Phoenix Market News :: August 15, 2011

LOCAL NEWS

Valley Foreclosure Rate Under 30%, a 1st Since 2009

The Arizona Republic :: August 12, 2011
The metro Phoenix foreclosure rate has not only fallen for the past five months but in July it dipped below 30 percent for the first time since the spring of 2009, Arizona State University reported Thursday. The steady decline could mean that after a moratorium on foreclosures imposed last fall, lenders have just slowed the process down to make sure everything is being done correctly, said Jay Butler, professor emeritus at ASU's W.P. Carey School of Business. Or it could represent better news. "And I think to some degree, hopefully, we are running out of people to foreclose on. I mean, we have foreclosed on over 12 percent of the single-family market here in Maricopa County," he added. There were about 2,500 single-family foreclosures in July, compared with 3,300 in June and more than 3,800 in July 2010. The rate, which shows the percentage of single-family home transactions that include a foreclosure, dipped to 29 percent in July. It peaked at 46 percent last September before the moratorium. Of course, the housing market is a long ways off from being normal, Butler said. The recent volatility in the stock markets and congressional debate over the country's debt won't help, he added.

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Chandler, Tempe Get Apartment Complex

The Arizona Republic :: August 13, 2011

Two new apartment complexes are on tap for the East Valley, including a Tempe project that developers say is the largest of its kind in the Valley in more than two years. Work on the $29 million San Marquis Apartments, at Baseline and Rural roads, is under way and set for completion in late 2012. It will have 224 units. It's a venture of Kitchell Development and Mark-Taylor, two firms with development and property-management experience. The two companies also plan to break ground soon on a second and larger project, the 383-unit Parcland Crossing luxury apartment community at Loop 202 and Alma School Road in Chandler. That venture, with an estimated cost of $44 million, also is slated for completion late next year. "We see multifamily as a key growth sector over the next several years," said Ryan Cochran, Kitchell's director of development, in a statement. "A number of our mixed-use developments will have a multifamily component."

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Phoenix Manufacturing Jobs Down 20 Percent

Phoenix Business Journal :: August 11, 2011
The U.S. manufacturing sector has been battered in recent years, and the Phoenix area is no exception. ccording to the U.S. Bureau of Labor Statistics, Phoenix has shed 20 percent of its manufacturing jobs since mid-2006. However, in the past year, the Phoenix-area has gained back about 2 percent of its manufacturing jobs. The nation’s 100 major markets lost 1.43 million manufacturing jobs during the past five years -- an average of 783 each day. Few metros have been exempt from this freefall. Only four of the top 100 markets possess more manufacturing jobs today than in mid-2006: Bakersfield and Modesto, Calif., Charleston, S.C., and Houston. Twenty major metros, on the other hand, have seen at least a quarter of their manufacturing bases vanish during the past half-decade.

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Phoenix Drops 8% of Retail Jobs in Past Five Years

Phoenix Business Journal :: August 12, 2011
The Phoenix area has shed 8.4 percent of its retail jobs in the past five years, according to new figures from the U.S. Bureau of Labor Statistics. The 8.4 percent loss in retail jobs ranks the Phoenix area 76th in the nation among the top 100 metros in the country. Over the past year, Phoenix has gained back 0.6 percent of those retail jobs. That one-year growth rate ranks the Phoenix area 50th out of the top 100 U.S. metros. Only 14 of the nation’s 100 biggest metropolitan areas have more retail jobs today than five years ago. If the timeframe is condensed to a single year (mid-2010 to mid-2011), 62 markets show retail improvement, though 37 are still on the downside and one is unchanged.

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Sky Harbor Traffic Up 6 Percent from a Year Ago

Phoenix Business Journal :: August 8, 2011
Nearly 210,000 more passengers flew in and out of Phoenix Sky Harbor International Airport in June than in the same month a year earlier. Sky Harbor saw 3.5 million passengers during June, according to the city of Phoenix, which owns the airport. That is up 6.3 percent compared to June 2010 when the airport hosted 3.3 million passengers. June is the most recent month Phoenix airport traffic statistics are available. For January to June, Sky Harbor saw 20.4 million inbound and outbound passengers. That is a 5.2 percent increase from the 19.4 passengers hosted during the first half of 2010, according to airport traffic data. “We are very encouraged by these increased passenger numbers. We’re working diligently now to be ready for continued growth. With projects such as the Phoenix Sky Train, we are going to be ready for a full recovery,” said Danny Murphy, city of Phoenix aviation director.

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NATIONAL NEWS

Sources: Low Interest Rates Mean Little if Fundamentals Decline

GlobeSt.com :: August 12, 2011

If Federal Reserve Bank chairman Ben Bernanke had hoped to stabilize markets with his announcement on Tuesday that the central bank would keep its low interest rate policies in place for two more years, he must have been sadly disappointed the following day. By mid morning the Dow Jones Industrial Average was down 300 points and NASDAQ and S&P 500, down 2%. Then again, the Federal Reserve has never been about day-to-day fluctuations in the stock market. Rather, it keeps its eye on and focuses its policies on the long term. In that respect, it may have succeeded, somewhat, in calming not only the general equity market but also the commercial real estate space. "I think everyone believes, if the market allows it, we will be in low interest rate environment for the foreseeable future, which should bode well for cost of debt in the real estate industry," says Dan Fasulo, managing director and head of research for Real Capital Analytics..

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Second Recession in U.S. Could Be Worse Than First

The New York Times :: August 7, 2011

If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around. Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009. “It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” said Conrad DeQuadros, senior economist at RDQ Economics. When the last downturn hit, the credit bubble left Americans with lots of fat to cut, but a new one would force families to cut from the bone. Making things worse, policy makers used most of the economic tools at their disposal to combat the last recession, and have few options available. Anxiety and uncertainty have increased in the last few days after the decision by Standard & Poor’s to downgrade the country’s credit rating and as Europe continues its desperate attempt to stem its debt crisis.

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Business Braces for Belt Tightening

The Wall Street Journal :: August 9, 2011

The U.S. government used to be the ultimate customer for some American companies—consistent, deep-pocketed and faithful to its contracts. Now its deep pockets have holes. Among investors and executives alike, the recent debt-ceiling deal is regarded as the first step in a spending pullback that will reverberate across many industries, including health care, defense, technology and education. The $917 billion in spending reductions over 10 years stipulated in the first phase of budget-cutting is just a fraction of what the government would have spent. Still, executives like health-care executive Michael Dowling are bracing for a period of belt-tightening that will impact their industries. "If anyone in this business thinks there won't be further reductions, then they're not facing reality," said Mr. Dowling, chief executive of North Shore-Long Island Jewish Health System in New York. He is already looking for ways to offset reduced government payments, by providing care outside costly hospital settings, at nursing homes, in ambulatory-care centers or even in patients' homes, and by making sure patients weren't getting services they didn't need. Last year, contractors received a total of $773 billion in awards from the federal government, according to Deltek Inc., which advises government suppliers. But companies shouldn't expect the government to provide "the revenue they enjoyed over the last decade, when there was a run-up in spending," said Ray Bjorklund, Deltek's chief knowledge officer. "The days of Uncle Sugar being a wonderful source of revenue" and revenue growth are "at risk," he added.

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Aftershock to Economy Has a Precedent that Holds Lessons

The New York Times :: August 12, 2011

Like earthquakes, financial crises seem to be accompanied by aftershocks, like the one we’ve been living through this week. They can feel every bit as bad as the crisis itself. But economic history and academic research suggest they can set the stage for a sustainable recovery — and eventual sharp stock market gains. The events of the last few weeks — gridlock in Washington, brinksmanship over raising the debt ceiling, Standard & Poor’s downgrade of long-term Treasuries, renewed fears about European debt and a dizzying plunge in the stock market — bear an intriguing resemblance to some of the events of 1937-38, the so-called recession within the Depression, with a major caveat: it was a lot worse back then. The Dow Jones industrial average dropped 49 percent from its peak in 1937. Manufacturing output fell by 37 percent, a steeper decline than in 1929-33. Unemployment, which had been slowly declining, to 14 percent from 25 percent, surged to 19 percent. Price declines led to deflation. “The parallels to what is happening now are very strong,” Robert McElvaine, author of “The Great Depression: America, 1929-1941” and a professor of history at Millsaps College, said this week. Then as now, policy makers were struggling with how and when to turn off the fiscal stimulus and monetary easing that had been used to combat the initial crisis.

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Forming an Acquisition Strategy Around Debt Financing: Is Multifamily Still the Best Target?

CBRE Economic Advisors :: August 8, 2011

Investors that wish to undertake a leveraged investment strategy may still find considerable value in the multifamily sector, despite recent cap rate declines in the top-tier markets. Using an RCA dataset on average acquisition cap rates and permanent financing rates, there appears to be significant positive leverage in multifamily acquisitions (defined as the average cap rate less the acquisition financing rate) relative to past history and comparable core property investments. Assumable, fixed-rate debt originated at near-historically low coupon rates could provide significant value to an investment strategy. Over the past year, the multifamily sector has attracted significant investor interest. The wide availability of competitively-priced debt financing for stabilized property, from both agency and life company sources, has helped to fuel a turnaround in investment activity. In 2010, apartment investment sales more than doubled over year-earlier levels to reach $31.7 billion, while average cap rates fell by nearly 50 basis points (bps) over the course of the year, according to Real Capital Analytics. For the first half of 2011, the sector retained positive momentum, as sales totaled $21.5 billion – a pace that is on course to exceed 2010's sales rate. Average cap rates fell by an additional 10 bps during the first half of the year. Cap rate compression contributed to the apartment sector's 21.3% total return in the NCREIF index for the year ending in 2011Q2, outpacing returns in the articipants also appear to have a favorable outlook for sector momentum and returns. During a recent quarterly NCREIF index review conference call, a group of asset managers, analysts and researchers were polled on their NCREIF property type return expectations for the next twelve months. More than half of respondents expect the apartment sector to log the best total returns of the major property types. The hotel sector followed in a distant second place.

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