Mesa officials discuss Gateway area development

June 26, 2008 - 9:48PM

Sonu Munshi, Tribune

A paradigm shift. Balance and flexibility. Protecting the airport while generating high quality jobs.

Those were the buzzwords at a joint Mesa City Council and Planning and Zoning Board meeting on Thursday to discuss the future of a 32-square-mile area around Phoenix-Mesa Gateway Airport. It’s an area that’s been the subject of much debate, with the city taking on big landowners over whether to allow housing in a section of land near the airport.

Mayor Scott Smith reiterated that it would be best to take time to plan for the area, keeping flexibility in land use. The joint session was set up to hear the big-picture items on the $860,000 city-commissioned study done by consultant group HDR Engineering.

The previous council debated the merits of two land-use plans, one of which paved the way for high-density housing north of the airport, just south of Elliot Road and west of Loop 202.

But former mayor Keno Hawker opposed the idea of bringing housing to that section, in anticipation of noise complaints due to aircraft flying overhead. His plan was strongly opposed by area landowners.

Developers urged flexibility instead of placing rigid designations on the area, instead favoring a broader framework.

Smith said the city seemed to have “leapfrogged” to land-use planning instead of looking at other components including economic development, financing and infrastructure.

“I’d much rather do it right than do it to meet some sort of self-determined deadline,” Smith said. “This is a development plan, not so much as a real-estate development plan but as an economic development plan, an airport development plan, of which the land use is the final piece.”

HDR vice president Mark McClaren underscored that the initial challenge was to develop a plan to create 100,000 high-quality jobs and protect the airport, which he termed “a significant catalyst for growth.”

The economic opportunity, McClaren said, starts with residential development, which creates demand for retail and then establishes labor force and then creates demand for the airport.

Unlike the current Mesa 2025 general plan, which emphasizes industrial development with limited residential development, the study notes there needs to be equitable distribution between housing and commercial uses to bring in more sales-tax dollars. Protecting the airport, however, is emphasized strongly.

Smith took the housing matter head-on, saying it’s all good to have a vision of a mixed-use urban environment, but that there is an airport which could conflict with that vision.

“How do we reconcile the vision of that community with the fact that we have airplanes flying over?” he said.

The city’s planning director, John Wesley, said industrial development was earmarked for near the airport’s runway because it tends to be the most compatible with airport use.

Smith noted that housing drives the market in Arizona and would help drive infrastructural growth.

City Manager Chris Brady said, that’s where the city would have to make a “paradigm shift.”

“We can’t keep saying residential is a threat always to airports because we don’t know 20 years from now how those airplanes are going to take off, what those noise levels are going to be,” he said.

He added the goal and vision would be to protect the airport and to create 100,000 jobs, challenging the market and the developers to make that work.

That appeared to be the consensus.

Smith said the burden would be on developers to prove their projects would not threaten the airport and to show how they would affect airport operations.

Developer kills mixed-use project in Mesa

June 25, 2008 - 10:12PM

Sonu Munshi, Tribune

A real estate developer has pulled out of a mixed-use project in downtown Mesa. New York-based Athena Group decided not to move ahead with plans for the southwest corner of University and Mesa drives, city officials confirmed Wednesday.

Mayor Scott Smith said with the economic situation being as tough as it is, the company's decision "did not come as a shocker." "You want things to work out but this is the nature of real estate," Smith said. "You're at the whims of the economy and finances."

City Councilman Kyle Jones said the council, which took office this month, was given the update about a week or so ago. He said he was disappointed with the outcome. "I thought they would proceed," he said.

"When we first awarded them the opportunity, they had a timeline to do their due diligence and see if it was economically viable for them," Jones said. "With their studies they decided it was not in their best interest to proceed."

The Athena Group did not immediately return calls for comment. The residential, retail and office project was envisioned for 20 acres of a city-owned 25-acre parcel. Mesa Community College has considered extending its campus on the remaining five acres, but the city's economic development director, Bill Jabjiniak, said nothing definite has been worked out. Jabjiniak said the city got confirmation from Athena on halting the plans in April.

He attributed the outcome to "weak real estate fundamentals" and said the company decided that for now the project would be "economically unfeasible."

He added the previous council was informed about the decision.

Jabjiniak said the city is continuing to work through a commercial broker, Phoenix Commercial Advisors, to scout other developers to take over the property.

"It is a real estate downturn so we're being patient," he said.

In January, the council gave Athena a nod to conduct a market study and move forward with a preliminary design for the vacant parcel. Prior to the project, a time-share resort and a minor league baseball park had been proposed unsuccessfully for the site.

Smith said he's still looking at the positive side.

"I look at this as an opportunity as we can look at what we can do with the entire downtown area as a whole," Smith added. "We'll revisit the site with some of the locals and maybe we'll revise our vision for that area."

$300 billion foreclosure-rescue bill advances

Associated Press
Jun. 25, 2008 12:00 AM

WASHINGTON - A major foreclosure-rescue bill cleared a key Senate test Tuesday by an overwhelming margin, with Democrats and Republicans both eager to claim election-year credit for helping hard-pressed homeowners.

The mortgage-aid plan would let the Federal Housing Administration back $300 billion in new, cheaper home loans for an estimated 400,000 distressed borrowers who otherwise would be considered too financially risky to qualify for government-insured, fixed-rate loans.

An 83-9 vote put the plan on track for Senate passage as early as today, but President Bush is threatening a veto, and Democrats are fighting each other over key details. Those challenges will probably delay any final deal until mid-July.

The bill advanced as separate reports underscored rising economic anxiety: Consumer confidence slid to its lowest level in more than 16 years, and closely watched indexes showed a continuing decline in home values.

At the Capitol, Sen. Chris Dodd, D-Conn., Banking Committee chairman, said the lending measure "would allow us to begin to put a tourniquet on the hemorrhaging of foreclosures in this country."

"We need to demonstrate to people in this country that have lost an awful lot of faith in almost everything, but certainly in (Congress), that we can get something done, that we can put aside differences and make a difference in their lives," Dodd said.

Still, conservative Democrats known as "Blue Dogs" are concerned about how to pay for the measure, and members of the Congressional Black Caucus call it unacceptable, arguing it doesn't do enough to address the needs of Black Americans.

Congressional leaders also are divided on how high to place loan limits that apply to government mortgage insurance and financing. The Senate bill sets those limits at $625,000 while a House-passed version puts them at $730,000, a crucial difference in high-cost housing markets like California, home to House Speaker Nancy Pelosi.

Lawmakers have been negotiating behind the scenes with the Bush administration to avert a veto. Dana Perino, a White House spokeswoman, told reporters the Senate measure has "some really good aspects" and Congress is "on the right path."

Borrowers would be eligible for the housing rescue if their mortgage holders were willing to take a substantial loss and allow them to refinance, and if they could show an ability to make payments on the new loan. They would ultimately have to share with the government a portion of any profits they made from selling or refinancing their properties.

The bill also would tighten controls and create a new regulator for Fannie Mae and Freddie Mac, the mortgage giants that provide huge amounts of cash flow to the home-loan market by buying loans from banks.

It would provide a $14.5 billion array of tax breaks, including a credit of up to $8,000 for first-time home buyers who bought in the next year. And it would boost low-income tax credits and mortgage-revenue bonds. The measure falls $2.4 billion short of covering the costs of those tax items, a sore point for Blue Dogs who oppose initiatives that add to the deficit.

Mixing in a controversy involving lawmakers, Republicans and Democrats on the Ethics Committee proposed adding mortgage-disclosure requirements for members of Congress to the bill following a flap over reports that Dodd and Sen. Kent Conrad, D-N.D., got preferential home loans from Countrywide Financial Corp., a lender at the center of the subprime-mortgage mess. The proposal by John Cornyn of Texas, senior Republican on the committee, and Barbara Boxer, D-Calif., the chairwoman, would remove an exception that currently allows lawmakers to omit home mortgages from their annual financial disclosures.

On the broader bill, the 42 House members of the Black Caucus said in a letter to Democratic leaders last week that it has "glaring omissions," including affordable-housing funds for states affected by Hurricane Katrina and grants for states and localities to buy and fix up foreclosed properties. To draw GOP support, Senate Democrats diverted the affordable-housing money to pay for the foreclosure-aid program.

Some Republicans, however, are still vehemently opposed to the legislation, which they describe as a government giveaway for reckless lenders and investors.



The Senate bill would provide $3.9 billion in grants to deal with foreclosed-on properties - a House plan would provide $15 billion - but the White House singled out the funds in its veto threat, and Blue Dogs are demanding that the money be offset with cuts elsewhere.

Fed expected to leaves rates unchanged

Associated Press
Jun. 24, 2008 12:00 AM

WASHINGTON - Straddling risky economic crosscurrents, the Federal Reserve is expected to stand still this week on interest rates.

Fed Chairman Ben Bernanke and his colleagues, who open a two-day meeting today, are in a tricky spot: They are faced with stuck-in-a-rut economic growth along with inflation threats from rising prices for energy, food and other commodities. Fed officials have made clear that because of concern about inflation, they're not inclined to cut rates further. At the same time, they have recognized that pushing rates up too soon could undermine an economy buffeted by housing, credit and financial woes.

"These are very challenging waters to have to navigate," said economist Richard Yamarone at Argus Research.

Against that backdrop, the Fed is almost certain to hold its key interest rate steady at 2 percent when it wraps up its session on Wednesday. If that's the case, the prime lending rate for millions of consumers and businesses would stay at 5 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

Wall Street investors and a few economists believe inflation problems might force the Fed to start boosting rates in August or later this year. However, many others think that's a situation the Fed would like to avoid - especially given that the housing market is still flailing and foreclosures are at record highs.



"It's an extremely hard place for the Fed," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business.

So what's the Fed to do?

"Tread lightly on rates and carry a big rhetorical anti-inflation stick," said Ken Mayland, president of ClearView Economics.

In speeches over the past few weeks, Bernanke and his colleagues have been doing just that. They've ramped up their tough anti-inflation talk to rein in inflation expectations of consumers, investors and businesses. If those groups think prices will keep on rising, they'll act in ways that can worsen inflation.

And, Bernanke, in a rare public utterance for a Fed chief, sounded a warning against the slide in the U.S. dollar contributing to an unwelcome rise in inflation. He sought to use words - versus action - to bolster the dollar and try to lessen inflation pressures.

Consumer prices in the first five months of this year have risen at an annual rate of 4 percent. That's down from a 4.1 percent increase last year - the biggest jump in 17 years - but is still too high for the Fed's liking. Gasoline prices and oil prices have set a string of record highs. Gas has topped $4 a gallon, while oil prices settled at $136.74 a barrel.

On Wall Street, struggling stocks finished mostly lower on Monday; the Dow Jones industrials slipped 0.33 points to 11,842.36.

Economists predict the Fed's policy statement, released Wednesday, probably will go further in highlighting inflation risks but won't go as far as to signal a rate increase at the Fed's next meeting on Aug. 5.

With any luck, if the Fed is successful with this strategy, it might be able to hold rates at current levels through the rest of this year and won't have to start to boost them until next year, some economists said.

That would give the economy more time to gain traction. The Fed is hoping that its powerful series of rate cuts and the government's $168 billion stimulus package will help energize the economy later this year and into 2009. The Fed launched its rate-cutting campaign last September and ordered its most recent reduction in late April. Those lower rates take months to work their way through the economy, however.

Mayland said he believes damage and business disruptions from the Midwestern floods will add to the economy's weakness - another reason why he and others think the Fed will be holding rates steady through the rest of this year.

The economy has grown at a snail's pace in recent months. And, employers have cut jobs every month so far this year. The unemployment rate jumped to 5.5 percent in May, from 5 percent in April, the largest one-month increase in two decades. The unemployment rate is expected to keep on rising in the months ahead - even if economic growth improves somewhat.

Donald Kohn, the Fed's No. 2 official, recently said that in the short term, it may be that some rise in both inflation and unemployment will have to be tolerated.

Setting interest rates "in a manner that balances the undesirable effects of a shock to the system on both inflation and employment will tend to be more efficient than setting policy so as to deliver more extreme outcomes in either inflation or unemployment," Kohn said.

New crisis threatens healthy banks

by David Cho - Jun. 22, 2008 12:00 AM
Washington Post

WASHINGTON - Increasing struggles by consumers and businesses to make payments on a variety of loans, not just mortgages, are setting off a new wave of trouble in the financial sector that is battering even institutions that had steered clear of the subprime-home-loan debacle.

Late payments on home-equity loans are at a record high, according to fresh data from the Federal Deposit Insurance Corp. The delinquency rates on loans for cars, small businesses and construction are spiking to levels not seen in a decade or more.

Unlike last year, when soaring mortgage defaults sparked a crisis of confidence in the financial system, the root of these problems is the downturn in the broader economy. Simply put, consumers and businesses are strapped for cash with job losses growing and retail sales falling, economists said.

"We are not finished with the mortgage problem, but you are starting to see increased delinquencies in other forms of consumer debt," said Paul Kasriel, an economist at Northern Trust Securities. "We are in the eye of the hurricane. We had the first wave of the credit crisis, and it was quite damaging. But there's another wave coming, and it's likely to be as destructive."

The institutions most at risk in this new phase of the credit crisis are regional and local banks, many of which stayed away from subprime mortgages. These firms are key drivers of economic activity in communities across the country.

Without them, consumers would lose a source of personal loans. Small businesses would struggle to stay afloat. Construction companies often can't finance local projects without these banks.

Because they have fewer options than big Wall Street firms for raising emergency funds, these regional and local banks tend to be more vulnerable in a crisis.

In the Washington area, the stock prices of several local banks have already plummeted, with shares of Virginia Commerce Bank falling nearly 50 percent and Alliance Bank dropping about 45 percent since the beginning of the year.

Others swung to a loss in the first quarter after remaining profitable through last year's financial turmoil. The Federal Reserve put at least one, Millennium Bankshares of Reston, Va., under close scrutiny this month out of concern for its financial condition.

The market values of some of these banks have fallen below their book value, or what accountants say the firms' assets are worth minus their debts. This is a sign that investors expect more losses this year.

The market value of Virginia Commerce is about $142 million, below its book value of about $175 million, while Alliance's market value has dwindled to $18.4 million, compared with its book value of $44 million.

The situation is worse in the Southwest and Midwest, where several community banks are teetering and a few have already collapsed.

Even as this second wave erodes the stability of the country's banks, it is already taking a heavy toll on ordinary borrowers. Vanessa Chavez and her family took out a home-equity loan in 2003 to pay for some remodeling of their District of Columbia home and for the medical bills for her pregnancy. Their monthly payments, once the new loan was added to their mortgage, jumped from about $2,000 to $3,700.

Chavez had hoped to help pay the bill by getting a high-paying job. But the economic downturn sabotaged her plan, and she finally took a job as an assistant manager at a Domino's Pizza. Late last year, her mother declared personal bankruptcy, hoping to get the house payments lowered.

"We're doing everything we can to stay in the house," said Chavez, 21. "We've been going through tough times, so we're trying to do as much as we can, even if it is killing us."

For lenders, there is little recourse when a home-equity loan defaults or a homeowner declares bankruptcy. They can seize the collateral for the loan, in this case the house, only after the primary mortgage is paid off.

From October to March, $6.7 billion in home-equity loans became delinquent, increasing the total by 45 percent, according to SNL Financial. The delinquency rate is now 2.24 percent, according to the FDIC, which began tracking the data in 1991.

Losses at banks are going up as a result. JPMorgan Chase absorbed $450 million of home-equity-loan losses in the first quarter, up from $248 million in the previous quarter. It said its total home-equity losses could double by the end of the year.

Smaller banks have even more exposure to such loans. Overwhelmingly, the institutions that hold the most home-equity loans are regional banks, such as SunTrust Banks and National City, according to Fitch Ratings.

Late payments and defaults in every other major category of consumer debt also rose in the first quarter, the American Bankers Association reported. Auto loans issued through car dealers have a delinquency rate of 3.13 percent, the highest since at least 1990, according the ABA.

Foreclosure indicators continued rise in May

Catherine Reagor
On real estate
Jun. 22, 2008 12:00 AM

The housing market continues to search for a bottom as foreclosures continue to climb across metropolitan Phoenix.

In May, 3,402 homes across Maricopa County went into foreclosure, according to the Information Market. Almost all of those homes went back to the lenders. May's foreclosure figure is up from the 2,969 foreclosures, or trustee deed sales, filed in April.

Don't expect foreclosures to slow this month either. The number of pre-foreclosures, or notice of trustee sales, filed also climbed in May. Last month, there were 6,384 pre-foreclosures filed in Maricopa County, compared with 6,143 in April.

Everyone tracking the Valley's housing sector is looking for that key indicator that will show the first sign of a market rebound, or at least an end to the downturn. When pre-foreclosures fall, foreclosures will fall as well.

Fewer foreclosures mean fewer bank-owned properties selling for below-market prices at auctions. It also means fewer listings that people trying to sell their homes have to compete with, and, one hopes, fewer people just struggling to hold on.

May home sales

Another key indicator, home sales, showed a slight improvement last month.

New and existing Valley home sales ticked up in May, according to analyst RL Brown's Phoenix Housing Market Letter. Building permits were up slightly.

There were a total of 7,202 new and existing home sales in May, compared with 6,636 in April. Home-building permits totaled 1,552 in May, up from 1,473 in April.

The median price of a new Valley home has dropped to $218,861, down from $267,934 a year ago. That's an 18 percent drop, but Brown said it improves the market's affordability, which will draw more buyers.

More real-estate talk

If you are near Biltmore Fashion Square in Phoenix today and want to chat about the real-estate market, please stop by Borders at 1 p.m. I will be there to discuss the big issues facing the Valley's housing market and signs that may indicate recovery.

May Valley home resales up over April, report says

J. Craig Anderson
Jun. 19, 2008 08:50 PM

Valley home resale activity increased in May over the previous month but still lagged behind the pace of a year earlier, according to the latest Arizona State University Realty Studies report.

There were 4,265 home resales in May, compared with April's total of 3,760 sales, ASU reported. Both figures exclude foreclosure transactions.

Home resales totaled 4,915 in May 2007, according to the report. Realty Studies Director Jay Butler said May is typically a strong month for home sales.

Still, he said factors such as job losses and layoffs are weakening the economy and likely will add further stress to the housing market.

Investor Report: Anti-Flipping Rules

by Kenneth R. Harney – Realty TImes

Here's some really good news for anyone involved in acquiring, rehabilitating and reselling foreclosed houses: The Federal Housing Administration is temporarily waiving its "anti-flipping" rules and will now insure mortgages on properties that have been owned by the current seller for less than 90 days.

The policy change opens up a potent resource -- the red-hot FHA fixed-rate mortgage program -- to investors and property disposition companies looking to move houses quickly off their books at a profit.

The idea, according to FHA Commissioner Brian Montgomery, is to help get rid of the "glut of foreclosed and abandoned homes" now burdening large numbers of neighborhoods around the country.

FHA's 90-day policy slowed the process down. But at least until June of 2009 -- when the temporary waiver expires -- it should no longer be an impediment.

HUD had adopted the 90-day rule at the height of the housing boom, after it found that scam artists were buying up central city and suburban foreclosures at rock bottom prices, then flipping them at inflated resale prices within days to home buyers using low-downpayment FHA-backed loans.

The buyers frequently were unsophisticated, unaware of the artificial increase in the price, and couldn't afford the high mortgage amounts. They defaulted in large numbers, ended up in foreclosure, and lenders hit the FHA insurance fund for claims.

Under the revised policy, FHA will require purchasers to be financially capable of handling the mortgage, and underwriters will look hard at appraisals. But the agency no longer will rule out insuring a mortgage simply because title to the property had changed hands within the previous three months.

Investors and property disposition firms who work with lenders' "REO" departments can play key roles in returning abandoned and damaged houses back to productive use.

But without dependable financial takeouts -- affordable mortgages for buyers whose credit histories may be imperfect -- their jobs are much tougher.

FHA's return to the foreclosure resale market segment through its waiver of the 90-day anti-flipping rule should give those investors an important resource to start using - now.

Remember: FHA says the policy change is temporary. Even with a new administration, that June deadline just might be for real.

Published: June 27, 2008

Amazon expands to Goodyear

Fulfillment center for online retailer could bring 1,300 jobs

J. Craig Anderson
The Arizona Republic
Jun. 19, 2008 12:00 AM

Online retailers promise to make 2008 a better year for Goodyear by bringing nearly 2,000 new jobs to the house-poor city.

Amazon.com azdc Inc., a subsidiary of Seattle-based Internet retailer Amazon.com Inc., announced plans Wednesday to open a 500,000-square-foot order-fulfillment center in Goodyear, adding more than 600 full-time jobs to the local economy.

The company expects to fill another 700 temporary positions during the holiday season.

Amazon.com's announcement comes just a month after Cincinnati-based Macy's Inc. opened a similar facility for its e-commerce businesses, hiring a workforce of 150 with plans to expand that number to at least 500.

Amazon.com officials said the company has leased a warehouse at 16920 W. Commerce Drive. It would be the second Valley facility operated by Amazon.com, which opened a fulfillment center in Phoenix in the fall.

Goodyear officials say Amazon.com, a Fortune 500 company with more than $10 billion in annual sales, could provide a significant boost with its jobs and tax revenue.

"This is a huge deal for Goodyear," city spokeswoman Nora Fascenelli said.

Goodyear economic-development Director Harry Paxton said city officials are working hard to bring in new employers and broaden the community's economic base, which is heavily skewed toward the now-struggling housing industry.

"It's important to be balanced," Paxton said.

Amazon.com spokeswoman Patty Smith said the West Valley is a good fit for the company because of its proximity to Southern California and abundance of skilled workers.

Smith did not know the pay range for jobs in the planned Goodyear facility but said wages would be competitive with what similar businesses in the market are paying. She said that Amazon.com offers company stock and health-care benefits to all employees.

Amazon.com has dozens of fulfillment centers all over the world for faster delivery of its products, which include books, music and software.

Arizona State University economist Tom Rex said Arizona has become an attractive location for companies that ship products to the West Coast because of its lower costs and growing population.

"Because of California being such a large target for their shipments, it makes the West Valley more sensible," said Rex, associate director of ASU's Center for Business Research.

Goodyear officials are expecting an additional 400 jobs later this year with the planned opening of a for-profit hospital operated by Cancer Treatment Centers of America Inc., a medical and alternative-therapy business based in Arlington, Ill.

Greater Phoenix Economic Council President and chief executive Barry Broome said Goodyear is bucking the trend in a year when few major corporations are opening job centers in the Valley.

"Especially in today's economy, several hundred jobs is a good thing for Arizona," Broome said.

Lower prices, new residents boost home sales

June 17, 2008 - 6:37PM

Misty Williams, Tribune

The Valley saw a slight boost in home sales last month even as thousands more homeowners fell into foreclosure and worries about the struggling economy spread.

A total of 1,845 new homes were sold in May, up from 1,832 sales the previous month, according to the latest Phoenix Housing Market Letter by analyst RL Brown. The number of existing home sales jumped nearly 12 percent from April, the report shows.

It might not be as strong as last year, but “we’ll look back on (2008) as the bottom of the marketplace,” Brown said.

Still, experts say, any recovery is sure to be slow.

Lenders foreclosed on nearly 3,400 Valley homes and issued another roughly 6,370 foreclosure notices last month alone, according to local data firm Information Market.

Builders have finally sold off many of their excess speculative homes, but now they’re competing with foreclosure properties at discounted prices, Brown said.

“We’ve got to clean all of this stuff up before we get totally healthy,” said Karl Stauffer, an agent with Sonoran Properties GMAC Real Estate.

And the trends are steadily heading in the right direction, Stauffer said.

More than 5,000 existing Valley homes were sold in May, the highest monthly total the agent has seen in two years. The number of pending homes sales has also been climbing since the beginning of the year.

The availability of financing has played a significant role in the improving numbers, he said. The use of Federal Housing Administration loans, which have less stringent credit score criteria and require smaller down payments, are surging among local buyers.

Empty feeling at Gilbert subdivision

Foreclosures spread to developers' vacant lots

by J. Craig Anderson - Jun. 18, 2008 12:00 AM
The Arizona Republic

Residents of Cooley Station North awoke Monday to 493 signs of more trouble for their half-empty subdivision.

Process servers had blanketed the Trend Homes community in east Gilbert with foreclosure notices, targeting 493 vacant lots owned by a Scottsdale "land bank," which has fallen behind on its loan payments.

The pending foreclosures are among many recent indications that communities on the fringes of suburban sprawl are likely to face more hardship before economic trends shift in their favor. Residents worry about the ghost-town effects of the half-built subdivision on their falling home values and what might happen if a developer were to come in with a new approach.

Cooley Station homeowner Krista Anderson said those empty lots, now scheduled for auction in late August, represent the future of her neighborhood, southeast of Higley and Warner roads.

"We're living in a subdivision that's half-full," Anderson said. "My main concern is what's going to happen to the subdivision."

The delinquent landowner is Taro Properties Arizona, a so-called land bank based in Scottsdale. Trend Homes had contracted with Taro Properties to purchase individual lots as needed for new-home construction.

When new-home sales in the area ground to a halt, Trend Homes no longer was able to meet its purchase schedule of lots from Taro Properties. In February, Trend Homes filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

Like many other land banks that had contracted with home builders during the real-estate boom, Taro was left with hundreds of vacant parcels.

"They ended up saddled with all these empty lots that nobody wanted," said Mesa real-estate analyst Zach Bowers of Ion Data.

Bowers said he believes more developers and land banks are approaching the brink of foreclosure. Home builder Randall Martin Homes walked away from its Higley Park subdivision in Gilbert in February because of stagnant business and plummeting home values.

Trend Homes did not fare any better during the market downturn that began in early 2006, though the builder recently emerged from bankruptcy proceedings and was purchased June 5 by Phoenix investment firm Najafi Cos.

Reed Porter, Trend Homes' chief executive officer, said his company is trying to work out a deal with Taro Properties to acquire the remaining Cooley Station lots.

"We're working cooperatively with Taro, although we haven't finalized an agreement," Porter said.

According to the foreclosure notice, also known as a notice of trustee sale, Taro Properties defaulted on a $31.2 million mortgage agreement with Bank of America to finance the land purchase.

Bowers said the land bank faces foreclosure on three separate land holdings, two in Gilbert and the other in Phoenix, totaling 1,251 parcels and $75.3 million in mortgage loans.

Ray Howe, a Taro Properties principal, said his company is negotiating on two fronts in its efforts to save the Cooley Station lots from foreclosure.

It is talking with Trend Homes about a possible purchase and with Bank of America to preserve a loan agreement.

"We are very concerned about the situation and are doing everything we can to rectify the situation with the bank," Howe said.

He said that discussions are in the early stages and that there are no guarantees.

"As to how that will turn out, I couldn't say and don't want to say," he said.

Bank of America attorney Craig Williams did not return calls seeking comment.

Land banks all over the country are struggling, Howe added, but said he still believes Taro Properties has the staying power to survive until property values recover.

"It's a matter of holding on," he said.

The foreclosure notices were the latest reminder that all is not well at Cooley Station, where owners say they are increasingly concerned that Trend Homes has abandoned the development.

Construction activity ceased suddenly early this year, and more than a half-dozen unfinished homes stand in various stages of completion, sun-faded and coated with dust. Weeds have reclaimed many of the graded dirt lots.

"They haven't done anything in months," Cooley Station resident Adam Hingley said.

Porter said Trend Homes was unable to finish the homes because, when it entered bankruptcy proceedings, its construction lender, Bank of America, stopped funding the projects.

"We are still trying to work out terms for Bank of America to move forward with completing these homes," Porter said.

Meanwhile, property owners looking to sell not only face a slumping market but questions about the community's future.

Gilbert resident Mark Voss, who has been trying for three months to sell his former home inside Cooley Station, said he bought a townhome there two years ago because Trend Homes was offering incentives that greatly reduced the first year's payments on his $262,000 purchase.

Now, Voss is asking for $199,000. He still hasn't received any offers.

"I'm probably going to take a $70,000 loss," he said.

Construction loans' rate of delinquency hits 13.5%

Andrew Johnson
The Arizona Republic
Jun. 18, 2008 12:00 AM

More real-estate developers fell behind on their loan payments in the Valley in the first quarter, a sign that the local real-estate market still has not hit bottom.

Metro Phoenix's construction loan delinquency rate of 13.5 percent was the second-highest of the largest 100 metropolitan areas in the country, according to Oakland-based Foresight Analytics LLC.

The research firm's data includes both commercial and residential construction loan data that lenders report to the Federal Deposit Insurance Corp., which insures banks.

Only metro Cleveland, at 14.8 percent, had a higher rate than the Valley.

Metro Phoenix's delinquency rate was 2.7 percent in the first quarter of 2007 and has continued to rise since then, to 3.1 percent in the second quarter, 5.3 percent in the third quarter and 8.8 percent in the fourth quarter.

Foresight Analytics Partner Matthew Anderson attributed most of the delinquencies, which include loans on which a borrower is at least 30 days late paying, to housing.

"The story with high construction delinquency rates in general are mostly related to the residential sector deteriorating," Anderson said. "Even though there's been a big pullback and a sharp drop in prices across the U.S., including in the West, I think it's just to some extent those weak market conditions catching up with residential construction projects."

While woes in the housing market may be the primary culprit, commercial developers also contribute to and feel the repercussions of higher delinquencies.

Lenders have tightened their financing standards for residential and commercial developers, requiring borrowers across the board to put down more money on projects while charging higher rates.

They also pay closer attention to the type of projects they finance.

"They really want to see heavy pre-leasing, and they really want to see a . . . great location," said Gregory Miskovsky, managing director of the Phoenix office of Cohen Financial, a commercial real-estate lender.

Foresight's data includes some evidence that commercial real-estate developers and investors are having more financial trouble than in past quarters.

Commercial mortgage delinquencies remain relatively low throughout the country but have ticked up in some areas, including Phoenix, where the average rate increased to 1.6 percent in the first quarter over 0.9 percent a year ago.

Part of the problem is the general downturn in the economy.

Developers of new speculative projects and landlords of current properties are having more difficulty attracting and keeping tenants as businesses downsize or hold off on expansion plans to save money.

Those conditions have also caused lenders to become skittish about financing projects that lack a certain amount of pre-leasing.

Another challenge for developers stems from how they usually finance their projects.

Typically, developers first get a loan to pay for the construction of a project, then they seek a permanent mortgage when the project is completed, said Scott Holland, a managing member of Phoenix-based Keystone Commercial Capital. The company originates and manages loans that are financed by life-insurance companies, banks and other financiers.

Construction lenders make loans based partly on how much they believe the project will be worth when completed, along with leasing and rent projections from the borrower.

Once construction is complete, the developer seeks permanent financing from a mortgage lender, which it uses to pay off the construction loan.

But economic changes can cause mortgage financiers to lend less money than they would have in prior years. That leaves developers scrambling to come up with more money to pay back their construction loans.

The situation could worsen in the short term as investors try to refinance commercial mortgages that are close to maturation, Holland said. Banks may be unwilling to lend as much as they did five or 10 years ago on commercial mortgages because liquidity has dried up.

Rob Curtis, a broker with Scottsdale-based development firm VP Commercial LLC, said his company has started shopping around for new lenders after relying mostly on First National Bank of Arizona for its construction financing over the past several years.

VP Commercial, which builds mostly smaller office and mixed-used projects in the Valley, has noticed that banks want more details about projects up front before agreeing to finance them, Curtis said.

"Now they run a tighter ship," he said. "They really keep an eye on where you're at with your loan extensions."

First National has been one of the lenders hardest hit by the real-estate downturn.

Foresight's data shows that 24.6 percent of the Scottsdale-based bank's construction loans were delinquent and 5.6 percent of its commercial mortgages were delinquent as of the first quarter.

Project to help revive neighborhood

Erin Zlomek
The Arizona Republic
Jun. 17, 2008 12:00 AM

A 50,000-square-foot professional-office project is nearing completion at Surprise's original town site, signaling further turnaround in what has long been the city's most economically depressed area.

The Surprise Crossroads Lake Offices are under construction near Bell Road and Smokey Drive and are scheduled to open by the end of the year.

The city's original town site is a square-mile area bounded by Bell, El Mirage, Greenway and Dysart roads that previously was plagued by subpar housing and shuttered buildings.

City incentives given to new businesses that move there, coupled with a handful of new building projects, continue to spur economic growth in the area.

Surprise Crossroads will house seven office condominiums for lease or purchase on a campus of about 5 acres. Individual units range in size from about 1,200 to 9,400 square feet.

The property sits across from the R.H. Johnson Boulevard entrance into Sun City West.

Other recent development projects at the original town site include Habitat for Humanity of the West Valley's Johnson Townhomes and LAZ Auto Rental & Sales, a family business based in Peoria.

Johnson Townhomes is a 48-unit complex slated to open this summer. LAZ Auto opened its second West Valley facility at the original town site last year.

Valley office market hurting

Rising vacancies, slower rent growth mean perks for tenants, report says

Andrew Johnson
The Arizona Republic
Jun. 17, 2008 12:00 AM

A report released Monday paints a bleak picture of metro Phoenix's commercial-office market, highlighting continued softening in the Valley's downtown and suburban areas amid a weak housing market and a persistent credit crunch.

Stalled job growth in the financial and professional-services sectors have translated to less demand for office space, according to the second-quarter PricewaterhouseCoopers Korpacz Real Estate Investor Survey.

That, combined with recent cutbacks in businesses tied to the housing market, has resulted in rising vacancy rates and slower rent growth in Phoenix and other cities.

Tenants stand to benefit from the conditions.

"Lackluster tenant demand has passed the leasing advantage back to tenants, reintroducing free rent, liberal tenant allowances, and even parking abatements," the report states.

Phoenix's suburban markets, which saw the delivery of 1.1 million square feet of speculative office space in the first quarter and is expected to add 2 million square feet more by the end of 2008, has been hit hardest.

The report said that downtown Phoenix, which historically has had some of the lowest vacancy rates for Class A, or high-end, office space in the country, is "better positioned to withstand economic adversity over the short term" because no new buildings are expected to come online for at least a year.

Two downtown office towers currently under construction, One Central Park East and CityScape, are pegged for completion in late 2009 and are expected to add a combined 1.1 million square feet of space to the area.

Real-estate projects boom near light rail

Valley corridor attracts condos, hotels, offices

Andrew Johnson
The Arizona Republic
Jun. 17, 2008 12:00 AM

Light rail is six months from operation, but the transit system's impact on the Valley's real-estate market has been in full swing with new condos, office buildings and mixed-use developments rising throughout metro Phoenix.

Transit officials estimate that since 2004, developers have spent close to $6 billion on public and private projects on and around the future light-rail line.

Critics, however, say that the transit system has put a burden on taxpayers and that construction of the line has shut down businesses.

The $6 billion figure is based on information Metro light rail routinely gathers from planners in Phoenix, Tempe and Mesa, the three cities in which the 20-mile system will operate beginning in December.

The number includes projects already completed, developments under construction and announced projects within a half-mile radius of the line that officials from those cities say will likely come to fruition, according to Ben Limmer, a Metro light rail planner.

Light rail is not the sole reason why projects in the transit system's vicinity have developed, real-estate analysts note.

But the future system has definitely been a catalyst prompting developers to pay higher prices for property adjacent to the line for condominiums, office buildings and retail centers.

Economic factors, including soaring fuel prices, have caused developers like Eugene Marchese to focus attention on transit-oriented projects.

Marchese's San Diego-based company, Constellation Property Group, bought about 2 acres near Sun Devil Stadium in Tempe on which it intends to develop Stadium Tower.

Current plans for the project, on which Marchese expects to break ground in early 2009, include a 20-story residential building, a 17-story hotel and retail space.

As gas becomes more expensive and drive times grow longer, public transit becomes more attractive, said Marchese, who added that's why developments built with commuters in mind fare well.

"What we find is there's a higher demand for the product because of the location (near light rail)," he said.

Developers also expect the arrival of light rail to deliver a boost to property values in certain areas surrounding the line - a phenomenon that has happened in other cities that have built their own systems.

In metro Dallas, median values between 1997 and 2001 increased nearly 25 percent for office buildings and about 32 percent for residential properties near light-rail stations, according to a University of North Texas study.

That compares with an 11.5 percent increase for comparable office buildings and a 19.5 percent hike for residential properties not located near light-rail stations.

Phoenix-based Equus Development Corp. currently is putting the finishing touches on Century Plaza, a 15-story office tower in midtown Phoenix it has converted into a 17-story condo building.

Equus bought the building at the southeast corner of Central and Lexington avenues in December 2004.

The property's location just south of a future light-rail station was one factor that enticed the company to develop there.

"We were very specific to select right around a light-rail station," said Douglas Edgelow, president of Equus.

Equus also is drafting plans to build four new high-rise towers that could include a five-star hotel, office space and more residential units.

The condo project has seen a significant amount of leasing activity. The company has received down payments on about 80 percent of Century Plaza's 145 units, which are currently priced from about $370,000 for a one-bedroom unit to $2.5 million for a two-floor penthouse, according to Michael Webb, a sales representative for Equus Realty LLC.

Webb and Edgelow say the project's location on the light-rail line, which cuts down Central Avenue to downtown Phoenix, has helped spur demand, along with proximity to office buildings and downtown's entertainment venues.

Commercial real-estate brokers say light rail also has become an attractive selling point for non-residential projects.

Marcus Muirhead, an associate vice president in Colliers International's Phoenix office, said the transit system has even helped spur interest in older office properties that are within a stone's throw of the line.

There is "strong interest" among investors for Class B and C office properties, older buildings that do not include the latest amenities and need improvement, that are located within a few blocks of Central Avenue, Muirhead said.

Muirhead and his colleague, Charlotte Christian, say they expect to see properties within a half-mile of the line to get a boost in value down the road.

"It has created demand and I think it will create more price increases when the rail is in operation," said Christian, a senior vice president with Colliers International who specializes in mixed-use projects.

Christian represented Marchese, the San Diego developer, in his purchase of land for his proposed Stadium Tower project.

Marchese said he paid $6.5 million for the approximately 2 acres about two years ago.

As the Valley's office market struggles to retain and attract tenants during the economic downtown, light-rail proximity also could be an effective marketing point for landlords trying to lease space.

Mindy Korth, an executive vice president with CB Richard Ellis Inc. in Phoenix, recently highlighted the presence of light rail in a marketing package for Meridian Tower, a 21-story office building at 3550 N. Central Ave. that she is marketing on behalf of its owner.

Light rail also could benefit retail centers, which have taken a hit because of the general downturn in the economy.

Mike James, deputy transportation director for Mesa, pointed to the Tri-City Pavilions at the end of the current light-rail line.

The neighborhood retail center, which is anchored by a Safeway, could fare well from people who don't want to drive to do their shopping, said Greg Greenstein, president of JG Management Inc.

The Westlake Village, Calif.-based real-estate investment firm bought the center in 2006.

"Our feeling is that (its location) will add trips to the shopping center because of the adjacent park and ride station," said President Greg Greenstein.