Report says Utah real estate sectors are struggling

Report says Utah real estate sectors are struggling

By Jasen Lee, Deseret News
Published: Tuesday, July 14, 2009 9:39 p.m. MDT

The first six months of 2009 may be a precursor to the challenges to come in Utah's real estate market, according to the Mid-Year 2009 Market Review, released Tuesday by real estate brokerage firm Commerce CRG.

An analyst for the Salt Lake City-based company told the Deseret News that vacancies in the Salt Lake County office market would likely continue to climb for the next six months of the year and into 2010 from its current rate of 13.6 percent.

"We think that it's probably going to 15 to 15½ percent by the end of the year," Rich Nordlund, office specialist with Commerce CRG, said.

He said a number of new buildings are scheduled to come online in the near future, which will result in even more unoccupied office space around the valley.

Nordlund said that the faltering economy and increasing unemployment have had significant impacts on the office sector as companies downsized and therefore have required less space to operate.

"When the financial bubble burst nationwide … the people that were looking around basically (put everything) on hold," he said. "The whole market is in (flux) right now because of loss of jobs."

Nordlund said similar issues have been experienced in the retail, industrial and investment real estate sectors as well.

The report stated that total retail market vacancy edged upward, due primarily to store closures by national retail chains. The vacancy rate increased from 8.31 to 8.50 percent over the past six months, but widespread closures by national retail chains have begun to slow, according to the report.

Industrial vacancy — now at 6.89 percent — will increase through the remainder of 2009, the report said, with corporate restructuring and scalebacks by national and regional tenants affecting Utah as several large users have indicated their intent to shutter or greatly reduce the size of their operations in the state.

In the multifamily sector, the apartment vacancy rate in Salt Lake County at midyear 2009 was 7.2 percent, up dramatically from the 4.6 percent rate one year ago, Kip Paul, investment specialist, told the Deseret News.

"Even more dramatic than that is that rents have actually decreased 6 percent," he said.

Paul added that the tough economic times have forced many individuals and families to share apartments in an effort to pool resources and reduce expenses.

"Or people move back in grandma's basement and another thing that is occurring is a number of failed condo projects are being turned into apartment communities," he said. "The rental pool … is growing and the number of renters is shrinking."

Property managers reported that job losses have been the principal cause of higher vacancy rates, the report said.

Paul said that despite the struggles, the market is approaching a reasonable balance and should continue to see low rents and more vacancies over the next 12 months.

"We're not to a point of overbuilding or oversupply," he said. "It's a relatively gentle market cycle and it's all for the better."

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

Utah's economy to decline further

Utah's economy to decline further

By Jasen Lee, Deseret News
Published: Monday, July 13, 2009 10:52 p.m. MDT

Utah may be in for one of the toughest economic years ever, according to a report released Monday.

The June issue of "Utah's Economy," a monthly report produced for commercial real estate firm Commerce CRG by Jim Wood, director of the Bureau of Economic and Business Research at the University of Utah, said "the most recent forecast for the Utah economy shows a bottom established in 2009 with some signs of growth by 2010.

"However, in terms of economic performance, 2009 will be the single worst year in Utah's post-World War II economic history."

All of the major indicators are expected to experience significant declines, with retail sales, nonresidential construction, wages and employment all decreasing by record levels, the report stated.

"Most troublesome is the increased weakness of Utah's job market," Wood said in the report. Non-agricultural employment in Utah is projected to fall by 4.4 percent, a loss of 55,700 jobs, with further losses expected next year.

"From 2008 to 2010, Utah is projected to lose 70,000 jobs," Wood said. "This level of job loss is unprecedented."

In June and July, the year-over-year declines are expected to be 5.2 percent, but moving into the fall and winter the declines will moderate so that by December employment will be down "only" 3.6 percent, he said.

A closer look at three important industries in Utah — tourism, manufacturing, along with transportation and warehousing — shows mixed effects from the recession.

Wood said it would likely be 18 to 24 months before the Utah economy experiences economic growth across most sectors.

"In the meantime, 2009 will be a difficult year with 2010 a year of mixed results," he said.

"Broad-based growth will depend on an expanding U.S. economy, a precondition for economic growth at the regional and state levels," Wood said.

e-mail: jlee@desnews.com

Utah Receives National Recognition As An Economic Powerhouse

Utah Receives National Recognition As An Economic Powerhouse
For third year in a row Utah is recognized as a leading pro-business State

Published: 29th June, 2009; Source: GOED; Author: Michael G. Sullivan

Salt Lake City – Utah has jumped from ninth most business friendly state in the country to second, just slightly behind Virginia. In one of the most widely recognized annual economic studies in the country, Utah was named, for the third year in a row as one of the “Top 10 Pro-Business States.” In the report released today, the “Pollina Corporate Top 10 Pro-Business States for 2009: Rebuilding America’s Economic Power” once again ranked each state in the annual study of job retention and creation by the 50 states and the federal government.

Dr. Ronald R. Pollina emphasized “the effort to make America more business-friendly must come from all levels of government. America must be an integral part of global business if it is to remain a superpower, but thus far we have done a terrible job of integrating ourselves in the 21st century marketplace,” says geo-economist and corporate relocation expert Dr. Pollina. “There are, however, states that serve as a model for the rest of the country.” The report goes on to recognize Utah as one of those states leading the way.

Jason Perry, executive director of the Governor’s Office of Economic Development and the newly named transition director for incoming Governor Gary Herbert noted, “Utah has worked tirelessly to be a business friendly state. Our productive workforce, favorable tax climate and overall business friendly environment has been successful in growing and recruiting some of America’s leading businesses. This report recognizes that success and our ongoing commitment to keep the Utah economic engine humming.”

The Pollina Corporate Top Ten Pro-Business States for 2009 are:

1. Virginia
2. Utah
3. North Carolina
4. Wyoming
5. South Carolina
6. South Dakota
7. Kansas
8. Georgia
9. Florida and
10. Nebraska

The study evaluates and ranks states based on 33 factors including taxes, human resources, right-to-work legislation, energy costs, infrastructure spending, workers compensation laws, economic incentive programs and state economic development efforts.

Rental demand down in Salt Lake County

Rental demand down in Salt Lake County
Housing » Vacancies drive down rent amounts

By Lesley Mitchell, The Salt Lake Tribune
Updated:07/09/2009 07:40:57 AM MDT

Years of hefty rent increases in the Salt Lake area have come to an end.

Average rents in Salt Lake County have declined by nearly 2 percent to $756 since just January, according to a newly released report by Apartment Realty Advisors (ARA), a Salt Lake City company that tracks the rental market. The decline over just a six-month period is an abrupt turnaround from annual rent increases of 5.2 percent from 2007-2008, 8.8 percent from 2006-2007 and 5.1 percent from 2005-2006.

"Still, the decline is mild compared with areas such as Phoenix, Denver, and Las Vegas," said Carter Owens, a vice president with ARA, which tracks statistics for more than 70,000 apartment units along the Wasatch Front. "That's because of Utah's relatively solid economic fundamentals."

Utah's unemployment rate, for example, is 5.4 percent; the national rate is 9.4 percent. The state also is losing jobs, but at a lesser pace than most other areas of the country.

The decline in rents stems from a growing supply of vacant units. In Salt Lake County, vacancies -- the share of empty units -- have risen over the past year to 7.8 percent from 6.8 percent and a low of 4.5 percent in 2007.

For much of 2007 and 2008, tighter lending standards that made it difficult to buy a home helped fuel demand for rentals and pushed rents ever higher. But this year, historically low mortgage rates, home-price declines and several home-buying incentives, including an $8,000 tax credit designed for first-time buyers, have helped more renters to purchase homes. These purchases have helped reduce demand in the rental market.

Further depressing demand for rentals is Utah's lower job and population growth. In times of strong job and population growth, demand for rentals typically climbs.

The greater supply of rental units stems in part from the increased number of people who cannot sell their properties in the sluggish residential real estate market who instead are opting to take them off the market and rent them out. Adding to supply is a number of new units coming on the market as a result of an elevated level of apartment construction in recent years.

With the county's vacancy rate nearing 8 percent, some landlords, especially those with less desirable units, are having to work harder to fill vacancies. A vacancy rate around 5 percent indicates a tight rental market, one where renters may find limited choices in the price range and location they desire. With vacancies at current levels, renters have more choices and landlords are starting to have to offer incentives to fill empty units.

The shift in the multifamily market from rising rents to declining rents is welcomed by advocates for low-income Utahns. The substantial rental increases in recent years were hard on low-income families, said Laura Lee Duarte of the Salt Lake Community Action Program, which tries to help families find affordable rentals.

She said lenders have become more choosy in recent years, which has made it difficult for low-income families with bad credit or criminal backgrounds to even find a place to live. Those that were able to find a rental often had budgets squeezed by continued rental increases. Both of those issues should ease somewhat this year, according to the ARA report, which said more landlords are having to offer incentives and make certain concessions to get their units rented.

lesley@sltrib.com

Rental assistance
For help finding an affordable unit, including those with below-market rents for people with low incomes, go to www.hud.gov/renting/local.cfm and click on "Utah."

Economic Update - Housing Treads on the Bottom?

Economic Update - Housing Treads on the Bottom?
Jul 24, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

Could spring 2009 have been the housing bottom everyone has been waiting for since the pop of the bubble? Residential real estate specialists hope so. According to the National Association of Realtors, U.S. existing home sales were up 3.6 percent in June to an annualized rate of 4.89 million. That's more than economists were predicting, and the most since October 2008.

Buyers who have the wherewithal seem to be taking advantage of prices driven lower by foreclosures, relatively low interest rates, and the first-time buyer tax credit. Even places such as central Florida, as well as southern and northern California--markets hit pretty hard by the popping of the bubble--showed sales increases.

Residential sales may be upticking, but values aren't moving in that direction very much. The Federal Housing Finance Agency reported this week that U.S. home prices were up 0.9 percent in May when compared with April, though that's a national average that obscures continuing declines in markets with high foreclosure rates, such as Las Vegas. The U.S. national average home price is down 5.6 percent from May 2008.

In other residential news, the Federal Reserve proposed new rules on Thursday that would change the way mortgage brokers operate. The key provision would ban the practice of compensating brokers based on the terms of the loan, including the rates. This idea has been kicking around for a while now, but in more flush times the mortgage brokers have made a lot of money that way, and have successfully put the kibosh on such restrictions.

Commercial real estate didn't have such a good week, with Moody's Investors Service reporting that office, retail and apartment property prices--to the extent that there's a market--dropped 7.6 percent from April to May. The only good news in that was that the drop from March to April was a record-breaking 8.6 percent. Commercial property is currently down nearly 35 percent from its bubble peak in the fall of 2007. according to Moody's.

The news out of New Jersey on Thursday--that is, mass arrests for corruption--had a real estate component in the form of a former real estate developer turned informant, who reportedly paid thousands in bribes to various officials who are now in the jug. In any case, Hoboken, Ridgefield and Secaucus (at least) will probably be looking for new mayors soon.

Wall Street had another up day on Thursday, with the Dow Jones Industrial Average ending over 9,000 points--up 2.12 percent--for the first time since very early this year. The S&P 500 was up 2.33 percent and the Nasdaq gained 2.45 percent.

Is East Asia's Vertical Retail Model Wave of Future for U.S.?

Is East Asia's Vertical Retail Model Wave of Future for U.S.?
Jul 22, 2009
By: Barbra Murray, Conributing Editor, Commercial Property News

Vertical retailing--building retail destinations higher instead of wider--has long been a success in cities like Hong Kong and Shanghai, but the trend has yet to catch on in the United States. However, given the country's growing population and dwindling pool of developable land in major cities, the time may be just right for the nation's metropolises to jump on the bandwagon, or so believes Charles Chan, president of commercial real estate brokerage firm Harvest International.

"It's a good model for places like New York, Chicago and San Francisco, where it's very densely populated and there's a limited amount of space," Chan told CPN. "I think this is a very timely model for future retailing because not only is space limited but rent, even though it's declining with the downtown of the economy, it's still expensive. So the only way to go is up... and going up, you can have an atrium, a level for food, a level for women's wear, a level for menswear--it's very easy to configure."

Indeed, the vertical retail premise has proven to be a winning endeavor in some major cities overseas. As real estate services firm Colliers International notes in a research paper on vertical retailing in Hong Kong, for retailers that rely on repeat clients--and are not dependent on the exposure a street-front location provides--the upper-floor retail unit is the most appropriate environment. Among the types of retailers that benefit the most from the arrangement are food and beverage businesses, salons and spas and learning centers.

The vertical mall concept certainly provides economic advantages for the retailer, but it presents coveted benefits for the shopper, too. "Nowadays when transportation is so expensive, you can shop and get your groceries at the same place," Chan said. "It's an easier way of living, and it's more cost effective. Additionally, it will work very well in very severe weather; you don't want to drive around and risk chances of getting in a traffic jam or getting hit by a car."

Harvest International is in the process of putting its money where its mouth is. The firm is planning to convert the former Caldor Department store building near Main Street and Roosevelt Avenue in Flushing, N.Y., into a vertical shopping center mecca. The 240,000-square-foot structure, located practically atop a subway terminal and fronting a bevy of bus lines, features four floors for retail space and a two-level underground parking facility. The project, tentatively named New World Mall, is expected to feature everything from a "hyper mega food mart" to a children's play center. "If you are a mother with a child and have only two hours to do your shopping, you can go to a vertical retailing location and within two hours, you can get things done without wasting gas," Chan explained. "You could pick up your groceries, pick up your child and get in and out."

Interior plans for New World Mall are currently being finalized, and once that activity is wrapped up, interior renovation of the building will commence, with a target completion date for early spring of 2010. Already, Chan said, "we've had lots of interest from retailers."

Economic Update - Green Shoots a Little Greener, but CRE Not Overjoyed

Economic Update - Green Shoots a Little Greener, but CRE Not Overjoyed
Jul 21, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

It was a good way to start the week, economically speaking. According to the Conference Board, the U.S. index of leading economic indicators rose 0.7 percent in June, marking the third rise in the index in as many months. In the first half of 2009, the index improved at an annualized rate of some 4.1 percent , a clear contrast to the way it shrank in the last half of 2008 at an annualized rate of 6.2 percent.

The latest survey from the National Association for Business Economics, also released Monday, posited that the U.S. economy is stabilizing, with nearly half of the more than 100 respondents--who are business economists--saying that the worst is over. Most believe the bottom will be in the second half of 2009, and that the U.S. gross domestic product will rise a tepid 1.2 percent in the second half. Which is better than contracting, anyway.

In a development that gives retailers a bit of a breather, CIT Group Inc. seemed to be on the verge of avoiding bankruptcy (for now) through a $3 billion bridge loan from some of its largest bondholders, according to Reuters, citing unnamed sources. The collapse of CIT, which forms an important source of short-term capital to many manufacturers who supply apparel retailers, would probably have damaged retail even further than its already sorry state.

Even Iceland seems to be on the mend a bit. The government of the island nation, infamous for how completely its financial system melted down last fall, has struck a deal to recapitalize the country's three largest banks, which were seized by the government in late 2008. The $2.1 billion repair of the banking system is an important step toward the disbursal to Iceland of monies from the International Monetary Fund, among other international lenders.

The U.S. economic green shoots aren't expected to affect U.S. employment, a noted lagging indicator, for some quarters to come. Likewise commercial real estate didn't have quite so much to cheer about on Monday.

According to Moody's Investor Service, commercial real estate prices fell 7.6 percent in May. From this time last year, office properties were down 29 percent in pricing, while industrial properties lost 12 percent in valuation.

Even more ominously, according to an analysis by the Wall Street Journal, banks are writing down commercial real estate loans at such a rapid clip that losses on loans tied to such properties could total $30 billion by the end of 2009. The newspaper based that estimate on date gleaned from 1Q09 financial reports published by more than 8,000 banks.

The biggest banks don't stand to be the biggest losers, however, the WSJ predicted. Regional banks, which have proportionally more exposure to commercial real estate loan losses, do.

Wall Street didn't seem to care much about problems in commercial real estate on Monday, with the Dow Jones Industrial Average gaining 104.21 points, or 1.19 percent. The S&P 500 was up 1.14 percent and the Nasdaq gained 1.2 percent. The S&P 500 plans to dump CIT and add Red Hat Inc., a software company.

CMBS Delinquencies Spike

Economic Update - CMBS Delinquencies Spike
Jul 14, 2009
By: Dees Stribling, Contributing Editor, Commercial Property News

U.S. Commercial mortgage-backed securities delinquencies grew in June by a record $2.2 billion, according to Fitch Ratings. Last month there was a 2.6 percent delinquency rate among U.S. CMBS, up 48 basis points from the previous month. In June, at least, problems in retail properties and the hospitality industry inspired much of the upward bounce in delinquencies. But there's more to come, especially in the beleaguered hotel sector.

Fitch said that two loans associated with mall properties owned by bankrupt REIT General Growth Properties Inc. defaulted: a $207.2 million loan tied to Woodbridge Center, and the $164.5 million Jordan Creek loan. As for the ailing hotel business, some 13 hotel loans totaling $596 million defaulted in June, according to Fitch.
"The newly defaulted hotels and the two new GGP loans which are not paying amortization represented almost half of the increase in the index,” Susan Merrick, managing director, Fitch Ratings, told CPN.

The struggling hotel sector looks especially worrisome. "Hotels represented 27 percent of the newly defaulted loans in June," Merrick continued. "This same is expected for July as over $600 million of hotel loans are already 30 days delinquent.”

CMBS problems are hardly confined to the United States, either. Fitch Ratings also said on Monday that 53 percent of loans underlying Japanese CMBS are in default. Japanese commercial real estate is facing a similar set of problems as American CRE: a trickle of financing and a weak economy all around.

Bloomberg, citing filings with the Security and Exchange Commission, has reported that Apollo Global Management L.L.C. plans to raise $600 million in a public offering of shares in its commercial property investment fund, Apollo Commercial Real Estate Finance Inc. The fund will be in the market for the sort of properties that owners really need to sell. That is, properties that can't be refinanced, and out of the $1 trillion-plus in commercial real estate loans maturing in the next three years, there are bound to be some of those.

The National Retail Federation lashed out at Wal-Mart on Monday for the retail giant's recent call for employer-mandated health insurance. (Wal-Mart is not a member of the organization.) Essentially, the NRF said, retailers can't afford it without shedding a lot of jobs.

"Employer mandates of any kind amount to a tax on jobs," Steve Pfister, NRF senior vice president for government relations, said in a statement. "We cannot afford to have new and existing jobs priced out of our collective reach because of mandated health coverage."

Apparently, the telegenic analyst Meredith Whitney helped move Wall Street in a positive direction on Monday with a "buy" recommendation for Goldman Sachs. Its shares and other financial stocks moved upward, helping push the Dow Jones Industrial Average up 185.16 points, or 2.27 percent. The S&P 500 rose 2.49 percent and the Nasdaq gained 2.12 percent.

Weighing the Costs, Benefits of Green Building

Weighing the Costs, Benefits of Green Building
Jul 10, 2009
By: Erika Schnitzer, Associate Editor, Multi-Housing News

Sustainability is a buzzword for today's consumers and likely a requirement for them tomorrow, noted Bobby Bowling, president of Tropicana Building Corp. and moderator for a National Association of Home Builders multifamily webinar, entitled “Green Building: A Cost/Benefit Analysis.”

Speakers Sanford Steinberg, AIA, principal of Steinberg Design Collaborative LLP, and Patrick Dennis, regional construction manager at Wood Partners, discussed ANSI's (American National Standards Institute) new National Green Building Standard (NGBS) and its application to the multifamily industry, as well as the cost of going green.

“What's unique is that it gives an even playing field across the country,” Steinberg noted. NGBS is the first and only consensus-based green building standard for residential properties, and the standard is compatible with existing building codes.

NGBS has four levels of compliance--Bronze, Silver, Gold and Emerald--and is based on points in six areas: site sustainability, water conservation, material resource efficiency, energy conservation, indoor air quality and education regarding building maintenance and operation.

As Steinberg explained, there are various areas in the standard where multifamily would achieve points, simply due to the nature of multifamily, particularly in terms of the water efficiency category, “if you are building a multifamily community, you have pretty much been close to meeting Bronze,” he said.

In terms of added cost, the speakers noted that the Bronze level will cost 2 percent more, while Silver, Gold and Emerald will cost 4 percent, 8 percent and 17 percent more, respectively.

Despite Steinberg's assertion that multifamily communities can easily achieve the Bronze level in the new green standard, Dennis found that residents are not necessarily willing to pay more for green features, as his company previously assumed.

In a survey of current Wood Partners residents, 80 percent said that they expect green features, noted Dennis. The survey also found that 37.7 percent would pay 5 percent more for green features, while 28 percent responded that they would be willing to pay 10 percent more.

In addition to the survey, Dennis reported his findings on the cost, per unit, of several green standards. For a LEED (Leadership in Energy and Environmental Design) NC certification for a high-rise community, the cost was 0.75 to 1 percent more; for LEED for Homes certification on a garden-style community, the cost was $1,500 to $2,000 more--in California, the cost was $1,000 to $1,500 more--and for Energy Star, the cost was $600 to $800 more.

Based on these findings, “we set out to study all the programs available on a national basis to figure out which was the best for us,” said Dennis. “To make a choice on which program to pick, we wanted a national standard. On one of the survey questions we asked…62 percent of residents understood what Energy Star was about.” To that end, Dennis pointed out the importance of implementing features that residents would understand.

In a market study on a LEED-compliant community in Dallas, Wood Partners discovered, however, that residents were, in actuality, unwilling to pay a premium for green features. In fact, noted Dennis, “we are seeing premiums for views more so than green finishes.”

Consequently, said Dennis, Wood Partners revised its thinking, recognizing that while green building is, in fact, gaining traction as thought, the focus on these features is greater in good economic times. And while residents will, in theory, pay a premium for these features, they are not doing so in practice. As a result, said Dennis, multifamily needs to “get smart” about green marketing and educate management groups on how to best sell a green property.

“We want to do a good job to make sure we build quality projects with a sustainable element, but how do we do it for the best value?” asked Dennis, reminding the audience that the question remains open for many.

SOURCE: Multi-Housing News

New Firm to Help Clients Capitalize on Self-Storage Distress and Then Some

New Firm to Help Clients Capitalize on Self-Storage Distress and Then Some
Jul 07, 2009
By: Barbra Murray, Contributing Editor, Commercial Property News

Two real estate industry finance veterans have come together to create Davies Ingersoll Capital Partners, a firm offering debt and equity solutions, as well as investment opportunities to clients across the country, with a particular focus on the self-storage sector.

Jim Davies, a former senior vice president and shareholder of Buchanan Street Partners, as well as was a co-founder and principal of leading storage finance concern Buchanan Storage Capital, is the firm's president, while Peter Ingersoll, managing director of real estate services firm Sperry Van Ness/Davies Ingersoll, is on board as CEO. Newport Beach, Calif.-based Davies Ingersoll provides a series of services that includes debt, equity and note purchase financing, in addition to the arranging of equity and structured financing. "We are a client-centered firm so obviously, we're going to be meeting our clients' needs in the capital markets arena, including debt and equity, while also actively helping them source compelling investment opportunities," Davies told CPN. "Within this historical window, there should be some good opportunities for those groups that have ready capital and who are willing to be patient."

While Davies Ingersoll is involved in various sectors of commercial real estate, its targeting of the self-storage sector, which is performing better than many others, makes it unique among the new firms that are popping up to capitalize on distress in the real estate market. Self-storage has not been immune to the ramifications of the turbulent economic environment, but it is, by nature, better positioned to weather the storm. "I don't want to minimize the serious challenges many of our owner clients are facing both at the property level and with upcoming debt maturity issues," said Davies. "However, generally speaking, self-storage as a sector has held up better during past recessions and economic downturns than other commercial real estate product types, so most industry experts look for this to be the case again, even in this historically challenging period." The sector certainly has its advantages, but it is not fail-safe. "In the past some people have made the claim that self-storage is recession proof--that is just incorrect, however, there are some recession resistant elements of the property type."

Regardless, investors remain keen on the sector. "Interest in this asset class, particularly from private equity firms, continues to increase because of steady cash flows, high returns and low loss ratios," R. Christian Sonne, managing director of real estate services firm Cushman & Wakefield Inc.'s self storage industry group, wrote in an article for the Korpacz Real Estate Investor Survey for the second quarter of 2009. The article also noted that investors are drawn to the fact that there are no tenant improvement costs or leasing commissions, and limited large capital expenditures.

Investors eyeing real estate sectors such as office and hotel are eagerly awaiting the plummeting of price tags on properties, and those perusing the self-storage sector are not too different. "Our most experienced buyer clients have been talking about the gap between buyers and sellers for a couple of years now; however, prices are coming down and corresponding cap rates are increasing such that some buyers believe they will soon begin to see opportunities that will make sense," Davies noted. "This is the most distress, within this historic downturn, that the self-storage industry has faced."

While there is distress in the self-storage market, and therefore, opportunity for favorable deals, investors will not have as abundant a stock of properties to choose from as, say, office buyers will, particularly since overbuilding is not as big a factor. "Year-over-year construction starts have declined for the last several years; the amount of product being developed has decreased significantly and is almost at a standstill today," Davies said. "The supply of available properties for purchase has been relatively low. However, that supply appears to be increasing, in part because equity investors or lenders are now driving the decision to sell."

Toughest times for Utah housing may be nearing end

Toughest times for Utah housing may be nearing end
Economy » Bubble collapse cost $20 billion in residential real estate wealth.

By Steven Oberbeck, The Salt Lake Tribune
Updated:07/10/2009 10:54:06 PM MDT

These are tough times for Utah's home building industry, but better times may lie ahead.

The collapse of the state's housing bubble in 2008 wiped out at least $20 billion in residential real estate wealth, eliminated thousands of construction jobs and forced hundreds of homebuilders out of business, according to James Wood, director of the University of Utah's Bureau of Economic and Business Research.

Yet Wood, in a new research report titled "Utah's Homebuilding Industry: Present Perspective, Future Prospects," suggests the rate of the home building industry's decline has been slowing of late.

"The diminished weakness in recent months allows for some hope that the bottom of the housing cycle in Utah is near," said Wood, noting the industry nevertheless still faces enormous headwinds.

Curt Dowdle, chief executive of the Salt Lake Homebuilders Association, said the industry may have hit bottom in Utah already or is near it.

"We had two strong incentive programs, one federal and the other the Utah Home Run Grant that gave new home buyers $6,000 in down payment assistance to help them purchase never before lived in homes," he said.

Those programs -- that resulted in 1,600 Utahns receiving state grants -- helped reduce inventories of unsold homes in Utah, Dowdle said. "What is happening, though, is that builders who want to construct new homes are being stonewalled by lenders and can't get the financing they need," he said.

"We may be near the bottom but the question is whether the recovery will be V-shaped our U-shaped and how long it is going to take," Dowdle said.

Wood's study reported the year-over percent change in building permits issued in Utah was actually positive in December, January and February -- before turning negative and declining 16 percent in March, 18 percent in April.

Over the same period, new building permits issued nationally were down more than 40 percent, Wood reported.

"In this housing cycle only 15 states have had steeper declines than Utah," Wood said. "Residential construction peaked in 2005 when 28,500 building permits were issued for new dwelling units. By 2008 the number of permits had dropped by 61.2 percent to 10,912 units."

Declining construction activity, represented by those falling permit numbers, translated inevitably into lost jobs.

In 2007, there were 103,500 workers in Utah's construction industry. One year later, the number had declined to 90,500 employees, a 12.5 percent loss, Wood said.

The Utah Department of Workforce Services projects the construction industry's share of total nonagricultural employment in the state eventually will revert to the historic average of 5.8 percent.

"We're not there yet, but we're getting close," said Mark Knold, chief economist for the department. "And that is not necessarily a bad thing, since you can make the argument we were probably building [at a pace] over and beyond what was really necessary."

steve@sltrib.com

Rental demand down in Salt Lake County

Rental demand down in Salt Lake County
Housing » Vacancies drive down rent amounts.

By Lesley Mitchell, The Salt Lake Tribune
Updated:07/09/2009 07:40:57 AM MDT

Years of hefty rent increases in the Salt Lake area have come to an end.

Average rents in Salt Lake County have declined by nearly 2 percent to $756 since just January, according to a newly released report by Apartment Realty Advisors (ARA), a Salt Lake City company that tracks the rental market. The decline over just a six-month period is an abrupt turnaround from annual rent increases of 5.2 percent from 2007-2008, 8.8 percent from 2006-2007 and 5.1 percent from 2005-2006.

"Still, the decline is mild compared with areas such as Phoenix, Denver, and Las Vegas," said Carter Owens, a vice president with ARA, which tracks statistics for more than 70,000 apartment units along the Wasatch Front. "That's because of Utah's relatively solid economic fundamentals."

Utah's unemployment rate, for example, is 5.4 percent; the national rate is 9.4 percent. The state also is losing jobs, but at a lesser pace than most other areas of the country.

The decline in rents stems from a growing supply of vacant units. In Salt Lake County, vacancies -- the share of empty units -- have risen over the past year to 7.8 percent from 6.8 percent and a low of 4.5 percent in 2007.

For much of 2007 and 2008, tighter lending standards that made it difficult to buy a home helped fuel demand for rentals and pushed rents ever higher. But this year, historically low mortgage rates, home-price declines and several home-buying incentives, including an $8,000 tax credit designed for first-time buyers, have helped more renters to purchase homes. These purchases have helped reduce demand in the rental market.

Further depressing demand for rentals is Utah's lower job and population growth. In times of strong job and population growth, demand for rentals typically climbs.

The greater supply of rental units stems in part from the increased number of people who cannot sell their properties in the sluggish residential real estate market who instead are opting to take them off the market and rent them out. Adding to supply is a number of new units coming on the market as a result of an elevated level of apartment construction in recent years.

With the county's vacancy rate nearing 8 percent, some landlords, especially those with less desirable units, are having to work harder to fill vacancies. A vacancy rate around 5 percent indicates a tight rental market, one where renters may find limited choices in the price range and location they desire. With vacancies at current levels, renters have more choices and landlords are starting to have to offer incentives to fill empty units.

The shift in the multifamily market from rising rents to declining rents is welcomed by advocates for low-income Utahns. The substantial rental increases in recent years were hard on low-income families, said Laura Lee Duarte of the Salt Lake Community Action Program, which tries to help families find affordable rentals.

She said lenders have become more choosy in recent years, which has made it difficult for low-income families with bad credit or criminal backgrounds to even find a place to live. Those that were able to find a rental often had budgets squeezed by continued rental increases. Both of those issues should ease somewhat this year, according to the ARA report, which said more landlords are having to offer incentives and make certain concessions to get their units rented.

lesley@sltrib.com
Rental assistance

For help finding an affordable unit, including those with below-market rents for people with low incomes, go to www.hud.gov/renting/local.cfm and click on "Utah."

Utah's commercial real estate sector slower, but still performing

Utah's commercial real estate sector slower, but still performing
"Bright Spots" » Retail, industrial and office space sectors holding their own.

By Lesley Mitchell, The Salt Lake Tribune
Updated:07/09/2009 07:06:59 PM MDT

After several boom years, Utah's commercial real estate sector is slowing as companies of all sizes, stung by recession, put off expansion plans and close locations.

But as with most segments of the state's economy, conditions are far better than in many other areas of the country plagued by empty storefronts and buildings.

"In spite of what's going on nationally, Utah really continues to be a bright spot," said Brandon Fugal, director of corporate services with Coldwell Banker Commercial in Salt Lake City.

Take retail. While many "big-box" retailers, such as Target and JC Penney, are putting off new stores and many malls are on hold, a number of smaller retail and restaurant players continue to set up shop and expand in Utah.

They may not have the cachet of IKEA or Cabela's, but they are creating jobs and filling space that would otherwise remain vacant or unbuilt.

Smashburger, for example, plans to enter Utah with two restaurants: at 1028 E. 2100 South in Salt Lake City and 3513 S. 2700 West in West Valley City. Over the next two years, the chain plans to add eight more. Another popular burger joint, In-N-Out Burger, which has one location in southern Utah, is expanding into the Wasatch Front.

Despite leaner times and tighter credit, numerous small businesses continue to open and expand. In the Daybreak community in South Jordan, seven locally owned businesses are opening this summer in the SoDa Row Village Center.

The 68,000-square-foot center includes expanding companies like Black Diamond Gymnastics and Sport Centers, Tio's Mexican Restaurant and Classic Cleaners. Others, such as Oopsie Daisy, a children's boutique, and Guy's Barbershop, are debuting in the development.

The downturn also has affected Utah's industrial market, which includes buildings used for manufacturing, warehousing and distribution. Earlier this year, several large operators, including Lozier Corp., announced they were cutting back or shutting down, vacating nearly 900,000 square feet of industrial space.

Lozier, which makes fixtures for stores, such as display shelving, said it will close its 500,000-square-foot Cedar City facility by August, laying off 82 employees. The company has been hurt by the lack of retail expansion.

Compensating for these cutbacks are some high-profile, large-scale expansions. Detergent maker Sun Products Corp. is leasing a 400,000-square-foot facility in Salt Lake City. Reckitt Benckiser, which manufactures Woolite, Lysol, Electrasol, French's mustard and other products, is building a nearly 575,000-square-foot facility near Tooele.

Overall, vacancies remain low in the state's industrial sector, said Jim Sheldon, NAI Utah's director of industrial.

"Utah is in an enviable position," he said. "Our industrial market is on more solid ground than other markets."

The same appears true in the office market, which has been hurt by the downturn but is still expanding.

First, the bad news: vacant office in Salt Lake County has increased to a four-year high, according to a report by CB Richard Ellis.

It reached 14.2 percent at the end of June, up from 13.5 percent a year earlier. That translates into an estimated 4.2 million square feet of vacant office space, up from 3.9 million square feet.

Yet Utah still attracts some plum office expansions.

Online auctioneer eBay Inc., is adding 200 new jobs in Draper, where the company already employes 1,100.

Ebay also is building a $334 million computer center in South Jordan. Set to open in 2010, it will employ 50.

Microsoft, the world's largest computer software company, said last month it will open an office in Lehi, creating 100 good-paying jobs. Another large expansion involves the U.S. Census Bureau, which is taking 130,000 square feet of vacant space at the Discover Card building in Sandy.

"Utah's very fortunate to have landed these expansions," said Mike Richmond, an office leasing specialist with Commerce CRG in Salt Lake City.

lesley@sltrib.com

U.S. commercial real estate woes continue to grow

U.S. commercial real estate woes continue to grow
Crippling » Just in the past year, delinquency rates have doubled on loans

By Alan Zibel, AP Real Estate Writer
Salt Lake Tribune
Updated:07/09/2009 06:47:12 PM MDT

Owners of shopping malls, hotels and offices are defaulting on their loans at an alarming rate, and the commercial real estate market is not expected to hit bottom for three more years, industry experts warned Thursday.

"The commercial real estate time bomb is ticking," said Rep. Carolyn Maloney, D-N.Y., who heads the congressional Joint Economic Committee.

Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, according to the Federal Reserve. Small and regional banks face the greatest risk of severe losses from commercial real estate loans.

Total losses in securities backed by commercial property loans could be as high as $90 billion in the coming years, according to Deutsche Bank analyst Richard Parkus. He says even more losses -- up to $140 billion -- are expected from construction loans made by regional and local banks, rather than those sold as securities held by investors.

"We believe the bottom is several years away," Parkus told lawmakers.

The commercial real estate market's fortunes are tied closely to the economy, especially unemployment, which hit 9.5 percent in June. As people lose their jobs, or have their hours reduced, they cut back on spending, which hurts retailers, and take fewer trips, which hits hotels.

Funding for commercial loans virtually shut down last year as the financial system unraveled. Industry executives say financing is still extremely difficult to obtain, even for financially healthy properties.

The pain is already spreading through the economy. In April, the second-largest owner of shopping malls in the nation, General Growth Properties Inc., buckled under $27 billion in debt and filed for Chapter 11 bankruptcy protection.

And GE Capital, the financial arm of the conglomerate General Electric Co., has seen its profits from commercial real estate snuffed out in recent quarters.

It went from making $476 million in the 2008 first quarter from its portfolio of office buildings, retail centers and manufacturing facilities to a loss of $173 million in the first quarter of this year and warned that losses on its commercial real estate loans and property holdings could reach $6 billion this year.

Vacant office space in Salt Lake increases

Vacant office space in Salt Lake increases

Deseret News wire services
Published: Thursday, July 2, 2009 9:13 p.m. MDT

After holding steadfast for the past two years, vacant office space in Salt Lake County increased to a four-year high in this year's second quarter, according to the CB Richard Ellis Mid-Year Market Report.

As of June 30, the office vacancy rate in Salt Lake County was 14.2 percent, up from 13.5 percent at the same point last year. There is approximately 4.2 million square feet of vacant office space in Salt Lake County, compared to 3.9 million square feet a year ago, the report stated.

Over the past five years, midyear office vacancies have moved from 19.8 percent in 2004 to 15.6 percent in 2005 and a low of 12.4 percent in 2005. Midyear vacancies began rising in 2007, jumping to 13.8 percent, then hitting 13.5 percent last year and 14.2 percent this year.
© 2009 Deseret News Publishing Company | All rights reserved

Utah recovery months away, consultant says

Utah recovery months away, consultant says

By Lois M. Collins, Deseret News
Published: Monday, June 29, 2009 10:26 p.m. MDT

Like a timid swimmer watching for drop-offs on the pool bottom, Utah is cautiously inching its way through the recession.

And experts predict it will be mid-2010 before a modest upturn indicates happier economic times for the Beehive State.

Utah's recession will continue for another nine to 12 months before improving a bit in the second half of 2010, Jeff Thredgold, economic consultant for Zions Bank, predicted in its summer edition of "Insight," released Monday.

"I think we're pretty close to the bottom," Thredgold told the Deseret News. But tougher lending standards, the fact that mortgage credit is harder to get, a loss of confidence by both consumers and financial markets and major loss of jobs all argue against declaring the recession over this year, he added.

He said the recession shows those who say Utah isn't subject to outside economic forces are wrong. The state is about average in terms of being affected by recession. But positive signs of stabilization nationally also portend that, just as the national economy pulled Utah down, it "will pull us up." He is among the experts predicting the U.S. economy will experience modest growth by the end of this year. This recession, however, travels uncharted ground, experts say.

"This one is very different than others, and I think everyone is trying to figure out what will be the driver out of this recession," said Austin Sargent, an economist with the Utah Department of Workforce Services. "Everyone is holding back. Let's see what happens."

He said consumers are putting off buying things, bankers aren't loaning money if there's a chance they won't be repaid, and potential buyers want to know that housing prices or interest rates won't drop before they commit. Everyone's waiting.

"I think we're maybe bumping along the bottom," he added, which means the only way to go is up.

As for construction and real estate, Jim Wood, director of the Bureau of Economic and Business Research at the University of Utah, predicts the rest of the year and 2010 will "probably be a bit of a struggle."

Housing contractions last about five years, typically. We're into the fourth, but this one brought more foreclosures than in the past. And the job market is the worst it has been, he said. To that can be added a global credit crisis, which hasn't been seen since the 1930s.

And while we're "closer to the bottom than we were a month ago" for homebuilding, Wood said, "there's no sign we've reached the bottom."

On the other hand, the more aggressive stimulus could help. That might be countered, though, by increasing interest rates, new home appraisal requirements that Wood says have become a "nightmare" and tighter lending guidelines.

"Those are pretty strong headwinds," to quick recovery, he said.

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

Apartments lead the U.S. property default parade

Apartments lead the U.S. property default parade

By Ilaina Jonas - Analysis
Wed Jun 17, 2009 3:53pm EDT

NEW YORK (Reuters) - The multifamily sector is leading all other types of U.S. commercial real estate in having the highest loan default rate but the others are likely to follow, experts say.

Defaulted apartment loans that back commercial mortgage backed securities (CMBS) in May surpassed 5 percent, while retail and lodging broke the 3 percent level and overall delinquencies were 2.77 percent, according to Trepp, which tracks CMBS issues.

Bank loans for apartment buildings defaulted at a rate of 2.45 percent in the second quarter, while those of all other commercial real estate mortgages held by depository institutions reached 2.25 percent, according to research firm Real Estate Econometrics.

Apartment building prices peaked in the fourth quarter 2006, according to research firm Real Capital Analytics. Peak prices for other classes of real estate followed -- hotels in the first quarter 2007, offices and retail in the second quarter 2007, and warehouses in the third quarter 2007.

"Because it peaked first, some of the deterioration has come on a little earlier," said Sam Chandan, Real Estate Econometrics president and chief economist said.

"You've got these waves of issues that are driving defaults for commercial," Chandan said."

Overly generous and plentiful loans pervaded across the U.S. commercial real estate sectors 2004 through 2007 and pushed up values. Getting a loan today is tough. Falling rents and occupancies along with fewer available and lower loans have pushed down values 35 percent to 40 percent. That has resulted in higher defaults.

The apartment sector usually is early to feel economic changes because of its short one-year leases. The default rate among hotels, which have one-night leases, is lower, but likely to surpass apartments soon, Chandan said.

Yet other factors have humbled the apartment sector.

In some markets, prices of many apartment buildings were driven up by investors planning to convert them into condominiums during the housing boom, which ended abruptly in 2006. When the housing market collapsed, condominiums for rent drove down market rents.

In other areas, some of the biggest deals involved pricing based on turning rent stabilized apartments into market rate apartments. That proved more difficult and sent some deals, such as the Riverton, a 12-building apartment complex in New York City's Harlem, into default.

The weak U.S. economy zapped job growth, the key driver of demand for apartments. The U.S. unemployment rate in May reached 9.5 percent. Among 18 to 24 year olds it was 15 percent. About 70 percent are apartment renters who are now doubling up or moving in with their parents.

Higher-end apartments no longer command top prices simply because of amenities.

"Most renters are paying for value, in absolute dollars," said Mike Kelly, president and co-founder of Caldera Asset Management. "They're not going to pay an extra 50 bucks because you have a cabinet in granite."

Caldera helps multifamily lenders maintain the value of properties in pre-foreclosure or throughout foreclosure.

Buyers of lower-end "C" low-rise apartment complexes were not professional real estate investors and were unable to navigate the economic downturn.

"They were thinking they could hire a management company and run a 'C' multi," said Michael Katz, a CMBS veteran and current director of Clark Street Capital, which helps link loan buyers and sellers via an online marketplace. "A 'C' multi is very much like a hotel. You have to know how to handle your clients. There's a lower level of consumer who really doesn't mind being late on their rent."

A large majority of the bank loans financed construction of new apartments and were issued to professional merchant builders, with track records of building new apartments and selling them to investors. Although their default rate is high, many of those floating-rate loans are still performing because they are based on LIBOR, which has tumbled.

"They've been able to offset the poor economics and poor property performance by not paying as much interest," Kelly said.

(Reporting by Ilaina Jonas)

© Thomson Reuters 2009. All rights reserved.

Existing home and condo sales up 15 percent in April

Existing home and condo sales up 15 percent in April

The Salt Lake Tribune
Updated: 06/25/2009 10:11:21 PM MDT

Sales of existing homes and condos in Salt Lake County in May were up 15 percent from sales in April, the Salt Lake Board of Realtors reported Thursday.

But, sales are down 9 percent when compared to May of 2008.

In May, 988 homes and condos sold in the county compared to 861 sales in April and 1,091 sales in May 2008.

The median price of homes and condos sold in May was about $225,000, up 2 percent compared to a sales price of $219,950 in April, but down 4.3 percent from a median sales price of $235,000 in May 2008. The median is now down 8 percent from a peak of $243,700 in June 2007.

Lesley Mitchell

Utah Lt. Gov. Herbert eyes boost for housing

Utah Lt. Gov. Herbert eyes boost for housing
Stimulus » Existing homes may qualify for a sequel to the Home Run Grant program.

By Robert Gehrke, The Salt Lake Tribune

Lt. Gov. Gary Herbert said Tuesday he is considering a second round of state stimulus to the housing market, similar to the $6,000 Home Run Grant incentive to homebuyers that helped generate $376.7 million in home sales in the past three months.

"Housing led us into the recession and housing will lead us out," Herbert, a past president of the Utah Association of Realtors, said in a statement. He is expected to become governor should Gov. Jon Huntsman Jr. be confirmed as U.S. ambassador to China.

The specifics of the new stimulus program are still being worked out with a working group, led by Utah Housing Corporation CEO Grant Whitaker, that convened last week.

Jason Perry, Herbert's transition director, said the lieutenant governor wants to make sure any additional housing stimulus is specifically tailored to have the best possible impact.

Perry would not comment on specifics, but one possibility the group is considering would be a smaller grant that could be given to more people and could potentially include the purchase of existing homes. The Home Run grant was limited to purchase of a new, never-lived-in home.

Another option would use state funds to provide an advance on the $8,000 federal tax credit to first-time homebuyers, who would then have to repay the state when the federal money arrived.

Perry said that the governor would have the authority to implement the new program without further approval by the Legislature.

"This is something that is very high on our list of things to look at so we want [the working group] to do it with as much speed as possible, making sure we get it right," he said.

The Home Run Grant Program, proposed by Huntsman and approved by the Legislature earlier this year, used $10 million in federal stimulus money to entice prospective homebuyers into purchasing a never-lived-in home.

Twenty-one-year-old Brandon Taggart was renting an apartment in Layton but wasn't seriously considering buying a home until he realized that the state grant could make it affordable. Earlier this month, he closed on a townhome in the Daybreak development.

"The grant was pretty much what made me decide to even purchase a home," Taggart, who works in Provo, said Tuesday. "With the grants available, the home was in a price range [I could afford]."

An economic analysis of the program projected that it would create more than 7,200 jobs, generate nearly $240 million in wages and $20 million in property taxes.

In all, 1,652 grants were awarded, with the bulk of activity centering in northern Utah County and the south end of Salt Lake County.

"There's no doubt about it, at least in my opinion, that it was quite a successful program," said Kelly Matthews, chief economist for Wells Fargo Bank. "I believe it was quite a strong incentive and if they had a capacity to get some additional money, I think it would be well worth the effort to put another chunk in."

On average, the homes purchased with the grant sold for about $228,000, although 15 sold for more than $500,000 and one sold for more than $700,000. There was no cap on the value of the home, but the grants could only be used by buyers with a combined household income of $150,000 or less.