Weak '09 for hotels improved at the end

Weak '09 for hotels improved at the end
Lodging » Though occupancy, nightly room rates were down, trends signal uptick in 2010.

By Mike Gorrell
The Salt Lake Tribune
Updated:01/26/2010 08:27:00 AM MST

Utah hotels finished 2009 with occupancy rates 6 percent to 7 percent below 2008 levels.

Despite the dip, the declines for the last three months of the year were about half of the annual rate, with December's slippage under 2 percent. Average nightly rates also showed signs of rebounding, according to the latest monthly report from the Denver-based Rocky Mountain Lodging Report.

"These number are certainly no surprise, very much what we anticipated," said Michael Johnson, Utah Hotel & Lodging Association executive director. "But the rate of falling has somewhat slowed down."

He is optimistic Utah's hotels will do better in 2010, citing figures recited at a recent Utah Tourism Development Board meeting that suggested out-of-state interest in Utah was up for the months January through February.

"I think we'll match the January 2009 occupancy rate of 53.4 percent and, certainly, the 60.5 percent [rate] for February," Johnson said.

The year-end Lodging Report put 2009 occupancy rates statewide at 56.9 percent, down from 63.7 percent in 2008. Salt Lake County hotels filled more rooms, 61.6 percent on a nightly basis last year, but that also was down from 69.2 percent in '08.

Salt Lake County hoteliers collected an average of $92 per night for a room, $6 less than a year earlier. The statewide average was down $5 a night, to $94, the report said.

The occupancy comparisons for the two years are a little skewed, Johnson noted, because the first nine months of 2008 preceded the economic free fall, whose aftershocks were felt throughout 2009.

In the three months where more reliable head-to-head comparisons can be made -- October, November and December -- the decline was just under 3 percent.

Because the economic outlook was more stable at the end of 2009 than a year earlier, Johnson believes last month's occupancy rate would have eclipsed December of '08 if the weather had been more cooperative.

The Lodging Report showed December occupancy rates at Utah mountain resorts was 40.4 percent last month, down from 51 percent in 2008 and 57 percent in '07.

Hotels in the southern Salt Lake Valley, which also attract numerous skiers in the winter, similarly showed an occupancy decline from 75 percent in 2007 to 65 percent in 2008 to 60 percent last year. Those hotels fared even worse last month, filling just 53.5 percent of their rooms nightly.

"We didn't have as much snow as we would have liked. If we would have, we could have matched 2008's numbers because everyone now understands where the economy is and where their own finances are," Johnson said. "In December 2008, nobody had a clue whether they would keep their jobs or their companies would stay open."

Nevertheless, he said it will take quite some time for occupancy levels to return to the healthy levels of 2007.

"People are still more cautious. They understand what they can and can't afford to spend their money on."


mikeg @sltrib.com

Utah Commercial sector's pulse faint after 2009

Utah Commercial sector's pulse faint after 2009
Real estate » Full recovery in 2010 unlikely, but some projects are pumping life into S.L. Valley.

By Lesley Mitchell
The Salt Lake Tribune
Updated:01/22/2010 05:13:48 PM MST

The economic downturn has given Utah's commercial real estate sector a beating, and despite some signs of life, the pain will linger through much of 2010.

Companies curbing expansion plans -- or worse yet, shutting down altogether -- have emptied buildings and driven up vacancies in office, retail and industrial space. Rents are down, and construction of new projects has slowed, or stopped altogether in some areas.

In a time of cutbacks in consumer spending, the retail sector has been hit particularly hard.

"There were a few bright spots, but 2009 was probably the worst year in 25 years for retail leasing and tenant expansion," said Chris Monson, a retail and investment specialist with commercial brokerage Mountain West Retail and Investment in Salt Lake City.

The biggest news in Utah retail last year was the entry of grocery chain WinCo Foods, which in October opened its first warehouse-style stores, in Midvale and West Valley City. The company has announced plans to build three more stores in the state, in Ogden, Clinton and Orem.

A handful of expansions by big-box retailers such as WinCo helped compensate for virtually no development in other areas of the retail sector. Mall development -- or redevelopment -- generally came to a grinding halt last year, with a couple of notable exceptions.

The rebuilding of Cottonwood Mall remains stalled, even as owner General Growth Properties has emerged from bankruptcy. Other malls are delaying large capital improvements and struggling with tenants closing shop or electing not to go through with expansion plans.

But in Farmington, the long-stalled Station Park retail-office complex is showing signs of life. The Harmons grocery store chain recently announced plans to start work on a 68,000-square-foot store this spring. California developer CenterCal Properties said it also plans to build a 14-screen Cinemark movie theater; if all proceeds as planned, both could open in early 2011.

But progress on the rest of the large project remains uncertain given the state of the economy. At buildout, the shopping center could have as much as 800,000 square feet to 1 million square feet of retail and office space.

Last week, the Trolley Square shopping center announced that a 42,000-square-foot Whole Foods Market will open in February 2011. Trolley's owners had filed suit against Whole Foods in an effort to force the natural foods grocer to proceed with plans to build a large store as part of the mall's revitalization effort, but the sides settled.

Another key rejuvenation effort under way is at Valley Fair Mall. The West Valley property is adding a 3,400-square-foot In-N-Out Burger by summer, as well a 30,000-square-foot Ross Dress for Less, a 13,500-square-foot Petco, an 8,000-square-foot Famous Footwear, and a 3,000-quare-foot NYPD Pizzeria and 2,100-square-foot Farr's Fresh Ice Cream and Frozen Yogurt Cafe.

Fewer companies expanded their brands into Utah last year, but the popular In-N-Out fast-food chain was an exception. It entered the market with eateries in Draper and West Jordan. Colorado-based competitor Smashburger opened its first Utah location in August, near Valley Fair. Another hamburger chain, Five Guys Burgers and Fries, also came aboard last year, adding locations in Midvale, Sandy, West Valley, Bountiful and Orem. A Layton outlet is coming soon.

As with the retail sector, goods news was hard to come by in the market for office space.

In Salt Lake County, vacancies topped 17 percent by the end of last year, up from just under 14 percent in 2008, according to a report by CB Richard Ellis. That's the highest level since 2004.

"Overall, it was a very difficult year for landlords," said Wesley Tab Cornelison, an office specialist with CB Richard Ellis in Salt Lake City. "If you're a tenant, however, it's great."

The gleaming new office building at 222 S. Main in Salt Lake City, on which construction started before the state and national economies headed downward, opened for business in December. For owner Hamilton Partners, filling the 425,000-square-foot downtown structure will be a challenge, but there is progress.

The Denver-based law firm of Holland & Hart, which agreed to lease the building's top three floors covering 67,000 square feet, is the anchor tenant. Another law firm, Brinks, Hofer, Gilson & Lione, will occupy about 8,000 square feet on the 19th floor. CB Richard Ellis, the building's exclusive listing agent, is occupying the fourth floor, with about 13,000 square feet of space.

Hamilton Partners Principal Bruce Bingham expects the building to be about 55 percent leased by early February after an unnamed tenant signs a lease for 150,000 square feet.

Speculation among those in the city's commercial real estate industry has centered on Goldman Sachs being the tenant. The banking giant operates at the University of Utah's Research Park but is looking for new, larger digs to accommodate an expansion. Bingham would not specifically comment about prospective tenants.

As a landlord, Bingham will be grateful to put a "painful" 2009 behind him.

Several other office buildings opened last year. The new square footage, combined with a high level of space emptied by companies scaling back, has substantially increased vacancies.

Tenants are getting lower rates, significant amounts of free rents and moving allowances, among other perks.

But in a twisted bit of good news, office-building construction in many areas of the Wasatch Front has stopped, giving the market time to absorb the surplus space available.

In the market for industrial space -- which encompasses warehouse, distribution and manufacturing concerns -- development also has virtually halted because of a surplus of available space.

The slowdown in development is helping the situation, said Greg Hunter, an industrial specialist with Salt Lake City-based Commerce Real Estate Solutions in Salt Lake City.

Many companies have postponed, scaled back and even shut down industrial operations, a trickle-down effect tied to the downturn in consumer spending and housing construction.

Home Depot, for example, closed a distribution center in Salt Lake City and delayed construction of another.

Cabinetmaker KraftMaid, which mothballed its 840,000-square-foot building in late 2008, hasn't made any efforts to sell it given the economy, commercial brokers say. Hope remains that as the economy improves KraftMaid will reopen. Hunter thinks the sector should show some signs of improvement in mid-2011.

Despite the challenges Hunter and other said Utah's economy is in better shape than most, with an unemployment rate well below the national average.

The state also is in the enviable position of having the LDS Church drive construction activity with its massive City Creek development in downtown Salt Lake City.

When completed during the next couple of years, the project will include an outdoor shopping mall anchored by Macy's and Nordstrom, as well as residential space and office space.

Utah also is getting another big boost in the form of a 1-million-square-foot National Security Agency Data Center at Camp Williams, which is scheduled to break ground this year. The massive project will cost an estimated $2 billion to build and employ thousands of construction workers.

"Utah is much better shape than many other parts of the country," Hunter said. "Just look at Detroit. Things could be a lot worse."

lesley@sltrib.com

9 banks teetering after bad land bets

9 banks teetering after bad land bets
Utah » Lenders hold more in sour loans than they have money to cover losses.

By Paul Beebe, The Salt Lake Tribune
01/24/2010 05:08:12 PM MST

After betting heavily on real estate lending, about a third of Utah's smaller community banks are teetering between collapse and survival after the worst land-value crash in memory.

Nine banks are struggling to collect on development and construction loans representing 36 percent of their combined portfolios. Many loans are overdue to the point of default and are in danger of being written off as total losses.

If the past year is a guide, some of these banks may fail. Since January 2008, federal regulators have seized three banks and one credit union, including Barnes Bank just 10 days ago. All had gambled on speculative real estate construction and land loans.

The seizure of even one more bank could further deprive cash-hungry businesses of money, potentially amplifying the credit crunch and retarding Utah's economic recovery. Community banks focus much of their lending on small businesses, which generate most jobs. Already the nine troubled banks have cut their loan volumes by an average of 16 percent, according to figures from the Federal Deposit Insurance Corp.

The banks operate in the formerly sizzling real estate markets along the Wasatch Front and in St. George. Until real estate began to slide in 2007, they were profitable; the loans produced rivers of cash. At times, construction and development loans constituted more than 70 percent of some portfolios.

They "were caught up in the land-rush mentality," said Brighton Bank President Howard Holt, whose Salt Lake City institution remained above the fray as a frenzy of imprudence and greed swept through the real estate and financial markets.

"Contractors were out there furiously buying up tracts of land, which just kept driving prices higher and higher. Some financial institutions, including their presidents and their boards, felt that, 'If we want to grow, now is the time. We need to ride the crest of this wave.' "

--

Mark of turmoil » Today, with real estate values off as much as 50 percent in some areas, the nine banks -- two in St. George (SunFirst and Village Bank) and one each in Gunnison (Gunnison Valley), Ogden (Centennial), Orem (Western Community), Provo (Capital Community), Salt Lake City (First Utah), Holladay (Holladay Bank) and Woods Cross (Prime Alliance) -- are floundering. As of Sept. 30, all had lost money, and all had "troubled asset ratios" that exceeded 100 percent, meaning they had more sour loans than money put aside to cover possible losses, according to American University in Washington, D.C., which analyzed the nation's banks using FDIC data.

The troubled asset ratio isn't a definitive predictor of failure, but it is a mark of turmoil, said Wendell Cochran, senior editor at the university's Investigative Reporting Workshop.

"Of the 140 banks that failed [in the U.S.] last year, 125 had ratios of over 100. It's a pretty decent indicator of stress," Cochran said.

To be sure, most community banks are not in trouble. Many have troubled asset ratios closer to the national median of 14 percent. Cache Valley Bank in Logan had a 4.2 percent ratio of troubled assets to capital and reserves. Provo's Bonneville Bank had a ratio of 4.1 on Sept. 30.

Other factors led the nine Utah banks to the brink, from heavy reliance on so-called brokered deposits to hubris by inexperienced bank managers to regulators who pushed banks to forecast future loan losses based on past losses. Because real estate loans had always performed well, some bankers believed they would need virtually no reserves in real estate.

"We've lent millions to contractors and individuals to put families in homes. We had a total loss of less than $20,000 since 1993," said Harley Jacobs, president of Provo's Capital Community Bank, one of a handful of executives from the troubled banks who would speak on the record. One-fourth of the lender's real estate, construction and land-development loans were in danger of being written off as of Sept. 30.

"If we had been able to turn the clock back and repeat what we did through 2007, I don't think we would have done anything different. And we still feel we [did] things right," said Jacobs, who thinks his bank will survive.

Douglas Christensen, president of Bonneville Bank, which has weathered the bank crisis well, said inexperience was also a factor. He is 60. Like him, anyone running a bank in the 1970s and 1980s, when stagflation gripped the economy and the savings and loan industry imploded, looked on the real estate bubble with caution.

"We were a little leery of why the market was so high and what was driving it," Christensen said. "It felt like the market was dependent on easy money. It was getting away from the loans we like to do."

--

Throwing caution aside » With 90 percent of its loans in real estate, Barnes Bank had been in danger of collapse for months before its recent seizure. The Kaysville-based bank survived two world wars, the Great Depression and numerous recessions in its 119-year history. But on Sept. 30, with more than a third of its loans past due, its troubled asset ratio stood at 278 percent, 20 times the U.S. median.

Earlier this month, the Federal Reserve gave Barnes five days to increase its capital reserves or find a buyer. When it couldn't, the plug was pulled by the FDIC, which insures deposits up to $250,000.

Barnes officials haven't explained why they threw caution aside. But, according to the FDIC, the bank doubled its exposure to real estate between 2003 and 2007, from $303 million to $705 million.

That wouldn't have been a problem if borrowers could have repaid their loans. Instead, as land and home prices plummeted, unemployment increased, Utah's economy sank into its worst recession since the 1930s and defaults shot up. Forty-six percent of Barnes' construction and land-development loans were delinquent, according to FDIC figures.

"For at least five years, that was the most sought-after product by customers, and obviously the most profitable. When things are good, everybody expects things to stay good," said Larry Grant, senior lending officer at Ogden's Centennial Bank, one of Utah's troubled nine.

But in September 2007 -- Grant said that was the turning point for the bank -- the bottom fell out of the real estate market, and it hasn't recovered. As of Sept. 30, Centennial's troubled asset ratio had soared to 338 --- worst of all Utah banks.

"We've not had just a recession. We've had a huge downturn that extended outward for an extended period of time, longer than anyone anticipated," he said.

Centennial could be one of the fortunate banks, despite its distress. In September, the bank announced Orem-based Vision Bankcard would acquire controlling interest and infuse new capital, though the deal hasn't closed. The acquisition was revealed three months after the FDIC ordered Centennial to make changes, when regulators said Centennial had too many poor-quality loans and was operating "with inadequate provisions for liquidity."

Liquidity is a bank's ability to convert assets to cash to meet large volumes of unexpected withdrawals by depositors without causing damage to its finances that is impossible to repair.

In hindsight, the risk to Centennial from its ballooning exposure to real estate loans should have been obvious, Grant said. But as the bank looked at the marketplace and what its peers were doing, it was hard to pass up a good thing.

--

'Hot money' » Banks took enormous risks during the real estate boom, often granting loans without demanding proof of income. Others used brokered deposits to fund loans to home builders and developers.

Brokered deposits are raised by brokers who earn fees by selling certificates of deposit that pay high rates of interest to investors, often via the Internet. Amounts raised from each investor are usually slightly below $100,000 so that all interest and principal are covered by FDIC insurance. The funds are often used to make risky real estate loans.

Bankers sometimes call brokered deposits "hot money." Because the deposits aren't raised locally, they aren't loyal to banks that have them. As soon as a bank has a problem or can't match a higher rate, the deposit goes away, leaving the lender holding loans that aren't backed by sufficient capital. In a sense, the bank is upside-down.

Most of Utah's nine most troubled banks used brokered deposits in varying degrees, according to the FDIC. Tiny Gunnison Valley leaned on them enough to catch regulators' attention. In September, the FDIC ordered the Sanpete County bank to stop the practice.

"When the bottom fell out, people just walked away from their houses because they weren't worth what they were costing them," bank President Paul Andersen said, declining further comment.

Virtually all of the deposits of MagnetBank were brokered just four months before the FDIC closed the Salt Lake City lender last January. The bank had amassed $282.2 million in brokered deposits; its total deposits were $282.6 million.

Most were used to make real estate loans. It had $234.8 million in loans on its books. Eighty percent were in construction and land development.

In retrospect, MagnetBank's portfolio of loans looks like a prescription for disaster. Even so, the Utah Department of Financial Institutions allowed MagnetBank in 2007 to convert its operations to commercial lending and continue to fund itself with brokered deposits. At the time, MagnetBank had shown it was able to manage brokered funding appropriately, Tom Bay, supervisor of banks for the department, told the financial services newspaper American Banker .

Today, Bay declines to second-guess the department's decision to allow Magnet Bank to convert. He said the bank failed because of bad loans, not because its deposits were brokered.

Darryle Rude, supervisor of industrial banks at the department, is more philosophical. "In retrospect, would we approve that type of business plan today? Well, obviously in today's environment that would be a poor decision. But at the time it appeared to be a good plan."

--

Time to reflect » Some bankers appear chastened by their behavior. Others, such as Capital Community's Jacobs, wonder how real estate lending spun so far out of control.

"A lot of what this bank's focus was, and many of the community banks share this same position in the market, is we have been relegated to a construction lending platform. We have lost our competitiveness in many of the consumer areas we don't enjoy and others do," Jacobs said, referring to credit unions, which use their federal tax exemption to offer higher interest rates.

Credit union officials counter that they provide competition that helps drive bank rates and fees lower. Unlike banks, they also have severe restrictions on raising capital to fund their growth.

Grant, the senior lending officer at Centennial, said his bank has learned it can't just make real estate loans. It also must investigate applicants more wisely.

"We have learned to diversify. We have learned to look beyond the value of collateral and to focus on the ability of borrowers to support their debt even in bad times."

pbeebe@sltrib.com

Nine banks with asset issues
First Utah, Salt Lake City
Holladay Bank and Trust, Holladay
SunFirst , St. George
Village Bank, St, George
Gunnison Valley, Gunnison
Centennial, Ogden
Western Community, Orem
Capital Community, Provo
Prime Alliance, Woods Cross

Source: American University School of Communication Investigative Reporting Workshop, FDIC data

Loan Demand Raises Worry

Loan Demand Raises Worry

The Wall Street Journal
Jan 22, 2010
By MATTHIAS RIEKER

Banks keep giving evidence that losses from bad loans will abate soon. But in a worrisome sign for the economy, demand from consumers and commercial borrowers remains tepid—offering little opportunity for growth at the banks.

"Loan growth is going to be tough" this year, BB&T Corp. Chairman and Chief Executive Kelly King told investors during a conference call, a statement echoed by SunTrust Banks Inc. Chairman and Chief Executive Jim Wells and by many other bankers this week as they reported earnings.

While bankers say they there isn't appetite for loans, borrowers say banks just aren't lending—or are setting terms for loans that are too difficult.

That trend of slow loan growth, or even shrinking loan portfolios, will likely translate into a tough—albeit most likely profitable—2010.

Losses from borrowers who cannot pay back their loans may not rise much more, and banks will need to set aside less money to offset such losses. The number of borrowers falling behind on their payments has already eased.

For lenders like SunTrust, which has struggled with losses, earnings growth will come from lower credit costs rather than loan growth.

SunTrust said its fourth-quarter interest income, the revenue from lending, fell 2% from the third quarter and 18% from a year earlier, to $1.6 billion; though profits from lending increased because SunTrust, like most banks, has to pay less interest on deposits.

The Atlanta bank set aside $974 million for current and future loan losses, 14% less than in the third quarter.

SunTrust reported a quarterly loss of $248 million, compared with a $348 million loss a year earlier. The company's loans fell 10.5%, to $114 billion.

BB&T, a stronger bank, had fewer loan losses, so its earnings will get less of a lift from falling credit costs, said Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners LP.

BB&T's profit fell 36%, to $194 million. Its interest income rose 5%, to $1.5 billion, because it bought failed Colonial Bank last fall.

BB&T's loan book rose 7%, to $109.7 billion, but without the acquisition the portfolio would have shrunk, Mr. King said. The bank's loan-loss provision rose 37% to $725 million.

"I don't feel necessarily that you need to keep building" the loan-loss provision "at this point in the cycle," Mr. King said during a conference call.

Though higher profits are of course welcome to investors, it's better to have profits from core revenue growth than from lower loan-loss provisions.

Some banks, such as Huntington Bancshares Inc., which reported a fourth-quarter loss of $370 million, compared with a $417 million loss a year earlier, might grow by buying failed banks, which requires little capital, said Tony Davis, an analyst with Stifel Nicolaus.

"We would opportunistically look at acquiring with assisted transactions," Huntington Chairman and CEO Stephen Steinour said. But "our primary focus is getting to profitability, driving the core" earnings, he said

Write to Matthias Rieker at matthias.rieker@dowjones.com

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Utah employment losses continue

Utah employment losses continue
Jobs » But the rate shows the recession is slowing.

By Mike Gorrell, The Salt Lake Tribune
01/22/2010 08:13:53 AM MST

Utah's unemployment rate rose almost half of a percentage point in December to 6.7 percent -- the highest since it was 6.8 in March of 1987.

The number of Utahns considered unemployed rose to 91,200 from 86,200 in November.

At the same time, however, the state had only 34,700 fewer jobs last month than in December 2008. That's an improvement over the 38,800 jobs that had been lost in a year-to-year comparison between the Novembers of 2008 and 2009.

And Utah's unemployment rate remains far below the 10.0 percent national average.

How can these divergent numbers co-exist?

The analogy that comes to mind for Mark Knold, Utah Department of Workforce Services chief economist, is this:

"Say I'm a patient who is ill. I'm at a point where I'm lying in bed and wanting to die. The next day, I don't feel as bad, but I'm still sick," Knold said.

"That's where we are right now in this recession. Am I still sick? Yes. Am I recovering? Yes. You can say 'yes' to both at the same time."

Fourteen months after the financial collapse sent the national and state economies reeling, The upshot, is "the current employment picture is not repeating last year's free fall," Knold wrote in his monthly employment summary.

"Utah's economy remains weak, but indications are that, at worst, the economy has stabilized and found a bottom," he added. "At best, it is starting to expand and meekly add jobs again."

Pete Taylor, a vice president for the Sandy-based affiliate of Management Recruiters International, shares Knold's perspective.

"A year ago, companies were paralyzed," he said. "There's not that same feeling now. Some companies are moving forward, filling positions that have been on hold or they haven't felt the urgency to deal with. But there's a lot of caution."

Knold's report for December said the retail-sales industry was representative of the slightly improving situation. Employment during the peak of the Christmas sales period was up by 800 over the previous year.

That upturn prompted Tricked Out Accessories, which has 15 locations in Utah, to open three more next month in Hawaii, said Marc Patterson, a regional manager of the company that sells cell phone and iPod accessories from stores and mall kiosks.

"December was our biggest month ever as a company. And January is still looking to be really good," he said, noting that Tricked Out Accessories has grown to 50 employees. "If retail wasn't doing good, we wouldn't be able to open new stores and hire more people."

At the end of 2009, health care remained Utah's strongest industry, adding 6,200 new jobs to payrolls during the year. The construction industry was the year's big loser, dropping 12,200 positions or 14.9 percent of its work force from December of 2008.

The ski season's slow start resulted in the leisure and hospitality sector eclipsing manufacturing as the state's second hardest-hit industry. It lost 8,800 jobs in 2009, a 7.8 percent decline, while manufacturing companies pared 8,500 jobs, a 7.1 percent drop.

"Restaurants have lost the most jobs in this sector, yet there are also losses in the accommodation industry as well," Knold said.

But like the state economy as a whole, he saw improvements in this sector that were not reflected in the numbers.

"The psychology toward the ski season is better. Last year, the economy was just starting into its free fall and people froze up like ice cubes. People were very reticent about taking ski vacations," he said.

"But now, even though the economy is bad, that gloom-and-doom psychology isn't there," Knold added. "There just isn't as good of snow. So if we have a big dump, people might not have the hesitation about taking a ski trip."

mikeg@sltrib.com
---

New jobless claims

First-time claims for unemployment in Utah last week mirrored a surprising jump nationally that showed how scarce jobs remain in the road to economic recovery.

The Utah Department of Workforce Services reported Thursday that 4,284 new claims were filed in the week ending Saturday, down from 4,368 the previous week but still higher than any week since early February 2009. The four-week average of 3,690 new claims also was the highest since mid-March of last year.

Nationally, 482,000 new claims were submitted, up from 446,000 the previous week and the highest level since mid-November. The four-week average was 448,250, the U.S. Labor Department reported.

"The trend in the data is still discouraging," Diane Swonk, chief economist for Mesirow Financial, wrote in a note to clients. "Hopes for a positive employment number in January ... are rapidly dimming."

Source: The Associated Press contributed.

Utah jobless rate rises to 6.7%

Utah jobless rate rises to 6.7%
Deseret News
Thursday, Jan. 21, 2010 10:10 a.m. MST

Utah's unemployment rate and job losses continue to climb.

The unemployment rate in the state rose to 6.7 percent in December 2009, up 0.4 of a percentage point from November and comparing with a 4.1 percent rate a year earlier.

The U.S. unemployment rate remained at 10 percent in December.

The state figures, compiled by the U.S. Bureau of Labor Statistics, were released Thursday by the Utah Department of Workforce Services.

About 91,200 Utahns were considered unemployed in December, compared with 57,300 a year earlier.

The department said nonfarm wage and salaried jobs in Utah shrank by 2.8 percent in 2009, with 34,700 jobs removed from the state economy during that period. Total Utah employment is about 1.21 million.

Construction has taken the biggest hit in job losses, down 12,200 from December 2008 and more than 36,000 from December 2007. Utah's construction employment has fallen to levels last seen in 2004, the department said.

On the plus side, health care added 6,200 jobs in 2009.

— Brice Wallace
© 2010 Deseret News Publishing Company | All rights reserved

Barnes Bank customers clean out accounts

Barnes Bank customers clean out accounts
KSL.com
January 19, 2010

KAYSVILLE -- Tuesday was the first business day following Utah's biggest bank failure in many years, and a steady stream of customers cleaned out their accounts.

Barnes Bank is headquartered in Kaysville, but the emergency seizure by regulators affects all ten Barnes locations up and down the Wasatch Front. The shutdown is permanent and it will have big economic consequences.

The bank outlasted many economic storms, "since 1891" as the sign says. But the current recession was too much.

"It's a sad day when a good bank like Barnes, it can happen to it," said Brenda Watanuki, who was a customer of the bank.

Former customers of Barnes Bank visited the bank Tuesday to withdraw their money

Regulators seized the bank Friday night. On Tuesday, longtime customers came to remove their savings.

"It's a tough thing. I feel bad for the employees," former customer Bob Watanuki said.

Regulators say the bank ran into trouble because it lent too much money for construction and real estate development.

"We had that real estate bubble, so the value in real estate loans went down," said Michael Jones, chief examiner with the Utah Department of Financial Institutions.

As loans went sour, capital reserves deteriorated. Regulators seized the bank to protect depositors. Paying back depositors will drain about $270 million from the federal insurance fund.

"So, this is a large one. Being as old as the bank was, it hurts," Jones said.

Usually, they find another bank to buy the one that failed. In this case, there was not a single bidder. So, the FDIC set up its own temporary bank to return money to depositors.

"Between now and February 12, it allows people to come in, close out their checking and savings accounts and remove the contents from the safe deposit boxes," said Linda Beavers, regional ombudsman with the FDIC.

Virtually everyone's money is safe; it's federally insured. The only exceptions might be extremely high-end depositors -- $250,000 or more -- who haven't structured their accounts properly.

"I know that the Barnes people made a strong effort to make sure everybody was covered," Beavers said.

"But I suspect there are going to be some who put their faith in the bank and were over the $250,000," Jones said. "It's always tragic, whenever we close a bank, for there to be uninsured depositors."

The FDIC website has tips for structuring big deposits to make sure they're insured.

If you thought this amounts to a taxpayer bailout, it's not. The insurance fund comes from the banks themselves. They're assessed quarterly payments to make sure most deposits are insured.

E-mail: jhollenhorst@ksl.com

Barnes Bancorp closed by federal regulators

Barnes Bancorp closed by federal regulators
Deseret News
Friday, Jan. 15, 2010 11:20 p.m. MST

SALT LAKE CITY — Kaysville-based Barnes Bancorp Inc. was closed Friday by the Utah Department of Financial Institutions after several troubled months and a formal investigation by federal regulators.

Barnes Bank is the first Utah financial institution to have failed in 2010. The last local bank to fail was Layton's America West Bank, which went under in May of last year.

An agency has been created to handle the assets and accounts of Barnes Bank. Managed by Zions Bank, the Deposit Insurance National Bank of Kaysville will mail checks to holders of Barnes CDs and IRAs on Tuesday, according to a news release from the Federal Deposit Insurance Corporation.

The Barnes Bank Web site refers customers to the FDIC for information. Deposits and some special accounts are insured up to $250,000, according to federal law. Other accounts are fully insured.

Checks written through Barnes Bank will be honored until Feb. 12, according to the FDIC, and ATMs will be open until Jan. 29. Customers with loans financed by Barnes Bank are encouraged to continue making regular payments.

Barnes Bank has nine locations along the Wasatch Front and one in St. George. They will be open from 9 a.m. to 1 p.m. Saturday under management of Zions Bank and will reopen Tuesday for an interim transition period.

"We're really here to help. Barnes Bank has a legacy of providing quality service to families and businesses in the community since 1891, so we want to help their former clients through this transition," said Scott Anderson, president and chief executive officer of Zions Bank. "This is an extremely difficult situation for everyone, but we are prepared to answer questions, provide support and comfort, and assist former Barnes Bank clients into new banking relationships."

In May, Barnes Bank officials met with the FDIC over problems with board oversight and credit risk-management practices, among other issues. The bank also struggled with maintaining sufficient capital, employees said at the time.

Late Friday, the Utah Highway Patrol was at the bank's headquarters to provide security for FDIC auditors.

The closure of the Utah bank will cost the FDIC's deposit insurance fund an estimated $271.3 million.

As of last September, Barnes had $827.8 million in total assets and $786.5 million in total deposits. When it closed Friday, there were approximately $100,000 in deposit funds that potentially exceeded the insurance limits.

For more information, visit fdic.gov. Customers who may have uninsured accounts should call 1-800-528-4893 to set up an appointment.

e-mail: rpalmer@desnews.com
© 2010 Deseret News Publishing Company | All rights reserved

S. Utah's economy down but rebounding as 2010 unfolds

S. Utah's economy down but rebounding as 2010 unfolds

By Mark Havnes, The Salt Lake Tribune
Updated: 01/13/2010 08:46:02 PM MST

St. George » The St. George economy is a long way from where it was in the mid-'90s, when the city regularly topped the lists of premier places to live and work.

But the area is gradually rebounding, according to Lecia Parks Langston, a regional economist with the Department of Workforce Services for Utah. She spoke during a breakout session at the annual Washington County Economic Summit Wednesday in St. George.

"To use a quote from Mark Twain, the death of the economy has been greatly exaggerated," said Langston. "We are in a recovery phase."

Her remarks echoed those of Gov. Gary Herbert, who said he was optimistic about the future of southern Utah and the state, saying Utah has weathered the sour economy better than many others. He attributed that to a fiscally prudent Legislature and a healthy rainy-day fund.

Herbert said job creation through support of private enterprise, not government meddling, is key to a prosperous future. "We understand that by creating jobs everything else can be taken care of in any area."

Washington County was hit particularly hard by the recession. Its unemployment rate was close to 8 percent at the end of last year, compared with a state average closer to 6 percent. But tourism is up in the area, he said, especially at Zion National Park, where visitation rose 5.4 percent last year.

"There are pockets of success," said Herbert, restating
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priorities from his inaugural address -- growing the economy, education and energy development.

Langston said construction jobs took the biggest hit in Washington County, where 4,000 have been lost since the peak boom year of 2006. There was also a drastic decline in number of residential building permits issued, from a high in 2005 of 3,860 to just 560 from January through November 2009.

Washington County also experienced the highest rate of mortgage foreclosures in the state last year, 7.4 percent.

Earlier in the day, U.S. Sen. Bob Bennett told conference participants that although many economists are claiming the worst is over, the country has a ways to go. Unlike state and municipal governments, the federal government operates by different rules when it comes to balancing the budget.

Bennett said mandatory programs such as Social Security, Medicare and Medicaid will be funded without question, consuming two-thirds of the nation's budget. What's left goes toward discretionary programs, including defense, the most expensive.

In a time when revenues are down, borrowing is the only way the government can function and fulfill all its obligations, he said.

He encouraged banks to start lending, especially to small businesses. "The economy runs on credit and confidence. All new wealth comes from risk-taking."

mhavnes@sltrib.com

CRE Financing Update - Ray Walker

I organized a Utah County commercial real estate forum for the Utah County Assoc. of Realtors that was held yesterday. We had excellent presentations by Stan Craft, commercial appraiser with Free & Associates, and Ray Walker with CBRE Debt & Equity Finance. Here is Ray's contact information:

Ray Walker, Senior Vice President
CBRE Debt & Equity Finance
222 So. Main St, 4th floor
Salt Lake City, UT 84101
O: 801-869-8050
F: 801-947-3954
C: 801-918-4599
ray.walker [at] cbre.com


Following are my notes from Ray's presentation.

CBRE represents life companies, local and national banks, direct lender for Freddie/Fannie/HUD for MF and healthcare

Market downcycle in late 80’s/early 90’s was very bad

Credit is frozen to a certain extent, there is plenty of money available at the right price

Land loans are now dead on arrival, must have a defined and strong exit plan
• Banks that are now in trouble are loaded up with land

Utah market hasn’t dropped in Utah nearly as much as some other places
• Approximately 20% drop in values in Utah, 30-40% in other markets
• Utah Co. will likely come out very well in the next upswing

Utah traditionally lags the country, doesn’t go as high or as low

Lenders looking heavily at debt coverage, how are they going to get paid
• Scrutinize tenants on subject property and other properties the borrower owns
• Want global cash flow statement showing all properties owned by borrower

On a purchase, the lender is a partner – on a refinance, the lender is the enemy

Commercial banks hold 45% of commercial mortgage debt
Thrifts hold 6%
CMBS – 21%
Life companies – 9% (most are lending today, 65-70% LTV)

Mortgage debt as a percentage of GDP got above mean, now deleveraging to get back to the mean

On refi’s the lenders are sometimes willing to take a haircut but also want some cash in from the borrower, both share in the pain

Lots of vultures sitting on the sidelines waiting for distressed properties, not real active yet, probably come in small waves
• Private equity groups are paying cash for distressed assets

Life companies – working with borrowers on refi’s so don’t have to foreclose if can avoid

Client getting a 3-1-1 ARM

Thinks it will be 3-5 yrs before finance world is back to normal

MF is a profit-center for Freddie/Fannie, they’ve begun to securitize their portfolio and selling it off, able to shrink their portfolio without reducing lending

Conduits starting to come back (70% LTV, 7-7.25% rate)

Financing on mixed-use buildings – lenders hate mixed-use buildings, the retail/office use always struggles
• Don’t want more than 10% of revenue to come from secondary use

221.d.4 – closed $3b in 2008, have $18b in process, very long process to close (12+ months)
• HUD is saying no more in SLCo except for CDB area
• Utah County will likely have more money available (having to convince HUD that Utah County is worthy of the investment)
o Need more data for Utah County MF market, will help convince HUD

Rates will edge up, not sure what inflation will do

AA corporate bonds are a good benchmark for commercial RE rates, life companies weigh

Utah Co. CRE market update - Stan Craft

I organized a Utah County commercial real estate forum for the Utah County Assoc. of Realtors that was held yesterday. We had excellent presentations by Stan Craft, commercial appraiser with Free & Associates, and Ray Walker with CBRE Debt & Equity Finance. Here is Stan's contact information:

Stan Craft, MBA, MAI
Vice President, Free and Associates
313 So 740 East, Ste 1
American Fork, UT 84003
O: 801-492-0000
F: 801-492-1000
C: 801-360-1198
stanc [at] freeandassociates.com


Following are my notes from Stan's presentation. Here is a link to his slides.

Volume in numbers of appraisals is pretty even between 2008 to 2009
• new construction appraisals have gone down significantly
• fewer appraisals related to sales
• more banks wanting updated values
• more tax appeals
• more foreclosures (FDIC)
Updated valuations from previous year (from 2008 to 2009)
• 27 total
• 5 have gone up in value
• 22 have gone down in value
• Average 10% drop in value
What’s affecting appraised values
• Sales comps
• Lease rates
• Vacancies
• Concessions
• Cap rates
Cap rates for office properties
• 1st half 2008 – 7.56%
• 2nd half 2008 – 7.62%
• 1st half 2009 – 7.99%
• 2nd half 2009 – 8.44%
Office rent rates (100 Utah properties, about 40% in Utah County)
• 2q08 - $15.22
• 4q09 - $15.09
• 2q09 - $15.90
• 4q09 - $13.64

Residential market (Roland Robinson)
Affordable housing in good areas (under $250k, near I-15)

Lindon exit office space having strong lease rates

Land - $10-12/ft in the past, dropping to $7-8/ft recently

Utah County Commercial Real Estate Market Year End 2009

UTAH COUNTY
Overview
- 2009 still slow, but ends on an up-note with a rise in transactions
- Utah County performs well versus other nearby markets, although businesses continue to hold off on making commitments
- In addition to the growth provided by the BYU and Utah Valley University, the country’s largest road construction project is underway in Utah County. The 2 billion dollar reconstruction of I-15 will provide a significant investment, both in dollars and jobs, to the local market.
Retail
- Vacancy rates increased almost 6% from year end 2008 due to newly completed projects, slower expansions. Mall vacancies lead the decline as vacancy rates rise to over 10 percent
- Landlords aggressive in concessions to attract and keep tenants
- Activity driven by local and regional retailers; expect this to continue through 2010.
Office
- Office hardest hit of all commercial real estate markets in 2009
- Vacancies see dramatic increase over year ago due to completed projects, reduced demand and 50% office condo vacancy rate in North County
- High levels of owner-user product flooded the market as businesses scaled back, shut down operations
- Lease rates fell and landlords competed to get new, keep current tenants. Look for this trend to continue.
Industrial
- Industrial healthiest of all segments in Utah County in 2009
- Demand as relatively high--particularly in the North County--due to good access to Salt Lake County
- Decreased demand, lack of viable sites limited new construction
- Vacancies highest in South County, although 2009 increase was small
- Lease rates fell along with demand.

Washington County Commercial Real Estate Market Year End 2009

WASHINGTON COUNTY
Overview
- Washington County felt economic pinch; saw downturn in all sectors
- Infrastructure, other factors keeps the county well positioned for a quick recovery, although employment losses will temper.
Office
- Economy benefitted tenants; landlords who offered improvements and concessions fared best.
- Overall vacancies increased 3+%, but Class A vacancies declined as good tenants upgraded.
- Asking lease rates fell, and new construction was a standstill.
Retail
- 2009 was a tough year for retail—vacancies climbed over 4% with un-anchored and B & C class properties taking the hardest hits.
- Although several new tenants entered the market, all major developments are on hold until the market strengthens.
Industrial
- Sales of land and buildings, which started to slowdown in 2008, got even more sluggish in 2009.
- New building projects are poised for take-off when economy, lending improve.
- National, regional players still see Southern Utah as good location, but movement will continue to be slow.

Summit County Commercial Real Estate Market Year End 2009

SUMMIT COUNTY
Overview
- Although the economic slowdown had broad impact on the Park City commercial real estate market in 2009, the area fared better than most resort towns.
- New construction remains at a standstill, but residential real estate saw a slight increase in activity of 2009 due to distressed properties, better prices, and creative incentives from developers.
- New projects, including several expansions, point to brighter days ahead for the Park City market.
Retail
- Retailers suffered from decreased tourism and tight credit markets.
- Main Street saw high tenant turnover, increased vacancy rates, and lower lease rates, fueling concerns over its future.
- Kimball Junction experienced a slowdown in leasing activity as recently-opened Newpark Center struggled to find tenants. Best Buy and Jupiter Bowl did well, and Tanger enjoyed continued success, as consumers looked for discounts.
- Landlords offer lower rates and concessions to retain and attract tenants.
Office
- The office market remained stable in 2009; lease rates should hold steady in the coming year.
Industrial
- Park City Business Center is well under way with one spec building completed and ready for occupancy. Other buildings are planned for late 2010.
Other
- Hotels: Despite the slowdown of the past year-and-a-half, the opening of two major hotel projects in 2009, and at least one more in 2010 bodes well for the future.
- Healthcare: The completion and opening of the IHC hospital brought over 200 new jobs.

Weber, Davis County Commercial Real Estate Market Year End 2009

WEBER COUNTY
Overview
- Despite national, regional economic slowdown, Weber County was relatively upbeat in 2009; Ogden’s position as the outdoor and recreational industry capital in the country builds, and is expected to continue in 2010.
Office
- Market hits highest vacancy rate since 2002 as economy shrank businesses.
- Transactions were strong as companies take advantage of better rates and move to nicer facilities.
Retail
- Retail market stagnant in 2009, but growth is expected in 2010 as several new projects are already underway.
- Vacancies were up, driven higher by big box retailers.
- Lease rates were slightly lower, and landlords offered generous concessions to attract and keep tenants.
Industrial
- Activity and vacancy rates were fairly low in 2009 due to lack of new construction.
- Asking prices fell, but are leveling off.
- Lease rates held steady, but landlords enticed tenants with incentives and are expected to continue to do so.

DAVIS COUNTY
Overview
- Population growth spurred residential activity in some commercial real estate markets in 2009; increase in residential real estate sales and business licenses point toward more growth in 2010
Office
- 2009 was a sluggish year for the office market.
- No new construction in 2009, but one major development near Hill Air Force Base already moving forward.
- Vacancy rates continued climb from 2008, with class A still the strongest market by far.
- Landlords offered incentives, and lease rates held steady from mid-year 2009.
Retail
- Population growth expected to spur retail activity in coming year.
- Major development at Fort lane Village underway and Larry H. Miller megaplex theatre in the works.
- Vacancy rate inched higher, but lease rates fell as landlords scramble to keep, attract tenants.
Industrial
- Davis County industrial market slow in 2009 as sector worked through economy, oversupply from previous years.
- Values and lease rates were lower in 2009, but healthy activity is expected in 2010

Utah commercial real estate market poised for rebound

Utah commercial real estate market poised for rebound

By Jasen Lee, Deseret News
Published: Tuesday, Jan. 12, 2010 3:35 p.m. MST

It may sound like a broken record to say 2009 was a tough year in virtually every sector of the Utah real estate market, but the final year of the decade also offered some hope for the start of the next 10-year period.

According to market reports from two of the state's largest business real estate firms, 2009 was both challenging and potentially promising for the year to come.

"Retail, office, industrial — all suffered in 2009," John Taylor, investment specialist with Commerce Real Estate Solutions (formerly Commerce CRG), told the Deseret News. "(Today) some financing is back into the market, (and) our rate of job decline has dramatically slowed."

He said Utah's commercial real estate market fared better than many other markets in the region during the economic slump, which will put the local market in a good position to rebound when the economy begins to recover.

According to the Commerce year-end report, the Salt Lake office market saw direct vacancy rates climb to 15.72 percent in 2009, up from 12.95 percent at the end of 2008. The rise in vacancy was largely attributed to the December completion of the 222 Main Street downtown office tower, which is 20 percent leased but mostly unoccupied and added 420,000 square feet to the Central Business District vacancy rate.

Overall lease rates downtown held steady for the year, the report stated. While 222 Main set a new mark for asking lease rates at $32 to $34 per square foot, rates moved up only slightly from $20.20 at the end of 2008 to a market average asking lease rate of $20.58 at the end of 2009.

The report said effective lease rates, which include concessions such as rent abatement, relocation allowances and above-standard tenant improvement allowances, continued to move lower. If the 222 Main Street project was excluded from the study, overall lease rates would have remained the same year-over-year.

The Commerce report also stated that the office market will continue to favor tenants, with landlords making every effort to attract new tenants and retain current ones by offering more concessions and even rent relief in exchange for longer leases.

Meanwhile, CB Richard Ellis reported that retail vacancy rates in the Salt Lake market rose from 7.4 percent in 2008 to 9.1 percent in 2009. Despite the uptick, Idaho-based WinCo Foods opened two new grocery stores in Salt Lake County and the In-N-Out Burger chain opened three new locations along the Wasatch Front last year.

Industrial vacancy in the Salt Lake market increased slightly in 2009, the Commerce report stated. The industrial market experienced a significant 25 percent decline in lease activity over the past 12 months.

"While the commercial real estate markets have clearly softened, we have reasons to be encouraged by the overall financial strength of Utah," Mark Bouchard, senior managing director of the Salt Lake City office of CB Richard Ellis, said in a statement. "The Utah commercial real estate market is positioned for a positive move forward in 2010."

e-mail: jlee@desnews.com
© 2010 Deseret News Publishing Company | All rights reserved

Salt Lake County Year End Commercial Real Estate Report (from Commerce R.E. Solutions)

Note: For additional detail including charts, graphs: http://bit.ly/Yearend09

SLCO Retail Market Year End 2009
1. The most dynamic part of retail in 2009 was grocery: New WinCo stores, as well as Associated Foods’ purchase of a number of Albertsons’ supermarkets.
2. Restaurants continued to be one of the most active retail categories. Smash Burger and Five Guys Burgers and Fries are new to the market. In-N-Out Burger expanded to Draper.
3. The retail market stabilized during the last half of 2009. Vacancy rates remained statistically unchanged when compared to 2008. Many landlords are expressing relief.
4. Despite a four-fold increase from the first half of the year to the second half, new construction of retail space is still well below normal levels. Virtually all of the new construction in the last half of the year was attributable to the new Winco stores in West Valley and Midvale.
5. In the second half of 2009, we did not see the large-scale national chain closures that took place in early 2009.
6. The future of Cottonwood Mall redevelopment remains in question. The owner/developer has emerged from bankruptcy.
7. After a number of delays, the renovation of Trolley Square is moving forward.
8. A mixed use development scheduled for the Rice-Eccles Stadium parking lot area was cancelled by Inland American Communities Group. The University remains committed to some type of development at that location.

Forecast for 2010
1. Consumer attitudes have had a profound change. We expect this to keep people’s living and spending patterns on the conservative side for years to come.
2. Expect a shift away from the purchase of less durable items and toward products that improve home/property values and boost energy efficiency.
3. Watch for more small business lending, giving smaller local and regional retailers a chance to expand.
4. Teamwork: Vendors, landlords and even some lenders seem willing to support retailers that have solid business plans, even when they are facing temporary difficulties. We expect this behavior to soften business closures during 2010.

SLCO Office Market Year End 2009
1. Salt Lake direct office vacancy climbed to 15.72 percent (up from 12.95 percent in 2008). The good news? If the space in the just-opened 222 Main Street office building is subtracted from the vacancy rate, the numbers would have held steady when compared to 2008.
2. Lease rates did not increase, and office space absorption was positive: 88,000 square feet in 2009 - but a definite decrease over the five year average of 913,000 square feet (all business office classes).
3. New office space construction totaled 768,000 square feet compared to just over a million square feet in 2008. Most of the new space was in the suburbs with the exception of 222 Main Street.
4. Most current office construction began in 2008, before the market began to deteriorate.

Forecast for 2010
1. Positive job growth should return by 3rd quarter of 2010 according to State economists.
2. The office market will lag behind this recovery due to the time it takes for companies to regain confidence, hire, execute new lease agreements and move into new space.
3. Good news: Only 315,000 new square feet of office space will open up in 2010 (2/3 below the historical average) and more than 75 percent of that space has already been leased.
4. More tenants will be looking for LEED buildings, in order to save in energy costs.
5. Landlords will make big concessions to lease space and keep current tenants, including free rent and rent relief in exchange for longer leases.

SLCO Investment Market Year End 2009
1. A decline in investment activity in 2009, but the freefall that began in the 3rd quarter of 2007 seems to be finding a bottom.
2. During most years, there is a 50/50 split of local and out-of-state investors. In 2009, 75 percent of investors were local.
3. Utah is doing well. The number of commercial real estate foreclosures is relatively small compared with neighboring states.
4. Investment in apartment properties held steady, and the vacancy of the overall apartment sector is at seven percent. A majority of landlords are offering tenant concessions. This was not the case in 2008.
5. Lenders were only willing to work with investors with strong credit, thus there were an unusually high number of cash transactions.
6. Class A properties held steady, but class B and C experienced big downward value trends.

Forecast for 2010
1. Utah’s economy is miles ahead of just about every other state in the region, thus investor interest should pick up.
2. High quality properties in every sector will capture the investor’s interest while class B and C properties will continue to be sluggish.
3. Cash sales or low leverage transactions will continue to be the norm until debt capital returns in greater quantity to the marketplace.
4. Investment in retail properties is still a challenge, but we do expect to get more interest from out-of-state retailers.
5. Do not expect a recovery in investments until job growth becomes positive and businesses start hiring and credit becomes more available to businesses.
6. Business closures and layoffs have put a lot of talented entrepreneurial people into the marketplace. This could lead to a resurgence in start-up companies.

SLCO Industrial Year End 2009
1. Many credit-worthy businesses could not expand due to a tight credit market.
2. Industrial vacancy increased only slightly in 2009, weathering the economic challenges well.
3. Landlords are making concessions, including free rent.
4. A number of large national and regional tenants chose to sublease some of space in 2009.
5. The cost to lease industrial space dropped ten percent in 2009. In 2008 the cost was up 23.42 percent.
6. There was a 25 percent decline in the leasing of industrial space.

Forecast for 2010
1. The complete halt of new industrial space construction will extend through 2010.
2. Declining least rates should stabilize.
3. Tenants will continue to purse more short-term lease renewals

About Commerce
Commerce Real Estate Solutions, headquartered in Salt Lake City, with four Utah offices, a Las Vegas office and active real estate involvement throughout the Intermountain West, has been the leading provider of real estate brokerage services in Utah for 30 years. As an Alliance Member of Cushman & Wakefield, Commerce provides consulting, brokerage, tenant representation, property and facilities management and valuation services to corporations, institutions and investors throughout the Rocky Mountain States. The firm is one of 25 members of the Cushman & Wakefield Alliance Program. www.comre.com

Forecaster: Utah population spike over next 20 years will create demand for housing

Forecaster: Utah population spike over next 20 years will create demand for housing
Real estate » Realtors told that downturn might have bottomed out.

By John Keahey, The Salt Lake Tribune
Jan. 11, 2009

Chris Nelson is way out there when he lays out the future -- say 20 years out there.

And what the director of the University of Utah's Metropolitan Research Center forecasts for the state's housing market during the next two decades gave a Salt Lake City ballroom full of hundreds of Realtors a lot of hope Monday.

Though that is countered by some uncertainty in the year ahead, his bottom line was this: By 2030, the state will be the fastest growing in the nation, pulling in another 1.5 million residents on top of the 2.7 million already here, and 700,000 new jobs will be created.

"We are -- you are -- big time," he told the audience.

That means more houses need to be built, along with more commercial square footage. And he state, particularly the Wasatch Front, is behind in what is needed.

"This pent-up demand, combined with growth, needs to be dealt with," he told the Realtors during their annual Housing Forecast breakfast at Little America Hotel.

While Nelson had the podium and was describing a world still two decades away, those in the audience also were perusing a handout from James Wood, director of the University of Utah's Bureau of Economic and Business Research. Wood dealt with more immediate issues.

He predicted that Salt Lake County can expect a 3 percent growth in home sales during 2010, or 9,100 units. But there are some big caveats tied to lending.

"Could this slight up-tick signal that 2008 was the bottom of the downturn and the rebound is under way?" he asked in the report. Then he answered his own question. If so, "the contraction was short-lived, only two years but vicious in its magnitude."

As far as housing prices are concerned, they will continue to fall another 3 percent to 5 percent this year, bringing the overall price decline in Salt Lake County during the past two years to 15 percent. But there is a bright spot. Prices should be "stable to slightly improving" in 2011.

For Realtor Lavar Campbell, the prognostications were all good news.

"You don't usually see a lot of that optimism elsewhere," he said. "It's nice to see that things are looking up."

Realtor Colleen Howcroft said the forecasts "gave us a lot of hope. It looks like we're going to build back up this year, and 2011 will be better."

The big question real estate agent Ben Goodwin had after the session was, "Are banks going to be willing to lend," given tighter restrictions now in place?

That question also occurred to the U.'s Nelson.

"The demand will be there. Will the banks be there to help?" he said in an interview following his talk.

Nelson's numbers are staggering. If you push his time frame another 10 years, to 2040, he predicts the entire United States will need to add 287 billion square feet of residential and commercial real estate between now and then. Dropping back to a 2030 scenario, he estimates that along the Wasatch Range -- from Logan to Provo -- 450,000 units will need to be built, a 50 percent increase over what is available today.

And for commercial space, 1.1 billion square feet will have to be added. That's 120 percent more than the 750 million square feet that exist now.

He asked his breakfast audience, where the additional square feet will go in a region that already is filling up. It will have to come in multi-family housing and involve a new way of looking at creating neighborhoods.

Not only that, he pointed to demographics that show that Utah's non-Anglo population in Ogden, Salt Lake City and Provo will grow by 600,000 by 2030.

Because a lower percentage of this demographic is comprised of home buyers, he said, "more than half of all new houses built will have to be in rental mode."

jkeahey@sltrib.com


By the numbers A growing demand

Utah's housing industry will grow with heightened demand from a growing population, according to a University of Utah forecast. Some forecasted numbers:

3.6 - million people along the Wasatch Front by 2030.

1.35 - million housing units needed by 2030.

42 - percent rate of growth in next 20 years in Salt Lake City.

3rd - National rank of Wasatch Front's growth rate among metropolitan areas.

Adding another 1.1 million people over the next 20 years along the Wasatch Front will mean an additional 450,000 new or rebuilt housing units.

Park City commercial real estate market still frozen

Commercial real estate market still frozen
Landlords say they can't afford to lower rates any further
by Andrew Kirk, The Park Record
Posted:01/08/2010 04:51:44 PM MST

It's hard to go shopping anywhere in Park City without seeing vacant storefronts. Some strip malls have had empty spaces for nearly a year. But retail, with a 9 percent vacancy rate, is actually the bright spot in Park City's commercial real estate market.

According to Chris Donaldson, an appraiser with Cushman & Wakefield, about 15 and a half percent of the area's office space is vacant and 16 and a half percent of industrial space is.

For various reasons, vacancy isn't distributed evenly. The Tanger Outlet Center is nearly 100 percent full while Quarry Village further up Landmark Drive is at 50 percent. That's according to a report Donaldson produced for Commerce CRG that recently split into Commerce Real Estate Solutions and CRG Utah.

Management for Tanger and Quarry Village were contacted but could not be reached.

Residential-property owners are often willing to sit on a home rather than sell it for too low a price. Commercial landlords don't have that worry since they retain ownership, but Donaldson said there are many reasons they allow space to remain vacant.

One is shoppers, like home buyers, are waiting until they're sure the market has hit bottom. Donaldson works in six states and he sees the same trends everywhere. With vacant residential lots and commercial spaces, owners can lower the price 75 percent and still not have takers. Price is inconsequential if buyers aren't buying, he said.

Reasons they aren't buying can be lack of credit or some businesses can't survive in a recession.

With these pressures decreasing demand, Park City is oversupplied. The recently completed retail spaces at Newpark between Jupiter Bowl and Best Buy sit empty, as do the industrial spaces off U.S. 40 in The Park City Business Center. Adding pressure on the West Side, the relatively new Summit Center on Rasmussen Road still has several openings.

Melissa Young is trying to lease out office space in Jeremy Ranch near the Jeremy Store. She said the last taker was a year and a half ago. There's so much supply, shoppers offer rates that are barely break-even for owners.

Bill Martin, formerly majority owner of Commerce CRG, now head of CRG Park City and CRG Utah, said part of Young's problem is location. Sure Jeremy Ranch is closer for businesses with workers and clients in Salt Lake, but if a business can get a lease in Park City proper, the outskirts of town become less desirable.

A few years ago the cheaper rent in the Basin or bordering U.S. 40 was attractive. Right now Park City is affordable. Donaldson's report said space on Main Street is going for about 22 percent less.

Sharon Stear with The Pyramid Group that owns the strip on Bonanza Drive with Einstein Bagels and Spencer's Smokin' Grill said it doesn't work to just lower the rent until a lease is signed.

"They talk," she said. "The other tenants complain."

Everyone starts asking for lower rent.

"It's a snowball effect," she said. "Sometimes having it empty is better."

Some landlords are signing special-circumstance, short-term leases to fill space, but Stear said it's a lot of paperwork and usually isn't worth it.

Her company has only done one in the last 14 years.

Young said callers she's talked to want $6 or $7 a square foot not enough to cover the utilities and maintenance. Even if she offers half price ($14 a square foot) they demand a five-year contract too long at such a low rate.

Adding to the problem, Stear said, is some businesses are in obsolete industries. The Bonanza Drive strip used to have a packaging store and a photo developer. Those tasks are now cheaper to do oneself.

Quarry Village lost Blockbuster Video last October. Even though the company didn't respond to an email requesting the reason, its website said the corporation plans to close about 18 percent of its stores by the end of this year because of competition from other movie vendors.

That's why start-up businesses looking for a lease should really be conscientious when presenting their financial strength and credit worthiness to a prospective landlord, Martin said.

"There are so few really good tenants around," he explained. "Landlords really have to think hard when looking at new startups."

Charlie and Mary Wintzer, whose Wintzer-Wolfe Properties owns the buildings in the Iron Horse District, said they've been lucky that way. With the exception of two construction-related tenants and the Park City Christian Center that moved, their tenants have valiantly survived the recession.

Still, Bill Martin calls the Wintzers a success story because they've had so few problems with vacancies.

Charlie Wintzer said it's because they really focus on service.

"We pride ourselves as being partners with our tenants," he said. "We spend a lot of time building relationships over the years."

He's socialized with tenants, physically helped them move units, supported open houses and encouraged friends to take advantage of their special offers.

"If they're successful, we're successful," he added.

Another factor is rates. He said they've traditionally tried to have the lowest rates in town, so he's not had a problem with businesses bailing on him to move elsewhere. That strategy allowed him to attract strong companies that have been able to continue paying during tough months.

It hasn't helped with filling the current vacancies because of the same challenges other owners are facing, but Mary said she's optimistic things are improving.

For eight months they went without serious lookers, but things have recently picked up. Martin also said the agents in his office are more hopeful than a year ago.

"People are not as scared as they were," he said. "We've gotten through."

The worst is over for Utah, national economies

The worst is over for Utah, national economies

By Mike Gorrell
Salt Lake Tribune
01/07/2010 02:48:45 PM MST


Using different words, national and state economists offered the same message Thursday in delivering the 2010 Economic Report to the Governor.

"A theme of emerging recovery" is how Juliette Tennert, chief economist in the Governor's Office of Planning Budget, characterized conditions in Utah.

Nationally, "the worst is over. We've hit bottom," echoed David Wyss, chief economist for Standard & Poor's, a 150-year-old financial-services company whose stock, bond and credit ratings are watched closely by the business community.

"We're at the stage of the cycle where things are not getting worse," he added, cautioning that there will be a slow recovery from "a terrible recession that could have been a lot worse. ... But half a recovery is better than none. You take what you can get."

Their comments were made to Gov. Gary Herbert and about 350 business people at the downtown Salt Lake City Marriott during a breakfast meeting organized by the Salt Lake Chamber and the Wasatch Front Economic Forum.

Heading into his first budget session with the Legislature, the new governor said his top priority is to protect the jobs that Utahns already have and to create opportunities for existing businesses to grow and for outside companies to come in.

He said Utah is better positioned than most states to accomplish those goals, but he acknowledges: "I don't want to minimize that people are hurting out there." Herbert also vowed to the business people that "we'll do all we can to keep government off your back and out of your wallets."

Tennert's outlook projected that Utah's unemployment rate will increase this year to 6.8 percent (it was 6.2 percent in November). But that negative increase will be moderated by increases in average pay, a slowdown in the decline of home prices and a return to positive growth in retail sales (2.2 percent) from 2009's discouraging 8.3 percent drop.

While state revenues will have declined by $1 billion from 2008 to 2010, Tennert said the downward slides of income and sales taxes are both decelerating.

mikeg@sltrib.com

Big investors moving into CRE market

Distress Calls Begin to Go Out
Macklowe Moves to Regain Drake Hotel; Blackstone Buys In on a Flailing REIT

WSJ, Jan. 5, 2010

By LINGLING WEI, KRIS HUDSON and CHRISTINA S.N. LEWIS

Big-name investors have swooped in on two high-profile commercial real-estate assets in a sign that activity is returning to the investment-property market.

Private-equity firm CIM Group has teamed up with New York developer Harry Macklowe to help him regain control of what is regarded as one of the most valuable vacant lots in the world, according to people familiar with the matter. The site of the old Drake Hotel, in Midtown Manhattan at Park Avenue and 56th Street, has been under the cloud of foreclosure for about five months after the collapse of Mr. Macklowe's empire.

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Noah Rabinowitz for The Wall Street Journal

The lot at Park Ave at 56th Street has been under a cloud of foreclosure for about 5 months.

In the other opportunistic move, private-equity giant Blackstone Group LP is making a grab for Highland Hospitality Corp., a real-estate investment trusts that owns 27 hotels. Highland has been struggling to restructure its $1.7 billion debt load amid the worst downturn for the hotel industry in decades.

Both Blackstone and the partnership of CIM and Mr. Macklowe are using a strategy that is expected to become increasingly popular this year: going after distressed commercial-property assets by buying debt or paying off creditors at a steep discount.

In the case of the Drake site, the partnership has signed a deal to pay off about 10 creditors that hold the $510 million loan the developer took out primarily to acquire the site. The creditors are getting paid as much as 90 cents on the dollar and as little as zero, the people with the knowledge of the matter said.

Deutsche Bank AG, which made the loan, sliced it into four tranches and then syndicated it to the investors. IStar Financial Inc. and Sorin Capital Management hold the senior-most slices of the debt and Realty Finance Corp., owns the junior-most piece. Representatives of Macklowe, CIM and the creditors declined to comment.

Meantime, Blackstone is aiming to control the restructuring Highland by buying a chunk of so-called mezzanine debt with a face value of about $320 million from Wachovia Corp. That piece of debt, in a key position between the equity and the first mortgage debt backed by the hotels, gives Blackstone a significant say in how any restructuring unfolds, people familiar with the matter said.
[REALDEALSJUMP] Underwood & Underwood/CORBIS

The Drake Hotel site in New York City has been facing foreclosure.

Blackstone also purchased the debt at a significant discount to its face value, according to a people familiar with the matter. Representatives at Blackstone and Wachovia declined comment.

Blackstone itself is trying to restructure the $20 billion in debt it took on when it bought hotel chain Hilton Worldwide Inc. in 2007 at the market peak.

The deals come as pressure builds in the commercial real-estate market with landlords struggling with rising vacancies, falling rents and heavy debt loads. According to Real Capital Analytics, a New York real-estate research firm, more than $160 billion of commercial properties in the U.S. are now in default, foreclosure or bankruptcy.

During most of 2009, opportunistic investors accumulated cash to go after distressed assets but there was very little deal activity primarily because lenders were unwilling to unload debt at distressed prices. But this year, more lenders are expected to take hits as the financing drought continues and rents and occupancy rates keep falling.

The amount of debt available for sale is skyrocketing. Many banks remain reluctant to sell at prices investors are demanding. But the government and servicers responsible for handling defaulted commercial mortgages that were packaged into bonds, known as commercial mortgage-backed securities, or CMBS, are emerging as big sellers.

Currently, the Federal Deposit Insurance Corp. has about $30 billion in real-estate debt that had been held by the scores of banks that have failed since the economic downturn, according to the agency. CMBS servicers also are emerging as sellers because, unlike banks, they have limited flexibility to extend or restructure troubled loans. Carlton Group, a loan-sale adviser in New York, is currently marketing $307 million CMBS loans in one of the largest sales by a nongovernmental agency.

Private-equity funds, sovereign-wealth funds and other investors have accumulated billions of dollars in the hope of taking advantage of the carnage in the same way that investors did during the last real-estate downturn.
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“ Bon appetit. It would appear a feeding frenzy awaits those who are properly positioned to pounce. Sad, but true. ”

—Dave Georgeson

"This is the first inning in a nine-inning game," said Keith Barket, head of the real-estate business at Angelo, Gordon & Co., a New York-based private-equity firm specializing in distressed investments. "It is going to take three to five years for the ownership of overleveraged properties to change hands to buyers with new equity." Since last summer, Mr. Barket's team has closed about a dozen transactions, totaling $500 million, where it acquired properties for about half of what they traded for two years ago.

But risks remain. The hotel industry continues to struggle although some analysts believe that a slight recovery may start later this year. Blackstone's effort to control Highland, by buying mezzanine debt, hinges on its expectation that the chain is still worth more than its $900 million in senior debt. If that calculation is wrong, Highland's senior creditors will likely wind up controlling the properties. The Highland portfolio, made up mostly of upscale hotels, includes the Hilton Boston Back Bay, the Renaissance Nashville and a Ritz-Carlton in downtown Atlanta.

If the Drake deal closes in two weeks as expected, CIM and Mr. Macklowe will own what may be the world's most valuable rubble-strewn lot, once the site of the Drake Hotel, which was built in 1926. Mr. Macklowe bought and then demolished the hotel in 2007, intending to build a major office tower atop a base of high-end stores.

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Economic growth in Utah is still holding steady, report shows

Economic growth in Utah is still holding steady, report shows

By Jasen Lee
Deseret News
Published: Monday, Jan. 4, 2010 8:40 p.m. MST

The Utah economy held steady for the second consecutive month, a newly released report shows.

Utah's Business Conditions Index, compiled by the Goss Institute for Economic Research and based on a survey of supply managers, stood at 55.0 in December — identical to the November index, the institute said Monday.

The latest figure matched the highest for the index since 60.6 in October 2007.

The index ranges from zero to 100, with a figure above 50 indicating an expanding economy over the next three to six months. The institute uses the same methodology that is used in a national survey conducted by the Institute for Supply Management.

Components of Utah's overall index for December were new orders at 64.5, production or sales at 61.1, delivery lead time at 34.7, inventories at 64.5 and employment at 50.3.

"Over the past decade, Utah lost almost 15,000 (jobs) or 11.6 percent of its manufacturing employment," Ernie Goss, director of the institute and Creighton University's Economic Forecasting Group, said in a prepared statement. "Most losses were due to productivity growth of more than 50 percent over the decade."

Utah is one of three states in the report's Mountain States business conditions index. The region's overall index in December rose to 59.1 from November's 55.4.

The index indicates improving economic conditions in the months ahead for the three-state region of Colorado, Utah and Wyoming, the report stated.

Among the measures of economic confidence in the region, the report said supply managers added to their inventories for the month with the December inventory index climbing to 66.1 from 52.7 in November.

"After 13 straight months of trimming inventories, supply managers have reported increases for two straight months," Goss said. "In the December survey, over 81 percent of supply managers indicated that their inventories levels were now about right."

Colorado's December index fell to 62.8 from 70.3 during the previous month, while the Wyoming index was 64.4, up from 53.7 in November.

e-mail: jlee@desnews.com