Thanks CR, btw, don't know if you caught this on the previous thread-
"The findings indicate that many CEOs feel the market may cool in the near future and, according to Jerry Flum, CEO of CreditRiskMonitor, "absurd debt and credit deals for [corporations] are reflective of the end of a major business cycle." "
I'm in cities from Sacramento to Fresno and I'm seeing that office space and retail are setting empty for some time instead of business moving in on the day of the final inspection. As long as the builder is getting a check contruction goes on. In the town I live in one local developer was asked not to build the another office building, so he didn't just cleaned up the old building and rented it. It's coming to and end and also seems to be about 8 months to a year behind housing.
jo6pac
Keep up the great site.
CR - you and tanta have really done an outstanding job covering this story. I was tempted the last few months to send you pictures of HUGE CRE developments I've driven by... and not in high traffic, high income areas like OC... but Kansas City, Des Moines, etc. It really is a nationwide event.
I can understand the build up in OC...sort of any way... there is more money there than the whole state of Iowa... but a build up of the scales I've witnessed in Des Moines? I'd like to see the market justifications for it.
"I believe that continued strong non-residential investment (both structures and equipment and software) is one of the keys to avoiding a recession this year."
Yeah, but why would businesses continue to invest in the face of slowing consumer demand? I know the talking heads on CNBC have created some kind of goldilocks scenario where one sector of the economy "hands off" to another sector, by why would such ridiculous-sounding thing happen?
I'll buy businesses continuing to make real investments when someone can point to high capacity utilization in one sector or another (or a printed guarantee that the flow of liquidity will continue).
16:44 HOV Hovnanian Entrpr reports within previously announced range; management has withdrawn its prior estimates for 2007 (25.26 -0.69)
Reports Q2 (Apr) loss of $0.49 per share, which co preannounced a range of ($0.50) - ($0.45) on 5/4, includes land-related charges, $0.01 worse than the Reuters Estimates consensus of ($0.48); revenues fell 29.4% year/year to $1.11 bln vs the $1.13 bln consensus. Due to increased uncertainty of housing market conditions, management has withdrawn its prior estimates for 2007 earnings and will not provide updated earnings projections at this time. However, for the full 2007 fiscal year, the Co expects to deliver between 13,200-14,200 homes, excluding deliveries from unconsolidated joint ventures. "We are frustrated to report that the housing market has continued to slip further in many locations in terms of both sales pace and sales prices. The housing market weakened in the latter part of the second quarter and the slower conditions have continued into May. Lower prices offered to buyers to close homes during the quarter also led to a further reduction in margins and a net loss for the quarter. "An excess supply consisting primarily of existing homes remains in many of our markets. Before the current housing market correction is over, the market needs to work through those inventories." The number of net contracts for Q2 of FY07, excluding unconsolidated joint ventures, declined 21.4% to 3,116 contracts, which was also preannounced.
"The rapidly rising stock market is stimulating business activity and investment. This should continue to support the commercial real estate market. Of course, everything changes if the U.S. consumer stops spending and ruins the party." [ac]
A lot of the commercial real estate is doomed, in my opinion, no matter if consumer spending holds up. Supply and demand. Too much supply coming on line.
With a likely slowdown in consumer spending coming on the heels of a meltdown of the major economic driver in recent years (housing), the prospects are good for a major recession, if not worse...
Nearly 900,000 sqft is being built in OC. I don't know if I am just becoming aware of the signs that have always been there but in the Irvine and Tustin area there are plenty of for lease signs. With the types of jobs being created in OC there is no way that amount of space can be filled with all of the space being added from the broke lenders.
This is long but worth reading. The author also wrote Devil Take the Hindmost. Macquarie was also identified as a short candidate by Jim Chanos last week at an investment conference. If the representations made in the story are true this is an accident waiting to happen and a rather large one at that.
"the preliminary series confirm what I, and Brad Setser, have discussed on several occasions, namely that the export surge, upon which optimists pin their hopes, is looking a lot less impressive after the revision."
"both gross and net national income were revised to show contraction in Q1. The Fed guys (along with Ip at the WSJ) thought that income figures matched labor market data better, so might be a better representation of what is going on in the economy than output figures. Oops. Now the match is not so good. If the state labor tax data from Q3 are a harbinger of things to come, weaker income and output data will both match the labor market data better once the next revisions come in." [kharris, from Econbrowser]
kharris or anyone, Can you explain this? What is the difference between the income and output figures? How is the income computed?
Brian,
I think you need to submit a plan to get out of bankruptcy before a court will give you Chapter 11 protection. Is that what they're calling pre-packaged?
lama - prepackaged bk just means the debtor and major creditors have negotiated & agreed to a 'reorg plan' prior to filing. Sort of like the lawyer saying 'never ask a question you don't already know the answer to'. They all got their part of the script memorized before they ever step into court.
It's been standard practice for quite a while too, not new at all... I'm not sure what the creditors with lessor standing (or minority claims) can do about it.
I believe the judge has more leverage to throw the 'prepackage' out than was typical before the current round of BK reforms... which is why the prepackaging has to be more thorough now. And takes longer in prepackage phase than in the past. At least that's what I've been told... and I'm an admittedly unreliable source... I don't even play a lawyer on TV.
Love to hear a real corp lawyer weigh in.
In this case rumors about the imminent Bally BK had been flying around Chicago for months.
What confuses me is why non-residential construction spending is up so much, but completions (number of square footage coming online) has generally been flat to declining over the last year. I may do a comparison of this for my blog tomorrow.
I wont post where I work, but I inspect both residential and commercial properties. Our residential is dead and all through 2006 the commercial kept us afloat. I will tell you right now that the commercial does lag about one year behind res. I am seeing a LARGE drop off in new commercial construction. I inspect every Chilis, Mac Grill, BOFA's, and ALL Walgreens. It is slowing regardless of what anyone thinks. I am talking about my territory only which is in So Cal. Orange County, Riverside, and San Diego. I dont need any graphs to prove my slow down which has affected all my contractors.
Manhattan - do you think NYC (not burbs but city proper) is immune? I ask because my daughter's BF is doing an architect-internship in a high end agency somewhere in 'The Village'. Don't know the firm & wouldn't repeat if I did.
But we talked about this very subject when they were visiting. I guessed if anywhere would remain healthy - I'd bet it would be NYC proper & also inside beltway Washington DC.
My first reaction after learning the analyst was a 'short expert' was... "vested interest, talking the value down".
Then I read this:
Macquarie officials have blasted back, saying their business model is sound. Macquarie CEO Allan Moss told ABC News in Australia that the companys model is shock proof.
Anyone who thinks their business model is 'shock proof' probably has a thing or two to learn about shocks.
Consumers, whose spending is indispensable to the economy, boosted purchases by a 4.4 percent growth rate in the first quarter, the most in a year.
and here's the really shitty part about it. GAS prices are consumer spending. prices much higher in Q1 07 than 06.
and it all went on plastic. remember those numbers from a few weeks ago saying revolving credit increased double digits?
that's the only difference between .6 and -.6.
The Marin Independent Journal. A Novato mortgage company has laid off nearly all its employees, becoming the third Marin brokerage in just over a month to issue pink slips. Pro30 Funding laid off about 40 staffers last week, retaining a handful of others while the company cleans out its 22,000-square-foot office.
While the mortgage industry has been buffeted by defaults nationwide, particular in the subprime sector, Pro30 founder Bill Coleman said 99 percent of his clients had good credit records.
In many cases, he said, borrowers were defaulting on the loans without making a single payment, perhaps so they could live without housing expenses for six to nine months during the foreclosure process.
The appreciation started to decline, and people looked at their payments and said theyre not going to make money, Coleman speculated. It wasnt a business issue; it was the fact that the industry turned upside down almost overnight.
The closure of Pro30 Funding follows 36 layoffs this month at Paul Financial LLC, a San Rafael-based mortgage company that had 180 full-time workers San Rafael, Santa Rosa and Irvine.
Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the companys headquarters. Paul Financial and GreenPoint said they are not subprime lenders, but felt the residual effects of nationwide problems in the subprime mortgage industry.
When prices began dropping in many markets in late 2005, borrowers options narrowed as banks tightened lending requirements, pushing more people into default and foreclosure.
Coleman said he gave employees a warning a while ago that things were not looking good.
In many cases, he said, borrowers were defaulting on the loans without making a single payment, perhaps so they could live without housing expenses for six to nine months during the foreclosure process.
The appreciation started to decline, and people looked at their payments and said theyre not going to make money, Coleman speculated. It wasnt a business issue; it was the fact that the industry turned upside down almost overnight.
The closure of Pro30 Funding follows 36 layoffs this month at Paul Financial LLC, a San Rafael-based mortgage company that had 180 full-time workers San Rafael, Santa Rosa and Irvine.
Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the companys headquarters. Paul Financial and GreenPoint said they are not subprime lenders, but felt the residual effects of nationwide problems in the subprime mortgage industry.
When prices began dropping in many markets in late 2005, borrowers options narrowed as banks tightened lending requirements, pushing more people into default and foreclosure.
Coleman said he gave employees a warning a while ago that things were not looking good.
In many cases, he said, borrowers were defaulting on the loans without maki
The S&P earnings grew by 8% Yoy. 5% of that was from share buybacks,reducing the floats and boosting earnings per share. Another
3% was from currency exchange gains
from international operations. That
leaves us approx. 0-1% growth. Well, you really can't officially call it a recession.
"Some hedge funds say they are concerned that banks that both sell the derivatives contracts and handle mortgage payments could be involved in a form of market manipulation. The funds fear that banks are making concessions on the underlying mortgages to avoid making good on derivatives contracts that pay off in cases of default."
CR/Others,
Does the reported construction spending indicate money to be spent on new projects which started during the period or is it the amount that was spent on all ongoing projects during a specific period?
dryfly - always here to make me feel warm and fuzzy at night.
thanks
PS: the book is full, haven't been busier every. seriously. ever. we have 9 open contracts billing on the design side ranging from a school, to a health club to a eatery, to an commercial office to an association office.
build side we''re busier than ever as well - residential reno/addition, commercial build outs
brokerage side is where its slower but i'm not hustling that as much right now - shifted focus away to design side - so perhaps its all about my focus but i think the sales market is slower for sure but still healthy here in dc. i'm just not hustling those deals anymore.
that said, i did just close a 10 year lease at $50/ft for 15,000 sq ft. 4% of that is good juju.
eitherway, rest of the world sucks
can't wait for the next administration to come in and start with all the new spending!
All, First! Sorry for all the posts today without much analysis - I have a feeling tomorrow will be worse.
I'll try to write a housing summary post in the next few days ... but I can sum it up: UGLY.
Best to all.
Thanks CR, btw, don't know if you caught this on the previous thread-
"The findings indicate that many CEOs feel the market may cool in the near future and, according to Jerry Flum, CEO of CreditRiskMonitor, "absurd debt and credit deals for [corporations] are reflective of the end of a major business cycle." "
Bad Request 7D
CR,
I may be wrong but does the graph cover Q1 2007?
Regards,
I'm in cities from Sacramento to Fresno and I'm seeing that office space and retail are setting empty for some time instead of business moving in on the day of the final inspection. As long as the builder is getting a check contruction goes on. In the town I live in one local developer was asked not to build the another office building, so he didn't just cleaned up the old building and rented it. It's coming to and end and also seems to be about 8 months to a year behind housing.
jo6pac
Keep up the great site.
The rapidly rising stock market is stimulating business activity and investment. This should continue to support the commercial real estate market.
Of course, everything changes if the U.S. consumer stops spending and ruins the party.
Stated Social security income!!
http://forum.brokeroutpost.com/loans/forum/2/129026.htm
CR - you and tanta have really done an outstanding job covering this story. I was tempted the last few months to send you pictures of HUGE CRE developments I've driven by... and not in high traffic, high income areas like OC... but Kansas City, Des Moines, etc. It really is a nationwide event.
I can understand the build up in OC...sort of any way... there is more money there than the whole state of Iowa... but a build up of the scales I've witnessed in Des Moines? I'd like to see the market justifications for it.
Looking forward to your follow ups.
"I believe that continued strong non-residential investment (both structures and equipment and software) is one of the keys to avoiding a recession this year."
Yeah, but why would businesses continue to invest in the face of slowing consumer demand? I know the talking heads on CNBC have created some kind of goldilocks scenario where one sector of the economy "hands off" to another sector, by why would such ridiculous-sounding thing happen?
I'll buy businesses continuing to make real investments when someone can point to high capacity utilization in one sector or another (or a printed guarantee that the flow of liquidity will continue).
After the close today:
16:44 HOV Hovnanian Entrpr reports within previously announced range; management has withdrawn its prior estimates for 2007 (25.26 -0.69)
Reports Q2 (Apr) loss of $0.49 per share, which co preannounced a range of ($0.50) - ($0.45) on 5/4, includes land-related charges, $0.01 worse than the Reuters Estimates consensus of ($0.48); revenues fell 29.4% year/year to $1.11 bln vs the $1.13 bln consensus. Due to increased uncertainty of housing market conditions, management has withdrawn its prior estimates for 2007 earnings and will not provide updated earnings projections at this time. However, for the full 2007 fiscal year, the Co expects to deliver between 13,200-14,200 homes, excluding deliveries from unconsolidated joint ventures. "We are frustrated to report that the housing market has continued to slip further in many locations in terms of both sales pace and sales prices. The housing market weakened in the latter part of the second quarter and the slower conditions have continued into May. Lower prices offered to buyers to close homes during the quarter also led to a further reduction in margins and a net loss for the quarter. "An excess supply consisting primarily of existing homes remains in many of our markets. Before the current housing market correction is over, the market needs to work through those inventories." The number of net contracts for Q2 of FY07, excluding unconsolidated joint ventures, declined 21.4% to 3,116 contracts, which was also preannounced.
Nice graph, thanks.
But what happened in 1981-82?
WW
"The rapidly rising stock market is stimulating business activity and investment. This should continue to support the commercial real estate market. Of course, everything changes if the U.S. consumer stops spending and ruins the party." [ac]
A lot of the commercial real estate is doomed, in my opinion, no matter if consumer spending holds up. Supply and demand. Too much supply coming on line.
With a likely slowdown in consumer spending coming on the heels of a meltdown of the major economic driver in recent years (housing), the prospects are good for a major recession, if not worse...
CR,
Oops I posted this in the FDIC post when I meant to post it here.
I am sure you caught this from the Register The Orange County Register : The Orange County Register ocregi...cle_1710207.php
Nearly 900,000 sqft is being built in OC. I don't know if I am just becoming aware of the signs that have always been there but in the Irvine and Tustin area there are plenty of for lease signs. With the types of jobs being created in OC there is no way that amount of space can be filled with all of the space being added from the broke lenders.
The next Enron?
This is long but worth reading. The author also wrote Devil Take the Hindmost. Macquarie was also identified as a short candidate by Jim Chanos last week at an investment conference. If the representations made in the story are true this is an accident waiting to happen and a rather large one at that.
Breakingviews | Macquarie
REBear, Yes. The year label is for Q1 of each year - it does look a little confusing.
WW, just shows nothing is perfect - if I remember correctly, there were some tax cuts that favored non-residential construction spending.
Best to all.
From Menzie Chinn at Econbrowser:
"the preliminary series confirm what I, and Brad Setser, have discussed on several occasions, namely that the export surge, upon which optimists pin their hopes, is looking a lot less impressive after the revision."
"both gross and net national income were revised to show contraction in Q1. The Fed guys (along with Ip at the WSJ) thought that income figures matched labor market data better, so might be a better representation of what is going on in the economy than output figures. Oops. Now the match is not so good. If the state labor tax data from Q3 are a harbinger of things to come, weaker income and output data will both match the labor market data better once the next revisions come in." [kharris, from Econbrowser]
kharris or anyone, Can you explain this? What is the difference between the income and output figures? How is the income computed?
The next Enron?
Brian can you provide a synopsis - the link didn't go through for me... said I was denied. Story of my life.
Apparently it is still possible to go bankrupt, though not stay that way for long. Bally Total Fitness files a prepackaged bankruptcy.
Bally Fitness Plans to Enter Chapter 11 - WSJ.com
Brian,
I think you need to submit a plan to get out of bankruptcy before a court will give you Chapter 11 protection. Is that what they're calling pre-packaged?
lama - prepackaged bk just means the debtor and major creditors have negotiated & agreed to a 'reorg plan' prior to filing. Sort of like the lawyer saying 'never ask a question you don't already know the answer to'. They all got their part of the script memorized before they ever step into court.
It's been standard practice for quite a while too, not new at all... I'm not sure what the creditors with lessor standing (or minority claims) can do about it.
I believe the judge has more leverage to throw the 'prepackage' out than was typical before the current round of BK reforms... which is why the prepackaging has to be more thorough now. And takes longer in prepackage phase than in the past. At least that's what I've been told... and I'm an admittedly unreliable source... I don't even play a lawyer on TV.
Love to hear a real corp lawyer weigh in.
In this case rumors about the imminent Bally BK had been flying around Chicago for months.
What confuses me is why non-residential construction spending is up so much, but completions (number of square footage coming online) has generally been flat to declining over the last year. I may do a comparison of this for my blog tomorrow.
I wont post where I work, but I inspect both residential and commercial properties. Our residential is dead and all through 2006 the commercial kept us afloat. I will tell you right now that the commercial does lag about one year behind res. I am seeing a LARGE drop off in new commercial construction. I inspect every Chilis, Mac Grill, BOFA's, and ALL Walgreens. It is slowing regardless of what anyone thinks. I am talking about my territory only which is in So Cal. Orange County, Riverside, and San Diego. I dont need any graphs to prove my slow down which has affected all my contractors.
OT, but some Wall Street type was on the radio this morning. His recommendations were "buy the homebuilders" and "sell the oil companies".
Remind me... what planet are we on?
http://www.landlinemag.com/todays_news/Daily/2007/May07/052907/052907-04.htm
Manhattan - do you think NYC (not burbs but city proper) is immune? I ask because my daughter's BF is doing an architect-internship in a high end agency somewhere in 'The Village'. Don't know the firm & wouldn't repeat if I did.
But we talked about this very subject when they were visiting. I guessed if anywhere would remain healthy - I'd bet it would be NYC proper & also inside beltway Washington DC.
Yes/no?
Thanks Yal.
My first reaction after learning the analyst was a 'short expert' was... "vested interest, talking the value down".
Then I read this:
Macquarie officials have blasted back, saying their business model is sound. Macquarie CEO Allan Moss told ABC News in Australia that the companys model is shock proof.
Anyone who thinks their business model is 'shock proof' probably has a thing or two to learn about shocks.
UK:
Credit card firms forced to write off record debt - Telegraph
Consumers, whose spending is indispensable to the economy, boosted purchases by a 4.4 percent growth rate in the first quarter, the most in a year.
and here's the really shitty part about it. GAS prices are consumer spending. prices much higher in Q1 07 than 06.
and it all went on plastic. remember those numbers from a few weeks ago saying revolving credit increased double digits?
that's the only difference between .6 and -.6.
GDP is adjusted to infaltion using a "price defaltor" but which infaltation ?
The core type.
So all this increase in spending for energy and food (non-core inflation is higher than core) is considered real growth in GDP ?
it used to be that food/energy move up/down. now they moved up and stay there.
| Charts - Yahoo! Finance
anyone noticed that treasury bonds started falling after US-China talks ?
Are the chinese trying to tell us something ?
The Marin Independent Journal. A Novato mortgage company has laid off nearly all its employees, becoming the third Marin brokerage in just over a month to issue pink slips. Pro30 Funding laid off about 40 staffers last week, retaining a handful of others while the company cleans out its 22,000-square-foot office.
While the mortgage industry has been buffeted by defaults nationwide, particular in the subprime sector, Pro30 founder Bill Coleman said 99 percent of his clients had good credit records.
In many cases, he said, borrowers were defaulting on the loans without making a single payment, perhaps so they could live without housing expenses for six to nine months during the foreclosure process.
The appreciation started to decline, and people looked at their payments and said theyre not going to make money, Coleman speculated. It wasnt a business issue; it was the fact that the industry turned upside down almost overnight.
The closure of Pro30 Funding follows 36 layoffs this month at Paul Financial LLC, a San Rafael-based mortgage company that had 180 full-time workers San Rafael, Santa Rosa and Irvine.
Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the companys headquarters. Paul Financial and GreenPoint said they are not subprime lenders, but felt the residual effects of nationwide problems in the subprime mortgage industry.
When prices began dropping in many markets in late 2005, borrowers options narrowed as banks tightened lending requirements, pushing more people into default and foreclosure.
Coleman said he gave employees a warning a while ago that things were not looking good.
In many cases, he said, borrowers were defaulting on the loans without making a single payment, perhaps so they could live without housing expenses for six to nine months during the foreclosure process.
The appreciation started to decline, and people looked at their payments and said theyre not going to make money, Coleman speculated. It wasnt a business issue; it was the fact that the industry turned upside down almost overnight.
The closure of Pro30 Funding follows 36 layoffs this month at Paul Financial LLC, a San Rafael-based mortgage company that had 180 full-time workers San Rafael, Santa Rosa and Irvine.
Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the companys headquarters. Paul Financial and GreenPoint said they are not subprime lenders, but felt the residual effects of nationwide problems in the subprime mortgage industry.
When prices began dropping in many markets in late 2005, borrowers options narrowed as banks tightened lending requirements, pushing more people into default and foreclosure.
Coleman said he gave employees a warning a while ago that things were not looking good.
In many cases, he said, borrowers were defaulting on the loans without maki
FT.com / In depth - Funds attack banks’ aid for subprime borrowers
Summer subprime-mortgage reprieve may be 'mirage': analyst - MarketWatch
The S&P earnings grew by 8% Yoy. 5% of that was from share buybacks,reducing the floats and boosting earnings per share. Another
3% was from currency exchange gains
from international operations. That
leaves us approx. 0-1% growth. Well, you really can't officially call it a recession.
DH @ 3:24 AM EST,
Can you please post a link?
thanks
Yal- say it ain't so!
"Some hedge funds say they are concerned that banks that both sell the derivatives contracts and handle mortgage payments could be involved in a form of market manipulation. The funds fear that banks are making concessions on the underlying mortgages to avoid making good on derivatives contracts that pay off in cases of default."
CR/Others,
Does the reported construction spending indicate money to be spent on new projects which started during the period or is it the amount that was spent on all ongoing projects during a specific period?
Thanks in advance.
dryfly-
just shows you can still shovel shit- from $24-26, to $18-
Question of the day-
How many dripping, shit-burgers do you have to serve before the ignorant look for an alternative place to eat?
Jazz Pharmaceuticals raises $108 mln in IPO - MarketWatch
CRE-
CMBS Spreads: More Insanity in Commercial Real Estate? -- Seeking Alpha
Yal,
GDP inflation adjustment is based upon total inflation, not core inflation, I believe...
dryfly - always here to make me feel warm and fuzzy at night.
thanks
PS: the book is full, haven't been busier every. seriously. ever. we have 9 open contracts billing on the design side ranging from a school, to a health club to a eatery, to an commercial office to an association office.
build side we''re busier than ever as well - residential reno/addition, commercial build outs
brokerage side is where its slower but i'm not hustling that as much right now - shifted focus away to design side - so perhaps its all about my focus but i think the sales market is slower for sure but still healthy here in dc. i'm just not hustling those deals anymore.
that said, i did just close a 10 year lease at $50/ft for 15,000 sq ft. 4% of that is good juju.
eitherway, rest of the world sucks
can't wait for the next administration to come in and start with all the new spending!
can't wait for the next administration to come in and start with all the new spending!
LOL!
Only way it could better if there was a war. Oh wait there IS...
yeah but not the BIG one thats coming after we pull out, iran invades, iraq splinters and the middle east breaks out into a serious land war