11 November 2010

Detroit, Flint may be Diamonds in the Rough, real estate Investors say

Crain's Detroit Business

Commercial real estate executives put some perspective on a national report tagging the Detroit market as one of the worst in the country, saying there are bright spots and opportunities in the local real estate market.

The national Emerging Trends commercial real estate report was presented during the University of Michigan and Urban Land Institute's 24th annual Real Estate Forum today.

The study, by ULI and PricewaterhouseCoopers put the Detroit market at the bottom of markets to invest in.

The report was presented during the first day of the two-day event. Today's forum focused on Flint's efforts to re-invent its downtown.

"Sparking Reinvention: The Evolution of a Factory Town," today's opening panel, featured investors and developers who have leveraged private money against public money to develop and redevelop many of the city's downtown buildings.

But the dose of reality today came from the annual ULI Emerging Trends report, presented by Tom Murphy, former mayor of Pittsburgh and a senior resident fellow with ULI.

In a national context, Detroit ranked at the bottom of the list for markets to watch for commercial and multi-family real estate investment as well as the bottom for markets to watch for new development and for for-sale homebuilding.

All three of those lists were topped by Washington followed by New York, San Francisco, Boston and Seattle.

The report predicted a continued "bifurcated market" nationally where the trophy and trash properties are most popular. It said investors are looking for either highly sought-after buildings or bargain-basement deals expected to bring a high return.

It also called for tempered expectations from investors. While prices are low and opportunities plenty, it said "don't try to shoot the lights out and expect outsized returns."

Other best bets for 2011, the report said, are locking in debt at historically low rates, focused investment in global gateways and 24-hour markets, as well as favoring in-fill development over fringe development.

Following the report's presentation, local real estate executives said that while there are fewer national investors interested in the Detroit market, it makes for more opportunities for local investors.

In addition, the low point in the market is forcing communities and investors to make the hard decisions to put properties in position for the future.

"This is forcing us to do the right things," said Jim Becker, international managing director of the Detroit office of Jones Lang LaSalle.

"Cities, such as Detroit and Flint, are looking at ways to revitalize and retract into manageable zones."

On the retail side, everything changed in 2008, said Chris Brochert, a partner with the Lormax Stern Development Co.

"We went from calling ourselves developers to calling ourselves investors and property managers," he said.

And as the national investors leave, Brochert said there are more and more opportunities for local firms.

"Those who stay here have the ability to make a tremendous amount of money," he said. "They have the chance to get in on the ground floor."

Later in the day, the Real Estate Excellence Awards were presented for Lease of the Year, Development of the Year along with the overall Real Estate Excellence Award.

Crain's Detroit Business is a sponsor of the awards and of the Real Estate Forum.

• Lease of the Year was given to the 465,000-square-foot lease signed by Blue Cross Blue Shield of Michigan at the Renaissance Center in Detroit. Mark Wallace, leasing director for the Renaissance Center accepted the award.

• Development of the Year was given to the BAE Systems facility in Sterling Heights, the defense company making use of the vacant TRW manufacturing facility. Accepting the award was Brandon Podolski, a project manager with Southfield-based Plante Moran Cresa, the firm which has represented BAE on the project.

• The overall Real Estate Excellence Award was given to David Friedman, president and CEO of the Friedman Real Estate Group.

During a panel discussion of the winners following the event, Friedman said there is increasing demand in the city of Detroit as companies such as Quicken Loans Inc. want to use a city location as a recruiting tool.

"The reality is that the younger generation pool wants to be in an urban setting," said Friedman.

Podolski pointed out that there are more and more examples of the local economy diversifying into new industries such as defense.

"And as Michigan continues to diversify, the talent pool here remains tremendous, and is a draw for the companies interested in locating here," he said. "BAE came here for the engineers that are available."

Wallace said the key to new developments and business growth will be for the private sector and local governments to work together in public-private partnerships.

"I expect to see more collaboration in the future," he said. "It has to happen."

Earlier in the day, panelists gave presentations on the strategies needed to redevelop the Flint's downtown.

Calling themselves the "Uptown Six" a group of investors and developers gave specific examples of the disciplined approach to investing downtown.

"This morphed out of a few business leaders who had enough with the boarded-up buildings in town, who had done well for themselves and wanted to do the right thing and give back," said Tim Herman, president of the Uptown Reinvestment Corp., an umbrella group made up of public and private executives and leaders.

Asked how the private sector members got involved, Phil Shaltz, a member of the group, quipped "beyond stupidity?"

"So many times, you have seen the investors, the so-called carpetbaggers who aren't from the city," said Shaltz, president of Shaltz Automation. "They want to build casinos and other projects that a community doesn't really need.

"Our return on investment is different from what an outside investor would see as an ROI. We want to salvage downtown Flint, and that's part of our ROI."

The Uptown Six started with three rules:

• They would invest $167,000 each, and no more.

• There would be no personal guarantees on loans.

• And third, they vowed to never give up.

"Fortunately, we have only violated the first two," Shaltz said, noting there are more than $20 million in personal guarantees on their loans, meaning that if projects fail, the group members will be personally responsible for repaying the money.

The Flint panel was moderated by Scott Whipple, development manager for Uptown Developments LLC, the for-profit investment group which has overseen development and investment in the city.

Herman said the for-profit corporation was used to collect the private money, acquire loans and purchase properties.

It now has control over 12 properties representing $64 million in investment.

The process involved a series of bank loans which were paid off with a combination of grants from non-profit organizations and the Michigan Economic Development Corp.

"So what started with an $800,000 loan has now become nearly $70 million on the books," Herman said.

Troy Farah, co-managing partner of Flint-based development company West Second Street Associates said another key was to work on office projects that bring in the anchor tenant as a partner in the development.

"We've used a lot of investment tools," he said. "But the most important parts have been patient capital and sweat equity."

The use of fa├žade grants have been used, as well as brownfield tax credits and new market tax credits, as well as leveraged loans from groups such as the Flint-based C.S. Mott Foundation.

Shaltz added that as investors, this group has nowhere to go.

During a welcome address, Flint Mayor Dayne Walling gave a positive take on the city's progress, pointing to the crucial aspect of private participation from the business leaders in the city.

The keys to investment, he said, are collaboration, grassroots involvement, imagination, smart planning and preservation of culture.

Seeing the city's population drop from 200,000 at its peak in 1955 to the current level of nearly 100,000 shouldn't be a cause of concern, he said, choosing to focus on the recent redevelopment of buildings in the city's downtown.

"We truly are sparking a reinvention here," he said. "We are evolving from a factory town to a more diverse economy. And I'm fired up about our progress."

The event continues Thursday with guided bus tours of Flint and closing with a keynote address by Toni Griffin, the consultant hired to guide Detroit in its efforts to reconfigure the city.

Brookfield Refinances Tower With Chinese Loan

The Wall Street Journal

Bank of China Ltd. is lending $800 million to Brookfield Office Properties to refinance a Manhattan office building in the latest sign that well-capitalized Chinese investors are helping to fuel a commercial real-estate recovery in U.S. cities.

The loan on the office building, a 44-floor, block-long office tower in midtown Manhattan majority-owned by Brookfield, is one of the biggest made on a single building since the economic downturn began. It also is the biggest commercial real-estate loan ever made by the Bank of China's New York branch, which has helped fill a void in the commercial real-estate market for loans valued at hundreds of millions of dollars.

Brookfield confirmed the Bank of China loan but declined to comment further. A mortgage loan on the building comes due in February, according to a regulatory filing.

"Our standards are conservative and they haven't changed," said Bill Smith, chief lending officer of the Bank of China's New York branch. "It's just that now, for the moment, there's no other competition."

The loan for the building at 245 Park Ave. near Grand Central Terminal, whose tenants include J.P. Morgan Chase & Co. and Major League Baseball, comes as the commercial real-estate industry is becoming divided into two markets: one mostly of property in New York, Washington and other big cities where values are recovering; and one of less-attractive properties in the suburbs and in smaller cities that is continuing to languish. The industry also continues to struggle with billions of dollars of properties that are valued at less than their mortgages.

Both foreign and domestic lenders are returning, but Chinese institutions have been more aggressive than many. Chinese banks had $1.8 billion in commercial real-estate loans outstanding in U.S. branches in the second quarter, according to data firm Foresight Analytics, more than double the level a year before.

Bank of China in the last year and a half made at least two other large loans on Manhattan skyscrapers.

Industrial & Commercial Bank of China Ltd., China's largest bank by assets, said this year that it was rolling out a "large-loan" program aimed at U.S. commercial real-estate owners in need of loans that exceed $100 million. China Investment Corp., the $300 billion sovereign-wealth fund, also is looking to pile cash into U.S. real estate through investing with U.S. property-fund managers.

"The bank was interested in this asset because it was a stabilized, safe, secure asset with good ownership," said Robert Martin, a Jones Lang LaSalle Inc. broker who helped arrange the 245 Park deal.

10 November 2010

Vornado Bids for ING Real-Estate Unit

The Wall Street Journal

Frustrated with the shortage of U.S. properties for sale, some of America's biggest publicly traded landlords are going global.

The Macquarie Bank Building in Sydney is part of an Australian real-estate portfolio recently acquired by Brookfield Office Properties.

Vornado Realty Trust, which until now mostly has focused on investing in the U.S., has entered a bid for the global private-equity real-estate investment platform of Dutch financial company ING Groep NV, people familiar with the matter said. The ING business could offer Vornado teams in Europe and Asia, as well as the U.S., to manage property and scout for deals.

An ING spokeswoman declined to comment on Vornado's involvement, but said the Dutch bank is "conducting an evaluation" of the real-estate investment-management business, which has about $100 billion in assets under management, and that "a sale is not ruled out." Along with Vornado, private-equity firm Kohlberg Kravis Roberts & Co. and affiliates of real-estate brokerages CB Richard Ellis Group Inc. and Jones Lang LaSalle Inc. are among the firms still pursuing the business, people familiar with the matter said, with final bids due Dec. 1.

Other U.S. office landlords including Brookfield Office Properties and SL Green Realty Corp. in recent months did deals overseas or raised the possibility of doing them.

"London is, in our view, a gateway city and a global financial capital," Marc Holliday, chief executive of SL Green, one of Manhattan's biggest office landlords, said in an interview. "It's more parallel and akin to New York than almost any other domestic U.S. market."

But overseas acquisitions have stirred controversy. Some investors and analysts wonder whether there still are good deals to be had for U.S. real-estate investment trusts. Many overseas markets already are well-traveled both by local companies and U.S. firms that pursue private-equity strategies, such as the real-estate units of Goldman Sachs Group Inc. and Morgan Stanley. In the U.K., an index of office-building values is up 24% in the last year, according to CB Richard Ellis, and London property prices in particular have been bid up by a flood of foreign buyers.

REITs pursuing global strategies also have been criticized for straying beyond their expertise and possibly confusing Wall Street with a hodgepodge of properties. Publicly traded real-estate investment trusts generally have attracted investors by more targeted deal making: allowing people to invest in, say, shopping centers in the Northeast.

"For most REITs, investing overseas is not a core competency," said UBS analyst Ross Nussbaum. After SL Green disclosed last month that it had bought the debt backing an office building in London, Mr. Nussbaum dubbed it "the head scratcher of the week" because the company has made its name focusing on New York City.

The new appetite for overseas investments is partly fueled by the enormous amount of cash public real-estate companies have raised in the past two years for acquisitions. Real-estate investment trusts sold $34.6 billion in debt and equity in 2009 and more than $35.3 billion this year partly for investments. Relatively few properties have been put on the block because values still are well below their peak and banks are trying to avoid fire sales.

Also underlying the trend: Emerging similarities in global hubs such as London, Paris, New York, and Washington that some U.S. landlords believe they can exploit. Big banks and other multinational companies have offices in major financial centers around the world, and many may be interested in having the same landlords in New York and in Tokyo, some company executives believe.

These "global cities" have performed much better in the economic recovery than second-tier cities, drawing an influx of big real-estate investors looking for a stable place to put their money.

"We own modern office properties in the world's largest, most dynamic, business-forward cities," said Brookfield Office Properties Chief Executive Ric Clark. "The tenants that we deal with are in every one of those cities."

Brookfield Office, which owns 70 million square feet of property in North American cities, this year paid $64 million for a 50% interest in a London development project and shelled out $1.4 billion to buy 16 Australian office properties from its controlling shareholder, Brookfield Asset Management Inc.

Office landlords aren't the first to come up with the idea of establishing a global brand for multinational tenants. Warehouse companies ProLogis and AMB Property Corp. became Wall Street darlings during the economic boom by becoming one-stop real-estate shops for companies with global logistics needs.

While warehouse developers can offer global companies uniform construction and warehouse technology, the market demand for a certain office building usually is driven primarily by location, not by the landlord.

For Vornado, a REIT that owns 35 million square feet of office space in New York and Washington, the bid for ING's real-estate-investment business comes as company executives have expressed frustration with the dearth of good deals available in the U.S. real-estate market. The company has explored off-the-beaten-track ways of making money from the downturn, including a $600 million investment in J.C. Penney Co. stock. "We're going around the margins trying to find value," Vornado Chief Executive Michael Fascitelli said at a conference last month.

General Growth Exits Biggest Real Estate Bankruptcy


General Growth Properties Inc., the second-largest U.S. mall owner, exited from the biggest real estate bankruptcy in the country’s history and split itself into two companies.

The landlord has spun off Howard Hughes Corp., an owner of master-planned communities and other properties, Chicago-based General Growth said today in a statement. The shares of the newly separate General Growth will begin trading tomorrow on the New York Stock Exchange.

General Growth filed for Chapter 11 protection in April 2009 after weighing itself down with $27 billion in debt that it was unable to refinance because of the financial crisis and collapse of the commercial mortgage-backed securities market. The company’s restructuring plan provided a full recovery for creditors and a recovery for shareholders, which is rare in a bankruptcy reorganization.

General Growth last month hired Sandeep Mathrani of Vornado Realty Trust as its new chief executive officer. Mathrani will assume the position at the beginning of 2011 after serving for more than eight years as executive vice president of retail real estate at New York-based Vornado.

Adam Metz has been General Growth’s CEO since October 2008, when he replaced John Bucksbaum, a member of the company’s founding family. Metz and Thomas Nolan, president and chief operating officer, agreed to stay in their positions for as long as a year after the restructuring while the company searched for a new management team.

Takeover Fight

After filing for bankruptcy, General Growth first focused on restructuring about $15 billion in mortgage debt tied to about 140 properties, an effort it completed earlier this year. It then turned to its corporate-level debt and became the subject of a takeover battle between rival Simon Property Group Inc. and an investor group. Indianapolis-based Simon is the largest U.S. mall company.

The investor group -- Brookfield Asset Management Inc., Bill Ackman’s Pershing Square Capital Management LP and Bruce Berkowitz’s Fairholme Capital Management LLC -- prevailed, committing more than $8 billion to bring General Growth out of Chapter 11.

General Growth began a public offering of 135 million shares of the new company to replace some of the financing commitments from the Brookfield, Fairholme and Pershing group, as well as the Teacher Retirement System of Texas, the company said in a separate statement.

The stock closed today at $17.39. Its closing price was 59 cents on April 16, 2009, the day the company filed for bankruptcy.

General Growth owns and operates more than 183 retail centers in 43 states. The company reported a loss in core funds from operations on Oct. 29 of $29.3 million in the third quarter, compared with a profit of $88.9 million, or 28 cents, a year earlier because of restructuring costs.

09 November 2010

U.S. Commercial Property `Substantially' Off Bottom, Roth Says


U.S. commercial property prices are rising in desirable investment markets like New York and Washington while office vacancies are beginning to fall more broadly, according to top real estate executives.

Values are “substantially” off the bottom after more than a year of decline, said Steven Roth, chairman of Vornado Realty Trust. Hotels and multifamily properties are leading the rebound, with South American investors purchasing condominiums in Miami, according to Barry Sternlicht, chairman of Starwood Capital Group LLC in Greenwich, Connecticut.

“The recovery has been more rapid than anybody expected,” Roth, 68, said during a panel discussion at the Bloomberg Link Real Estate Briefing today in New York. His New York-based company hasn’t purchased as many properties as it would like. “We’ve been trying, but apparently not hard enough,” Roth said.

U.S. property deals probably will double next year and may account for almost a quarter of global transactions, according to a forecast by New York-based research firm Real Capital Analytics Inc. Although high-quality buildings will be in demand, they will be leased at lower rental rates than the 2007 peak, according to billionaire investor Sam Zell.

“Over the next 18 months I think we’re going to see little or no new construction and we’re going to see all the institutional-quality assets be full,” Zell, 69, chairman of Chicago-based Equity Residential, said on a separate panel. “The bad news is they’re going to be full at 20 or 30 percent rates less than the peak.”

Little Construction

The U.S. economy expanded at a 2 percent rate in the three months ended in September, the fifth consecutive quarterly increase. The growth followed 12 months of contraction as the economy weathered the worst financial crisis since the Great Depression.

As the recovery builds, rents are poised to rise in 2011 after reaching a low this year, Bruce Mosler, 53, co-chairman of broker Cushman & Wakefield Inc., said at the conference.

Office vacancies in U.S. central business districts declined for the second straight time in the third quarter as tenants signed leases for additional space, according to Cushman & Wakefield. The average vacancy rate fell to 14.7 percent from 14.8 percent in the second quarter, the broker said Oct. 14. Vacancies dropped in half of the 30 cities tracked by Cushman.

‘World Cities’

International investors seek real estate in “world cities” such as New York, Washington and San Francisco, Roth said. Rising office rents in New York and Washington helped Vornado’s third-quarter revenue climb 5 percent from a year earlier, the company said this week.

Those cities are “desperately important to investors” outside the U.S., according to Roth. Foreign institutions would rather invest in New York properties, with a 4 percent capitalization rate, than in Cleveland buildings, where the cap rate may be 8 percent, Sternlicht said. The cap rate, a measure of a property’s investment yield, is calculated by dividing net operating income by purchase price.

For fully occupied buildings, demand from investors is similar to what it was at the peak of the market, with bidding competitive for those properties, Zell said.

805 Third Ave.

“Capital feels safest investing in New York and D.C.,” Jonathan L. Mechanic, a partner at Fried, Frank, Harris, Shriver & Jacobson LLP in New York, said during his panel with Mosler.

Investor capital available to purchase real estate in the Americas rose by 54 percent since December, London-based broker DTZ Group Plc said.

Charles S. Cohen, chief executive of Cohen Brothers Realty Corp., said the pace of leasing has increased in the last six month from “five miles an hour” to “15 to 20 miles” an hour.

Cohen’s New York-based firm signed a lease with publisher Meredith Corp. for nine floors comprising 212,594 square feet of space for its new corporate headquarters at 805 Third Ave. in Manhattan, he said today without disclosing terms.

Manhattan’s East Side is benefiting from renewed leasing, with Newsweek magazine, the New York Daily News and AT&T Inc. announcing plans to relocate there, William C. Rudin, co- chairman of Rudin Management Co. in New York, said during the panel with Roth and Sternlicht.

Miami condominiums acquired in Starwood’s purchase of Corus Bankshares Inc. are “selling like hotcakes,” Sternlicht, 49, said. Starwood in October 2009 led a group including TPG, Perry Capital and WLR Lefrak that paid 60 cents on the dollar for the failed Chicago-based lender.

“The whole country is being driven by a search for yield,” Sternlicht said. “Real estate is a proxy for the bond market.”

08 November 2010

U.S. Commercial Real Estate Rents to Rise in 2011, Cushman's Mosler Says


Commercial real estate rents are poised to rise in 2011 after reaching a low this year, according to Bruce Mosler, co-chairman of Cushman & Wakefield Inc., the largest closely held property services company.

“The market has bottomed,” Mosler said today at the Real Estate Briefing hosted by Bloomberg Link in New York. “We can expect to see rental appreciation next year.”

U.S. economic growth is beginning to stimulate demand for office space, Daniel Neidich, chief executive officer of New York-based Dune Real Estate Partners, said during a panel discussion that also featured Howard Michaels, chairman of the Carlton Group Ltd. Manhattan office leasing by square footage increased 66 percent in the first nine months from a year earlier, though rents have fallen for eight straight quarters, New York-based Cushman & Wakefield reported last month.

“Real estate market fundamentals are improving,” Neidich said.

The U.S. economy expanded at a 2 percent rate in the three months ended in September, the fifth consecutive quarterly increase. The growth followed 12 months of contraction as the economy weathered the worst financial crisis since the Great Depression.

805 Third Ave.

Office vacancies in U.S. central business districts declined for the second straight time in the third quarter as tenants signed leases for additional space, according to Cushman & Wakefield. The average vacancy rate fell to 14.7 percent from 14.8 percent in the second quarter, the broker said Oct. 14. Vacancies dropped in half of the 30 cities tracked by Cushman.

“About a year ago we were going one mile an hour,” Charles S. Cohen, chief executive of Cohen Brothers Realty Corp. in New York, said during a separate panel discussion. “Six months ago we were going five miles an hour. Maybe we’re going about 15 to 20 miles an hour now.”

Cohen said today that his New York-based firm signed a lease with Meredith Corp. for nine floors comprising 212,594 square feet of space for its new corporate headquarters at 805 Third Ave. in Manhattan. He declined to disclose terms.

Meredith, the publisher whose magazines include Better Homes and Gardens, plans to consolidate its 125 Park Ave. and 375 Lexington Ave. offices in the new space.

New York, Washington

The New York and Washington markets are in most demand from real estate investors, said Jonathan L. Mechanic, a partner at Fried, Frank, Harris, Shriver & Jacobson LLP in New York.

“Capital feels safest investing in New York and D.C.,” he said.

Mechanic doesn’t expect the changes in Congress from the election will have big impact on vacancies in Washington.

“I don’t think people are concerned that the Washington market is going to fall off a cliff because the Republicans have come back.”

Dune’s Neidich said there is a lot of pressure on landlords to keep rents down even though the number of deals has increased.

“It’s clearly a little bit of a race to the bottom,” he said.

Dubai Home Prices Fall 6% While Developers, Builder Suffer

Bloomberg / BusinessWeek

Dubai home prices declined 6 percent in the third quarter while the United Arab Emirates’ biggest construction firm, Arabtec Holding PJSC, reported 96 percent drop in profit and Deyaar Development PJSC suffered a loss.

The Dubai House Price Index dropped 6 percent in the third quarter compared with the previous one, reaching its lowest level since the second quarter of 2009 on a summer slowdown and as banks continued to restrict lending, Colliers International, a brokerage, property and asset management company said today.

The deepest global financial crisis since the 1930s led Dubai property prices to drop by more than 50 percent from the 2008 peak and forced builders to cancel half of their projects in the emirate. Property prices in Dubai will continue to drop due to an oversupply of housing units and offices over the next 20 months, said Mohamed Alabbar, chairman of Emaar Properties PJSC, the U.A.E.’s largest developer.

Deyaar, a property developer partly owned by Dubai Islamic Bank PJSC, tumbled 7.8 percent today after reporting a third- quarter loss of 145 million dirhams. Arabtec dropped the most since May 25 after it reported a profit plunge.

“After a period of stable prices we are beginning to witness a shallow but lengthening slide in overall average prices,” said Ian Albert, regional director at Colliers. Prices had been hovering around the same values since the third quarter of 2009, he said in the report.

The average price per square foot of residential real estate fell to 951 dirhams ($258.90) in the third quarter from 1,015 dirhams in the second quarter. The number of transactions also declined 4 percent, according to the report.

Townhouses suffered the biggest price decline, falling 8 percent in the third quarter, Colliers said. Apartment prices slid 7 percent, while those of villas dropped by 5 percent.

Colliers estimate that 33,000 new housing units will be added to Dubai’s market by the end of this year, down from an earlier estimate of 41,000 units.

“We are witnessing a slow but protracted decline in asset values,” Albert wrote. “This reflects the reality on the ground as occupancy rates fall to 80 percent and the market is unable to absorb the additional supply without a growth in the population or a slowdown in the release of stock.”

06 November 2010

Fannie, Freddie want Servicers to assume Risk


Fannie Mae and Freddie Mac are in talks with U.S. title insurers to require mortgage servicers to assume insurers' liabilities if there are legal challenges to foreclosures on homes whose mortgages Fannie and Freddie underwrote, a source familiar with the matter said.

Fannie Mae and Freddie Mac, which are controlled by the U.S. government, together own or guarantee more than half of the $11 trillion of U.S. home mortgages.

Allegations that some banks used shoddy paperwork in processing foreclosures has sparked a wave of lawsuits, and more borrowers are expected to challenge foreclosures in court.

The disputed foreclosures could create a headache for title insurance companies, which protect homeowners against the risk of a prior owner claiming to still have a legal right to the property.

Fannie Mae and Freddie Mac are negotiating with the American Land Title Association, the trade group for title insurers, to ensure that any legal costs associated with faulty foreclosure paperwork by loan servicers are borne by the servicers, the source said. Both Fannie and Freddie declined to comment.

The biggest loan servicers are owned by banks.

"Fannie and Freddie are interested in (servicers agreeing to provide warranties) because they want to make sure that the market for foreclosed properties opens up," said Peter Sadowski, spokesman for the largest U.S. title insurer, Fidelity National Financial Inc.

Fannie Mae and Freddie Mac buy up pools of mortgages from lenders in order to free them to make new loans and then package some of the mortgages into securities that are sold to investors.

If an improperly foreclosed home is sold, the owner who defaulted could sue the current owner. The title insurer would have to defend the current owner in court, and if unsuccessful, have to pay the owner back.

ALTA chief lobbyist Justin Ailes said title insurers hope lenders and servicers will reassure insurance companies that the insurers would not be on the hook for liabilities and costs if home ownership transfer is challenged because of banks' mistakes.

Title insurance is virtually a required step in a foreclosure sale and provides extra footing for a security.

Fidelity National as of Wednesday requires such an assurance from lenders as they have to assume any liabilities that the title insurer might incur in foreclosure sales closed on or after Nov. 1 if owners who lose their homes challenge the foreclosures.

Fidelity National reached a similar agreement with the Bank of America earlier this month.

Sadowski said his company is working toward similar indemnity agreements with three other large lenders, JPMorgan Chase, Citigroup and Wells Fargo.

The four largest national title insurers -- Fidelity National Title, First American Financial Corp, Stewart Information Services and Old Republic International Corp -- control 90 percent of the market.

05 November 2010

Commercial Real Estate's Uneven Rebound

Bloomberg / BusinessWeek

Commercial real estate deals can be found around the U.S., but only a handful of markets interest big investors

In October, an investment group that included Blackstone Group (BX), Paulson & Co., and Centerbridge Partners purchased Extended Stay, a bankrupt U.S. hotel owner, for more than $3.9 billion, less than half what previous owner Lightstone Group paid for it at the peak of the real estate boom in 2007. While it is the biggest commercial real estate sale so far this year, according to CoStar Group (CSGP), a Washington (D.C.) real estate information and analytics company, it is also a reflection of the current U.S. commercial property market: distressed assets and struggling owners selling at a loss to investors with plenty of cash who can afford to wait for the economy to rebound.

Extended Stay was the victim of overleveraging by Lightstone and a drop in demand as the economic downturn dried up business for the midprice chain, which is based in Spartanburg, S.C."Nothing is wrong with the properties," says Bruce Ostly, an analyst in Portland, Ore., for Integra Realty Resources, a commercial real estate valuation and consulting firm. "The ownership got in trouble," Ostly says, "by buying and financing at the peak of the market based on inflated price."

In order for the market to pick up again, new owners must buy the properties and "make [them] work at today's price," says Brian Glanville, Integra's managing director and chairman of the real property board of RICS (Royal Institute of Chartered Surveyors) Americas. "What you're seeing is an opportunity to buy properties for less than what you can build them for today."
Obstinate Gap

In real estate, "you take risks, and you're rewarded if you're right," Glanville says. In the boom period from 2005 to 2007, many investors such as Lightstone bought at the wrong time and at the wrong price. The problem, he says, is that the market has not been allowed to function.

Commercial real estate values have fallen—by as much as 20 percent to 30 percent from peak levels in some markets—and a gap persists in most of the U.S. between what commercial real estate sellers want and what the buyers are willing to pay, says Glanville.

Banks have modified loans, through a practice called "extend and pretend," to prevent owners from defaulting, but "the banks are no longer willing to carry them," he says. Owners "have to face reality now and see what they can get."

In August 2010 more than one in four sales involved distressed real estate, according to Moody's. During that month, U.S. commercial property prices also fell to their lowest level since June 2002, according to the Moody's/REAL Commercial Property Price Index.
Looking Up: Trophy Buildings

The situation is expected to get worse: More than one-third of the $270 billion in U.S. commercial real estate loans maturing in 2010 will be under water (or have mortgages greater than the value of the property), reported trade publication National Real Estate Investor. It expects the rate to grow to 63 percent by 2012.

Among the most stable segments: trophy buildings, whose prices have increased by 23 percent from their 2009 trough in such major cities as New York, San Francisco, Boston, Los Angeles, and Chicago as buyers and lenders seek secure investments, according to an Oct. 19 report on Bloomberg.com.

New data from Los Angeles-based commercial property giant CB Richard Ellis (CBG) show the national vacancy and availability rates for office, industrial, and retail space all exceeded 10 percent in the third quarter. The company predicts vacancies will decrease next year, although rents are expected to remain low due to the high availability of space.
Rental Demand

"We are starting to see the first signs of demand as tenants see more stability in their businesses and are now looking to take advantage of low rents and a wide array of occupancy choices," stated Jon Southard, director of forecasting for CBRE Econometric Advisors, in a release.

This is good news for some of the country's biggest commercial landlords, such as Indianapolis mall owner Simon Property Group (SPG) and industrial real estate company Prologis (PLD) in Denver. "The bigger owners are those who own core or premium properties, and those are generally the ones that recover first," says Raymond Torto, global chief economist at CB Richard Ellis.

Even in the slowdown, the largest commercial real estate owners have been acquiring properties. Data from Real Capital Analytics, a commercial real estate research and consulting firm based in Manhattan, show that Blackstone Group, with more than $4.2 billion in acquisitions, is the top buyer of U.S. commercial real estate over past 12 months, followed by Simon Property Group with $2.8 billion.

"We're seeing a turn for the better," says Torto, "But once you've turned, it doesn't mean you go straight up."

04 November 2010

Tishman Speyer grabs $380M Bargain in Chicago

Crain's NY

Developer agrees to buy year-old, 45-story tower for less than the cost of construction; deal seen as stark warning for those considering building or financing new office towers.

Tishman Speyer Properties has agreed to purchase a new office tower in downtown Chicago for less than it cost to build it, according to sources. The developer will pay owner Mesirow Financial $380 million for its headquarters at 353 North Clark St., marking the first time in more than a decade that a building has been sold for below its cost of construction in Chicago.

The agreement came as an affiliate of Mesirow was running up against a deadline to pay off its construction loans on the building, according to people familiar with the transaction. Those sources say the price is a little less than the debt on the nearly 1.2-million-square-foot tower, which opened about a year ago.

The sale sidesteps an ugly foreclosure suit that might have been filed by Munich, Germany-based Hypo Real Estate Holding, which financed the project with a construction loan that comes due Monday.

The sale would wipe out tens of millions of dollars in equity invested in the 45-story tower, built by a venture led by veteran Chicago developer Richard Stein, a Mesirow senior managing director. Mr. Stein did not return calls requesting comment.

Chicago’s office market hasn't seen a new skyscraper sold for less than the construction cost since the collapse of the commercial real estate market in the 1990s, when billionaire investor Sam Zell scooped up 161 N. Clark St. and 1 N. Franklin St. at bargain prices.

Now, as developers start pushing plans for another round of new office buildings, the woes of 353 N. Clark could serve as a warning to investors and lenders that might back those future projects.

“A lender would be out of their mind to provide financing for new construction when prices are depressed as much as they are, and the (leasing) market is still in the early stages of recovery,” says Zaya Younan, chairman and chief executive of Woodland Hills, Calif.-based Younan Properties, which has a 1.6-million-square-foot office portfolio in Chicago.

Initially leasing at 353 N. Clark went well, with Mesirow and law firm Jenner & Block agreeing to take more than 60% of the building before construction started in 2007. But the leasing effort subsequently stalled at about 80% occupancy, according to real estate data provider CoStar Group Inc.

The price Tishman has agreed to pay for the building, about $324 a square foot, stands in sharp contrast to the record-breaking $503 a foot that a Southern California investment firm paid this summer for the nearby skyscraper at 300 N. LaSalle St. That building also was completed last year but it is 95% leased.

The Hypo loan has an outstanding balance of roughly $330 million and has been extended until Tishman closes on the purchase, sometime before the end of the year, sources say.

The project was also financed with a $44-million mezzanine loan from Chicago-based real estate firm Transwestern Investment Co.

Transwestern could recoup as much as 90% of its loan, which is similar to a second mortgage. A Transwestern representative declined to comment.

How much equity was used to finance the project could not be determined, but most of that money is probably lost. The project is a joint venture between Mesirow and Chicago-based Friedman Properties Ltd., which originally controlled the site.

Albert Friedman, CEO of Friedman Properties, did not return a call requesting comment.

The Mesirow venture also put up a multimillion-dollar letter of credit that would have become payable in the event of a loan default.

As part of the deal, Tishman is paying a couple million dollars to the development venture, sources say. And the venture avoids the costly expense of surrendering the letter of credit, sources add.

Tishman already is one of the largest landlords in downtown Chicago, with a portfolio that includes 10 and 30 S. Wacker Drive and Franklin Center in the West Loop. Tishman's financial partner in the deal for 353 N. Clark could not be determined.

A Tishman spokesman declines to comment. The deal was previously reported by Real Estate Finance & Investment, a trade publication.

03 November 2010

Freddie Mac Reports $2.5 Billion Loss, Warns of Weak Housing Market

The Wall Street Journal

Freddie Mac reported a narrower $2.5 billion third-quarter loss, the smallest shortfall in more than a year amid signs that mortgage delinquencies are slowing. But the company warned that delays in the foreclosure process could raise costs "significantly" and that losses also could rise amid a faltering housing recovery.

The third-quarter loss compared with a year-earlier net loss of $5.4 billion. While gains in the value of certain securities and derivatives left Freddie with a small cash surplus at the end of the quarter, it was forced to ask the Treasury for $100 million, in part to cover the cost of $1.6 billion in interest payments made to the government.

The government took over Freddie and its larger sibling, Fannie Mae, two years ago through a legal process known as conservatorship, and the taxpayer tab for the firms stands at about $134 billion.

While there were signs that mortgage delinquencies eased at Freddie during the third quarter, the company warned that any improvements could be offset by a worsening outlook for losses on homes that go into foreclosure.

Home prices fell 1.8% during the third quarter, according to the company's estimates, as sales declined following the expiration of the home-buyer tax credit.

"We believe that it will be a considerable time until the housing market has a sustained recovery," said Charles E. Haldeman Jr., Freddie's chief executive, in a statement.

Delays in the foreclosure process are the latest unwelcome development for the mortgage-finance company. Fannie and Freddie were forced to suspend the foreclosure process on homes in certain states this fall after paperwork errors prompted several mortgage servicers, including units of Bank of America Corp. and J.P. Morgan Chase & Co., to halt repossessions.

Tuesday, concerns over improper filings prompted the company to terminate its relationship with one of its top Florida foreclosure attorneys, and it had previously suspended foreclosures that had been referred to that firm.

In filings Wednesday, Freddie warned that expenses resulting from the foreclosure delays and the costs to correct paperwork errors could be "significant."

Freddie has taken back more homes as delinquencies have risen, and it owned nearly 75,000 homes at the end of September, up more than 20% over the previous three months. The costs of repairing and maintaining those properties totaled $840 million for the first nine months of the year, compared with $480 million during the year-ago period.

Freddie said it would seek to force banks to pay for costs of any delays that they were responsible for but warned that those efforts could be "difficult, expensive and time consuming." Freddie relies on the same big banks that sell mortgages to the company, its main source of income, to also handle servicing, or day-to-day loan management.

Three banks account for more than half of all loans sold to Freddie and also half of all loans serviced on behalf of Freddie: Bank of America, J.P. Morgan Chase and Wells Fargo & Co.

Fannie and Freddie already have locked horns with its lender-partners over demands to buy back soured loans that the mortgage companies say fell short of the firms' standards.

During the third quarter, Freddie collected $1.7 billion as a result of repurchase demands. Freddie had $5.6 billion in buyback requests during the quarter, and one-third of those demands had been outstanding for more than four months.

Even if Freddie is able to stem its losses, it is unlikely to ever pay down debt that has amassed as a result of the government's bailout. The company must pay the government a 10% annual dividend on its infusions from the Treasury, which totals $63 billion.

The cost of those interest payments exceeds the company's annual earnings from even its most profitable years. A new fee designed to help recoup the government's bailout of the companies is set to kick in next year.

Last month, a series of estimates by the firms' federal regulator, the Federal Housing Finance Agency, said that the taxpayer tab for the companies could run as high as $154 billion under the current home-price forecast. If the economy enters a double-dip recession and home prices fall more than 20%, the cost to taxpayers could reach $259 billion.

02 November 2010

HomeServices buys North Carolina Real Estate Firm

Greensboro News-Record

HomeServices of America Inc. said today it has acquired Greensboro-based Yost & Little Realty.

Financial terms of the deal were not disclosed in a news release.

HomeServices will merge Yost & Little with its existing residential real estate firm, Prudential Carolinas Realty. The new company in the Greensboro market will be re-branded Prudential Yost & Little Realty.

Prudential Carolinas Realty will continue to operate as the HomeServices brand in the Winston-Salem, Kernersville and Charlotte markets.

Yost & Little currently has three offices and more than 140 real estate workers in Greensboro and High Point. The company’s volume of closings in 2009 was $230 million.

“We are combining two strong firms within the Triad into an even stronger organization," Yost & Little president Eddie Yost stated in a news release. "Our commitment is to make this merger seamless for our customers, who will continue to be served by their existing agents.”

Yost will serve as chairman of Prudential Yost & Little Realty and will be joined by managing brokers Dean Little and Mark Yost. Tommy Camp, Prudential Carolinas Realty’s president and CEO, will continue to oversee HomeServices’ operations in the Triad, Charlotte and Triangle regions.

HomeServices of America, based in Minneapolis, Minn., is a subsidiary of Berkshire Hathaway Inc.

28 October 2010

Florida Foreclosure Auction Cancellations ‘Frustrating’ to Judge


The Miami judge managing a backlog of 80,000 foreclosures said it’s “frustrating” that lenders including Bank of America Corp. and JPMorgan Chase & Co. continue to cancel foreclosure auctions.

Circuit Judge Jennifer Bailey in Miami-Dade County, which has the most foreclosures in Florida, recently set up a system to clear the logjam. She also chaired a state Supreme Court task force last year set up to address the volume of foreclosures in the state’s courts.

“It’s very frustrating to have put in this effort to design, plan and implement this system and when we finally get some forward momentum, we start slowing down again because of the banks,” she said yesterday in an interview.

Bailey said banks are canceling foreclosure sales every day. They canceled at least 20 yesterday in front of one judge, saying they had to review the affidavits used to seize homes.

The cancellations came as Charlotte, North Carolina-based Bank of America and Detroit-based Ally Financial Inc.’s GMAC Mortgage unit said they were moving to complete pending foreclosures. They had suspended foreclosure sales and judgments after complaints that home seizures nationwide were based on faulty documentation.

Attorneys general in all 50 states, as well as federal agencies including the U.S. Justice Department, are investigating.

GMAC said it’s reviewing foreclosure cases with potentially defective affidavits in the 23 states that use judicial proceedings for foreclosures, including Florida. If there are problems, they will be fixed and the cases will proceed, said Gina Proia, a spokeswoman for GMAC. Any case going to foreclosure sale in non-judicial states will also be reviewed, she said in an interview.

Bank of America, the largest U.S. bank by assets, has completed a review of its foreclosure procedures and will “shortly” begin resubmitting affidavits in judicial foreclosure cases, spokesman Dan Frahm said Oct. 25 in a statement.

27 October 2010

Battle Lines Forming in Clash Over Foreclosures

NY Times

About a month after Washington Mutual Bank made a multimillion-dollar mortgage loan on a mountain home near Santa Barbara, Calif., a crucial piece of paperwork disappeared.

But bank officials were unperturbed. After conducting a “due and diligent search,” an assistant vice president simply drew up an affidavit stating that the paperwork — a promissory note committing the borrower to repay the mortgage — could not be found, according to court documents.

The handling of that lost note in 2006 was hardly unusual. Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.

Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders’ rush to foreclose flouts private property rights.

That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.

Federal officials meeting in Washington on Wednesday indicated that a government review of the problems would not be complete until the end of the year.

In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.

While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.

Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”

Others are more sanguine about the dispute.

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

After freezing most foreclosures, Bank of America, the largest consumer bank in the country, said this week that it would soon resume foreclosures in about half of the country because it was confident that the cases had been properly documented. GMAC Mortgage said it was also proceeding with foreclosures, on a case-by-case basis.

While some other banks have also suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.

“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.

Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.

The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.

“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”

Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.

“The misbehavior is clear: they lied to the courts,” she said. “The fact that they are saying no one was harmed, they are missing the point. They did actual harm to the court system, to the rule of law. We don’t say, ‘You can perjure yourself on the stand because the jury will come to the right verdict anyway.’ That’s what they are saying.”

Robert Willens, a tax expert, said that documentation issues had created potentially severe tax problems for investors in mortgage securities and that “there is enough of a question here that the courts might well have to resolve the issue.”

As the legal system begins sorting through the competing claims, one thing is not in dispute: the pell-mell origination of mortgage loans during the real estate boom and the patchwork of financial machinery and documentation that supported it were created with speed and profits in mind, and with little attention to detail.

Once the foreclosure wheels started turning, said analysts, practices became even shoddier.

For example, the foreclosure business often got so busy at the Plantation, Fla., law offices of David J. Stern — and so many documents had to be signed so banks could evict people from their homes — that a supervisor sometimes was too tired to write her own name.

When that happened, Cheryl Samons, the supervisor at the firm, who typically signed about 1,000 documents a day, just let someone else sign for her, court papers show.

“Cheryl would give certain paralegals rights to sign her name, because most of the time she was very tired, exhausted from signing her name numerous times per day,” said Kelly Scott, a Stern employee, in a deposition that the Florida attorney general released on Monday. A lawyer representing the law firm said Ms. Samons would not comment.

Bill McCollum, Florida’s attorney general, is investigating possible abuses at the Stern firm, a major foreclosure mill in the state, involving false or fabricated loan documents, calling into question the foreclosures the firm set in motion on behalf of banks.

That problem extends far beyond Florida.

As lenders and Wall Street firms bundled thousands of mortgage loans into securities so they could be sold quickly, efficiently and lucratively to legions of investors, slipshod practices took hold among lenders and their representatives, former employees of these operations say.

Banks routinely failed to record each link in the chain of documents that demonstrate ownership of a note and a property, according to court documents, analysts and interviews. When problems arose, executives and managers at lenders and loan servicers sometimes patched such holes by issuing affidavits meant to prove control of a mortgage.

In Broward County, Fla., alone, more than 1,700 affidavits were filed in the last two years attesting to lost notes, according to Legalprise, a legal services company that tracks foreclosure data.

When many mortgage loans went bad in the last few years, lenders outsourced crucial tasks like verifying the amount a borrower owed or determining which institution had a right to foreclose.

Now investors who bought mortgage trusts — investment vehicles composed of mortgages — are wondering if the loans inside them were recorded properly. If not, tax advantages of the trusts could be wiped out, leaving mortgage securities investors with significant tax bills.

For years, lenders bringing foreclosure cases commonly did not have to demonstrate proof of ownership of the note. Consumer advocates and consumer lawyers have complained about the practice, to little avail.

But a decision in October 2007 by Judge Christopher A. Boyko of the Federal District Court in northern Ohio to toss out 14 foreclosure cases put lenders on notice. Judge Boyko ruled that the entities trying to seize properties had not proved that they actually owned the notes, and he blasted the banks for worrying “less about jurisdictional requirements and more about maximizing returns.”

He also said that lenders “seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance.” Now that their practices were “put to the test, their weak legal arguments compel the court to stop them at the gate,” the judge ruled.

Yet aside from the actions of a few random judges, little was done to force lenders to change their practices or slow things down. Since March 2009, more than 300,000 property owners a month have received foreclosure notices or lost their home in a foreclosure, according to RealtyTrac, which tracks foreclosure listings.

What finally prompted a re-examination of the foreclosure wave was the disclosure in court documents over the last several months of so-called robo-signers, employees like Ms. Samons of the Stern law firm in Florida who signed affidavits so quickly that they could not possibly have verified the information in the document under review.

Lenders and their representatives have sought to minimize the significance of robo-signing and, while acknowledging legal lapses in how they documented loans, have argued that foreclosures should proceed anyway. After all, the lenders say, the homeowners owe the money.

People who have worked at loan servicers for many years, who requested anonymity to protect their jobs, said robo-signing and other questionable foreclosure practices emanated from one goal: to increase efficiency and therefore profits. That rush, they say, allowed for the shoddy documentation that is expected to become evidence for homeowners in the coming court battles.

For example, years ago when banks made loans, they typically stored promissory notes in their vaults.

But the advent of securitization, in which loans are bundled and sold to investors, required that loan documents move quickly from one purchaser to another. Big banks servicing these loans began in 2002 to automate their systems, according to a former executive for a top servicer who requested anonymity because of a confidentiality agreement.

First to go was the use of actual people to determine who should be liable to a foreclosure action. They were replaced by computers that identified delinquent borrowers and automatically sent them letters saying they were in default. Inexperienced clerical workers often entered incorrect mortgage information into the computer programs, the former executive said, and borrowers rarely caught the errors.

Other record-keeping problems that are likely to become fodder for court battles involve endorsements, a process that occurs when notes are transferred and validated with a stamp to identify the institution that bought it. Eager to cut costs, most institutions left the notes blank, with no endorsements at all.

Problems are also likely to arise in court involving whether those who signed documents required in foreclosures actually had the authority to do so — or if the documents themselves are even authentic.

For example, Frederick B. Tygart, a circuit court judge overseeing a foreclosure case in Duval County, Fla., recently ruled that agents representing Deutsche Bank relied on documents that “must have been counterfeited.” He stopped the foreclosure. Deutsche Bank had no comment on Wednesday.

Cynthia Veintemillas, the lawyer representing the borrower in the case, Patrick Jeffs, said the paperwork surrounding her client’s foreclosure was riddled with problems.

“Everybody knows the banks screwed up and loaned out money to people who couldn’t pay it back,” she said. “Why are people surprised that they don’t know what they are doing here either?”

Meanwhile, another judge on Wednesday indicated that the courts would not simply sign off on the banks’ documentation. Jonathan Lippman, the chief judge of New York’s courts, ordered lawyers to verify the validity of all foreclosure paperwork.

“We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs — such as a family home — during this period of economic crisis,” Judge Lippman said in a statement.

26 October 2010

Frisco's Exide Plant ready to make Upgrades to cut Lead Emissions

Dallas Morning News

Upgrades are scheduled next week to help reduce lead emissions from a battery recycling plant in Frisco.

Plant manager Don Barar said he has already made several changes at Exide Technologies Inc.'s local facility. It's in one of up to 17 areas around the country not expected to meet new federal air-quality standards for lead, a toxic metal that causes serious health issues. The Environmental Protection Agency is scheduled to finalize the proposed areas as early as Friday.

Barar said the plant will shut down operations for a week beginning Monday to improve its bag houses to capture even more lead particles.

"I'm encouraged by the work done at the facility," Barar said. "I believe we're on the verge of compliance" with the new standards, he said.

But Frisco City Manager George Purefoy said Wednesday that's not enough. He and other city leaders issued an ultimatum in a letter to residents released last week. City leaders want Exide to be the "most environmentally advanced plant in the country." If Exide can't do that, then it doesn't belong in Frisco, Purefoy said.

New standards

Battery recycling companies are looking at improvements because of new standards for lead issued in 2008 that are 10 times as stringent. The only area in the south-central U.S. not expected to meet that new standard is in Frisco. State regulators have proposed a 2.4-square-mile area around Exide Technologies that stretches from Frisco High School north to Pizza Hut Park and includes City Hall, several neighborhoods and businesses.

The proposed boundaries are based on maximum emissions allowed under the company's permit rather than actual lead emissions. Last year, Exide emitted 1.67 tons of lead. Its permit allowed up to 6.9 tons per year.

Exide officials and Frisco city leaders have been trying to reduce the proposed boundaries of the area to more accurately show where lead levels are too high. Doing so could spare a large number of properties.

Purefoy said property values are a concern, but the bigger issue is making sure the boundaries reflect reality rather than relying on the company's outdated permit levels.

"There is no doubt that it has caused a lot of concern in a lot of people's minds," he said. "If [the permit levels are] not relevant, why would you continue to worry those people?"

To bolster their case, Exide applied for a permit reduction Oct. 5. State regulators approved it a day later. Gov. Rick Perry has since sent a letter asking the EPA to consider new boundaries based on the reduced permit.

EPA spokesman Dave Bary said he doesn't know whether the boundaries will be changed this late in the process.

Barar, Exide's plant manager in Frisco, said that a new area could be as much as 50 percent smaller than the one proposed. The size of the area won't affect upgrades that the plant needs to make to reduce lead emissions. But it could allay some people's concerns. Barar said he was unsure whether the last-minute change would be considered.

"A smaller nonattainment area ... does a better job helping people understand who is and who may not be at risk," Barar said. "The goal here is to try and develop something that accurately reflects the data that we have and what real emissions are."

Pollution controls

Meanwhile, the city hired a consultant to investigate technology installed at a battery recycling facility in Southern California that reduced emissions well beyond the new standard for lead and other compounds. Dallas-based RSR Corp. has said lead emissions from its Quemetco plant in Los Angeles County dropped from 915 pounds a year to 10 to 12 pounds.

The pollution reduction has been remarkable, said Barry Wallerstein, executive director of South Coast Air Quality Management District, the regulator in that part of the state.

He said RSR has pushed the agency to approve more stringent air-quality regulations that would essentially force Exide to spend $20 million on similar pollution controls at its California plant 15 miles away.

Ohio Coca-Cola Plant in line for City Tax Incentive

Columbus Biz Journal

The city of Columbus is offering beverage giant Coca-Cola Co. a tax incentive package as the company mulls a $120 million expansion of a south-side plant that could create up to 35 jobs.

The incentive package for Coca-Cola up for consideration at Columbus City Council’s Monday meeting includes a 75 percent, 10-year Enterprise Zone Tax Abatement and a six-year, 65 percent Job Creation Tax Credit. They’re valued at up to $10.5 million over the term.

Coca-Cola says it’s looking to expand its Watkins Road syrup plant and add 35 full-time job to the site’s 116-worker payroll to upgrade advanced manufacturing lines along with automated storage and retrieval systems. The project could begin as early as January and is set to be completed before November 2012, contingent on approval of the incentives.

According to documents from council, Coca-Cola’s annual payroll in Columbus totals about $7 million. The new jobs, mostly production positions paying about $21 an hour, would add about $1.7 million.

25 October 2010

What Does the 'Foreclosure Crisis' Mean for You?

The Wall Street Journal

For the vast majority of homeowners, new questions about the state of foreclosures appear to be irrelevant. Few people seem to have been wrongly thrown out of their homes, and those who have been are generally months or years behind on their mortgage payments.

But the fallout from the crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.
Real-estate salespeople in some of those places are worried. "September and October are usually the height of the selling-season for us," says Rich Armstrong, who owns the brokerage Rare Properties in Jackson Hole, Wyo. "Now we are seeing a number of what we call 'fence sitters,' people who would have leapt in even a month ago, but now are waiting on the sidelines."

The "foreclosure crisis" is a result of the frenzied real-estate boom and bust of the past decade. Banks made foolish loans, and borrowers signed up for them—only to default later, as the economy slumped. Banks rushed to reclaim properties, launching a record number of foreclosure proceedings.

In the past several weeks flaws have emerged in that complex process. Because of the high volume of foreclosures, the documentation supporting legal actions was prepared hastily, and some homes were seized improperly.

Yet the far bigger worry is what happens next. A frenzy of lawsuits and banks' examinations of their own practices could throw more of the millions of foreclosures of the past few years into legal jeopardy. Attorneys general in all 50 states are investigating, and plaintiffs' lawyers are working hard to perfect their legal strategies for suits on behalf of people who have been foreclosed on.

The suits might well fail. But just the threat that past foreclosure rulings might be overturned could result in collateral damage. In some places, banks are rushing foreclosed properties to market. In others, buyers are stepping back, refusing to buy foreclosed properties or "short sales"—homes sold by owners for less than the mortgage balance. In markets already beset with large inventories of foreclosed properties, the result could be a slower recovery.

Coastal markets and ski areas are feeling the most anxiety. Some already are littered with foreclosures—in part because they're dominated by second-home and investment properties. Those owners are more willing to walk away from a house that isn't their primary residence.

Foreclosure tracker RealtyTrac estimates that, nationwide, 30% to 35% of properties in foreclosure are owned by investors or were second homes. In Aspen, Colo., the figure is about 60%, says Kim McKinley, owner of McKinley Sales Real Estate in Basalt and Aspen, Colo. If foreclosure proceedings slow from here, inventory could jump, leading to price weakness later.

"We're concerned that the phantom inventory buildup will cause a more rapid and drastic drop in prices in Aspen, which is just getting started in terms of foreclosures coming to the market," says Ms. McKinley.

The timing of the foreclosure mess is especially inconvenient for ski towns, given the fall selling season.

Property owners are growing nervous. In Park City, Utah, lenders are quickly unloading foreclosed homes ahead of what could be a long, stalled foreclosure process, says Joe Trabaccone, a real-estate agent there.

On Oct. 11, for example, J.P. Morgan Chase put up for sale an 8,000-square-foot home adjacent to a private gated golf course. Mr. Trabaccone initially recommended the property be listed for $1.6 million, but Chase opted for $1.26 million. "They are offering these homes far too low just to hurry up and sell them," Mr. Trabaccone says.

Even so, it hasn't worked. A buyer made an offer and signed a contract, but then backed out.

In South Lake Tahoe, Calif., on Thursday, Freddie Mac, the big government-sponsored guarantor of mortgages, put a foreclosed home that had just been listed for sale on hold, freezing the property until paperwork could be straightened out. The foreclosure mess "seems to be filtering down and it could be an impact," says Doug Rosner, the broker who had listed the home. Three other properties in town were also frozen, another real-estate agent says.

The "sand states" of Arizona, California, Florida and Nevada are being hit as well. These areas, too, have a lot of vacation and investment properties—and a lot of foreclosures.

Robin Speronis, a real-estate broker in Cape Coral, Fla., says business had been picking up recently, with several inquiries a day—until the latest foreclosure scandal broke. Since then, she says, inquiries have shriveled to just one in the past week.

Susan Weeks, 55 years old, and her husband, Eddie, aren't optimistic. The couple had expected to retire and downsize when they bought a condo in Clermont, Fla., near Orlando, in 2007 for $192,000. Their plan was to sell their primary residence 10 minutes away and live in the condo. The trouble: They can't sell their first home.

The Weeks paid $269,000 for their three-bedroom home in 2004. The house next door, a bit larger, is listed at $185,000, Ms. Weeks says.

The couple has decided to move back to their primary home and take a renter for the condo. But while that brings in $850 a month, the Weeks take a $450-a-month hit on the condo —on top of the $2,400 a month they pay every month on their primary home.

"We're just going to wait it out," she says.

The possible foreclosure wars to come loom so largely over Florida markets that Ms. Speronis is urging condo sellers to consider any offer they get, even if it is far below asking price or what is owed on the mortgage.

Dianne Cloutier, a records supervisor in Chelmsford, Mass., had been looking for a retirement property in Cape Coral, but decided to wait because of the foreclosure mess. "It's left us on hold until we are sure the banks have legitimately foreclosed on people and that nobody can come back on us to get their property back," she says.

Foreclosures aren't the only problem. Short sales are getting more difficult to pull off, too.

In Bend, Ore., agents say buyers are avoiding short sales or even backing out of contracts because they don't want to deal with paperwork hassles or the chance of a court challenge later.

"I have some people saying 'I don't want to mess with bank-owned properties or short sales,'" says Dianne Willis, principal broker with RE/MAX Sunset Realty in Sunriver, Ore. "They're reluctant because it can be a frustrating process, especially for those who are looking to make a big move."

The short sales "can be very frustrating," adds Becky Ozrelic, of with Steve Scott Realtors in Bend. "You just have buyers waiting and waiting."

For sellers, lining up a short sale was tough even before the latest foreclosure crisis. Banks and mortgage "servicers," the outfits that process payments, already had been scrambling to handle surging workloads.

Mike and Kim Schwarz of San Jose, Calif., are coming up on the one-year mark on their short-sale saga.

The couple had acquired several investment properties over the past few years, including one in Thousand Oaks, Calif., for $751,000. After the tenants stopped paying rent, the Schwarzes couldn't cover the payments and decided to sell, Mr. Schwarz says.

They lined up a buyer in November 2009, and started working with their loan servicer on the short sale. For lenders, short sales are ugly because they guarantee a loss, but they often are preferable to a foreclosure, in which the lender is saddled with a tough-to-sell house.

The servicer, Residential Credit Solutions, took six months to process the paperwork, the Schwarzes say. Faxes and emails were sent, but nothing happened, Mr. Schwarz says.

"We typically don't hear from borrowers about long delays," says Dennis Stowe, president of Residential Credit.

The buyer walked away from the deal in June. The couple found another buyer in August, and resubmitted the short-sale paperwork. Mr. Schwarz says he has sent paperwork to Residential Credit four times since.

On Friday, Mr. Schwarz says, Residential called to tell him the short-sale paperwork looked good and the sale should close in mid-November.

Says Mr. Schwarz: "They didn't make it easy."

Other Ways the 'Foreclosure Crisis' Could Sting Homeowners

The foreclosure mess could hurt homeowners in another way: The costs of buying a home and paying off the mortgage are likely to go up, say housing experts.

The rising costs will come both during the closing and throughout the life of the loan.

At the closing, the cost of title insurance, which protects a property buyer from claims of ownership made by other people, is likely to rise, industry officials say. Title insurance is one of those annoying costs that can sneak up on a buyer during a close; premiums average around $2,000 across states, says Tim Dwyer, CEO of insurer Entitle Direct Group.

The foreclosure mess has sent insurers scrambling. One of the largest, Old Republic Title Insurance, told its agents on Oct. 1 not to issue policies on homes that have been foreclosed by GMAC Mortgage or J.P. Morgan Chase. And on Wednesday, the nation's largest title insurer, Fidelity National Financial, said lenders must vouch for the accuracy of their paperwork before it will insure properties.

Just like homeowners-insurance rates rise after a hurricane, the rates for title insurance are expected to rise, to compensate for the added risk.

The turmoil will likely lead to pricey premiums for new homeowners, says McLean, Va.-based housing economist Tom Lawler. Adds Cameron Finlay, chief economist at mortgage lender Lending-Tree.com: "Any time there is uncertainty in the market or risk implied, it follows that costs go up."

Other costs could be felt during the life of the loan. Until the current mess, servicing loans was a low-margin, high-volume business. Servicers collect mortgage payments from borrowers and send them off to mortgage holders, and if the loan gets into trouble, they manage the foreclosure. Few doubt this process will get costlier now that it is under scrutiny from regulators and the courts. That higher cost likely will show up in higher interest rates for borrowers.

Both of these higher costs also would hit homeowners who refinance their loans.

How much the costs of buying a home will rise is unknown. Mortgage industry officials say it is too soon to tell. And no one believes the costs will significantly change the price of a home. But with the housing market still weak, the uncertainty is making the prospect of buying—or selling—a home that much dicier.

Apartments good Investments for Some

USA Today

The property in Fort Lauderdale was originally valued at $285,000. Clint Gordon, a private investor in multifamily properties, offered the bank $50,000, and within 10 days, had closed the deal. A few days later, he began renting it for $15,000 a year.

"Anybody who's getting into this business now, you get a whole lot of return if you're paying cash for properties," he says. "You're just buying them so cheap."

Prices for apartment buildings are "incredible" in Indianapolis, as well, says Barb Getty, who owns 27 apartment properties in the downtown area. "You can start small like I did; 20% of 40 thousand bucks isn't a lot of money."

Just as there have been massive price drops for single-family homes in the past three years, there have been big price declines for apartment buildings. That suggests that it's a good time for investors who want to be landlords to start buying.

But as with all investments, the story isn't quite so simple. Investors who thought that a tsunami of dirt-cheap multifamily properties would wash over the U.S. market in the past two years have been largely disappointed.

The economic distress that led to lower prices was limited to certain places and property types, says Hessam Nadji, managing director at real estate investment services firm Marcus & Millichap. "The pain was concentrated where we had gross overbuilding in overall housing: Florida, Phoenix, Las Vegas, Southern California, and to some degree, smaller markets like Tucson, Charlotte and Atlanta."

Marc Solomon, whose Solomon Organization owns 10,000 garden apartments in New York, New Jersey, Connecticut and Pennsylvania, says that it's difficult to find opportunities that make good business sense in his markets, which still offer slow, steady returns. There are "a lot of dollars out there chasing these deals," he says.

While there were big price cuts for multifamily housing in North Carolina's Research Triangle area near Winston-Salem, competition is driving down yields, says Jim Scofield, senior investment adviser at multifamily real estate broker Apartment REP. The yield is called the "cap rate" and is net operating income for one year divided by the sale price. Last October, an investment firm "got a steal" on a community in Raleigh called Autumn River, he said, with a cap rate of about 7.75%. The most recent transaction in the area involved a community called Southern Oaks, which had a 5% cap rate. Average cap rates are still around 6.5%.

"This is not just a phenomenon in the Triangle, but in all the major markets, and especially all the apartment markets," Scofield says. "Manhattan, Washington, D.C., Los Angeles, Denver, Chicago, Boston."

Risk and return

There is less competition in markets where the supply is more fluid, but the risks are also higher.

"We landlords are happy," says Getty, adding that the only thing preventing her from buying more properties is the ability to manage them on her own. Still, she hasn't been able to increase rents as much as she normally would.

Gordon says his vacancies used to average three to five days. "Now, I can have a vacancy for up to 60 days," he says.

Despite all the qualifiers, there is opportunity in rental apartments because the timing is good, Nadji says. "I don't think you're going to get fire-sale prices," he says. "But you can get that kind of return ahead of the job growth and ahead of the economic recovery."

Rental occupancy rates shrank dramatically during the recession, as people doubled up and young adults boomeranged back home. Vacancies nationwide hit a high of 8% in the last quarter of 2009, according to real estate research company Reis. But industry insiders argue that rentals will bounce back quickly and dramatically. In the third quarter of this year, vacancies fell to 7.2%, Reis says.

"Apartment rents are short term; they adjust to market conditions very quickly," Hessam says. "We've seen a record demand for rental apartments so far this year, the strongest in over 10 years."

Wide-ranging perspective

Apartment buildings can be attractive because investing in residential real estate seems similar to owning a home. But rental properties are different, starting from the purchase decision.

Home buyers tend to look for a place they love that fits their needs and budget. But you have to see investment properties through the eyes of your tenant, Getty says. If your tenants won't have cars, is it near public transportation?

Randall Gorman, president of La Jolla Capital Group in California, says prospective investors need to take the emotion out of their purchases.

"I don't care if you're buying a condo, a duplex or a 10-unit building," Gorman says. "Just because you've always loved that cottage-style apartment building that you drove by taking your kids to school doesn't mean the cash-flow fundamentals work at a given price."

If considering a property, Gorman advises making sure you can run a cash-flow model. Figure out property rents by researching online and in the neighborhood. Calculate annual revenue, and thoroughly survey costs such as maintenance, taxes, utilities and incentives. (Property managers typically charge about 10% of a month's rent.)

Add a couple of months of vacancy, and don't disregard higher interest rates for commercial properties. According to PricewaterhouseCoopers, the national average interest rate for apartment loans in the third quarter was 5.68%. For the first week of October, Fannie Mae reported that the average 30-year fixed rate for a primary home was 4.27%. If your final annual net income is $16,000, seeking a 10% cap rate puts the purchase price at $160,000.

"Don't buy on what might happen, but on what is happening," Scofield says. "Only buy a property if it is cash flowing to meet your investment return requirement on day one."

Once you buy, it's not a smart idea to treat your investment like a home. "Investors make a huge mistake when they spend a lot of money on bells and whistles in their rental property," Getty says. "A rental needs to compare well to others in the neighborhood, but don't make it a palace — you won't get that money back."

24 October 2010

Florida Activists read between the Lines on Foreclosure Paperwork

The Washington Post

Michael Redman and Lisa Epstein, at the Palm Beach County Courthouse, joined forces with two other people in Florida in investigating potentially fraudulent foreclosure paperwork.
WEST PALM BEACH, Fla. - Nearly a year before the national furor over foreclosures began, Lisa Epstein, a nurse, ran into three other amateur sleuths who separately were investigating shoddy practices at mortgage companies.

While meeting for the first time in November at an old one-story law office in this city, the four strangers compared notes and began to piece together the scope of the problem: All over the United States, big financial firms might have been using fraudulent paperwork to evict struggling borrowers from their homes.

Now tight-knit, the group is largely responsible for setting off the growing firestorm over foreclosures.

Epstein, a Fairfax County native who became an activist after she lost her job and became unable to pay her mortgage, launched a grass-roots movement against the country's largest banks, which are facing the prospects of billions of dollars in soured loans and legal expenses.

Joining her were Michael Redman, whose foreclosure blog drew the White House into the controversy, and Thomas and Ariane Ice, who run a boutique law firm that was the first to depose "robo-signer" Jeffrey Stephan of Ally Financial's GMAC mortgage unit in December.

In addition to trying to educate the public about the issue, the group had also been quietly passing along stacks of problematic documents to state and federal regulators, lawmakers, judges and law enforcement officials.

They pointed out that document processors such as Stephan had admitted in sworn depositions that they had signed off on up to 10,000 foreclosure documents a month, even though they had not reviewed them as legally required. They also shed light on foreclosure cases in which the paperwork appeared to have been backdated, forged or improperly notarized.

Now, at least five major mortgage companies have frozen some foreclosures. Attorneys general from each state have joined forces to investigate, and a federal task force is considering criminal charges in the matter. Some bank stocks have fallen on concerns that the issue of flawed paperwork could be a coverup for something even more serious. And economists worry that the fragile housing market, where one in four houses on sale is in foreclosure, could take a devastating hit.

Although the uproar over foreclosures might seem sudden, for the activists, it was a long time coming.

Epstein, 45, a George Mason University graduate who moved from the Washington area to Florida for the sunshine 13 years ago, first began to suspect something was wrong in February 2009 after she was served foreclosure papers without any acknowledgment that she had applied for a loan modification.

Redman, 35, said he knew there was a problem as early as January 2008, when he was trying to help his fiancee fight foreclosure and noticed that one of the key documents that proved ownership of the loan had suspicious signatures.

The Ices' eureka moment came late one night in early 2009 when Ariane was looking at the 700 cases in their database and noticed that a lot of the problematic paperwork had been signed by the same people.

As the four of them continued to investigate the issue, the months became filled with self-doubt.

"Plaintiffs' attorneys were scoffing at us; judges were laughing. You get to the point where you think, 'Maybe I'm the crazy one,' " said Thomas Ice, 50.

The group members, who are on the east coast of Florida, where nearly half of the homes on the market are in foreclosure, was soon joined by like-minded lawyers, homeowners and activists on the west coast. Together, the growing movement began to organize events at bar association meetings, host happy hours for distressed homeowners, and follow prominent public officials wherever they were speaking to get their attention. They launched Web sites to get the word out to homeowners' attorneys around the country.

Larry Schwartztol, a New York-based staff lawyer with the American Civil Liberties Union, has been working with Epstein's group to investigate whether Florida courts violated due process by short-circuiting normal procedures in foreclosure cases. He said the research the group is doing is "extremely impressive" and "indispensable."

Although there was no formal organization behind their effort, each of the activists took on distinct roles.

The Ices and seven other lawyers at their firm began deposing "robo-signers" at major mortgage companies, and, in an unusual move in the competitive legal industry, they began distributing the transcripts online.

Homeowners' lawyers nationwide began using the documents to defend their clients. Thomas Cox, a lawyer in Maine, saw Ice Legal's deposition of Stephan, the Ally robo-signer, and decided to depose him again for a case in his state in June. Cox was able to get his client's foreclosure judgment vacated.

Redman, who had been working in marketing for the online department of a local car dealership, set up a Web site, 4closurefraud.org, where he aggregated and analyzed key court documents related to faulty foreclosures. It was an instant hit - the Huffington Post of foreclosures - with Redman's snarky commentary, use of large pictures and graphics to explain complex subjects and his apparent glee - signified by an animated laughing "Jerry"- when he discovered a new way to attack the banks.

It was Redman's Web site, which is now being funded by a local lawyer, Carol C. Asbury, that took the lead in drawing President Obama into the foreclosure controversy this month by making a major issue out of a little-known notary bill, several lawyers around the United States said. Redman said that a reader had e-mailed him about the bill that had sailed through the Senate and was sitting on Obama's desk. The bill would make it easier to foreclose because notary signatures would be valid across state lines.

Epstein, a single mom who once worked as a cancer nurse, became the group's liaison to homeowners, setting up an online discussion site for them to vent their frustrations and debate strategies.

For months, she fired off up to five letters a night to officials, judges or anyone she could think of after her daughter went to sleep. Her letters were prone to hyperbole, but her explanations of the potential for fraud in various steps of the foreclosure process were laid out. In one, she wrote to the Florida Supreme Court: "I am outraged by the perfidious harvest poisoning the financial and emotional well being of individuals worldwide due to the appalling opportunism of Wall Street's historic, unrequited love affair with mortgage backed securities."

The first major lender to take corrective action on foreclosures - Ally Financial, which is majority-owned by the U.S. Treasury - has declined to comment about what prompted it to freeze foreclosures Sept. 20, but Epstein, Redman and the Ices say they and others who are defending homeowners applied so much pressure on the company that it would have been difficult for it not to act.

On April 28, one week after the four activists had staged a rally at the courthouse in the state capital, they had their first major breakthrough: The Florida attorney general's office announced an investigation into a "foreclosure mill" law firm called the Florida Default Law Group for allegedly presenting misleading or false documents to courts.

Knowing that the law firm had been hired by some of the nation's largest lenders, Epstein and Redman went to the local courthouse and began delving into its filings.

It wasn't until last month that their work began to draw national attention. The Florida Default Law Group confirmed in court filings Sept. 7 that the foreclosure documents that had been signed by Stephan, the robo-signer, "may not have been properly verified."

Redman posted the news on his Web site on Sept. 14. "ALL OF THESE AFFIDAVITS FROM THESE CHARACTERS ARE INVALID IF CHALLENGED!!!," he wrote, predicting it would affect "HUNDREDS OF THOUSANDS OF CASES!!!"

One week later, Ally Financial announced that it would halt foreclosure sales in nearly two dozen states. At least four other major mortgage companies followed suit.