Money world

SHILOH — What recession?

If Kevin Bollman is to be believed, tough economic times have had only a minimal effect on plans for the Villages at Wingate. That’s an ambitious 172-acre residential and commercial development now partly under construction at Shiloh — not far from Scott Air Force Base.

Bollman owns J2K, a major developer of the Villages at Wingate. The project, with an estimated cost of more than $140 million, was announced in the summer of 2007. The developers have plans for 270 houses and villas, 96 apartments for older residents, 75,000 square feet of retail space and 60,000 square feet of office space.

The site is just off Green Mount Road, about half a mile north of Carlyle Avenue and four miles south of Interstate 64.

"We never stopped going forward with our plans" despite the recession, Bollman said. "And now it’s good to see the housing market recovering, at least here."

He predicted the development could be built within five years.

Many people are interested in the project, said Bollman, who touted it as the first master-planned community that has come to fruition in Metro East.

The first of two independent living apartment buildings for older residents has been completed and will be ready for occupancy within a few weeks.

Three new houses already are occupied, and about 15 more are under construction, Bollman said. The houses range in price from slightly more than $160,000 to almost $300,000.

Six homebuilders have been involved in the project, and a seventh builder — Dettmer Homes — signed on this month and announced it would build on 82 of Wingate’s 221 single-family sites.

Scott Dettmer, general manager of Dettmer Homes, said his company, which already started building a display house at Wingate, has plans to build houses worth a total of nearly $22 million there.

Other builders with houses either under construction or planned at Wingate are J2K, JLP Homes, McFadden Homes, DF Contracting, New Tradition Homes and Carda Construction.

The architect on the Villages at Wingate is TRi architects. TWM Inc. of Swansea provided the civil engineering for the project. The contractor on the proposed commercial and retail part of the project is Grubb & Ellis Gundaker Commercial.

Developers also are working with the Mascoutah School District for a new elementary school on the project site that could be built in three to five years.

Mascoutah Superintendent Sam McGowen said the school could cost more than $8 million and have space for up to 600 pupils. He said a site for the proposed school already has been graded, near the entrance along Wingate Boulevard.

"I think that area is going to grow soon, and the developers have been great in working with us," McGowen said. "But the school is sometime in the future. The development has to generate revenues … in order to sell the bonds for the school."

Near the center of the Wingate project is a graded site for a 2,000-square-foot clubhouse and adjoining playground.

Bollman said another distinctive feature is a planned section of multi-family row houses, designed in a style echoing a century ago, "kind of like what you’d see at Lafayette Square." Carda Construction is the contractor for those homes.

The project also includes about 30 acres of green space and a planned walking trail.

"When we were putting this whole project together, I was adamant that we had to be unique," Bollman said.

And what’s with the name, Villages at Wingate?

Bollman said he read something a few years ago about an eccentric British Army general named Orde Wingate, who died in a plane crash during World War II. Bollman said he remembered that name and just decided it had a nice ring to it.

That also explains the British influence on the project’s street names, including London Lane, Welsh Drive and Downing Court.

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Sales of existing U.S. homes plunged more than anticipated in December, showing the dependence of the housing market on a government tax credit.

Purchases slumped 17 percent the month after a government tax credit was originally due to expire, the biggest decline since records began in 1968, to a 5.45 million annual rate, the National Association of Realtors said today in Washington. The median sales price increased for the first time in two years.

First-time buyers rushed to complete deals before the $8,000 government incentive was due to end, pushing sales up 28 percent in the three months to November. The subsequent extension and expansion of the credit to include closings through June signal demand will strengthen in the first half of 2010, while raising the risk the market will then slow anew should jobs remain scarce.

“We’ll see a pickup in existing home sales in the next couple of months,” said Adam York, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who forecast a 5.4 million sales pace. Although “we’re past the bottom,” he said, “I don’t think there’s going to be a lot of buyers out there looking for a home outside of the tax-induced effects until they feel more comfortable with the labor market.”

Stocks trimmed earlier gains following the report. The Standard & Poor’s 500 Index rose 0.5 percent to close at 1,096.78. The S&P Supercomposite Homebuilder Index was up 0.2 percent.

Less Than Forecast

Economists forecast existing home sales would fall to a 5.9 million rate in December from a 6.54 million pace the prior month, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 5.4 million to 6.75 million.

For all of 2009, existing home sales rose 4.9 percent to 5.16 million, the first gain in four years, from 4.91 million in 2008. The median price last year was $173,500, down 12 percent from 2008, the biggest annual drop on record and probably the largest since the Great Depression, NAR chief economist Lawrence Yun said in a news conference.

The median value in December was $178,300, up 1.5 percent from the same month in 2008. The increase was the first since August 2007 and the biggest since May 2006, the agents’ group said. A decline in the number of first-time buyers, who usually purchase less expensive houses, helped push up the median value last month, Yun said.

First-Time Buyers

The share of homes sold to first-time buyers fell to 43 percent in December from 51 percent the prior month, Yun said, indicating the expected end of the tax credit played a role in the drop in sales no fax payday loans.

President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include current homeowners. Even so, some economists believe the original measure pulled sales forward, restraining demand for a few months.

Yun said he was “generally pleased” with the December outcome since he feared an even larger drop following the expected expiration of the tax credit. “There is an increase in home-buyer confidence,” he said, adding “there is some sustainable momentum” in sales. Even with the decline, sales were still up 15 percent from the same month last year, signaling a general improvement, he said.

The number of previously owned homes on the market decreased 6.6 percent to 3.29 million, the lowest level since March 2006. At the current sales pace, it would take 7.2 months to sell those houses, compared with 6.5 months at the end of November.

Fed Action

The end of Federal Reserve purchases of mortgage-backed securities aimed at keeping borrowing costs low represents a challenge for the industry. The program is scheduled to expire by March 31.

Policy makers are scheduled to meet this week to discuss the direction of the benchmark lending rate between banks. The emergency programs were being wound down “in light of ongoing improvements in the functioning of financial markets,” central bankers said in their Dec. 16 statement.

Joblessness and foreclosures are other concerns. Unemployment is forecast to average 10 percent this year, the highest level in seven decades. A record 3 million U.S. homes will be repossessed by lenders this year, RealtyTrac Inc. forecast on Jan. 14. That is up from 2.82 million in 2009, the most since the company began compiling data in 2005.

Competition with foreclosures has been especially daunting for homebuilders. KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, said Jan. 12 that fourth- quarter revenue dropped 27 percent.

KB Home’s orders rose 12 percent to 1,446 from 1,296 in the year-earlier quarter, while completed sales dropped 22 percent to 3,042. The company is “not going to make money in the first quarter” and plans to “restore profitability” in the second half of 2010, Chief Executive Officer Jeffrey Mezger said Jan. 12 in a conference call with analysts and investors.

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Oil prices plunged Wednesday on a stronger dollar and amid investor concern that the Chinese government will continue to tighten its credit policy.

What prices are doing: Oil fell $1.87, or nearly 2%, to settle at $77.62 a barrel, after dipping as low as $76.96 a barrel earlier in the session.

On Tuesday, oil rose for the first time in six days, recovering from its lowest level so far this year.

What’s driving prices: Reports that China has asked major banks to cease lending until the end of the month in order to tighten the country’s credit market spooked investors. The news comes a week after the Chinese government raised bank reserve requirements for the first time since 2008.

"This shows us that China is serious about slowing down its explosive demand growth," said Phil Flynn, a senior market analyst at PFG Best. "If the Chinese government continues to take steps to slow the economy, it’s going to be bearish for prices in the short term fast cash now."

Meanwhile, the dollar rose as investors lost their appetite for risk, worrying about China’s attempts to slow its economic growth.

"That market seems to be on fire today," he said. "The dollar’s incredible strength is definitely going to put pressure on the market."

What analysts are saying: "It’s going to be harder and harder to maintain these prices," said Flynn. "There’s no doubt the economy is getting better, what is in doubt is whether that translates into $78 to $80 prices for oil."

Flynn said he wouldn’t be surprised to see a major sell-off in the next couple of months and he predicts that oil may drop as low as $40 a barrel. 

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Former Federal Reserve Chairman Paul Volcker said Thursday that more needs to be done to regulate the financial system before the lessons of the recent crisis are forgotten.

"We must not shrink away from change but accept the need for basic financial reform," said Volcker, currently chairman of President Obama’s Economic Advisory Board, in remarks to the Economic Club of New York.

He said the economy appears to be growing slowly, and that the financial crisis is beginning to seem to some like a "bad dream."

But the magnitude of the crisis showed that the underlying problems are "more fundamental" and require "broad reform" of the financial system, he warned.

The former Fed chairman said the central bank should play a key role in overseeing the financial system. Among his ideas, he said the Fed should have the power to dismantle big banks that pose a systemic risk to the economy.

"The old question (about banks) colloquially described as ‘too big to fail’ looms larger than ever," Volcker said.

In a response to recent criticism of the Fed, he said the central bank is less subject to political pressure than other regulatory bodies.

"These days, best-selling books remind us that the challenges to that structure, and particularly to the Fed’s insulation from political pressure, arise from time to time," Volcker said, referring to a popular book by Rep. Ron Paul, R-Texas.

"The sense of anger about the amount of funds required to bail out both institutions and markets is palpable," he added. "But that truly exceptional response to the financial crisis — drawing on long-dormant emergency powers — was a properly coordinated decision with the administration, not a misuse of independent authority."

The remarks came on the same day that President Obama called on Congress to tax the largest banks to ensure that U.S. taxpayers don’t lose a penny from the federal bailout of the financial, auto and insurance industries over the past year

Volcker said the proposed tax "seems to me to be a not unreasonable response." He said the banks subject to the tax have benefitted from taxpayer aid and "should carry their share of the burden."

The proposed "financial crisis responsibility fee" is aimed at large institutions that received significant federal aid during the height of the crisis, but have since recovered and are now poised to pay tens of billions of dollars in bonuses.

On Wednesday, four top bank chief executives went before a panel to answer questions about the role their institutions played in causing one of the worst financial shocks in a generation.

The CEOs of Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) told the Financial Crisis Inquiry Commission that they made mistakes but didn’t realize how bad they were at the time. 

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Target Corp. on Friday announced a new national TV delivery and installation service.

Target (NYSE: TGT) customers who purchase TVs in-store can have the products shipped to their home and installed staring at $99.

The nationwide service is part of a growing partnership with Minneapolis-based Zip Express. The two firms joined up in 2008 to deliver and install TVs that customers purchased over Target.com.

According to the firm’s web site, Zip Express has 16,000 installers from coast to coast and delivers to every U guaranteed online personal loans.S. ZIP code.

Some prices for Minneapolis-based Target’s services include:

• Any size TV delivery and setup - $99
• TV in-wall installation - $199
• Delivery and wall mount - $249
• TV recycling - $50
• Video game counsel set-up - $99

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Flying into Pearson International Airport offers a view of the GTA that would make even the least excitable solar entrepreneur salivate.

What’s the big deal? In a word: rooftops. Thousands of flat rooftops on hotels, manufacturing plants, warehouses, apartment and office buildings, schools, hospitals and shopping malls. Each is a sunlight sponge with the potential to take the sun’s rays and convert them into emission-free electricity.

In a province prepared to pay richly for solar power, it’s no surprise then that the race is on to lock up leases on prime rooftop real estate across the Greater Toronto Area and the rest of Ontario.

"It’s kind of like a gold rush right now," said Justin Woodward, director of solar development for Toronto-based Greta Energy Inc., which is focusing its efforts on smaller towns outside the GTA.

Greta Energy is one of dozens of emerging ventures that are approaching commercial property owners with an offer that is difficult to refuse.

Give them 20-year access to your building’s unused rooftop and they’ll kindly compensate you for the space – similar to how farmers over the years have earned income by allowing wind turbines on their property.

With that secured access, companies will design, build and own the rooftop solar system at no expense or risk to the building owner. They’ll then apply to connect the system to the grid as part of the Ontario Power Authority’s feed-in-tariff program, which for large commercial rooftops pays between 53.9 cents to 71.3 cents per kilowatt-hour and guarantees quick connection to the grid.

Payment to the building owner can come in a number of ways: a percentage of annual electricity revenues from the system, or a fixed price per square-foot of rooftop being used to host the system.

Greta Energy prefers the square-footage approach, which can vary from 10 cents to $1 per square foot but on average lands at about 30 cents. This means a 250-kilowatt system that takes up 40,000 square feet (3,716 metres) of space would result in an annual payment of $12,000 to the building owner.

"The rooftop lease works out to about 10 per cent of (electricity) revenues," said general manager Chris Young of Ottawa-based Enfinity Canada

"At the end of the term the equipment is transitioned to the building owner’s hands so he can benefit from electricity production beyond the 20-year contract."

Alternatively, compensation might be a guarantee to supply solar-sourced electricity over two decades for less than what a building owner currently pays. CarbonFree Technology of Toronto takes this approach.

The market is increasingly becoming crowded, with Ozz Solar, Helios Energy, Rumble Energy and SunOne Energy Canada among a growing list of solar rooftop aggregators knocking on doors.

Woodward said he’s noticed a dramatic change since the Ontario Power Authority announced the province’s new feed-in-tariff program on Sept. 1. He estimated that for every 10 building owners that were cold-called three months ago there would be one that had already been contacted by a competing developer.

"It’s now probably one in four calls," he said. "Right now there are a lot of small players jumping into the market, people who just get business cards made up or foreign companies just cold-calling commercial property owners."

Building owners need to be cautious, said Young, warning that some "lease consultants" are merely accumulating rooftop real estate that can be flipped for a profit.

"If they sign on with someone who is going to flip the project to someone else, that’s money out of the building owner’s pocket," he said. "Property owners should be looking for people who have a strong financial track record and are capable of following through with the project they’ve contracted for."

He said rooftops must also be inspected to ensure they are strong enough to handle the weight of both the panels and winter snow. Enfinity, for example, builds the cost of insurance into its business model to take account of possible damage to a roof.

Ben Chin, a spokesman for the Ontario Power Authority, said it’s important for property owners to do their homework before entering any long-term leasing contract.

"You wouldn’t hire a plumber without experience," said Chin

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Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The figures track credit card debt and non-revolving loans, such as those to buy autos.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”

The series of 10 straight declines in consumer credit was the longest since record-keeping began in 1943.

Treasury two-year notes gained the most in three weeks after the Labor Department said today that companies reduced payrolls in December by 85,000 workers after adding 4,000 a month earlier. The unemployment rate held at 10 percent.

Stocks, Yields

Two-year Treasury yields dropped below 1 percent, to 0.97 percent at 4:52 p.m. in New York, from 1.02 percent late yesterday.

Consumer credit in October was revised from a previously reported $3.5 billion decline, and the forecast for November was based on the median of 32 estimates in a Bloomberg News survey. Projections ranged from decreases of $2 billion to $10 billion. Credit dropped at an 8.5 percent annual rate in November.

Revolving debt, such as credit cards, plunged by a record $13.7 billion in November, the Fed’s statistics showed. Non- revolving debt, including loans for autos and mobile homes, declined by $3.8 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

Auto sales in the U.S. climbed in November to a seasonally adjusted annual rate of 10.92 million, up from 10.45 million in October. The pace increased to 11.23 million in December, the strongest since 14.09 million in August, when Americans took advantage of government incentives.

Consumer Spending

Consumer spending increased in November for the sixth time in seven months as Americans took advantage of discounts during the holidays, Commerce Department figures showed Dec fast payday loans. 23. Faster growth in sales and improvement in households’ balance sheets depends on job creation.

“U.S. consumer credit quality remains under considerable stress due to persistently weak labor market conditions,” said Michael Dean, managing director at Fitch Ratings. A report from Fitch on Jan. 5 showed delinquent balances on credit cards at a record level.

At American Express Co., defaults and delinquencies fell to 2009 lows. AmEx was the only one of the “Big 6” credit-card issuers to post November declines in write-offs and delinquencies, the New York-based lender said in a Dec. 15 regulatory filing.

Bank of America Corp. Chief Executive Officer Brian T. Moynihan has said the largest U.S. lender needs to reduce the loss rate on credit cards, which ranked highest among the nation’s six biggest card companies in November. Bank of America’s card defaults are “still very high,” Moynihan, 50, said.

‘Significant Bubble’

“As an industry, we over-lent and customers over-borrowed, and that led to a fairly significant bubble,” Moynihan said Jan. 4 in an interview on Bloomberg Television in Raleigh, North Carolina. “We have to help lead the economic recovery. At the same time, we have to be responsible lenders.”

Banks have responded by tightening credit standards, for consumers and companies. Fed Governor Elizabeth Duke said in a Jan. 4 speech that total loans on banks’ books fell at an annual rate of more than 11 percent in the third quarter. While banks are reducing lines of credit and tightening lending standards, small businesses are also losing their business relationships with banks as firms fail, merge or reduce their loan portfolios, Duke said.

Broken Relationships

“When existing lending relationships are broken, time may be required for other banks to establish and build such relationships, allowing lending to resume,” Duke said.

Britt Beemer, chairman of consumer polling firm America’s Research Group, said in a Dec. 21 interview that if lenders weren’t cutting customer spending limits and rejecting more credit-card applications, holiday sales would have been stronger.

December same-store sales climbed 3 percent, the biggest gain since April 2008, Retail Metrics Inc. said yesterday in an e-mailed statement.

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General Motors of Canada Ltd. has not reversed any of its decisions to close dealerships across the country after some store owners requested management reviews.

GM spokesman Tony LaRocca confirmed Monday that 38 dealerships had objected to the company’s wind-down offer and most have pursued management reviews, but the automaker has not yet changed its closing decisions.

"None of them have been reversed so far," said LaRocca, GM’s director of communications. "But the point of a management review is to look at all the available information, so if something new is presented, then a reversal can’t be ruled out."

LaRocca said 26 dealers requested management reviews and seven have resolved their objections by accepting wind-down offers providing partial compensation for closing before the end of last year.

"In other words, those dealers felt our offer was fair after review."

LaRocca added that three other dealers that initially pursued reviews are taking their cases to mediation and the industry’s National Automobile Dealer Arbitration Program.

He said GM continues to talk to 16 other dealers in efforts to resolve their cases. That could lead to acceptance of wind-down agreements, possibly taking their cases to mediation and arbitration or a reversal of a closing.

The other 12 dealers who objected to wind-down offers have sued GM for ending their franchise agreements, in a "high-handed, oppressive and patently unfair" manner, according to their claim statement business card.

In addition to millions of dollars in damages, those dealers are also seeking an injunction prohibiting GM from ending their agreements and a declaration entitling them to remain open for at least another five years. Their current franchises expire in the fall.

GM announced last May that it would close 240 Canadian dealerships to reduce costs and qualify for about $10.6 billion in federal and provincial government aid.

About 85 per cent of the dealers who received nonrenewal notices accepted wind-down agreements and shut down by the end of 2009.

Bob Slessor, one of the dealers suing GM, said he doubts GM will reverse any decisions by the time the company completes its review.

"Even though they go through the process, there are no surprises," said Slessor, who runs a dealership in Grimsby. "A GM vice-president reads from a prepared script."

In the United States, the termination of dealers by GM and Chrysler triggered a backlash that led to legislation last month establishing an arbitration process to determine the fate of many store owners.

The legislation calls for arbitrators to “balance the economic interest of the covered dealership, the economic interest of the covered manufacturer and the economic interest of the public at large” in considering criteria such as the dealer’s profitability and business plan.

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In today’s troubled economic climate, almost no residential community is immune to the threat of foreclosure. And a foreclosure can affect more than just a single home. Proactive measures must be taken to ensure the overall vitality of entire neighborhood or residential community.

Many such communities have a homeowners’ association or a board of trustees. They have a fiduciary duty to resolve delinquent association fees.

To that end, the company that manages the association should have in place a collection procedure and an attorney to aid the board in implementing decisions related to any foreclosure. An attorney has the ability to place a lien, allowing the association to attempt to recover delinquent association fees.

Maintaining a foreclosed property’s curb appeal to the community association’s standards is critical to sustaining the real estate value of the other homes in the area. The association’s management company, board members, trustees and homeowners should work together to protect their investments.

To preserve adjacent properties and to protect homeowners’ interests when a residence becomes vacant, community associations should keep utilities on. Continued presence of heat and electrical services prevent pipes from freezing and breaking in cold weather. They also give an empty residence a lived-in look. Also important is keeping the residence free of trash or anything else that might cause odors, attract insects or produce other problems. Neighbors can help by contacting the association’s management at the earliest sign of foreclosure activity.

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