Reporter for national magazine news magazine looking for bloggers

I got a request today from a reporter for a national news magazine (who prefers to remain anonymous for now) looking for people recently laid off in the real estate industry and are now blogging about that experience.

If this is you, or you know of someone who's blogging about a lay-off, please email me at info@metrointel.com and I'll forward your contact information to the reporter.

My review of the book "Shift" now online

Wondering how to take advantage of the abrupt shift in the residential real estate market from boom to bust? My book review of "Shift: How Top Real Estate Agents Tackle Tough Times" is now online at Inman News:

Whereas the first part of "Shift" focuses on a macro-economic overview of the how, why and when real estate shifts happen -- both in terms of sellers' and buyers' markets -- the second part is where the "workbook" begins in earnest.

Offering "12 Tactics for Tough Times" for readers in a hurry to put the advice to good use, the authors walk us through the various facets of running a real estate business, including being realistic; right-sizing staffing levels; using appropriate marketing techniques (including a take-no-prisoners approach to the Internet); pricing ahead of the market; creating urgency for buyers; mastering creative financing techniques; becoming experts on short sales, REOs and foreclosures; and bullet-proofing transactions by making yourself the last line of defense against flaky agents, dishonest lenders and skittish buyers.

Click here for full review.

Click here to buy a copy (or copies).

Economic downturn now hitting hotel properties

With 363 locations, you've probably seen the signs for "Extended Stay" hotels along various freeways. But with the chain highly leveraged (no surprise there) and the economic downturn impacting hotel properties (especially over the last two months), management is now talking about simply handing the keys back to the lenders. "Hotel jingle mail," anyone? From a Wall Street Journal story:

Extended Stay Hotels Inc. is in early talks that could result in turning the hotel chain over to its lenders, a sign of the deep trouble awaiting the commercial real-estate business.

Extended Stay's difficulties signal a new phase of distress in commercial real estate, because they arise directly from the weakening economy. Until now, problems have mostly involved developers unable to obtain refinancing for otherwise healthy operations...

As conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and people involved in the talks say a transfer of ownership could come within a month or two. Extended Stay has recently hired Lazard Ltd. as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel.

One wrinkle in negotiations is that Extended Stay isn't likely to file for bankruptcy protection, because of provisions common in commercial mortgage-backed securities deals that would expose more properties of its founder, David Lichtenstein. A more likely path is for Mr. Lichtenstein to turn Extended Stay directly over to lenders or to swap enough equity for debt to give bondholders control of the company.

Click here for full story.

Anatomy of a home builder's liquidation

Kimball Hill Homes CEO Ken Love recently laid out the plans to dismantle the nearly 40-year-old home building company to Builder magazine. What caught my eye (in bold) is that during bankruptcy they still managed to pay of 96% of their subs and suppliers. So how did they do that when I keep hearing tales of other builders stringing their vendors along for months at a time? Read on:

In an interview with BUILDER yesterday afternoon, Love laid out how Kimball Hill intends to close its operations, in three phases. Over the next 120 days, the company intends to complete 450 homes that are in various stages of construction, and deliver those homes to buyers. Within the next six months, Kimball Hill also hopes to be able to sell its 170 homes in inventory and 90 models. (It is returning deposits to around 100 buyers of homes that hadn't been started.)

During the second phases, which will happen simultaneously with the first, Kimball Hill will attempt to "monetize" its land and other assets. As of October 31, the company had 66 owned communities in which there are 3,018 finished lots, 419 lots under development, and 3,740 "paper," or raw, lots. Love says that he would prefer to sell off these assets in bulk to one or a few buyers, even though he admits the demand for land right now is soft. "The gap between bid and ask has widened," he observes. That being said, he believes there are investors looking to buy land they can hold on to for a number of years until market conditions improve. However, if Kimball Hill can't find a single buyer for its real estate, it will sell off assets individually over the next 15 months.

Phase three will involve tying up loose ends, like pending lawsuits. But unlike most other bankruptcies, Kimball Hill is not saddled with a blizzard of mechanics liens. "We’re very proud of what we did during the Chapter 11," says Love, whose company set up a pre-petition liability fund that, to date, has repaid 96 percent of its trade partners and product suppliers. Love notes as well that as employees are laid off, each will receive a "fair" severance that is based on their levels of responsibility and tenure with the company. (Kimball Hill still has $35 million in debtor-in-possession financing it can draw on, as well as cash from the sale of its homes.)

For those people who think it's simply a formality for new home builders to take the place of companies like Kimball Hill because they're essentially 'all the same,' I can assure you many companies would not have acted this fairly and decently towards suppliers/subs and employees.

So how does this recession compare to others?

"The Economist" has an interesting article entitled "A thoroughly modern recession," and argues that although the current recession is sure to be the longest since WWII, since high interest rates weren't the culprit it has more in common with the downturns of the early 1990s and 2001 than the one largely enabled by the Fed hiking interest rates in the early 1980s. From the article:

Though it may end up as one of the longest recessions, if not the longest, of the post-war era, the current episode still seems to have more in common with the mild downturns of 1990-91 and 2001 than the more wrenching affairs that came before.

As Robert Hall, an economist at Stanford University, notes, earlier recessions, like that of the early 1980s, were caused by the Fed raising interest rates sharply to squelch emerging inflation and holding them high even once the recession began. In the current and past two recessions, interest rates never got very high and the Fed actually began to lower them before the contraction began. In a paper written a year ago*, Mr Hall described such apparently “causeless” recessions as perplexing...

The paradoxical truth may be that the less volatile business cycle (until recently) encouraged investors to take bigger risks with borrowed money, driving asset prices too high and ending in damaging busts. Some would still blame the Fed, for not deflating asset bubbles with higher interest rates.

In a recent speech, Donald Kohn, the vice-chairman of the Fed, rejected that charge but pleaded guilty to a lesser one: by better controlling inflation, central banks helped moderate the business cycle, which bred investor complacency. They thus “may have accidentally contributed to the current crisis.” The Fed may no longer be the prime suspect for causing recessions; but it is still an accessory to the crime.

Click here for full story.

Housing crisis increasingly moving up the food chain

As the economy continues to soften, the foreclosures that were initially focused more on homes that were entry-level, in dicey neighborhoods and/or on the suburban fringe continue to move upscale, in this case Hinsdale, IL. From a Reuters story:

With a pretty red-brick downtown lined with stores, good schools and a railway line to nearby Chicago, Hinsdale has been popular among wealthy doctors, lawyers and executives.

It has also seen a 37 percent jump in foreclosure filings this year, according to research firm RealtyTrac, and local data shows the average home sale price has fallen to $1.07 million from $1.15 million in September 2007...

Click here for full story.

Beacon Economics to present at Orange County BIA's "Outlook 2009" in January

After many years of hosting Chapman University to offer their prognosis of past and present economic and housing trends, the Orange County chapter of the BIA is handing the reins for the next two years over to L.A.-based Beacon Economics, of which MetroIntelligence is a division.

The program, scheduled for the evening of January 26, 2009 at the Irvine Marriott, will feature economists Christopher Thornberg and Brad Kemp, who have recently been on a big media roll lately due to their calling the current recession and the housing bust well before it was official.

I'm told the reason that Beacon was selected for presenting in 2009 and 2010 is their accuracy in predicting what the future looks like in terms of unemployment, housing prices and sales.

I will also be there at the event to introduce Beacon and explain why now, more than ever, the building industry should turn to them for advice on not just regional economics, but portfolio assessments, site-specific market studies and, eventually, opportunity analyses for the market rebound.

In order to avoid a repeat of this terrible housing bust, I think it's time to start listening to those who willing to tell you the truth. After all, you can't address what you don't admit!

For more information on this event, click here.

To register, click here.

See you in January!

1 in 10 homeowners with a mortgage now behind on payments

A record 10% of homeowners with mortgages are either behind on their payments or in the process of foreclosure. On the bright side, 90% are current! From an AP story via MSNBC:

A record one in 10 American homeowners with a mortgage were either at least a month behind on their payments or in foreclosure at the end of September as the source of housing market pressure shifted from risky loans to the crumbling U.S. economy.

The percentage of loans at least a month overdue or in foreclosure was up from 9.2 percent in the April-June quarter, and up from 7.3 percent a year earlier, the Mortgage Bankers Association said Friday...

With the economy worsening, the much-anticipated bottom of the housing market likely will be pushed further into the future.

"Things are going to get worse before they get better," said Northern Virginia housing economist Thomas Lawler.

Most troubling, he said, is that the mortgage bankers' report reflects conditions before October's stock market plunge and the resulting economic fallout.

"The number of homes that are in the foreclosure process is so high — right before the economy has fallen off a cliff," Lawler said...

Click here for full story.

Taxpayers growing more furious about mortgage bailouts

This has got to be a terrible time to be a member of the Senate or the House of Representatives, because no matter what you decide on bailing out the housing market, many voters are going to be upset with you. And there of course there's the issue of 'fairness.' From a CNNMoney.com story:

Ask most Americans whether they're in favor of spending taxpayer dollars to help delinquent mortgage borrowers and you're likely to get an emphatic "No!"

But the government didn't ask its citizens before it committed hundreds of billions of taxpayer dollars to guarantee loans through various foreclosure prevention initiatives such as FHASecure and Hope for Homeowners, which let troubled borrowers refinance expensive mortgages into more affordable loans. Nor did it take a vote before it agreed to fund the new streamlined mortgage modification programs for loans backed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

And now there is the possibility that some of the hundreds of billions of dollars allocated for the Treasury's Troubled Assets Relief Program will go towards bailing out borrowers.

Taxpayers are mad - especially those who held off buying their own homes or were careful not to spend beyond their means...

The case for bailing out homeowners is that foreclosures have far-reaching effects. As delinquencies have skyrocketed, most of the country has suffered steep home-price declines which has helped cripple the economy. Helping some homeowners but not others may not be fair, but it's necessary to keep the economy from deteriorating even further...

Click here for full story.

So what does a half-million job loss mean?

As the recession begins to feed on itself, job losses are mounting -- at the rate of more than 500,000 jobs alone in November. So what exactly does that mean for the economy? First, from a story in the Wall Street Journal:

The U.S. recession deepened last month as U.S. companies shed jobs at the fastest rate since the early 1970s, pushing the unemployment rate to its highest level in 15 years.

The figures suggest the year-old recession will approach or even exceed the 1981-1982 downturn in severity and support expectations that Federal Reserve officials will soon lower interest rates to levels not seen in a half century.

Nonfarm payrolls, which are calculated by a survey of establishments, plunged a larger-than-expected 533,000 in November, the U.S. Labor Department said Friday, the 11th-straight decline and largest since December 1974...

The unemployment rate, which is calculated using a separate survey of households, rose 0.2 percentage point to 6.7%, the highest since October 1993. Economists think the jobless rate, which was just 5% as recently as April, will hit 8% or higher in coming months...

Indeed, Friday's numbers cap a series of bleak economic reports this week suggesting that after escaping a serious downturn so far, the U.S. faces the type of severe recession that occurred in the early 1980s rather than the relatively mild ones of the early 1990s and 2001. Automakers and retailers reported dismal sales in November despite efforts to lure consumers with discounts, suggesting households are putting off spending as they face an uncertain economic climate.

Click here for full story.

Next, economists react to the news.

Will lowering mortgage rates to 4.5% really work?

While it's certainly true that the offer of a fixed-rate, 30-year mortgage at 4.5% seems tantalizing to many people, whether or not it would truly spark a housing sales rebound is unknown. For one thing, to get people to act now, it would have to be some type of limited offer. From a CNNMoney.com story:

Lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%, an industry source said.Similar to an effort unveiled last week by the Federal Reserve, the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac...

The increased demand for mortgage-backed securities would prompt mortgage rates to drop. That, in turn, would enable homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market...

Industry groups have been pressuring President-elect Barack Obama and lawmakers to lend a helping hand to the housing market. The National Association of Realtors, for instance, has called for Treasury to buy mortgage-backed securities.

Meanwhile, a coalition of industry groups have banded together under the "Fix Housing First" banner to call for measures including tax credits of up to $22,000 and the creation of a 30-year mortgage, carrying rates as low as 2.99%...

Experts, however, had mixed views on how much a new Treasury initiative would help homeowners and the economy. Some felt lower rates would help stabilize the housing market by bringing in new buyers and would give those who refinance more money to spend...

But others questioned whether rates would remain low and, even if they did, only a narrow slice of credit-worthy borrowers would benefit...

Also, the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. With credit standards still high, these homeowners would not be able to refinance and take advantage of the lower rates, he said.

Finally, super-low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments.

Beware your 1031 Exchange provider

In theory, one great way to postpone paying taxes on the sale of investment property is to buy and sell through a 1031 Exchange, but there are some time restrictions and everything has to be done through a third-party intermediary. So what happens when that third-party goes bust? Clients of LandAmerica are now finding out. From a Wall Street Journal story:

The collapse of title-insurance company LandAmerica Financial Group Inc. has left hundreds of real-estate investors scrambling to recover money in what was supposed to be a short-term and low-risk arrangement.

The investors, from retirees to a public company, had $400 million on deposit with the LandAmerica subsidiary to take advantage of a real-estate strategy known as a 1031 exchange. A 1031 exchange, named for a section of the U.S. tax code, lets investors delay capital-gains taxes on the proceeds from recently sold property, as long as the investor lets a third party hold the funds. They must reinvest the money in a new property within six months...

The episode is another troubling chapter in the 1031 exchange industry. Earlier this year, a federal grand jury in Virginia indicted Edward Okun, operator of 1031 Tax Group, for allegedly plundering $132 million of client money as a "qualified intermediary," the same role played by LandAmerica. Mr. Okun pleaded not guilty. His trial is set for 2009.

Separately, DBSI Inc., a Boise, Idaho, facilitator of tenant-in-common investments that take advantage of 1031 exchanges, filed for bankruptcy in November, plunging 8,500 investors into a legal morass.

In a 1031 exchange, the seller of a property funnels proceeds into an account held by a "qualified intermediary," an entity that holds on to the money in an escrow-like account for as long as 180 days while the seller finds a new property in which to invest. If successful, the investor defers capital-gains taxes on the sale. (The Federal Trade Commission rejected a petition in August 2008 to regulate qualified intermediaries. Only two states, Nevada and California, require qualified intermediaries to meet certain standards.)

Click here for full story.

Some divorced couples still forced to live together due to housing market

I can imagine the scene now. A recently divorced woman invites a date over for movie night, only her ex-husband is cooking a home-cooked meal in the kitchen with his own date. A-w-k-w-a-r-d! According to an AP story, however, the depressed housing market is forcing more and more divorced couples to share living spaces rather to succumb to foreclosure:

With the recession and the collapse of the housing market, more and more couples who have broken up are continuing to live under the same roof, according to judges and divorce lawyers. Some are waiting for housing prices to rebound; some are trying to get back on their feet financially.

The phenomenon is being felt around the country but most keenly in areas hit harder by foreclosure, such as the Sun Belt.

When the real estate market was booming, couples would promptly sell their home, split the profit and go their separate ways.

These days, Florida Judge John C. Lenderman said, about a third of his cases involve homes that are in foreclosure or that a family is struggling to sell. Lenderman said he had never seen anything like it in 40 years as a lawyer and judge...

Sometimes the financial implications of a divorce are so grim that a couple whose marriage is on the rocks decide to give it another try.

Kent Peterson, a longtime divorce mediator in Wayzata, Minn., said a young couple from the Minneapolis area were moving toward separation until they got a look at all the costs involved in getting divorced.

"The thinking was they need to work a little harder and stay together because of the changing asset picture," he said.

Aww, that's sweet. Click here for full story.

RIP Kimball Hill Homes

Kimball Hill Homes, which didn't build in Southern California but was a large builder in other markets in the U.S. including Central and Northern California, has decided it won't be able to emerge from bankruptcy and is shutting down completely. The news of the company's demise comes after the death of its CEO, David Hill, earlier this year. From a BuilderOnline.com story:

Kimball Hill Homes, a private builder founded in 1969, has become the latest casualty of the housing and credit crisis: the firm will close its doors after finishing the homes currently under construction, according to a company announcement made yesterday... The news indicates just how difficult conditions have become for the nation’s home builders. Kimball Hill, a BUILDER 100 builder which closed 3,246 homes as recently as 2007, filed for Chapter 11 bankruptcy protection earlier this year. But restructuring proved impossible given the current state of the economy and housing market, and now the company plans to either sell the business or its assets.

The past year has been difficult for the company and its employees financially and emotionally. Kimball Hill also lost its founder David K. Hill to cancer in July. He had named the company after his father, Kimball Hill.

I never knew Mr. Hill well, but I know he was a very well-liked figure in the industry, and his company had a very good reputation among the nation's larger private building companies. Its demise is certainly sad news.

And for those numerous commentators on blogs who says, "Good riddance to the greedy builders, someone else will take their place!" I would urge them to reconsider the wisdom of moving their families into homes built by future amateurs filling the void. Suzuki Samarai, anyone?

L.A. Times architecture critic calls L.A. Live a bust

Just when many Angelenos were on the verge of clinching a potential icon that would represent downtown Los Angeles in the 21st century with L.A. Live, L.A. Times architecture critic Christopher Hawthorne considers the second phase a bust, offering us this:

Even by the rather forgiving standards of a city whose leaders -- and whose public, for that matter -- demand little from developers when it comes to civic-minded design, the project is relentlessly focused on creating its own wholly separate commercial universe: a brighter, more strategically frenzied place than the world outside its doors...

The trouble is that the new buildings -- designed by RTKL, a Baltimore-based firm that also created the master plan for L.A. Live -- have almost nothing to say to or about downtown Los Angeles. Clad in glass and panels of metal and limestone, they are adamant in their sleek placelessness.

Their primary concern is matching, in palette and spirit, the Staples Center next door (which, not coincidentally, is also an AEG property). When you get right down to it, their architecture is fundamentally not really architecture at all but an extensive series of armatures on which the developer and its tenants can hang logos, video screens and a sophisticated range of lighting effects.

"...not really architecture at all but an extensive series of armatures?" As my 7-year-old niece would say, "How rude!" But maybe he's trying to make a larger point:

For decades, we have largely built the city with a kind of all-or-nothing zeal, pouring money and architecture into stand-alone projects of increasingly massive scale and failing to coax developers to knit them into their neighborhoods with any real care.

For cities, the benefit of a gargantuan new development is not only the boost it gives to the tax base but also, in urban terms, its spillover effect -- energy and people flowing into the surrounding area. The entirety of the AEG development downtown -- Staples plus L.A. Live -- is designed like an airtight cruise ship, turning not a welcoming face but the architectural equivalent of a massive hull to the neighbors. Its spillover effect may be measured not in gallons but in drops...

Click here for entire article.