by Calculated Risk on 4/12/2009 10:19:00 AM

"Everybody is building these big buildings, and they're empty. It is sad. I live in a ghost town."
Robert Siegel, an advisory neighborhood commissioner

From the WaPo article on the stalled commercial construction projects at the Capitol Riverfront Business Improvement District: At Nationals Park, District of Dreams Hits a Slump (ht mort_fin)

A few excerpts:

At [Nationals owner Theodore N. Lerner]'s 10-story office building at 20 M St., the lobby doors are sometimes locked much of the afternoon. The only tenant is a bank.

A few blocks away, at 2nd and M streets SE, sits a parking lot where developer Chris Smith had planned to build a 10-story office building without a tenant signed in advance. Now he says he needs to have the building about 70 percent leased to even try for financing.

Closer to the Anacostia River, Florida Rock owns land where a cement plant still operates. It hopes to begin construction on office, retail, hotel and residential buildings in the fall of 2010 -- if it can get financing and find a major office tenant.

Nearby, Cleveland-based Forest City stopped construction on a loft building at its project, the Yards, because it couldn't get a loan. It is trying to get financing through a city housing program to restart construction. In the meantime, brown paper and plywood cover the windows.

At developer JPI's apartment project, called Capitol Yards, about half of the nearly 700 apartments are leased. For the past four months, the developer offered two to three months of free rent on the units, which start at roughly $1,600 for a one-bedroom.

Here is a map of the D.C. neighborhood. And a Google map of the area:


View Larger Map

And I had heard that D.C. was immune ...

by Calculated Risk on 4/12/2009 12:34:00 AM

These photos are of a CRE project in San Diego.

Click on photo for larger image in new window.

Photo credit: Michael C.

Michael writes:

Who knew that i-beams create a perfect home for cottontails!

... this was suppose to be 12 buildings and three parking garages.

Now it is one building and a field of steel.



Michael estimates the delivered steel takes up a football field!

At least the rabbits have found a place to hide.

by Calculated Risk on 4/11/2009 10:00:00 PM

Here is an interview with Paul Krugman earlier this week ...

"We have some real real problems. They are not going to go away through self-fulfilling optimism. One of the little things that has been reported is that the IMF now - International Monetary Fund - has upped its estimate of losses on bad loans to $4 trillion. Not so long ago $1 trillion was considered an exorbitant estimate."
Paul Krugman, April 7, 2009

On delaying the release of the stress test results (actually the original release date was the end of April):

I think we can say pretty clearly that if the stress tests were saying that every thing was fine, they probably wouldn't be eager to postpone the release of that. This is a problem. One of the versions that we're hearing is that they'll release some generic information, but not information on particular banks. Boy would that be a downer. What everyone is worried about is what we talk about Japan in the '90s - keeping the zombie banks still shambling forward. There is a lot of feeling that American zombie banks now on the march. This news was not good. It made that scenario look a little bit more likely.

by Calculated Risk on 4/11/2009 06:56:00 PM

From The Oregonian: Construction of downtown Portland high-rise is halted by tight credit (ht Shawn, Justin, Neil)

Tom Moyer, one of Portland's most successful real estate developers, will halt work Monday on his 32-floor tower now under construction in downtown Portland.

Moyer's decision to pull 350 workers off the Park Avenue West is a stunning sign that no city, no person and no block is spared from this recession.

... The building, originally scheduled to open in 2011, already was more than half leased by a law firm and a Nike store.
...
At the job site Friday, the concrete, mechanical and iron workers left the site about 3 p.m. with the building 15 percent finished. It remains just a parking garage, frozen for now about three floors below ground.
...
[Vanessa Sturgeon, president of TMT Development] said she expects construction to remain stopped until they can find financing in early 2010. They'll use the time to redesign the building and lop off the top 10 stories that were to be "ultra-luxury" condos.
...
Carpenter Steve Callopy said he has no safety net beyond unemployment compensation and doesn't see any fresh work on the horizon. Commercial construction, in particular, seems to have fallen apart.

"Do you see any commercial stuff going on?" he said. "I see a lot of commercial 'For Lease' signs."

This article makes several key points:

Even the best financed CRE developers are halting work. This building was already half leased!

The most financing the developer could find was 45% LTV.

Even when construction restarts, the developer is "lopping off" the top 10 stories of luxury condos. That condo market will dead for years.

There will be many more construction jobs lost this year as CRE projects are completed or halted.

by Calculated Risk on 4/11/2009 01:56:00 PM

National Credit Union Administration (NCUA) released an update on the two corporate credit unions seized three weeks ago. (ht August)

First, on the size of the two seized corporate credit unions:

U.S. Central has approximately $34 billion in assets and 26 retail corporate credit union members. WesCorp has $23 billion in assets and approximately 1,100 retail credit union members.

These "corporate credit unions" don't serve the general public, and all "natural person" credit union money held at these corporate credit unions was guaranteed earlier this year.

From NCUA Chairman Fryzel in yesterday's Media Advisory:

The outline released today of the portfolios of WesCorp and U.S. Central, and NCUA’s associated summary analysis, provides a concise synopsis of the respective portfolios and enables informed parties to appreciate the scope and severity of the stress on these investments. Though virtually all of the securities purchased by these two corporate credit unions were AAA or AA rated at the time of purchase, the summary clearly demonstrates how the nature of the securities and the deterioration in the economy have resulted in significant expected credit losses.

Here is the corporate stabilization program.

And the following is from the analysis of the portfolios held at WesCorp and U.S. United.

The securities purchased by corporate credit unions ... were all permissible under NCUA’s Rules and Regulations. Almost all had very high ratings (AAA and AA) as assigned by the nationally recognized statistical rating organizations (NRSROs). NRSRO ratings were the norm in the financial markets for determining the quality of a security. However, NRSROs relied primarily on historical data of the performance of a security’s underlying assets in making rating determinations. No reliable historical data existed relating to the performance of the sub-prime and other types of loans that were originated in a period of rapid home price increases and relaxed underwriting criteria. As such, NRSRO ratings did not prove to be a reliable means of determining the quality of these securities. Since late-2007, analysis of these securities has been based on actual performance of the underlying assets and projected future performance. This has led to very significant downgrades in the NRSRO ratings of many of the securities held by corporate credit unions. The downgrades had the most severe impact on the portfolios of WesCorp and U.S. Central.
emphasis added

And the following table shows the ratings at the time of purchase and the most recent ratings.

Click on graph for larger image in new window.

There is much more in the document on these portfolios. As an example, WesCorp bought a significant amount of AAA rated mezzanine securities back by Alt-A and Option ARMs - and those securities have taken substantial losses since they absorb losses before more senior securities.

Sadly most of the problem securities were bought in 2006 and 2007 - after the housing bust had already started.