mexico, Canada and the U.S., Canada is looking the strongest, thanks to a stable banking system, government stimulus and rising health care investment. Those conditions bode well for the nation’s real estate market; for example, government requirements for 3 million square feet of office space in Ottawa during the next several years will probably make that market one of the world’s tightest.

Cushman & Wakefield’s analysts also report seeing light at the end of the tunnel for Europe: “We have passed the nadir for the economic cycle in most countries, as the global trade slump eases and as policy measures to ward off financial market collapse take effect.”

Nevertheless, researchers also foresee another year of slow growth and the possibility of some countries backsliding. Greece, Norway and France will fare best among the Western European countries, whose aggregate gross domestic product is projected to decline 3.7 percent this year. In Eastern Europe, where GDP will slide 3.8 percent, standouts will include Poland, the Czech Republic, Slovakia and Bulgaria.
Regarding specific property sectors, the report speculates that the European office rents may soon be halfway through a projected 25 percent peak-to-trough decline in pricing. Moreover, today’s reduced office development pipeline could cause space shortages by 2011. On the investment front, transactions should pick up this year after investment sales volume tumbled 42 percent in the first quarter compared to the fourth quarter of 2008.

In Asia, China will lead economic expansion as government stimulus efforts and stabilizing demand for the nation’s exports boost its GDP growth to 7.5 percent this year. India, Indonesia, Vietnam and the Philippines are also expected to enjoy positive GDP. Japan’s GDP, by contrast, is on a path to shrink 6.1 percent, hampered by weak consumer spending and rising unemployment. Cushman & Wakefield projects that demand for office space by multinational corporations in Asia could start to rebound during the first quarter of 2010.

Citing figures from Real Capital Analytics Inc., the report notes that investment sales volume fell precipitously in Beijing, Hong Kong, South Korea, Shanghai, Singapore, Sydney and Tokyo from the first quarter of 2008 to the first quarter this year. However, investment sales advisers a report increased demand in some markets. And the standoff in one crucial area, yield pricing, may be easing. A gap between buyers and sellers that once reached 30 percent to 40 percent is now more likely in the 5 percent to 15 percent range--“narrow enough for a good (broker) to bridge a deal,” the report notes.

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Commercial property market in Utah County faces headwinds

Commercial property market in Utah County faces headwinds

Sunday, June 14, 2009 12:10 am

The ongoing recession, which had its roots in the collapse of the subprime mortgage market two years ago and then spread like a mutating virus to banks, retailers, manufacturers and automakers, now has the commercial real estate market in its grip.

Just as the local and national economies are struggling to regain their footing, commercial mortgage defaults are mounting because of tight credit conditions, along with reduced property cash flows and declining values. And with unemployment still on the rise, fewer employees mean businesses would need less space, and less rents for property owners could in turn hamper their ability to make their mortgage payments.

Case in point, the Shops at Riverwoods in Provo, which has been struggling with weak retail sales and the bankruptcies of two of its largest retail tenants in recent years, was foreclosed on in March after it defaulted on mortgage payments on a $26.5 million loan.

Not surprisingly, widely publicized commercial projects like The Boyer Co.'s Southgate Center in Provo, John Q. Hammon's Embassy Suites hotel and convention center in Pleasant Grove, and the Fashion Outlets at Traverse Mountain, are delayed nearly two years after they were announced. That's due in large part to the tight credit environment, which continues to thwart many developers' efforts to obtain construction financing especially for large commercial projects, as well as weak consumer spending, which made many national retailers scale back their development plans.

But Jon Anderson, partner and principal broker with Commerce CRG's Provo-Orem office, believes the office and industrial market in Utah County are showing signs of bottoming out, although retail vacancies will likely continue to rise through the end of the year.

Interviewed by Grace Leong

• Question: With Utah's unemployment rate currently at 5.2 percent and poised to continue rising this year, what impact will this have on the local commercial real estate market?

Answer: The health of the retail sector is largely dependent on job growth. When people are employed, they have money to spend, retail businesses stay viable and owners are able to pay rent. But when you have fewer employees, you need less space, and some tenants are renewing their leases for smaller spaces. That means, less rent for the property owner to make their mortgage payments, and that contributes to rising vacancy rates.

• What's happening to the so-called hot spots of retail development in Utah County?

Some of them have slowed or come to a standstill temporarily because the financial markets have undergone more substantial changes in the last 12 months than they've ever had in past years in the way properties are financed and the qualifications for getting financing. Our economy is based on confidence. When people are confident, they spend. But when the economy changes and people start to lose confidence, they stop spending, and in turn, business investment dries up and the economy slows. Most of these developers are waiting until credit conditions free up and the economy is back up again.

• Very little or no construction activity has been seen so far on highly-touted commercial projects such as John Q. Hammon's Embassy Suites hotel and convention center in Pleasant Grove, the Fashion Outlets at Traverse Mountain, The Boyer Co.'s Southgate Center in Provo, and University Tower in Provo. In fact, all of these projects were announced in 2007 right before the housing and financial meltdown intensified. Can you give us an update on what's happening with these projects?

It's an economy issue. John Q. Hammons won't go full speed ahead with the convention center until he's confident the economy is at a place where he can fill the hotel up and meet his pro forma earnings for the property. But the broker handling the project said recently that they plan to start construction around this August or September.

In University Tower's case, they made a big announcement to see what kind of support they'd get. If they don't get enough tenants, they may perpetually stall the project until they disband it later. Or if they find tenants, they'll do it a few years later. Once Zions announced they were going to build their building, that stole all their thunder and potential tenants. So you won't see University Tower happen for a couple of years, if at all.

For Southgate, my guess is their potential anchors, Target and PetSmart, are most likely saying they're not going in until they see how retail sales fare. When those two anchors are ready to go in, that's probably when the project will start up. Similarly, with Fashion Outlets at Traverse Mountain, in this kind of market, you don't get national retailers signing for more stores. Most of them are trying to save and prop up their existing stores and save financial resources for a rainy day.

• Is new Zions Financial Center in Provo the only commercial project still on track?

In Utah County, Zions is the largest commercial project still moving ahead. The second largest project is Northgate Village on 800 North in Orem. They're building about 30,000 square feet of Class A office and some retail including a WinCo Foods store. There's pent-up demand in that area. It's been about five years and this project is just now coming to fruition.

• Has University Mall found a tenant for the former Mervyns space yet?

They've not found a retail tenant yet for that 94,000-square-foot space. But the owners are now looking at the possibility of filling the first floor with retail and the second floor with office. There are only about 20 to 25 retail tenants nationally that can fill that big a space, but there are about 300 to 400 retail tenants that can fill half of it, especially in this market. But I'm very impressed with the way they've remerchandized the mall. They've created outdoor entrances and drive-up capability to the mall instead of offering just two or three entrances into the mall. They've brought restaurants that generated traffic for them and take advantage of hard corners at the entrance space, with Carrabba's Italian Grill and Starbucks at one corner, Goodwood Barbecue in another corner. The new Cinemark theater is also driving in a lot more traffic for them, and in July, a new pirate-themed family restaurant will take over the 18,000-square-foot building where the old dollar theater used to be.

• Who would be a likely buyer of the Shops at Riverwoods, which is now under receivership? Is the mall in danger of being closed if the recession worsens? How many more commercial property foreclosures can we expect to see in Utah County?

The potential buyer will most likely be a local regional mall owner. It has to do with population and demand. National chains aren't as likely to come to tertiary markets or third-tiered market like Provo. I can't fathom the Shops would ever be closed. Somebody will try to make it viable one way or another. Some of the stores could be converted into a partial office property. But there's so much office space now and lease rates are down, so it's not likely to be converted to offices any time soon. There may be more commercial property foreclosures in the county, because there are companies that are struggling out there. But I doubt the foreclosure rate will accelerate. Like in the Shops case, when you get down to 65 percent vacancy and your expenses exceed your revenue, that's not a good place to be at.

• What's your outlook on retail, office, industrial vacancies and lease rates in Utah county?

Office vacancies could hit 12 percent by mid 2009, up from 10.5 percent in the same period last year. A healthy office market is typically between 5 percent and 7 percent vacancy. If it gets to 15 percent vacancy, then it gets alarming. The last time we had office vacancy of between 15 percent and 20 percent was after the dot-com bust. But I think we've seen the bottom for office vacancies in Utah County. Things are starting to pick up slowly in all sectors of the market. In the investment market, we see things being sold now because local and regional investors believe commercial property prices aren't going any lower. Leasing rates are now averaging $13.50 per square foot for Class A office space, compared with $20 per square foot on average a year ago.

Industrial vacancies could jump to 14 percent by the middle of 2009, compared with 3.3 percent a year ago. Ten percent or under is considered healthy for industrial vacancies. Industrial lease rates now average around $5 per square foot compared with $6 a square foot a year ago.

The retail market started to stumble in the past six months as the recession worsened, as fewer stores are expanding or renewing leases on their stores as sales dropped. Case in point, Ernie's Deli closed their University Parkway store in Provo and consolidated back to their Orem store because sales have been tough. Circuit City and Mervyns' closures are some of the most recent retail losses we've had. Retail vacancies may rise to 7 percent by the middle of the year, which is the highest it has been in a few years, compared with 4.3 percent last year. If national retailers like PetSmart, OfficeMax or Office Depot pull out of the market, that could push vacancies over 10 percent. But we don't think retail vacancies will go above 10 percent in the foreseeable future, because we have a lot of local and regional tenants that are still doing OK, compared with the national retailers. Leasing rates at strip centers may drop to $14 and $15 per square foot on average by mid 2009, compared with $17 to $19 a year ago.

• What concessions are commercial landlords offering to retain existing tenants and attract new ones?

Generally, concessions become a factor in negotiations of lease rates. Some landlords are giving discounts on rents or opting to give four or five months of free rent to keep or attract tenants. On average, concessions on lease rates for industrial, retail and office space are in the 20 percent range.

And these rent concessions seem to be working. The former Tony Roma's space in front of the 24-Hour Fitness center in Provo has been empty for about two years. But we're now finalizing a lease with a new restaurant tenant that a year ago wouldn't have been able to afford rents charged on that building. Leasing rates for that retail space have dropped about 20 percent. We're also bringing in several new tenants including the U.S. Census Bureau, which will take 7,000 square feet at a 13,500-square-foot building behind 24-Hour Fitness. Once the new tenants come in, that will bring our retail vacancy rate at that strip mall to just 8 percent over the next month from the current 26 percent.

• According to Foresight Analytics, which tracks delinquent property loans, the delinquency rate in Provo for commercial mortgages, or loan payments that are 30 to 89 days late, jumped to 4.8 percent for the first quarter of 2009, up from 2.2 percent a year ago. That's well above the delinquency rate of 3.6 percent nationally and 4.5 percent statewide. Default rates on commercial mortgages, where loans are 90 days or more past due, are also rising in Provo. Why are delinquency and default rates on commercial mortgages rising?

It's to be expected in this kind of economy. With the amount of changes going on in the financial world, you can't expect delinquencies to not increase. Debt for refinancing remains scarce and the recession has dragged down rents. Banks are far less flexible in terms of extending or refinancing loans. If a strip center's loan is due to be paid off next month, and they can't refinance it because of tight credit conditions and the bank refuses to renew the loan unless they pay down part of the principal. But the owner doesn't have the money to pay it, then it's counted in a group of delinquencies. Right now, the question on most commercial property owners' minds is whether they can refinance their properties over the next few years. If you own a commercial property and you have a loan coming due in the next year or two, you're probably sweating a little, wondering if you can refinance or not.

• Is getting credit still a problem for commercial builders?

It's still a big problem. That's why new projects aren't going up. As a developer, I might say I believe in the property and would likely be able to get the property leased up in six months, but the bank may disagree and not give the loan. It could reflect tight conditions in the credit market and difficulty in getting fresh financing. The biggest problems we've seen so far relate to problems with making mortgage payments. If there's less cash flow from the property, that hampers borrowers' ability to keep current on mortgages.

• But some commercial real estate mortgage servicers nationally are seeking to extend maturing loans for up to five years, from the current six- to 12-month extensions, to prevent borrowers from defaulting or giving up office, retail and apartment buildings at distressed levels. Will this help reduce more impending commercial loan defaults in Utah County?

Most likely it will. If you have fewer lenders demanding borrowers pay up loans now, then they won't likely be on the delinquency list. Banks are starting to loosen up, because they realize it's not in their best interest to call the loans due. If the owner defaults, then it's not good for the owner or lender.

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Wednesday, June 10, 2009

Economic Update – CRE Defaults Head for High Ground

Economic Update – CRE Defaults Head for High Ground

June 10, 2009
By: Dees Stribling, Contributing Correspondent, Commercial Property News

A new report by Real Estate Econometrics, based on FDIC data, puts the commercial real estate loan default rate at its highest level in more than a decade and a half, at least those loans held by regulated deposit-taking institutions—banks and thrifts, for the most part. The default rate soared from 1.62 percent in the last quarter of 2008 to 2.25 percent in the first quarter of 2009. That rate doesn’t include defaults on loans associated with multi-family rental properties, which Real Estate Econometrics put at 2.45 percent in the first quarter of 2009, up 68 basis points from the previous quarter.

The jump brings the commercial real estate default rate to its highest level since 1994, when the industry was last emerging from a severe downturn. There’s no indication this time around, however, that the industry is coming out of its troubles anytime soon. In fact, Real Estate Econometrics forecasts defaults to reach 5.2 percent by the end of 2010.

Currently banks and thrifts hold about half of all commercial real estate debt, representing about $1.6 trillion worth of outstanding loans. A major component of that total, roughly a quarter, is in the form of CMBS. A large share of the most troublesome loans—those at highest risk of default—were originated in 2006 and the first half of 2007, now known to be the most distended period of the real estate bubble, but back then still considered “let the good times roll.” Like so many Vegas McMansions, many of these commercial properties were valued far too highly in those days, and are now underwater.

“Increasingly, a challenge in refinancing these mortgages is that some lenders are seeking to diversify away from commercial real estate,” said the Real Estate Econometrics report. That, and the properties are underwater.

Big banks are lined up at the door of TARP, waiting to get out, according to the U.S. Treasury Department on Tuesday. Ten specific big banks, that is, and while the government did not say which ones they were, Chicago-based Northern Trust said it was one of them, and others likely include the biggest TARP recipients: JP Morgan Chase, Goldman Sachs, Morgan Stanley and that ilk.

If all the banks on the government’s short list were allowed to return their TARP funds, that would represent an influx of about $68 billion to the treasury (fully $25 billion of that would be from JP Morgan Chase, if indeed it’s on the list). So far a number of banks have been allowed to return TARP funds by the Treasury Department, but only relatively small community banks.

American retailers aren’t the only ones suffering from the worldwide economic downturn. German retail owner Arcandor, which owns the Karstadt chain of department stores in that country (as well as a controlling interest in Thomas Cook), has filed for bankruptcy after two requests for aid were turned down by the BRD government. The company had said that it needed help in the form of government guaranteed loans by Wednesday to renew credit lines totaling €710 million ($999 million), which would have kept it going for the next six months. Nein, said the government.

Wall Street turned in mixed results on Tuesday. The Dow Jones Industrial Average ended down 1.43 points, or 0.02 percent, while the S&P 500 was up 0.35 percent, and the Nasdaq gained 0.96 percent.

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Tuesday, June 9, 2009

Foreclosure rate way down in Utah

Foreclosure rate way down in Utah
THE RATE OF foreclosed homes in Utah has fallen significantly in the last 12 months. Utah, who used to be in the top 10, is now at 35 with a foreclosure rate of only 1.79 percent.

by Shain Gillet
06.04.09 - 01:19 pm

DAVIS COUNTY — What a difference a year makes.

By mid-2008, Commerce CRG reported that the foreclosure rate in Utah was in the top 10 in the country.

By June, Utah was ranked fifth on the list. As the number of new homes being built declined, the rate of foreclosures reached a high for the state that people hadn’t seen in decades.

Now, according to Commerce CRG, Utah stands at 35 on the list; a vast improvement from the numbers in 2008.

The top five states at the top of the foreclosure list now include Florida, Nevada, Arizona, California and Ohio.

“The top four states account for nearly 44 percent of all foreclosures in the U.S.,” said Jim Wood of the Bureau of Economic and Business Research for the University of Utah. “The 660,000 foreclosures in those states have dragged down housing prices and new home construction nationally.

“The number of foreclosed homes presents formidable competition for local home builders.”

The rate of foreclosed homes in Utah is 1.79 percent, with 7,891 homes being foreclosed. Florida, at the top of the list, has nearly 9 percent of its homes in foreclosure with more than 320,000 homes being foreclosed.

“Fortunately, the magnitude of the foreclosure problem is not nearly as severe as the hardest hit states,” said Wood. “However, Utah’s foreclosure rates are rising rapidly from 6,298 in the third quarter 2008 to 7,891 by the end of the year, an increase of more than 1,500 homes.”

Utah’s foreclosure rates are currently half that of the national rate; however, the state has historically been volatile with its numbers, rising much higher than the national average at times.

Wood also said the foreclosure rate in Utah is not likely to rise above the national level this time around, even with the number of job losses and the collapse in housing prices.

“Nevertheless, there is little evidence to suggest that Utah won’t break the foreclosure record of 2.2 percent set in 2002,” said Wood. “It is unlikely that the foreclosure rate will reach 3 percent in the state, which could affect up to 13,000 homes.”

Wood cautioned that even though the housing market will recover, it will take much longer than people expect.

“Even if only 50 percent of the likely 13,000 homes in foreclosure end up unoccupied, those 6,500 homes could represent a substantial competitive force for struggling home builders,” said Wood. “In an environment where new home building has fallen to such low levels, the increasing number of foreclosed properties will prolong Utah’s housing slump and is sure to weaken a recovery.”

sgillet@davisclipper.com
© clippertoday.com 2009

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Utah's jobless claims falling

Utah's jobless claims falling
Recession » Claims also dropped nationally, the first time in 20 weeks.


Tribune Staff And Wire Services

Updated:06/04/2009 10:13:38 PM MDT

The number of Utahns making claims for unemployment benefits has been falling since January, indicating the recession in Utah may be bottoming out.

About 2,700 Utahns filed paperwork for unemployment benefits last week. While that's about three times the number from a year ago, it's down substantially from the 5,000 or so who filed in January. Since January, the number of claims have been falling, said Mark Knold, senior economist at the Department of Workforce Services.

"I think the worst of the job losses, the layoffs and such, we're past it," Knold said Thursday.

He cautioned that there are still more layoffs to come but likely declining from the past three or four months.

Total unemployment benefits paid out -- a measure of the number of Utahns on jobless rolls -- was about 400 percent more than a year ago, the economist said.

Nationally, the number of people on the unemployment insurance rolls fell slightly for the first time in 20 weeks, while the tally of new jobless claims also dipped, the federal government said Thursday.

The Labor Department report provides a glimmer of good news for job seekers, though both drops were small and the figures remain significantly above the levels associated with a healthy economy. The job market likely will remain weak well into next year, according to estimates from government and private economists.

The department also said U.S. workers were more productive in the first quarter than previously estimated, as rapid layoffs forced companies to make do with fewer employees.

The tally of first-time claims for jobless benefits declined to a seasonally adjusted 621,000 from the previous week's revised figure of 625,000, nearly matching analysts' expectations.

The total jobless benefit rolls fell by 15,000 to 6.7 million, the first drop since early January. Continuing claims had set record highs every week since the week ending Jan. 24. The continuing claims data lag initial claims by one week.

Productivity, the amount of output per hour worked, rose at a seasonally adjusted annual rate of 1.6 percent in the January-March period, the department said, double the government's estimate last month.

The increase came despite a steep drop in output, because companies laid off employees and cut hours worked at an even faster pace.

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CRE Mortgage Starts Plummeted in '08: MBA

CRE Mortgage Starts Plummeted in '08: MBA

June 5, 2009
By: Tonie Auer, Contributing Correspondent, Commercial Property News

After seeing phenomenal commercial mortgage originations in 2006 and 2007, figures from 2008 show a 65 percent decrease in volume, according to the Mortgage Bankers Association's 2008 commercial real estate/multi-family finance report.

“This is an important sign of the capital availability,” Jamie Woodwell, MBA's vice president of commercial real estate research, told CPN. “While in 2006 and 2007, there were lots of loans being done very quickly, what this is showing is that there are fewer loans that are also probably taking longer to do.”

If someone is looking to go into the market to borrow, it is important to get with their mortgage banker or originator and work with them to understand what the market is like right now, Woodwell said. They should make sure their expectations and those of the market are in line, he added.

With the volume decrease, mortgage bankers closed $181.4 billion in commercial and multi-family loans. Decreases were seen across all property types and most investor groups, and were led by decreases in loans intended for commercial mortgage-backed security (CMBS), collateralized debt obligations (CDO) and other asset-backed security (ABS) conduits. Intermediated loan volume decreased 68 percent between 2007 and 2008, Woodwell said.

Originations were dominated by multi-family loans - representing $64.6 billion, or 36 percent of the lending total. Among major investor groups, CMBS, CDO and other ABS conduits saw the greatest percentage decrease in volume between 2007 and 2008, followed by real estate investment trusts (REITs); special finance companies; and life insurance companies, the summation showed.

“Last year’s multi-family loans totaled 23 percent,” Woodwell said. “What we have seen is the big impact of Fannie Mae and Freddie Mac doing extraordinary volume in 2008 while a number of other investor sources were pulling back.”

In 2008, the impact of the depths of the credit crunch is evidence, he said. The 2008 snapshot also includes the period where the capital markets were at their toughest when commercial mortgage-backed securities (CMBS) and the market really pulled back, Woodwell said.

“These results are showing us what was going on in 2008, study of mortgage community,” he said. “What it shows is that big drop. In the extraordinary volume years of 2006 and 2007 we saw record origination volumes. This (summation) gives us the juxtaposition of that with the impact of the credit crunch.”

On June 2, the Mortgage Bankers Association stated the weakening economy and continued credit crunch led to increases in commercial/multifamily mortgage delinquencies during the first quarter of 2009 in its Commercial/Multifamily Delinquency Report.

“Commercial and multi-family mortgage delinquency rates continued to rise in the first quarter,” Woodwell said. “Delinquency rates on commercial and multifamily mortgages held by banks and thrifts, by Fannie Mae and in CMBS are all now at levels higher than those seen following the 2001 recession.”

First quarter delinquency rates on commercial mortgages held by life insurance companies remained below the 2001 recession levels, according to the report. Between the fourth quarter of 2008 and first quarter of 2009, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 0.68 percentage points to 1.85 percent. The 60+ day delinquency rate on loans held in life insurance company portfolios rose 0.05 percentage points to 0.12 percent.

The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.04 percentage points to 0.34 percent. The 90+ day delinquency rate on multifamily loans held or insured by Freddie Mac rose 0.08 percentage points to 0.09 percent.

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Wednesday, June 3, 2009

M-F Mortgage Delinquencies Increase in Q1, Says MBA

M-F Mortgage Delinquencies Increase in Q1, Says MBA

By: Anuradha Kher, Online News Editor, Multi-Housing News
June 3, 2009

The weakening economy and continued credit crunch led to increases in commercial/multifamily mortgage delinquencies during the first quarter of 2009, according to the latest Commercial/Multifamily Delinquency Report, released by the Mortgage Bankers Association.

"Multifamily mortgage delinquency rates continued to rise in the first quarter," says Jamie Woodwell, vice president of commercial real estate research at MBA. “Delinquency rates on multifamily mortgages held by banks and thrifts, by Fannie Mae and in commercial mortgage-backed securities (CMBS) are all now at levels higher than at any time since the 2001 recession. First quarter delinquency rates on commercial mortgages held by life insurance companies remained below the 2001 recession levels."

Between the fourth quarter of 2008 and first quarter of 2009, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 0.68 percentage points to 1.85 percent.

The 60+ day delinquency rate on loans held in life insurance company portfolios rose 0.05 percentage points to 0.12 percent and the 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.04 percentage points to 0.34 percent. The 90+ day delinquency rate on multifamily loans held or insured by Freddie Mac rose 0.08 percentage points to 0.09 percent. The 90+day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.66 percentage points to 2.28 percent.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the first quarter were as follows:

* CMBS: 1.85 percent (30+ days delinquent or in REO);
* Life company portfolios: 0.12 percent (60+days delinquent);
* Fannie Mae: 0.34 percent (60 or more days delinquent)
* Freddie Mac: 0.09 percent (90 or more days delinquent);
* Banks and thrifts: 2.28 percent (90 or more days delinquent or in non-accrual).

SOURCE: Multi-Housing News

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Tuesday, June 2, 2009

Capital Markets’ Distress Mingles with Hints of Improvement

Capital Markets’ Distress Mingles with Hints of Improvement

June 1, 2009
By: Paul Rosta, Senior Associate Editor, Commercial Property News

Signs of growth in distressed properties are mixing with evidence that the U.S. and global real estate markets are starting to stabilize, according to a recent analysis by Jones Lang LaSalle Inc.

The issue of distressed assets in the United States presents a contradictory picture. Loan defaults are at an 11-year high, and lenders and borrowers face the daunting prospect of refinancing commercial real estate loans valued at $1.3 trillion over the next four years. By April, the unpaid balance of CMBS loans in special servicing hit $24.5 billion, a total 10 times as high as it was in March 2007.

Yet commercial real estate foreclosures totaled a surprisingly low $65 million in April--the latest indication that the level of distressed asset sales is much less than predicted by many experts. Jones Lang LaSalle’ analysts suggest that programs like the federal government’ s Term Asset-Backed Securities Loan Facility are encouraging private investors to buy bank whole loans and securities. That, in turn, is giving banks reason to move more on forced sales and foreclosures. Meanwhile, the decision to expand TALF to include new CMBS issues has helped to tighten spreads on AAA-rated CMBS to the 700 basis-point range.

Other trends also suggest that the real estate capital markets are getting on more solid ground. In early May, the Libor-OIS spread dropped to 75 basis points, a nine-month low. The spread between what the U.S. Treasury pays for three-month borrowing and what banks pay reached 77 basis points last month. As recently as last October, the TED spread was 464 basis points.

While some benchmark spreads continue to shrink, the value of REITs is increasing. Since the end of February, REIT market values have gained 60 percent, bouncing back from a dismal six-month stretch during which values slid 80 percent. Rising investor confidence has helped REITs jump $10.6 billion in the public market so far in 2009, a total that already approaches last year’s.

In markets outside the U.S., transaction activity remains relatively low, but Jones Lang LaSalle offers some deals and trends to watch. “All eyes are on Aviva Investors’ proposed sale of an £800 million diversified portfolio of 47 U.K. properties,” the report notes. “It could provide a good indication of the strength of domestic and foreign buyers’ interest in the market as well as a pricing barometer.”

Forced asset sales by private equity funds are increasing transaction volume in Asia. Nippon Life Insurance Co. is under contract for the $1.2 billion acquisition of American International Group Inc.’s Japanese headquarters. And in China, economic stimulus policies appear to be boosting the number of deals. By the end of April, the amount of space trading hands reached 176 million square meters, a 17.5 percent increase compared to the same period of 2008.

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Regional index points to easing of economy's downward spiral

Regional index points to easing of economy's downward spiral
Forecasts » Surveys say worst may be over, but the pain probably isn't


By Christopher Smart, The Salt Lake Tribune
Updated:06/01/2009 07:16:02 PM MDT

Coming on the heels of other recent surveys with similar results, a regional index of economic conditions in Utah and two neighboring states shows signs the downturn might be bottoming out.

Though continued job losses probably mean Utah's economy will extend its struggles through the end of the year, the Mountain States Business Conditions Index for the state rose from a record low of 32.7 in April to 37.5 in May.

Based on a survey of supply managers in Utah, Colorado and Wyoming, the analysis is provided by Omaha-based Creighton University's Economic Forecasting Group. An index of more than 50 indicates an expansionary economy over the next three to six months.

Other surveys released in the past couple of weeks, including Zions Bank's quarterly forecast of business leaders and a check of small businesses, show optimism about companies' futures in Utah is on the upswing.

In the latest survey, leading economic indicators remained below growth neutral in the three states, pointing to a continued recession for the region based on inventories, new orders, production, delivery lead time, inflation and employment. Though some categories showed improvement month-over-month, job losses, particularly in manufacturing, pulled down the overall index.

The three-state region lost an estimated 75,000 jobs during the first five months of 2009, a pace that exceeded the national average by two percentage points. For Utah, job losses were at an annualized rate of more than 7 percent, the survey said.

"Business activity is particularly frail for durable goods manufacturers in Utah, with the rate of job losses significantly above that of the nation and the region," said Ernie Goss, who directs the forecasting group.

The good news: Jobs losses are expected to slow, which combined with expectations of little or no inflation, caused the survey's Business Confidence Index for the region that looks ahead to the next six months to rise to the highest level in more than a year, to 66 from 58.8.

"Business conditions show signs of stabilizing," Goss said. "While supply managers report current weak economic conditions, they expect very low interest rates and the federal stimulus to push the economy into positive growth territory by the end of the year."

The three-state Business Conditions Index rose from 37.8 in April to 38.9 in May, with Colorado posting a 44.0 and Wyoming recording a 41.5.

New orders and production were up slightly, but the global recession continued to restrain exports and imports, Goss said.

csmart@sltrib.com

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