All parts of the country showed big declines in building activity

Economy in Turmoil

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Construction of new homes and applications for future projects both plunged to record lows in January as all parts of the country showed big declines in building activity.

Analysts are hoping that a boost from government programs, including new efforts to stem foreclosures, will help stop the slide.

The Commerce Department reported Wednesday that construction of new homes and apartments dropped 16.8 percent last month to a seasonally adjusted annual rate of 466,000 units. That’s well below the 530,000 units economists expected, and was the slowest pace on records dating back a half-century.

The continued weakness underscored the problems facing the housing industry, which is in the grips of the worst slump in the post-World War II period. Troubles in housing have pushed the country into a recession and also triggered the worst financial crisis in seven decades as banks struggle to cope with billions of dollars of losses in mortgages and other types of loans.

The new housing figures were released on the same day President Barack Obama is scheduled to announce his administration’s plan to reduce home foreclosures.

More than 2 million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years depending on the severity of the recession, according to a report last month by Credit Suisse.

The new report showed weak housing activity nationwide in January. Construction dropped 42.9 percent in the Northeast to a record low of 36,000 units at an annual rate. Building fell 29.3 percent in the Midwest to a record low of 53,000 units, while it dropped 12.8 percent in the South to a new record low of 246,000 units.

Construction activity fell 6.4 percent in the West to an annual rate of 131,000 units, the slowest pace since October 1966.

The National Association of Home Builders on Tuesday said its housing market index rose to nine this month, climbing one point off an all-time low as improved traffic by prospective buyers helped lift some builders’ confidence in future sales. Still, readings lower than 50 indicate negative sentiment about the market.

For all of last year, the number of housing units builders broke ground on totaled 906,200, also a record low. That was down from 1.36 million housing units started in 2007. The previous low was set in 1991.

Tighter lending standards, rising defaults and fear about the housing market’s future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

Olympic Studios

SANTA MONICA, CA-Developer Neil Shekhter of NMS Properties thought small to create his recently opened Olympic Studios, a project of 165 two-story lofts where the units average 375 square feet and rent for $1,061 to $1,327. Shekhter has rented out 61 units of the 100-unit first phase since it opened in January, with the second phase slated to open in about six months.

Shekhter reasoned that the market for the lofts would be young single professionals, retirees with limited incomes and college students looking for rents that are affordable in the pricey Westside apartment market. Shekhter’s estimate has turned out to be on target, with about 70% of the units rented thus far occupied by young business people, a few retirees and the remainder college students.

Loft Interior

The Olympic Studios project, at 2001 Olympic Blvd., was designed by Santa Monica-based Killefer Flammang Architects and is a few blocks from Santa Monica College. Shekhter says that what makes his units economically viable is the project density, which is created by two-level living with kitchen, bath and dining/living areas on the ground floor and bedrooms on the upper levels. Killefer says that the designed was created to convey a sense of spaciousness despite the small size, thanks to 17-foot ceilings and clerestory windows.

The project comprises two four-level structures close to public transportation and shopping. Based on city guidelines, preference is given to those who live and/or work in Santa Monica, he added, with maximum allowable annual income requirements set by the city range of $42,450 to $60,600. Shekhter says he hopes to take his small, affordable housing concept to other parts of the county.Milan Properties Inc. 2009

Commercial real estate executives are bracing for the next landfall of the global financial crisis, cutting middle-management jobs and postponing hiring in late 2008, according to the 2008 SelectLeaders/Cornell Job Barometer, an annual assessment of the U.S. job market in real estate.

"It’s not looking good out there" said real estate executive search consultant, Anthony Lo Pinto, CEO, Equinox Partners and founder, SelectLeaders. "While hiring trends are down somewhat, the worst is yet to come. We won’t hit bottom, until the jobs disappear"

"Middle management jobs have been hit hardest with only minor impact thus far on executive level jobs, but probably not for long, with the deepening financial crisis likely to take a toll on the more senior ranks," Lo Pinto said.

The commercial real estate job market showed surprising resilience in the face of negative news across all sectors of the economy in the first half of 2008, yet has experienced a dramatic 46% decline in job postings since June, according to the study.

"The pace of the decline into August and September points to almost non-existent transaction activity and a shutdown of new development, that is finally showing up in the lack of job postings," said David Funk, Director of the Cornell University Program in Real Estate.

"In general there is a six to nine month lag between a fall in real estate market activity and resulting job layoffs and hiring freezes," said Anthony LoPinto, "On the other hand, with billions of dollars of commercial real estate loans maturing over the next 12 -36 months, there will be a growing demand for seasoned and proven talent that knows how to play the restructure game. It will be a mixed bag."

The Job Barometer forecasts pockets of opportunity in 2009.

• The apartment market was the one, and only sector that did not decline. In fact, nearly 40% of the total real estate jobs posted were in the multi family sector. In addition, there is an undeniable correlation between the states with the highest numbers of foreclosure filings, and states with the highest numbers of Multi-Family job postings, suggesting the end of the American dream of single family home ownership for many.
• The first and second city dominance of New York and Chicago metro areas are losing their hold to the economic strength of Texas oil and Florida’s senior citizens. Job losses in real estate finance and the homebuilding industry were disproportionately felt in New York and California respectively.
• The South is the place to be for the most hiring activity. For opportunity, look for jobs in accounting/controls, property management, and leasing.
• In 2008, 43% of all applicants sought commercial real estate jobs in New York with 74 resumes submitted for every posting, yet only 11% of all jobs are in New York - down precipitously from 18% the year before.. For the highest probability of success, applying for positions in the Midwest offers a much better chance of getting the job.
• Real estate’s talent gap is deepening as graduate students are already looking elsewhere as banking jobs dry up, historically the most attractive alternative for the best and the brightest looking to begin their careers. This will prove to be the singular most significant effect of the current crisis as it will impact our industry 10 and 20 years from now.

Experienced executives will also be in demand, according to Cornell’s Funk.

"The increasing need to squeeze every ounce of performance from commercial portfolios highlights the growing need for asset, portfolio, and property managers with a deep range of real estate experience coupled with sophisticated financial skills," Funk said.

Milan Properties Property Management Co. Los Angeles, CA 5369 W. Pico Blvd 2nd Floor 323-850-4900

Amy Rubenstein CEO Milan Properties Inc.

U.S. CMBS loan performance continues to be stable as workouts corresponding to multifamily loans have offset preliminary weakening in the retail sector, according to Fitch Ratings in its latest U.S. CMBS loan delinquency index

"The proportion of delinquent multifamily loans as a percentage of all delinquencies within the index has fallen steadily, to 46% in September 2008 from a peak of 64% in April," said Susan Merrick, managing director and U.S. CMBS group head. "This is mostly due to the ongoing resolution of $441 million of defaulted Texas multifamily loans corresponding to one borrower."

The borrower concentration from the MBS Cos. sponsor consisted of 37 assets totaling $441 million, which serve(d) as collateral for 19 distinct transactions within the Fitch portfolio. Because six special servicers service the assets separately, workout strategies have varied. Individual loan resolutions have included asset sales, borrower recapitalizations, discounted payoffs, note sales, and loan modifications to bring payments current.

Since May 2008, 17 of the loans, totaling approximately $195 million (44% of the MBS concentration), have been resolved. The loss severities on those loans ranged from 0% to 64%, with a weighted average of 20%.

Examples of some of the MBS workouts are as follows.

• TJ Shan of Harleysville, PA, pushed past nine other offers to claim the 220-unit Crescent Oaks Apartment Homes at 3001 W. Normandale St. in Fort Worth, TX, for close to the $4.35-million ask.
• Triumph Land & Capital Management LLC and Hudson Realty Capital pulled 576 class B units from receivership by acquiring $18 million of debt. The joint venture will invest an additional $4 million to $6 million into upgrading two complexes: the 228-unit Huntwick Apartments at 5100 FM 1960 Road West in Houston and the similarly sized Timbers of Pine Hollow at 2020 Plantation Dr. in Conroe, TX.
• Steve Oden (Steelwood LLC) purchased North Castle in Austin, TX, and Ray Sperring of Trivest bought Bristol Heights also in Austin.

In overall CMBS delinquencies, an additional 20 retail loans totaling $71.6 million were added to the loan delinquency index in September 2008. Retail delinquencies comprise 17.7% of all delinquent loans, and continue to consist primarily of small loans collateralized by strip centers and older community and power centers competing with newer comparable properties.

Despite the economic environment for businesses, office delinquencies have remained relatively low, with only 0.27% of all office loans delinquent. Office properties typically benefit from medium- to long-term leases that provide a degree of insulation from market downturns.

Conversely, hotel properties have greater exposure to economic conditions due to daily resetting of rates and, in some cases, limited advance bookings. Fitch expects hotels will show a faster decline as consumers cut back on leisure travel while business travel also slows. To date, hotel revenue per available room (RevPAR) has been supported by foreign tourism, but this may decline if foreign currencies lose their relative strength. As of September, hotel loan delinquencies remained low at 0.23% of all outstanding hotel loans.

Milan Properties Amy M. Rubenstein CEO

The outlook preceded by a few days release of the latest housing data that showed slight increases in existing and new home sales, but continued price declines.

The relatively stronger performance of existing home sales over new home sales largely reflects the rising share of foreclosed homes that were sold through the multiple listing services. Many homebuyers have found that foreclosed homes can be substitutes for new homes, especially those that were recently built and are being sold at deep discounts. The National Association of Realtors estimated that foreclosures account for about one-third of the existing home market, indicating that activity would have been much weaker had it not been for distressed sales.

The months’ supply measures for new and existing homes stayed above 10 months, which is worrisome given that it has now been over two years of the housing downturn, the MBAA noted. With tighter lending standards and reduced credit availability, potential buyers are having trouble selling existing homes and securing financing.

All measures of home prices released in the past months show accelerating price declines. The median price for total existing homes posted the largest decline on record at 9.5%, compared with a sizable 6.2% drop for new homes.

Homebuilding activity continued to fall in September as builders try to address the huge overhang of unsold inventory in many parts of the country and soft housing demand.

Leading indicators of home building activity suggested further declines in the near term. Single-family permits-a leading indicator for single-family housing starts-dropped in September for the 17th time in the past 18 months.

Given deteriorating performance of leading indicators of the housing market, the MBAA said it expects continued declines in housing activity. It also expects housing activity to remain sluggish in 2009, as the economic downturn continues through the first half of next year. As economic growth accelerates to trend pace in 2010 and credit conditions return to more normal levels, it expects significant improvement in both housing starts and home sales.

MBAA said it expects total existing home sales for 2008 could decline about 13% from 2007 to 4.94 million units. However, it expects sales to pick up about three% in 2009 and about 6% in 2010.

It expects new sales to decline another 12% in 2009 before rising about 25% in 2010.

Median home prices for new and existing homes are expected to continue their decline this year, falling about 6-7%. Prices should decline more modestly in 2009 before rising slightly in 2010.

With increased uncertainty on financial markets and the economy and with responses from policymakers to tackle the credit crisis, there is little clarity on how effective these measures will be to shore up the capital position of financial institutions and restore liquidity and confidence to the financial system, the MBAA said.

The MBAA noted that massive liquidity injections by central banks around the world over the past several weeks are slowly working to push down the interest rates on interbank lending. The Libor rates have slowly declined, which should help reduce financial stress as these rates are used to calculate interest rates on some mortgages and business loans. Other short-term interest rates such as the rates on commercial papers have declined as well.

Milan Rubenstein Milan Management LLC

Milan P. Rubenstein Milan Properties Blog

California Governor Visits Staples Center, Contessa Food Plant

Gov. Schwarzenegger (right) tours Contessa’s new food manufacturing plant with Contessa CEO John Blazevich.

California Governor Arnold Schwarzenegger made appearances on not one, but two rooftops Tuesday to tout major solar power systems that have been installed at the Staples Center and a new food manufacturing facility in Los Angeles.

At Staples Center, the downtown home of the Los Angeles Lakers and four other pro teams, Gov. Schwarzenegger snapped into place the last of more than 1,700 solar panels on the roof of the arena.

The 345-kilowatt solar system will eliminate more than 10,000 tons of greenhouse gas emissions over the next 25 years and provide "all kinds of extra energy for the Lakers," Schwarzenegger said in prepared remarks.

"And I know that if we would have had these solar panels here a year ago, I think that the outcome between the Lakers and the Celtics would have been quite different," he quipped.

California-based Solar Power Inc. designed and built the solar array. The company is installing a slightly smaller system on the roof of the adjacent Nokia Theater. Sports and entertainment company AEG owns and operates both facilities.

The food plant, which is owned and operated by frozen foods manufacturer Contessa, opened early this year as the first frozen foods manufacturing facility in the world to achieve LEED certification.

It includes a heat-recovery system that captures waste heat from refrigeration systems — which run constantly — and redirects it to preheat water for the plant’s boilers, as well as a solar array the size of two football fields on its roof.

Though the solar installation and other green features accounted for $6 million of the facility’s $40 million cost, the plant is "on track" to reduce its energy consumption and greenhouse gas emissions by a remarkable 65 percent, the Governor’s office said.

"I feel the smart businessman would be justified doing this because it’s going to help them in the long run, and it’s also going to help the planet," John Blazevich, CEO of Contessa, told CBS Evening News in an interview this summer.

The initiatives support the Governor’s initiatives to cut greenhouse gas emissions in California by 25 percent by 2020, and increase renewable energy sources to 20 percent by 2010.

"You know, everyone today, when you turn on the television, talks about there’s one state being red and the other states are blue," Gov. Schwarzenegger said at Staples Center. "We here in California are more interested in building a green state and this is what this is all about here today."

Milan Properties

But at a congressional hearing today in Washington, lenders didn’t seem terribly enthusiastic about the program, dubbed Hope for Homeowners.

The program calls for lenders to voluntarily refinance delinquent mortgages by reducing loan balances to 90% of a home’s current market value. The new loans will be backed by the FHA, which will be receive 5% of the new loan balance as a payment from the lender.

"I think lenders will be enthusiastic about the program but they have other things they’d like to do before they do a principal write down," said Brian Montgomery, Assistant Secretary for Housing at the Department of Housing and Urban Development.

One lender’s representative, Marguerite Sheehan, Senior Vice President for JPMorganChase (JPM, Fortune 500) Home Lending, testified about the drawbacks of Hope for Homeowners.

"Under the Program, [investors in the loans] will take a loss when the principal balance is written down," she testified, adding that they won’t have a chance to make up that loss if home prices recover. Sheehan added that Chase can make borrowers’ monthly payments affordable simply by reducing their interest rates, rather than loan principle.

She added that JPMorganChase will use the program when it is deemed to be the best option for investors and borrowers, but that investors would prefer to use alternative loan workouts that give banks and investors the chance to share in any future home price appreciation. That’s similar to the program recently announced by the FDIC for IndyMac Bank.

Bank of America (BAC, Fortune 500) managing director Michael Gross said that the new FHA program was just one of many loan workout options that the bank is employing.

And he stressed that the bank’s own efforts to save troubled loans, especially those B of A inherited when it bought Countrywide, have been successful. He said that the bank increased its loan modifications by 450% this past August compared with August of 2007.

When asked whether the program would be considered a last resort by lenders, all the members of the panel, including Gross, agreed that it would be.

And Mary Coffin, speaking for Wells Fargo (WFC, Fortune 500), testified that relatively few of her bank’s borrowers owe more on their mortgages than their homes are worth, meaning they would be unlikely to benefit from the FHA’s refinancing and write down program.

"We estimate as many as 30,000 to 40,000 customers who … may qualify for Hope for Homeowners," she said, and committed to using the program in those cases.

Even Sheila Bair, who heads the Federal Deposit Insurance Corporation, praised the FHA program but said that few borrowers with IndyMac, the bank that the FDIC took over in July, would use it.

She said that her responsibility to maximize profits for the investors would probably limit the number of IndyMac borrowers who would take advantage of Hope for Homeowners

On its own, her agency has been very aggressive in heading off foreclosures at the troubled bank. About 60,000 of IndyMac’s more than 740,000 mortgages are more than 60 days past due, according to Bair. The FDIC has already offered 7,400 of them workouts. Some 1,200 workouts have been completed, giving borrowers an average monthly savings of $430.

Bair also said that she thinks the FDIC’s programs could be used as a model for other lenders to use in their workout efforts.

milan and amy arent sweetin’ it.  

We hope that the lender is asking for more then 0% down on that condo. It doesn’t surprise us if he pulls a Britney and burns threw his cash. Hey Micheal! If you find yourself forclosed we can get you a good deal on an apartment in south bay!

But for the traditional 30-year fixed-rate mortgages that Fannie Mae and Freddie Mac acquire from lenders, interest rates have fallen to about 6% this week after hovering above 6.5% most of the summer, said data tracker HSH Associates.

As a result, many people with pending loan applications who were waiting to lock in their rates have decided to take the plunge this week.

"People are locking in rates now at a pace we haven’t seen in years," said Scott Lehrer, senior vice president at loan broker First Mortgage Corp. of Diamond Bar.

Jerry Wilk, an Irvine financial planner, locked in a 6.125% rate Tuesday on a mortgage to refinance his current one, on which he has been paying 6.75%.

He said the move would reduce his monthly payment by $200.

"I just don’t see another big drop in interest rates coming," Wilk said. And with the market value of homes in Southern California still dropping, he said, "it could be much tougher to get a mortgage a year from now."

The federal government’s seizure of Fannie and Freddie over the weekend reassured financial markets about the health of the mortgage giants.

That made investors worldwide willing to swallow lower interest rates on bonds issued by Fannie and Freddie. And because the companies — in the wake of the subprime mortgage meltdown — are now buying or otherwise financing the vast majority of new mortgages in the U.S., lower rates on their bonds translate into lower home-loan rates generally.

In certain parts of the high desert, where home prices have fallen as much as 45%, lower rates are helping to drive buyer interest in foreclosed properties, said Clem Ziroli, First Mortgage’s chairman. September is usually a so-so month for home sales, he said, "but it may be our best month this year in fundings," including refinancings as well as purchase loans.

On the downside, Lehrer said, lenders spooked by free-falling home prices and surging foreclosures have imposed tougher lending standards.

In the latest example, he said, most banks this week immediately adopted new guidelines that Fannie Mae said it would implement next year.

Among them: Home purchasers must put down at least 15% of the purchase price, up from 10%. And if the owner of a rental home wants to refinance it and cash out some equity, the mortgage can now be for no more than 75% of the home’s value, compared with 90% during the housing boom.

"No lender wants to make a 90% loan today, because we haven’t hit the bottom yet on prices. If they keep going down it could be a 100% loan next month," said Jeff Lazerson, president of Mortgage Grader, a Web-based loan shopping service.

Lazerson is seeing increased applications for both purchase loans and refinancings. Many of the homeowners looking to refinance are currently paying an initial fixed rate that will start adjusting in the next few years.

The lower rates apply only to loans that Fannie and Freddie are allowed to buy. In a move to ease the availability of mortgages, Congress this year raised the maximum amount of such loans to $729,750 from $417,000 in high-priced markets such as most of Southern California.

On Wednesday, people with a solid credit history borrowing no more than $729,750 could get a 30-year fixed-rate loan at a 5.75% rate if they paid 1% of the loan amount as an upfront fee, Lazerson said.

But those borrowing more than $729,750 were being quoted a rate of 8.125%, plus 3.5% of the loan value as an upfront fee.

This means that Milan Properties will not be seeing that much of a change in ther’ye purchasing power. That means no change in the success of Milan  Properties. It;s still up-and-up.