The Office of the Comptroller of the Currency (OCC) has reported that all banks targeted for investigation and review into foreclosure and lending practices have submitted letters detailing their plans for auditing said practices, which the OCC demanded be completed before the beginning of the new year. Bank of America, Citibank, JPMorgan Chase, Citigroup, Wells Fargo and a handful of others have so far entered into OCC compliance, although auditing has yet to be completed. Independent auditing firms involved in the overhaul include Deloitte & Touche, Ernst & Young and PricewaterhouseCoopers. For more on this continue reading the following article from TheStreet.
The Office of the Comptroller of the Currency said on Tuesday that the nation's largest mortgage servicers would "complete much of the work" required to clean up their loan servicing and foreclosure practices by early next year.
The OCC slapped the largest U.S. mortgage loan servicers, including Bank of America (BAC), Citigroup (C) subsidiary Citibank, HSBC (HBC), JPMorgan Chase (JPM), MetLife (MET) unit MetLife Bank, PNC (PNC), U.S. Bancorp (USB) subsidiary U.S. Bank, and Wells Fargo (WFC), with cease and desist orders in April, requiring the group to hire independent consultants to "conduct a multi-faceted independent review of foreclosure activities in 2009 and 2010," and "to correct deficient and unsafe or unsound practices in their mortgage servicing activities," along with beefing-up their oversight of third-party service providers, and their activities related to Mortgage Electronic Registration Systems, or MERS.
The regulator said that, as required, all the servicers had submitted "independent consultant engagement letters and servicer action plans" in July, and that the "OCC closely evaluated and approved consultants to prevent conflicts of interest."
The agency said work was "well under way on the actions necessary to comply with the consent orders," and that efforts "to correct deficiencies in foreclosure processes, management oversight, and internal audit [were] furthest advanced."
In Bank of America's updated engagement letter from Sept. 6, Promontory Financial Group said it would "conduct an independent review of certain residential foreclosure actions regarding individual borrowers with respect to BAC's mortgage servicing portfolio," including Bank of America's foreclosure actions as a lender, servicer, within 423 days.
Promontory Financial Group is also conducting the servicing and foreclosure audits for PNC and Wells Fargo.
Other independent consultants include Deloitte & Touche for JPMorgan, Ernst & Young, for HSBC and MetLife Bank, and PricewaterhouseCoopers, for Citibank and U.S. Bank.
The OCC said that on Nov. 1, "an integrated claims processor began mailing letters to borrowers who were in any stage of foreclosure on their primary residences between January 1, 2009 and December 31, 2010," describing the process "borrowers should follow for requesting reviews of their cases if they believed they suffered financial injury as a result of servicer errors, misrepresentations, or deficiencies in the foreclosure process."
The reviews of borrower petitions are expected to take several months.
by Philip Van Doorn Nuwire Investor Nov 25, 2011
Banks Revising Foreclosure Procedures
Wednesday, November 30, 2011
Warehouse sales are booming
Investor interest in warehouse distribution-center properties in the Phoenix area continues to defy both the recession and the otherwise dismal real-estate market, with the closing of a $33.3 million sale on Monday in west Phoenix, brokers involved in the deal said.
The joint sale of two massive warehouses in Phoenix totaling about 640,000 square feet was the area's largest transaction involving industrial real estate since the second quarter of 2008, said Don and Payson MacWilliam, senior vice presidents at Colliers International in Phoenix who represented both buyer and seller.
The MacWilliams are brothers who have worked as a team brokering industrial real-estate deals in the Phoenix area for more than 20 years.
The seller was Alliance Beverage Distributing Co., a large alcoholic-beverage distributor, which occupies all 450,000 square feet of the larger of the two warehouse properties sold. The adjacent 190,000-square-foot property is occupied by Updike Distribution Logistics, which provides warehousing and supply-chain logistics services.
Aside from being the largest sale of its kind in years, the deal was significant because its sale price per square foot of about $52 was more than what it would cost to build a similar facility today, Don MacWilliam said.
Most types of commercial real estate in the Phoenix area have been selling recently for far less than their original construction costs, with warehouse distribution centers being the only significant exception.
The exceptionally high value of such properties, particularly those in the West Valley, is due primarily to a surge in demand among e-commerce providers and large, traditional retailers for relatively inexpensive warehouses situated within a day's drive of the Southern California coast, where a wide variety of Asian products are offloaded for U.S. consumption.
According to a recent report from Colliers, users of industrial real estate snapped up 1.6 million square feet of empty space in the third quarter, which marked the seventh consecutive quarter of rising demand.
The Colliers report said industrial tenants have absorbed about 9.3 million square feet of vacant space during the past seven quarters.
The surge in demand is likely to continue as large e-commerce providers continue to seek out additional space for order-fulfillment and distribution centers to serve Arizona, California and other Western states.
Seattle-based online retailer Amazon announced plans in July to open a 1.2 million-square-foot distribution center at 800 N. 75th Ave. in Phoenix, its fourth such facility in the Phoenix area.
Other retailers, including Home Depot, Macy's and Dick's Sporting Goods, either have signed leases on large existing warehouses in the West Valley this year or announced plans to build their own distribution centers.
The vacancy rate among industrially zoned properties has plummeted at an unprecedented rate, from nearly 18 percent in the first quarter of 2010 to 14.6 percent at the end of the third quarter this year, Don MacWilliam said.
High demand also is driving new construction, according to Colliers' third-quarter analysis, with nearly 3.7 million square feet of warehouse and distribution-center space currently under development.
Alliance Beverage had just recently purchased the two buildings it sold Monday, inside Papago West Business Park near 47th Avenue and Roosevelt Street in west Phoenix, from developer and former property owner RJB Development.
RJB had granted the beverage distributor first right of refusal on any attempted sale of the property as part of a 20-year lease agreement signed in 2007, Don MacWilliam said.
Alliance Beverage then sold the properties for an undisclosed profit to CreXus AZ Holdings I LLC, a New York-based real-estate investment trust. The buyer and seller also negotiated a new 17-year lease agreement, he said.
REITs pool money from a group of investors to purchase and hold commercial properties, using the lease revenue they generate to pay the investors regular dividends.
Local real-estate analysts say investor interest in Phoenix-area distribution centers could help spur economic recovery, put construction crews back to work and bring much-needed jobs to the region.
"This transaction further confirms the leasing strength and investor confidence in the southwest Valley submarket and in Phoenix as a whole," Don MacWilliam said.
by J. Craig Anderson The Arizona Republic Nov. 29, 2011 06:20 PM
Warehouse sales are booming
The joint sale of two massive warehouses in Phoenix totaling about 640,000 square feet was the area's largest transaction involving industrial real estate since the second quarter of 2008, said Don and Payson MacWilliam, senior vice presidents at Colliers International in Phoenix who represented both buyer and seller.
The MacWilliams are brothers who have worked as a team brokering industrial real-estate deals in the Phoenix area for more than 20 years.
The seller was Alliance Beverage Distributing Co., a large alcoholic-beverage distributor, which occupies all 450,000 square feet of the larger of the two warehouse properties sold. The adjacent 190,000-square-foot property is occupied by Updike Distribution Logistics, which provides warehousing and supply-chain logistics services.
Aside from being the largest sale of its kind in years, the deal was significant because its sale price per square foot of about $52 was more than what it would cost to build a similar facility today, Don MacWilliam said.
Most types of commercial real estate in the Phoenix area have been selling recently for far less than their original construction costs, with warehouse distribution centers being the only significant exception.
The exceptionally high value of such properties, particularly those in the West Valley, is due primarily to a surge in demand among e-commerce providers and large, traditional retailers for relatively inexpensive warehouses situated within a day's drive of the Southern California coast, where a wide variety of Asian products are offloaded for U.S. consumption.
According to a recent report from Colliers, users of industrial real estate snapped up 1.6 million square feet of empty space in the third quarter, which marked the seventh consecutive quarter of rising demand.
The Colliers report said industrial tenants have absorbed about 9.3 million square feet of vacant space during the past seven quarters.
The surge in demand is likely to continue as large e-commerce providers continue to seek out additional space for order-fulfillment and distribution centers to serve Arizona, California and other Western states.
Seattle-based online retailer Amazon announced plans in July to open a 1.2 million-square-foot distribution center at 800 N. 75th Ave. in Phoenix, its fourth such facility in the Phoenix area.
Other retailers, including Home Depot, Macy's and Dick's Sporting Goods, either have signed leases on large existing warehouses in the West Valley this year or announced plans to build their own distribution centers.
The vacancy rate among industrially zoned properties has plummeted at an unprecedented rate, from nearly 18 percent in the first quarter of 2010 to 14.6 percent at the end of the third quarter this year, Don MacWilliam said.
High demand also is driving new construction, according to Colliers' third-quarter analysis, with nearly 3.7 million square feet of warehouse and distribution-center space currently under development.
Alliance Beverage had just recently purchased the two buildings it sold Monday, inside Papago West Business Park near 47th Avenue and Roosevelt Street in west Phoenix, from developer and former property owner RJB Development.
RJB had granted the beverage distributor first right of refusal on any attempted sale of the property as part of a 20-year lease agreement signed in 2007, Don MacWilliam said.
Alliance Beverage then sold the properties for an undisclosed profit to CreXus AZ Holdings I LLC, a New York-based real-estate investment trust. The buyer and seller also negotiated a new 17-year lease agreement, he said.
REITs pool money from a group of investors to purchase and hold commercial properties, using the lease revenue they generate to pay the investors regular dividends.
Local real-estate analysts say investor interest in Phoenix-area distribution centers could help spur economic recovery, put construction crews back to work and bring much-needed jobs to the region.
"This transaction further confirms the leasing strength and investor confidence in the southwest Valley submarket and in Phoenix as a whole," Don MacWilliam said.
by J. Craig Anderson The Arizona Republic Nov. 29, 2011 06:20 PM
Warehouse sales are booming
Sunday, November 27, 2011
After-tax return could alter look of investment
BOSTON - A surge of cash flow into a business can make it seem like a powerhouse. Yet its bottom line might be underwhelming after taxes and other expenses are figured in.
The same can hold true with investing. Enthusiasm about market-beating performance touted in a quarterly mutual-fund report can wither once an investor's after-tax return is calculated.
The gap between pre- and post-tax returns isn't an issue for mutual funds held in retirement accounts such as IRAs or 401(k)s, where investment earnings can grow tax-free. But the difference can be significant for funds held outside a tax-sheltered account, especially for an investor in a high tax bracket.
It's an especially timely consideration as the year draws to a close. In November and December, investors with taxable accounts should stay alert to disclosures about any capital gains distributions that mutual funds expect to make to their investors. A distribution may sound like a gift, but it's not -- it's a gain that Uncle Sam considers taxable income. Still, investors can limit their tax exposure with savvy end-of-year moves.
Investors can take some comfort in the stock market's lousy 2011 performance. The nearly 6 percent decline of the Standard & Poor's 500 index won't help investors meet long-term savings goals. But it does mean that relatively few stock funds have capital gains to pass on to investors. Foreign stocks have fared worse, so investors are even less likely to see tax bills from the international portion of their fund portfolios.
Diversified bond funds have returned an average of 2 percent this year, according to Morningstar. That makes taxable bonds -- a category that excludes municipal bonds, whose investors are exempt from federal taxes -- a logical place to begin when scrutinizing a fund portfolio for potential hidden tax hits.
But don't ignore the stock component. Dividend-paying stocks have generally fared better than the broader market, making them potential candidates to pass on capital gains. And stocks have been unusually volatile this year, which creates an opportunity for fund managers who frequently trade holdings in hopes of beating the market. If they succeed, an investor can get ahead. But the advantage could be minimal if an investor gets hit with capital gains. Here are tips and current considerations to make about mutual funds and limiting tax exposure:
Understand capital gains. When fund managers sell stocks or bonds that appreciated in value, they pass on the capital gains to investors each year. It can happen even if a mutual fund lost money. That's because it's the appreciation of the fund's individual holdings, rather than of the fund as a whole, that trigger capital gains.
Check the estimates. Fund companies are now giving investors a heads-up about which mutual funds they expect will generate short-term capital gains by the end of December.
Consider timing. If a fund expects to distribute a gain, wait until after the distribution date to invest any new cash in that fund, if it will be held in a taxable account.
Consider taking tax losses. To offset capital gains elsewhere in a portfolio, investors might want to consider selling some investments in their taxable accounts that have lost value.
by Mark Jewell Associated Press Nov. 27, 2011 12:00 AM
After-tax return could alter look of investment
The same can hold true with investing. Enthusiasm about market-beating performance touted in a quarterly mutual-fund report can wither once an investor's after-tax return is calculated.
The gap between pre- and post-tax returns isn't an issue for mutual funds held in retirement accounts such as IRAs or 401(k)s, where investment earnings can grow tax-free. But the difference can be significant for funds held outside a tax-sheltered account, especially for an investor in a high tax bracket.
It's an especially timely consideration as the year draws to a close. In November and December, investors with taxable accounts should stay alert to disclosures about any capital gains distributions that mutual funds expect to make to their investors. A distribution may sound like a gift, but it's not -- it's a gain that Uncle Sam considers taxable income. Still, investors can limit their tax exposure with savvy end-of-year moves.
Investors can take some comfort in the stock market's lousy 2011 performance. The nearly 6 percent decline of the Standard & Poor's 500 index won't help investors meet long-term savings goals. But it does mean that relatively few stock funds have capital gains to pass on to investors. Foreign stocks have fared worse, so investors are even less likely to see tax bills from the international portion of their fund portfolios.
Diversified bond funds have returned an average of 2 percent this year, according to Morningstar. That makes taxable bonds -- a category that excludes municipal bonds, whose investors are exempt from federal taxes -- a logical place to begin when scrutinizing a fund portfolio for potential hidden tax hits.
But don't ignore the stock component. Dividend-paying stocks have generally fared better than the broader market, making them potential candidates to pass on capital gains. And stocks have been unusually volatile this year, which creates an opportunity for fund managers who frequently trade holdings in hopes of beating the market. If they succeed, an investor can get ahead. But the advantage could be minimal if an investor gets hit with capital gains. Here are tips and current considerations to make about mutual funds and limiting tax exposure:
Understand capital gains. When fund managers sell stocks or bonds that appreciated in value, they pass on the capital gains to investors each year. It can happen even if a mutual fund lost money. That's because it's the appreciation of the fund's individual holdings, rather than of the fund as a whole, that trigger capital gains.
Check the estimates. Fund companies are now giving investors a heads-up about which mutual funds they expect will generate short-term capital gains by the end of December.
Consider timing. If a fund expects to distribute a gain, wait until after the distribution date to invest any new cash in that fund, if it will be held in a taxable account.
Consider taking tax losses. To offset capital gains elsewhere in a portfolio, investors might want to consider selling some investments in their taxable accounts that have lost value.
by Mark Jewell Associated Press Nov. 27, 2011 12:00 AM
After-tax return could alter look of investment
Scottsdale Quarter development could include apartments, hotel, retail
Further development of the Scottsdale Quarter could include apartments, a hotel and additional retail on the eastern side of the property.
Glimcher Realty Trust has picked the Zaremba Group LLC of Cleveland to build 350 luxury apartments on the 28-acre site southeast of Scottsdale Road and Greenway-Hayden Loop, said Kent Chantung of Zaremba. An $80 million third phase of development would include ground-floor commercial space with an unidentified retail anchor, he said.
Glimcher officials did not return calls seeking comment, and the Scottsdale Quarter would not elaborate on its development strategy.
"There's not much I can share," said Richard Hunt, Scottsdale Quarter general manager. "Phase 3 plans are still being solidified but they include a hotel, residential and retail components."
Chantung said Zaremba and Glimcher would like to begin development by the third quarter of 2012 for the remaining 9 acres of the 28-acre site.
The front two-thirds of the property includes shops, restaurants, offices, a plaza and two parking garages.
Scottsdale Quarter apartments would join a list of more than 5,200 apartments approved or proposed for development in Scottsdale.
The list includes 960 units in two projects northwest of the Scottsdale Airport that Scottsdale City Council approved in October. Plus, an additional 605 apartments east of the airport on Hayden Road the council could consider Dec. 13.
Scottsdale's flurry of apartment projects has raised concerns about overbuilding in that housing sector and objections from aviation interests about building apartments too close to the airport.
The Scottsdale Airport Advisory Commission recommended denial of all three Scottsdale Airpark apartment projects. Commissioners expressed fears that Airpark residents would complain about aircraft noise and pressure the city to restrict airport operations.
This year, Scottsdale Airport has reported a monthly average of 11,855 operations - an aircraft takeoff or landing - through September and 83 noise complaints per month. Those complaints are coming from an average 12 people per month who file one or more complaints.
Renters instead of owners
Scottsdale Quarter's apartment project would be in lieu of condominiums that were envisioned for the development about six years ago.
Glimcher could build up to 410,000 square feet of residential space for apartments or condos, and there is not set number of units allowed, said Bryan Cluff, a city planner.
The city has approved multifamily residential space at the Quarter so the airport commission would not have any input on that project under the current plan, said Gary Mascaro, Scottsdale aviation director.
The commission met Monday to discuss Airpark land-use issues.
Most of the discussion involved a conference call with Anthony Garcia, a Federal Aviation Administration compliance specialist in Los Angeles.
FAA official weighs in
Garcia expressed his concerns about residential development near the Scottsdale Airport and explained how Los Angeles-area airports have been pressured to restrict flight operations because of noise complaints from adjacent neighborhoods.
"It's a limited number of people, but they're persistent," Garcia said of residents filing complaints with the airports.
Santa Monica's airport, which is similar to Scottsdale's, is under extreme pressure from residents, he said.
Michael Goode, airport commission vice chairman, expressed fears that apartment building owners would pressure the city to allow conversion of their units to condos.
Officials agree that condo and homeowners tend to register more noise complaints than apartment dwellers.
"I think we're headed for extinction," Goode said of the Scottsdale Airport.
The commission voted to request a work-study session with the Scottsdale City Council to discuss the Airpark land uses. Garcia of the FAA agreed to participate in the meeting via teleconference.
Mascaro, the aviation director, said no meeting has yet been set.
by Peter Corbett The Arizona Republic Nov. 25, 2011 08:53 AM
Scottsdale Quarter development could include apartments, hotel, retail
Details of refinancing eligibility trickling in
Many Arizona homeowners underwater with their mortgages are anxiously awaiting more information on how they can lower their interest rates and payments through the expansion of the government's Housing Affordable Refinance Program.
But details on the program have been delayed. Information on which homeowners are eligible and how to apply was supposed to be released by now but will likely come out next week. However, government mortgage giants Fannie Mae and Freddie Mac have begun providing lenders information on how to handle the expansion of HARP. Only homeowners with loans held by those entities are eligible to refinance, no matter how much more they owe on their home than its actually worth.
From the new information sent to lenders, it's now clear not all borrowers with Fannie Mae and Freddie Mac mortgages are eligible. A loan-to-value ratio of 105 percent is still in effect for borrowers with mortgages that have longer terms than 30 years or adjustable-rate mortgages with terms of five years or higher.
While some borrowers can start applying to refinance as soon as Dec. 1., others with loan-to-value ratios above 125 percent will have to wait until at least February of next year.
Some questions and answers:
Q: Phoenix-area homeowner Marla Griggs knows she's not eligible for the refinancing program but is coming up on the end of the five-year point of her option-adjustable mortgage. The loan is not owned by Fannie Mae or Freddie Mac, and she wants to know her options for keeping her home by refinancing and lowering her payment.
"Many people are not eligible for this program. Why can't it be applied to all mortgages?" she asks.
A: The federal government hasn't been able to make privately owned lenders readily participate in its programs, including loan modifications, to help homeowners avoid foreclosure. When U.S. Department of Housing and Urban Development Secretary Shaun Donovan talked to The Arizona Republic a few weeks ago, he was well-aware that the refinancing program wouldn't help everyone. He said the government has to do what it can do to help the most homeowners now, and then hope the plans will catch on with lenders.
Jay Luber of Phoenix-based Galaxy Lending said early instructions from Fannie and Freddie show it won't be until March when the refinancing programs to help many metro Phoenix borrowers will likely be available.
Sorry, Marla, that doesn't help you. But housing advocates say to call Arizona's foreclosure hotline at 877-448-1211.
Q: Bruce Robinson asks, "What about all of us poor souls out here with FHA (insured) mortgages? We represent a huge portion of the outstanding mortgage market, and yet I read nothing indicating that the administration is doing anything for us.
"FHA's existing 'Streamline' refinance program is nothing more than a hollow promise. First, the fees are incredible, with FHA requiring a whole new up-front guarantee fee. Then, FHA is charging monthly 'mortgage insurance,' which is more than double that which is charged on most existing loans. Many mainstream national mortgage lenders appear to be simply avoiding 'Streamline' since it is so disadvantageous to most FHA borrowers."
A: I am hearing the same issues from many FHA borrowers. But mortgage brokers are beginning to report more success with the streamlines, partially due to more government focus on the program. The big issue is you have to stay in your home several years after the streamline for the additional fees to make sense. Donovan mentioned that some changes could be made to the FHA program, as well. I will write about those as soon as information is available.
by Catherine Reagor The Arizona Republic Nov. 26, 2011 12:00 AM
Details of refinancing eligibility trickling in
But details on the program have been delayed. Information on which homeowners are eligible and how to apply was supposed to be released by now but will likely come out next week. However, government mortgage giants Fannie Mae and Freddie Mac have begun providing lenders information on how to handle the expansion of HARP. Only homeowners with loans held by those entities are eligible to refinance, no matter how much more they owe on their home than its actually worth.
From the new information sent to lenders, it's now clear not all borrowers with Fannie Mae and Freddie Mac mortgages are eligible. A loan-to-value ratio of 105 percent is still in effect for borrowers with mortgages that have longer terms than 30 years or adjustable-rate mortgages with terms of five years or higher.
While some borrowers can start applying to refinance as soon as Dec. 1., others with loan-to-value ratios above 125 percent will have to wait until at least February of next year.
Some questions and answers:
Q: Phoenix-area homeowner Marla Griggs knows she's not eligible for the refinancing program but is coming up on the end of the five-year point of her option-adjustable mortgage. The loan is not owned by Fannie Mae or Freddie Mac, and she wants to know her options for keeping her home by refinancing and lowering her payment.
"Many people are not eligible for this program. Why can't it be applied to all mortgages?" she asks.
A: The federal government hasn't been able to make privately owned lenders readily participate in its programs, including loan modifications, to help homeowners avoid foreclosure. When U.S. Department of Housing and Urban Development Secretary Shaun Donovan talked to The Arizona Republic a few weeks ago, he was well-aware that the refinancing program wouldn't help everyone. He said the government has to do what it can do to help the most homeowners now, and then hope the plans will catch on with lenders.
Jay Luber of Phoenix-based Galaxy Lending said early instructions from Fannie and Freddie show it won't be until March when the refinancing programs to help many metro Phoenix borrowers will likely be available.
Sorry, Marla, that doesn't help you. But housing advocates say to call Arizona's foreclosure hotline at 877-448-1211.
Q: Bruce Robinson asks, "What about all of us poor souls out here with FHA (insured) mortgages? We represent a huge portion of the outstanding mortgage market, and yet I read nothing indicating that the administration is doing anything for us.
"FHA's existing 'Streamline' refinance program is nothing more than a hollow promise. First, the fees are incredible, with FHA requiring a whole new up-front guarantee fee. Then, FHA is charging monthly 'mortgage insurance,' which is more than double that which is charged on most existing loans. Many mainstream national mortgage lenders appear to be simply avoiding 'Streamline' since it is so disadvantageous to most FHA borrowers."
A: I am hearing the same issues from many FHA borrowers. But mortgage brokers are beginning to report more success with the streamlines, partially due to more government focus on the program. The big issue is you have to stay in your home several years after the streamline for the additional fees to make sense. Donovan mentioned that some changes could be made to the FHA program, as well. I will write about those as soon as information is available.
by Catherine Reagor The Arizona Republic Nov. 26, 2011 12:00 AM
Details of refinancing eligibility trickling in
Billionaires can avoid reporting gains on stocks
NEW YORK - When billionaire Billy Joe "Red" McCombs, co-founder of Clear Channel Communications Inc., reported a $9.8 million loss on his tax return, he failed to include about $259 million from a lucrative stock transaction.
After an audit, the Internal Revenue Service ordered him to pay $44.7 million in back taxes. McCombs, who is worth an estimated $1.4 billion and is a former owner of the Minnesota Vikings, Denver Nuggets and San Antonio Spurs sports franchises, sued the IRS, settling the case in March for about half the disputed amount.
McCombs' fight with the IRS illustrates an overlooked facet in the debate over tax rates paid by the nation's wealthiest. Billionaires -- from McCombs to Philip Anschutz to Ronald Lauder -- who derive the bulk of their wealth from stock appreciation are using strategies that reap hundreds of millions of dollars from those valuable shares in ways the IRS often doesn't classify as taxable income, securities filings and tax court records show.
"The 800-pound gorilla is unrealized appreciation," said Edward McCaffery, a professor of law, economics and political science at the University of Southern California.
While Warren Buffett has generated attention with his complaints that he and his fellow billionaires pay federal income taxes at a lower rate than his secretary -- about 17 percent -- the real figure is often smaller, said David Miller, former chairman of the tax section of the New York State Bar Association and a partner at Cadwalader, Wickersham & Taft in New York.
"The problem is not that people like Warren Buffett pay tax at a 17 percent rate, it's that they can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all," Miller said.
The rate at which the 400 U.S. taxpayers with the highest adjusted gross income actually paid federal income taxes -- their so-called effective tax rate -- fell to about 18 percent in 2008 from almost 30 percent in 1995, IRS data show. That's the tip of the iceberg, since much of their wealth never converts into income on a tax return, McCaffery said.
In the McCombs case, the billionaire entered into transactions known as variable prepaid forward contracts. He received about $259 million for lending an investment bank his Clear Channel shares with a promise to deliver the stock for good a few years later. The arrangement enabled McCombs to defer paying capital-gains tax because he hadn't sold his shares, lawyers for the billionaire said. The IRS deemed the transaction a sale because the bank paid McCombs cash and got the use of his stock almost immediately.
Transactions like these may complicate plans by President Barack Obama to help close the federal deficit by increasing taxes on millionaires. Obama has said the tax code should contain a "Buffett Rule" to ensure that millionaires pay taxes at least at the same rate as middle-class Americans. Republicans have said they prefer lowering tax rates for businesses and the wealthy. Buffett declined to comment.
In the past two years, some of the wealthiest U.S. executives have used deals similar to McCombs' to reap returns while deferring the taxes without running afoul of IRS rules, securities filings show.
Dole Food Chairman David Murdock received about $228.6 million in 2009 against his Dole shares -- tax-free until he is scheduled to deliver shares in November 2012, a filing shows.
Starr International, the investment vehicle run by Maurice "Hank" Greenberg -- forced from his position as chairman and chief executive officer of American International Group in 2005 -- utilized a prepaid forward agreement last year to receive $278.2 million from an investment bank, according to a March 2010 regulatory filing. The investment vehicle isn't slated to deliver the AIG stock until 2013.
Ronald Lauder received $72.9 million in June as part of a variable prepaid forward sale and is scheduled to deliver the Estee Lauder shares in June 2014, according to a filing with the Securities and Exchange Commission.
Spokespeople for Lauder, Murdock and Starr International declined to comment.
While the tax treatment of these plans isn't disclosed in the filings, "there's no other reason to enter into such a convoluted arrangement," said Robert Willens, an independent tax accounting analyst in New York. These arrangements can cost several million dollars in fees, according to tax planners.
Taxes on capital gains are triggered when assets like appreciated shares are sold -- a process called realization. What constitutes a realized, taxable sale is a frequent bone of contention between the IRS and the clients of tax planners.
Transactions intended to pull cash out of appreciated assets tax-free aren't limited to stock. Boston real-estate developer Arthur Winn exited his interest in a piece of real estate by converting his stake into a share of a partnership free of any capital-gains tax, court filings show.
The IRS objected and claimed Winn and his partner should have reported a $12 million taxable gain. A U.S. Tax Court judge sided with Winn on one aspect of the deal; others were settled with the government. The details haven't been disclosed.
Winn, who earlier this month pleaded guilty to making illegal campaign contributions, has retired from WinnCompanies. He did not respond to messages left with his attorney and with the company.
by Jesse Drucker Bloomberg News Nov. 23, 2011 07:38 PM
Billionaires can avoid reporting gains on stocks
After an audit, the Internal Revenue Service ordered him to pay $44.7 million in back taxes. McCombs, who is worth an estimated $1.4 billion and is a former owner of the Minnesota Vikings, Denver Nuggets and San Antonio Spurs sports franchises, sued the IRS, settling the case in March for about half the disputed amount.
McCombs' fight with the IRS illustrates an overlooked facet in the debate over tax rates paid by the nation's wealthiest. Billionaires -- from McCombs to Philip Anschutz to Ronald Lauder -- who derive the bulk of their wealth from stock appreciation are using strategies that reap hundreds of millions of dollars from those valuable shares in ways the IRS often doesn't classify as taxable income, securities filings and tax court records show.
"The 800-pound gorilla is unrealized appreciation," said Edward McCaffery, a professor of law, economics and political science at the University of Southern California.
While Warren Buffett has generated attention with his complaints that he and his fellow billionaires pay federal income taxes at a lower rate than his secretary -- about 17 percent -- the real figure is often smaller, said David Miller, former chairman of the tax section of the New York State Bar Association and a partner at Cadwalader, Wickersham & Taft in New York.
"The problem is not that people like Warren Buffett pay tax at a 17 percent rate, it's that they can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all," Miller said.
The rate at which the 400 U.S. taxpayers with the highest adjusted gross income actually paid federal income taxes -- their so-called effective tax rate -- fell to about 18 percent in 2008 from almost 30 percent in 1995, IRS data show. That's the tip of the iceberg, since much of their wealth never converts into income on a tax return, McCaffery said.
In the McCombs case, the billionaire entered into transactions known as variable prepaid forward contracts. He received about $259 million for lending an investment bank his Clear Channel shares with a promise to deliver the stock for good a few years later. The arrangement enabled McCombs to defer paying capital-gains tax because he hadn't sold his shares, lawyers for the billionaire said. The IRS deemed the transaction a sale because the bank paid McCombs cash and got the use of his stock almost immediately.
Transactions like these may complicate plans by President Barack Obama to help close the federal deficit by increasing taxes on millionaires. Obama has said the tax code should contain a "Buffett Rule" to ensure that millionaires pay taxes at least at the same rate as middle-class Americans. Republicans have said they prefer lowering tax rates for businesses and the wealthy. Buffett declined to comment.
In the past two years, some of the wealthiest U.S. executives have used deals similar to McCombs' to reap returns while deferring the taxes without running afoul of IRS rules, securities filings show.
Dole Food Chairman David Murdock received about $228.6 million in 2009 against his Dole shares -- tax-free until he is scheduled to deliver shares in November 2012, a filing shows.
Starr International, the investment vehicle run by Maurice "Hank" Greenberg -- forced from his position as chairman and chief executive officer of American International Group in 2005 -- utilized a prepaid forward agreement last year to receive $278.2 million from an investment bank, according to a March 2010 regulatory filing. The investment vehicle isn't slated to deliver the AIG stock until 2013.
Ronald Lauder received $72.9 million in June as part of a variable prepaid forward sale and is scheduled to deliver the Estee Lauder shares in June 2014, according to a filing with the Securities and Exchange Commission.
Spokespeople for Lauder, Murdock and Starr International declined to comment.
While the tax treatment of these plans isn't disclosed in the filings, "there's no other reason to enter into such a convoluted arrangement," said Robert Willens, an independent tax accounting analyst in New York. These arrangements can cost several million dollars in fees, according to tax planners.
Taxes on capital gains are triggered when assets like appreciated shares are sold -- a process called realization. What constitutes a realized, taxable sale is a frequent bone of contention between the IRS and the clients of tax planners.
Transactions intended to pull cash out of appreciated assets tax-free aren't limited to stock. Boston real-estate developer Arthur Winn exited his interest in a piece of real estate by converting his stake into a share of a partnership free of any capital-gains tax, court filings show.
The IRS objected and claimed Winn and his partner should have reported a $12 million taxable gain. A U.S. Tax Court judge sided with Winn on one aspect of the deal; others were settled with the government. The details haven't been disclosed.
Winn, who earlier this month pleaded guilty to making illegal campaign contributions, has retired from WinnCompanies. He did not respond to messages left with his attorney and with the company.
by Jesse Drucker Bloomberg News Nov. 23, 2011 07:38 PM
Billionaires can avoid reporting gains on stocks
Court: Trust-land proceeds can't be used to run department
State lawmakers cannot use proceeds from trust land sales or leases to run the Land Department, at least not without getting voter approval, the Arizona Court of Appeals ruled Nov. 17.
In a unanimous decision, the judges rejected arguments by the Brewer administration that the diversion of cash is legal.
Attorneys for the state Land Department, which manages the properties, had argued that anything that the Land Department does to improve the value of the trust's land increases the amount of money that the trust earns. That meets the constitutional requirements, the lawyers argued.
Judge Donn Kessler said that is legally irrelevant because the Arizona Constitution specifically forbids what was done.
"If the Legislature desires to use the proceeds from trust lands to pay for managing trust lands, it must obtain permission from the people of Arizona in the form of a constitutional amendment," he wrote for the court.
Land Commissioner Maria Baier said she was still studying the ruling. But she said it is likely see will seek review by the Arizona Supreme Court.
The lawsuit stems from an effort by legislators to provide more money for the Land Department. Of the 10 million acres Arizona got when it became a state, about 9.2 million acres remain.
The federal law conveying the land to the state specified that when Arizona sells such land, the money must go to specific beneficiaries, mostly public schools.
The Arizona Constitution forbids taking money from trust funds for any reason other than the purpose for which they were established.
Two years ago, though, the Legislature let the state land commissioner divert up to 10 percent of what was raised in the prior fiscal year in proceeds from all trusts, including the one for public schools.
This includes not only property that the state sells, but also any revenues generated from the sale of minerals and timber on that land. That move allowed lawmakers to cut taxpayer funding used to run the Land Department so funds could be shifted to plug other budget holes.
Proponents of the move argued it would help the trust - and the beneficiaries -- in the long run.
It could help the agency prepare state land so that it's ready to sell later, when the real-estate market returns and developers want to buy it, presumably, at higher prices.
And Baier said using some of the proceeds is only logical.
"Most trusts don't function unless there's a funding mechanism built into them," she said.
Kessler, however, accepted the arguments of the Center for Law in the Public Interest, saying the courts cannot ignore the plain requirements of the Arizona Constitution.
He said the legislation allows the use of trust funds to assist the state in reducing budget deficits.
"In doing so, it diverts money from the trusts' permanent funds, depriving the trusts of the value of lands sold and the products derived from such lands, as well as interest earned on those proceeds," he wrote. "It is a paramount requirement that the trusts must be fully compensated for any lands or products lost from the trust through sales."
The case is Rumery v. Baier 1 CA-CV 10-0807.
by Howard Fischer Arizona Business Gazette Nov. 24, 2011 12:00 AM
Court: Trust-land proceeds can't be used to run department
In a unanimous decision, the judges rejected arguments by the Brewer administration that the diversion of cash is legal.
Attorneys for the state Land Department, which manages the properties, had argued that anything that the Land Department does to improve the value of the trust's land increases the amount of money that the trust earns. That meets the constitutional requirements, the lawyers argued.
Judge Donn Kessler said that is legally irrelevant because the Arizona Constitution specifically forbids what was done.
"If the Legislature desires to use the proceeds from trust lands to pay for managing trust lands, it must obtain permission from the people of Arizona in the form of a constitutional amendment," he wrote for the court.
Land Commissioner Maria Baier said she was still studying the ruling. But she said it is likely see will seek review by the Arizona Supreme Court.
The lawsuit stems from an effort by legislators to provide more money for the Land Department. Of the 10 million acres Arizona got when it became a state, about 9.2 million acres remain.
The federal law conveying the land to the state specified that when Arizona sells such land, the money must go to specific beneficiaries, mostly public schools.
The Arizona Constitution forbids taking money from trust funds for any reason other than the purpose for which they were established.
Two years ago, though, the Legislature let the state land commissioner divert up to 10 percent of what was raised in the prior fiscal year in proceeds from all trusts, including the one for public schools.
This includes not only property that the state sells, but also any revenues generated from the sale of minerals and timber on that land. That move allowed lawmakers to cut taxpayer funding used to run the Land Department so funds could be shifted to plug other budget holes.
Proponents of the move argued it would help the trust - and the beneficiaries -- in the long run.
It could help the agency prepare state land so that it's ready to sell later, when the real-estate market returns and developers want to buy it, presumably, at higher prices.
And Baier said using some of the proceeds is only logical.
"Most trusts don't function unless there's a funding mechanism built into them," she said.
Kessler, however, accepted the arguments of the Center for Law in the Public Interest, saying the courts cannot ignore the plain requirements of the Arizona Constitution.
He said the legislation allows the use of trust funds to assist the state in reducing budget deficits.
"In doing so, it diverts money from the trusts' permanent funds, depriving the trusts of the value of lands sold and the products derived from such lands, as well as interest earned on those proceeds," he wrote. "It is a paramount requirement that the trusts must be fully compensated for any lands or products lost from the trust through sales."
The case is Rumery v. Baier 1 CA-CV 10-0807.
by Howard Fischer Arizona Business Gazette Nov. 24, 2011 12:00 AM
Court: Trust-land proceeds can't be used to run department
Developer land returned to farming in Maricopa and Pinal counties
On a late November afternoon, tractors with side chutes harvest sorghum from a small roadside farm, spitting it into a truck riding along. The grain is milled and sold as feed to a nearby dairy.
About a year ago, this land was set for development. But the owner went bankrupt, and another developer bought it at auction and leased it to farmer Jason Perry.
"A lot of our land is in that situation," Perry said.
Rick Gibson, University of Arizona county extension director and agriculture agent in Pinal County, said the real-estate crash has farmland once sold to developers finding its way back into agriculture, especially in Maricopa and Pinal counties.
"Some are buying or coming back to them when the buyers defaulted on payments," he said.
For the developers the land might have dropped in value or may not be worth developing at present, he said.
In the meantime, Arizona farmers are happy to take the extra land and increase acreage for commodities like cotton, wheat, alfalfa and corn that are enjoying high prices amid increasing demand.
For instance, Arizona's cotton acreage rose from 136,000 acres in 2008 to 261,000 acres this year, according to the National Agricultural Statistics Service.
"Farmers have to be businessmen," Gibson said. "They watch the trends and make financial decisions based on those trends."
Perry, a fourth-generation farmer who set out on his own 12 years ago, leases all his farmland from several owners in Gilbert, Chandler, Mesa and Queen Creek. He also grows alfalfa, corn, oats and Bermuda grass.
In the past couple of years, several developers have offered him their land to lease because they either could no longer afford to develop it or didn't think it was worth much at a time like this. Sometimes, he approached them.
"A lot of times, the owners were interested because instead of paying somebody to go pick up the weeds twice a year, by having us there the land would have presence on it," he said.
About 250,300 acres of Arizona farmland was converted to development land from 2002 to 2007, the most in the nation after Texas, Florida and California, according to the Farmland Information Center, a partnership between the Natural Resources Conservation Service and American Farmland Trust.
Although statistics showing what's happening nationally won't be available for another three years, Jennifer Dempsey, director of the Farmland Information Center, said that, ultimately, that development may continue when the real-estate market rebounds.
"I feel like it's forestalling something but not necessarily changing the underlying dynamic," she said.
Jeannette Fish, the Maricopa County Farm Bureau's executive director, said the price of land shot up during the mid-2000s, when the real-estate industry was booming and farmers cashed in.
"A fairly large amount of property was sold to developers at that time," she said.
Fish said many of the farmers included in their sale agreements provisions to regain the land if buyers fell behind on payments.
Harold Crist, who's both a farmer and real-estate developer, is caught in between.
"The land that we're farming today is land that we were planning to use for development," he said. He'd already changed the titles for a 930-acre piece of land in Florence and an additional 150 acres in Eloy.
"As the market fell, we returned that to agriculture, primarily because we don't see the market coming back as quickly as we'd like or as everybody anticipated," Crist said.
He is using the extra land to grow more alfalfa and vegetables like squash, tomatoes and spinach.
As a developer, Crist has seen the value of his land drop drastically with the recession. At its peak, his Florence land was worth about $40,000 an acre.
"Today, we'd be fortunate to get $10,000 an acre if you could find a buyer," he said. "That's a dilemma that people holding land have, and it's part of what drives it back to agriculture."
Steve Barker, state resource conservationist with the U.S. Department of Agriculture's Natural Resources Conservation Service, said developers often lease land to farmers to keep their taxes low as they wait for the right time to develop.
Agricultural land has a lower tax rate than commercial or housing property.
"So, as long as you can keep the land in that category, you don't pay as much tax," he said.
Farmland use
250,300 acres of Arizona agriculture land was converted to development land from 2002 to 2007.
Total land in farms in Arizona was 26.5 million acres in 2002 and 26.1 million acres in 2007.
Total land in farms nationwide decreased from 933.4 million acres in 2005 to 919.8 million acres in 2009. It has since increased to 920 million acres in 2010.
Sources: Farmland Information Center, USDA
by Elvina Nawaguna-Clemente Cronkite News Service Nov. 24, 2011 06:41 PM
Developer land returned to farming in Maricopa and Pinal counties
Phoenix Optima condo developer set for 3rd effort
Rendering courtesy of Optima The project will be called Optima Sonoran Village and will be located on nearly 10 acres at the northeastern corner of Camelback Road and 68th Street in Scottsdale, according to co-developers Optima Inc. of Glencoe, Ill., and DeBartolo Development LLC of Tampa.
The developer of two luxury-condominium projects in the Phoenix area said it has secured land and financing to develop a new project near Scottsdale Fashion Square.
The project will be called Optima Sonoran Village and will be located on nearly 10 acres at the northeastern corner of Camelback Road and 68th Street in Scottsdale, according to co-developers Optima Inc. of Glencoe, Ill., and DeBartolo Development LLC of Tampa.
Like its sister project, Optima Camelview Village, 7177 E. Rancho Vista Drive in Scottsdale, Optima Sonoran Village will be a multiphase residential project made up of tiered levels covered with greenery, the developers said.
Unlike the two previous projects, which include Optima Biltmore Towers, 4808 N. 24th St. in Phoenix, the next Optima project will begin as an apartment community.
Optima Sonoran Village's first, 210-unit phase will be developed by Optima Sonoran Village Phase I LLC, a joint venture between Optima, a multifamily-housing developer, and DeBartolo, a real-estate investment firm specializing in multifamily, hospitality, retail and mixed-use projects.
The first phase is scheduled to break ground in 2012 and begin leasing in 2013, the developer said.
Architect and Optima founder David Hovey said Optima Sonoran will be similar to Optima Camelview in that its architecture will be designed to blend in with the surrounding environment.
"Each residential unit will have a private, landscaped green roof terrace creating an indoor-outdoor experience for our residents and a dynamic visual esthetic for the development," he said.
Optima acquired the 10-acre site in July 2009. The company declined to provide estimated development costs, apartment sizes or monthly lease rates.
Optima Sonoran's initial phase will consist of a seven-story terraced building with 210 luxury residential units.
Eventually, five interconnected buildings will be linked by bridges with supporting commercial, retail and restaurant services, and over 5.5 acres of landscaped courtyards interspersed with pools, spas, water features and sculptures, the company said.
The entire project will be completed in five phases and may be converted to condominiums in the future, an Optima spokeswoman said.
Most luxury-condominium developers have been struggling lately, while upscale-apartment operators have been enjoying growth in occupancy and lease rates.
by J. Craig Anderson The Arizona Republic Nov. 24, 2011 06:42 PM
Phoenix Optima condo developer set for 3rd effort
Phoenix area housing market slips a bit
This year has been one of ups and downs for metro Phoenix's housing market, but the area's existing-home median price is now exactly what it was a year ago.
The price is hovering around $115,000, according to housing-data company the Information Market. The price fell to $115,000 a year ago, and stayed there for half of 2011 before climbing and falling by a few thousand dollars each month during the summer.
The number of foreclosures, however, has clearly dropped during the past year. In October, lenders took back 2,233 homes in the Phoenix area, down from 2,687 in September, and nearly half the area's foreclosures two years ago.
Notices of trustee sales, the alerts commonly called pre-foreclosures, also dropped in October, typically a good indicator that foreclosures will continue to fall. Lenders sent notices to 4,180 borrowers last month in Maricopa County, down from 4,335 in September. By comparison, in March 2009, pre-foreclosures hit a record 10,099.
Home sales across the Phoenix area fell last month despite low mortgage interest rates. In October, there were 7,151 homes sold in the region, down from 7,673 the month before.
"There was a lot of drama and speculation about Phoenix's housing market this year," said Tom Ruff, real estate analyst with the Information Market. "People spooked the market by forecasting for the area's median to fall below $100,000, and for foreclosures to soar again. Neither happened this year."
by Catherine Reagor The Arizona Republic Nov. 25, 2011 12:00 AM
Phoenix area housing market slips a bit
The price is hovering around $115,000, according to housing-data company the Information Market. The price fell to $115,000 a year ago, and stayed there for half of 2011 before climbing and falling by a few thousand dollars each month during the summer.
The number of foreclosures, however, has clearly dropped during the past year. In October, lenders took back 2,233 homes in the Phoenix area, down from 2,687 in September, and nearly half the area's foreclosures two years ago.
Notices of trustee sales, the alerts commonly called pre-foreclosures, also dropped in October, typically a good indicator that foreclosures will continue to fall. Lenders sent notices to 4,180 borrowers last month in Maricopa County, down from 4,335 in September. By comparison, in March 2009, pre-foreclosures hit a record 10,099.
Home sales across the Phoenix area fell last month despite low mortgage interest rates. In October, there were 7,151 homes sold in the region, down from 7,673 the month before.
"There was a lot of drama and speculation about Phoenix's housing market this year," said Tom Ruff, real estate analyst with the Information Market. "People spooked the market by forecasting for the area's median to fall below $100,000, and for foreclosures to soar again. Neither happened this year."
by Catherine Reagor The Arizona Republic Nov. 25, 2011 12:00 AM
Phoenix area housing market slips a bit
Benjamin Group restructures under a new name
The Benjamin Group, a Scottsdale-based commercial real-estate services firm, has relaunched its business with a new name, business partner and commission structure.
As of this month, the firm does business as City to City Commercial Real Estate and operates from a new headquarters in Scottsdale.
Founder and President Chris Benjamin, along with new business partner Bill Olsen, said City to City Commercial will be positioned to compete with other large commercial real-estate firms in Arizona.
The Benjamin Group was founded in 1997 but recently has shifted its focus, out of necessity, to the bank-owned real-estate market. Benjamin said the firm so far this year has brokered more than $90 million in bank-owned property sales.
Benjamin said the firm's brokers will operate on a 100 percent commission basis, which he described as "a proven, winning strategy underused and underserved in the commercial real-estate field."
He said the unorthodox compensation structure would allow agents to retain more of the commissions they earn while paying their own costs along the way.
Typically, commercial real-estate agents pay 30 to 50 percent of their commissions to the brokerage firm for which they work, Benjamin said. That money is used to pay overhead costs, only some of which are for resources agents' use.
"If you're a successful commercial agent, where is the benefit versus the cost in that situation?" he said.
City to City Commercial Real Estate has 17 agents that specialize in different areas of the commercial real-estate market. Benjamin said he believes the company is well-positioned to succeed as the commercial real-estate market recovers.
His desire is to grow the firm into a national player in commercial real-estate brokerage services. Most of the larger brokerages in Phoenix have offices in multiple cities, and some have international operations.
Olsen said the availability of bank-owned commercial properties, also known as REOs, for "real-estate owned," have created new opportunities.
City to City has brokered sales of more than $90 million of bank-owned properties in 2011, the firm's principals said.
"There is no better time than right now to be in the business," Olsen said. "It is moving in a positive direction as many banks divest of their REO assets."
by J. Craig Anderson Arizona Business Gazette Nov. 24, 2011 12:00 AM
Benjamin Group restructures under a new name
As of this month, the firm does business as City to City Commercial Real Estate and operates from a new headquarters in Scottsdale.
Founder and President Chris Benjamin, along with new business partner Bill Olsen, said City to City Commercial will be positioned to compete with other large commercial real-estate firms in Arizona.
The Benjamin Group was founded in 1997 but recently has shifted its focus, out of necessity, to the bank-owned real-estate market. Benjamin said the firm so far this year has brokered more than $90 million in bank-owned property sales.
Benjamin said the firm's brokers will operate on a 100 percent commission basis, which he described as "a proven, winning strategy underused and underserved in the commercial real-estate field."
He said the unorthodox compensation structure would allow agents to retain more of the commissions they earn while paying their own costs along the way.
Typically, commercial real-estate agents pay 30 to 50 percent of their commissions to the brokerage firm for which they work, Benjamin said. That money is used to pay overhead costs, only some of which are for resources agents' use.
"If you're a successful commercial agent, where is the benefit versus the cost in that situation?" he said.
City to City Commercial Real Estate has 17 agents that specialize in different areas of the commercial real-estate market. Benjamin said he believes the company is well-positioned to succeed as the commercial real-estate market recovers.
His desire is to grow the firm into a national player in commercial real-estate brokerage services. Most of the larger brokerages in Phoenix have offices in multiple cities, and some have international operations.
Olsen said the availability of bank-owned commercial properties, also known as REOs, for "real-estate owned," have created new opportunities.
City to City has brokered sales of more than $90 million of bank-owned properties in 2011, the firm's principals said.
"There is no better time than right now to be in the business," Olsen said. "It is moving in a positive direction as many banks divest of their REO assets."
by J. Craig Anderson Arizona Business Gazette Nov. 24, 2011 12:00 AM
Benjamin Group restructures under a new name
'Floating' house by Taliesen-trained architect fetches $4.34 million
A Paradise Valley home sold at auction last month for $4.34 million, one of the highest prices paid recently for a 1-acre property in the town.
The four-bedroom, 5½-bath home of more than 9,500 square feet is southeast of 32nd Street and Lincoln Drive with views of Camelback Mountain, Piestewa Peak and the Valley's city lights.
The contemporary home was designed by architect Charles Schiffner, the former son-in-law of Frank Lloyd Wright. He trained for 15 years at Wright's Taliesin West in Scottsdale.
"I think it's a fair price," Schiffner said.
Schiffner added that Wright often said that "good architecture is good business."
Linda Masaryk hired Schiffner to design the home on a hillside lot that presented challenges in adhering to Paradise Valley's building codes for mountainous terrain.
"I floated the home over the site and you walk underneath it to get to the front door," Schiffner said.
Steel beams, thick walls
The main living space has floor-to-ceiling windows overlooking a zero-edge reflecting pool.
It is built with thick concrete walls and exposed steel beams. Amenities include a wine cellar, game room, elevator, four-car garage and a separate guest suite.
There was much interest in the 2-year-old home before the Oct. 20 auction, said Maverick Commins, a principal of Supreme Auctions. He sold the property to an unidentified couple who outbid 10 other prospective buyers.
"There are views from every single window in this house," Commins said. "I was there twice for sunsets that were just spectacular."
The buyers had been looking for properties in the Valley for about five years and could not find what they wanted until they saw this property, Commins said.
He is a strong advocate for selling luxury homes via auctions.
Lots of luxury inventory
There is no shortage of luxury homes in Paradise Valley to sell.
Since Oct. 1, 10 homes in the town have sold for more than $2 million, said Tom Tischer, ReMax Excalibur associate broker.
That included a 9,185-square-foot home on 3 acres in Clearwater Hills that recently sold for $5.5 million. The home on Longlook Road was on the market for more than 14 months.
"It's encouraging to see that kind of activity," said Tischer, chairman of the Scottsdale Luxury Home Tour.
There is a lot of luxury-home inventory in Paradise Valley "that is overpriced, it's a dog or both," he said.
Prices have dropped to 2003 levels and some sellers are still trying to get 2007 prices, Tischer said.
Contemporary-design homes like Schiffner's are in a much shorter supply. Kurt Warner's multimillion-dollar home on Cheney Drive is among the available choices for buyers, Tischer said, but it's not as impressive as the house that Schiffner designed.
"That's a stunning house," he added.
Schiffner is pleased with the way the home turned out but is not ready to say it's his favorite design.
He quoted Wright who always said "the next one" was his favorite or most successful design.
by Peter Corbett The Arizona Republic Nov. 22, 2011 08:28 AM
'Floating' house by Taliesen-trained architect fetches $4.34 million
Oil Hits $100 Per Barrel. It’s All About the Pipelines | Daily Ticker - Yahoo! Finance
Oil has hit $100 a barrel again. A host of factors play into the price of a West Texas Intermediate crude — demand, global market conditions, the activity of speculators. Evan Smith, co-manager of the Global Resources Fund at U.S. Global Investors believes the recent run-up can be ascribed in part to activity (or the lack of activity) surrounding pipelines.
It's hard to get excited about the tubes that facilitate the movement of crude oil around the country. But pipelines have been in the news in recent weeks. First, the U.S. government decided November 10 to postpone a decision about the proposed Keystone line, which would allow the movement of a large quantity of oil from Canada to the southern U.S. On Wedesday, Canadian company Enbridge said it would buy a 50% interest in a pipeline that runs from the huge oil terminal in Cushing, Oklahoma, to the Gulf Coast. As Smith tells me and The Daily Ticker's Aaron Task in the accompanying video, both moves have helped push the price of WTI up.
Here's why. Oil is priced on global markets. But the price can vary depending on where you're buying. WTI, the benchmark commonly used in the U.S., refers to the price of oil at the landlocked Cushing, Oklahoma terminal. Brent crude, the benchmark for oil traded in the U.K., is a much more (excuse the pun) liquid market, and is a better indicator of the global market price. Historically, WTI has traded at a small premium to Brent, in part because Americans guzzled gas as domestic production fell. But for much of the past year, WTI has traded at a huge discount to Brent — of up to $30 per barrel. As Smith explains, that's because demand for oil in the rest of the world is growing far more rapidly in the U.S., while production in the middle of the U.S. has soared, thanks to a boom in oil production in North Dakota.
On Wednesday, Enbridge said it would buy a stake in a pipeline that runs from Cushing, Oklahoma to the Texas Gulf Coast. The significance is that the company is going to reverse the flow, and start sending oil from the terminal to refiners operating on the coast. In theory, increasing the supply of crude to refiners on the Gulf Coast should bring down the price of oil. "Right now, there's too much oil production in the mid-continent, and not enough capacity to get it to the Gulf Coast," said Smith. But oil used by refiners on the coast can come from anywhere, and is therefore priced closer to global prices than to regional ones. "Now that there is a prospect that some of the oil will get down to the coast, it raises the price closer to global benchmarks," said Smith. In other words, opening up more of the supply languishing in Cushing to refiners who operate on the coasts has the effect of pushing up prices. That's bad news for consumers, on the one hand. But it also means that refiners will buy less foreign oil going forward.
That's a short-term impact. The decision on the Keystone pipeline will have a longer-term impact, and may serve to keep the price of domestic oil and gas high. On Monday, the State Department, responding to environmental concerns raised in Nebraska and elsewhere along the route, said it would defer until 2013 a decision on whether to permit the construction of the pipeline from Canada to the southern U.S. "That's a 700,000-barrel-a-day pipeline that would bring crude down to the Gulf Coast and keep the U.S. well-supplied," said Smith. The decision means it is likely that the supply of crude to U.S. refiners won't be as large as previously thought, and that Canadians might look for other routes to export oil production — to Asia, for example. All things considered, the prospect of less supply over the long-term will push prices higher.
Smith argues that bringing more crude from Canada is vital to the U.S. market. For even though production is booming in North Dakota and Texas,
Daniel Gross is economics editor at Yahoo! Finance Nov 18, 2011
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com
Oil Hits $100 Per Barrel. It’s All About the Pipelines | Daily Ticker - Yahoo! Finance
It's hard to get excited about the tubes that facilitate the movement of crude oil around the country. But pipelines have been in the news in recent weeks. First, the U.S. government decided November 10 to postpone a decision about the proposed Keystone line, which would allow the movement of a large quantity of oil from Canada to the southern U.S. On Wedesday, Canadian company Enbridge said it would buy a 50% interest in a pipeline that runs from the huge oil terminal in Cushing, Oklahoma, to the Gulf Coast. As Smith tells me and The Daily Ticker's Aaron Task in the accompanying video, both moves have helped push the price of WTI up.
Here's why. Oil is priced on global markets. But the price can vary depending on where you're buying. WTI, the benchmark commonly used in the U.S., refers to the price of oil at the landlocked Cushing, Oklahoma terminal. Brent crude, the benchmark for oil traded in the U.K., is a much more (excuse the pun) liquid market, and is a better indicator of the global market price. Historically, WTI has traded at a small premium to Brent, in part because Americans guzzled gas as domestic production fell. But for much of the past year, WTI has traded at a huge discount to Brent — of up to $30 per barrel. As Smith explains, that's because demand for oil in the rest of the world is growing far more rapidly in the U.S., while production in the middle of the U.S. has soared, thanks to a boom in oil production in North Dakota.
On Wednesday, Enbridge said it would buy a stake in a pipeline that runs from Cushing, Oklahoma to the Texas Gulf Coast. The significance is that the company is going to reverse the flow, and start sending oil from the terminal to refiners operating on the coast. In theory, increasing the supply of crude to refiners on the Gulf Coast should bring down the price of oil. "Right now, there's too much oil production in the mid-continent, and not enough capacity to get it to the Gulf Coast," said Smith. But oil used by refiners on the coast can come from anywhere, and is therefore priced closer to global prices than to regional ones. "Now that there is a prospect that some of the oil will get down to the coast, it raises the price closer to global benchmarks," said Smith. In other words, opening up more of the supply languishing in Cushing to refiners who operate on the coasts has the effect of pushing up prices. That's bad news for consumers, on the one hand. But it also means that refiners will buy less foreign oil going forward.
That's a short-term impact. The decision on the Keystone pipeline will have a longer-term impact, and may serve to keep the price of domestic oil and gas high. On Monday, the State Department, responding to environmental concerns raised in Nebraska and elsewhere along the route, said it would defer until 2013 a decision on whether to permit the construction of the pipeline from Canada to the southern U.S. "That's a 700,000-barrel-a-day pipeline that would bring crude down to the Gulf Coast and keep the U.S. well-supplied," said Smith. The decision means it is likely that the supply of crude to U.S. refiners won't be as large as previously thought, and that Canadians might look for other routes to export oil production — to Asia, for example. All things considered, the prospect of less supply over the long-term will push prices higher.
Smith argues that bringing more crude from Canada is vital to the U.S. market. For even though production is booming in North Dakota and Texas,
Daniel Gross is economics editor at Yahoo! Finance Nov 18, 2011
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com
Oil Hits $100 Per Barrel. It’s All About the Pipelines | Daily Ticker - Yahoo! Finance
74 downtown Phoenix condos purchased
A California real-estate investment group has purchased 74 unsold condominium units in the high-profile Summit at Copper Square project in downtown Phoenix for $12.7 million.
That works out to about $171,000 each for the units that initially were listed for between $300,000 and $1.2 million.
Still, Hadden Schifman, whose Scottsdale firm Vizzda tracks the commercial real- estate market in metro Phoenix, called the sales price "fairly strong." He noted that some documents pegged the liquidation value of the unsold units at $7.3 million.
Documents show that Howard Wu and Taylor Woods, both principals in Urban Commons LLC of Los Angeles, purchased the units from Scottsdale's Stearns Bank. Stearns foreclosed in July on an original $64 million note secured by the property.
Norm Skalicky, CEO of Stearns Bank, called the sale a "win-win" for both parties.
"The buyers got a great deal, and we were happy with the price," he said
The buyers did not return calls seeking comment on their plans for the property.
The 23-story, multicolored high-rise development, just west of Chase Field, was completed in 2006 at an estimated cost of about $65 million.
When completed, the tower at 310 S. Fourth St.was hailed as a major milestone in the redevelopment of downtown Phoenix as a residential hub.
W Developments LLC sold 91 of the 900- to 1,500-square-foot units at an average price of $415 per square foot before the housing market collapsed in 2008.
After that, sales dried up and the project was beset with lawsuits over unpaid bills. In late 2009, W Developments filed for Chapter 11 bankruptcy protection in an attempt to avert the Stearns foreclosure action.
W Developments was unable to put together a Chapter 11 reorganization plan acceptable to creditors. Stearns eventually took back the property.
The original lender was First National Bank of Nevada, which was declared insolvent and closed by the Federal Deposit Insurance Corp. in 2008. Records show Stearns purchased the note for an estimated $6.4 million.
by Max Jarman The Arizona Republic Nov. 18, 2011 12:00 AM
74 downtown Phoenix condos purchased
That works out to about $171,000 each for the units that initially were listed for between $300,000 and $1.2 million.
Still, Hadden Schifman, whose Scottsdale firm Vizzda tracks the commercial real- estate market in metro Phoenix, called the sales price "fairly strong." He noted that some documents pegged the liquidation value of the unsold units at $7.3 million.
Documents show that Howard Wu and Taylor Woods, both principals in Urban Commons LLC of Los Angeles, purchased the units from Scottsdale's Stearns Bank. Stearns foreclosed in July on an original $64 million note secured by the property.
Norm Skalicky, CEO of Stearns Bank, called the sale a "win-win" for both parties.
"The buyers got a great deal, and we were happy with the price," he said
The buyers did not return calls seeking comment on their plans for the property.
The 23-story, multicolored high-rise development, just west of Chase Field, was completed in 2006 at an estimated cost of about $65 million.
When completed, the tower at 310 S. Fourth St.was hailed as a major milestone in the redevelopment of downtown Phoenix as a residential hub.
W Developments LLC sold 91 of the 900- to 1,500-square-foot units at an average price of $415 per square foot before the housing market collapsed in 2008.
After that, sales dried up and the project was beset with lawsuits over unpaid bills. In late 2009, W Developments filed for Chapter 11 bankruptcy protection in an attempt to avert the Stearns foreclosure action.
W Developments was unable to put together a Chapter 11 reorganization plan acceptable to creditors. Stearns eventually took back the property.
The original lender was First National Bank of Nevada, which was declared insolvent and closed by the Federal Deposit Insurance Corp. in 2008. Records show Stearns purchased the note for an estimated $6.4 million.
by Max Jarman The Arizona Republic Nov. 18, 2011 12:00 AM
74 downtown Phoenix condos purchased
Project Rebuild holds promise for housing industry
Almost hidden near the bottom of the American Jobs Act, the Obama administration proposed a plan to help the areas hit hardest by foreclosures and the loss of construction jobs.
Known as Project Rebuild, the program would have accounted for a small portion of the $450 billion jobs bill -- about $15 billion. The money would go toward putting local construction workers back to work and revitalizing vacant and foreclosure homes.
This isn't a vital need for every state, but it is in Arizona where nearly 250,000 construction workers have lost their jobs since the housing crash.
U.S. Secretary of Housing and Urban Development Shaun Donovan was in Phoenix a little more than a week ago talking to housing and government leaders and touring neighborhoods that had received Neighborhood Stabilization Program, or NSP, funds. He also took some time to talk to The Arizona Republic.
The focus of most of our questions to Donovan was the expansion of the federal refinancing program to let homeowners lower their payments no matter how underwater they are with their mortgages.
More details and information on how homeowners apply to refinance are expected next week.
Project Rebuild was almost lost in the conversation because the Senate has already voted down the Jobs Act.
But the Obama administration is trying to break the plan into pieces it can enact through executive orders or existing funding.
It's obvious the administration isn't giving up on Project Rebuild, which would complement NSP, a plan enacted by the Bush administration before the last presidential election.
Project Rebuild would call for Arizona to receive almost half a billion dollars to renovate homes and revitalize neighborhoods.
Rep. Ed Pastor, D-Ariz., pointed out that only local contracting companies could apply for the funds.
Donovan said Arizona's share of the Project Rebuild funding could create as many as 6,100 jobs and rehabilitate as many as 5,800 properties.
The program won't spur a recovery of metro Phoenix's housing market. But coupled with the hundreds of millions of dollars in NSP funds that Arizona has received during the past few years to buy, sell and rehabilitate foreclosure homes and neighborhoods with too many abandoned homes, the money could certainly help.
Arizona Republic reporter Maria Polletta toured a south Phoenix neighborhood that received NSP funds with Donovan, Pastor and local government and non-profit leaders.
Edmundo Hidalgo, president of Chicanos Por La Causa, pointed out a home in the area that had appreciated by 50 percent since his group put a homeowner in it using NSP funds.
Some Arizona communities have been criticized for enacting their NSP programs too slowly.
But Hidalgo said his group has been selling 20 to 40 homes a month using funds from the government program.
Pastor said Project Rebuild is the right program to complement NSP and help Arizona's construction industry. But first the Obama administration must find a way to fund it.
by Catherine Reagor The Arizona Republic Nov. 19, 2011 12:00 AM
Project Rebuild holds promise for housing industry
Known as Project Rebuild, the program would have accounted for a small portion of the $450 billion jobs bill -- about $15 billion. The money would go toward putting local construction workers back to work and revitalizing vacant and foreclosure homes.
This isn't a vital need for every state, but it is in Arizona where nearly 250,000 construction workers have lost their jobs since the housing crash.
U.S. Secretary of Housing and Urban Development Shaun Donovan was in Phoenix a little more than a week ago talking to housing and government leaders and touring neighborhoods that had received Neighborhood Stabilization Program, or NSP, funds. He also took some time to talk to The Arizona Republic.
The focus of most of our questions to Donovan was the expansion of the federal refinancing program to let homeowners lower their payments no matter how underwater they are with their mortgages.
More details and information on how homeowners apply to refinance are expected next week.
Project Rebuild was almost lost in the conversation because the Senate has already voted down the Jobs Act.
But the Obama administration is trying to break the plan into pieces it can enact through executive orders or existing funding.
It's obvious the administration isn't giving up on Project Rebuild, which would complement NSP, a plan enacted by the Bush administration before the last presidential election.
Project Rebuild would call for Arizona to receive almost half a billion dollars to renovate homes and revitalize neighborhoods.
Rep. Ed Pastor, D-Ariz., pointed out that only local contracting companies could apply for the funds.
Donovan said Arizona's share of the Project Rebuild funding could create as many as 6,100 jobs and rehabilitate as many as 5,800 properties.
The program won't spur a recovery of metro Phoenix's housing market. But coupled with the hundreds of millions of dollars in NSP funds that Arizona has received during the past few years to buy, sell and rehabilitate foreclosure homes and neighborhoods with too many abandoned homes, the money could certainly help.
Arizona Republic reporter Maria Polletta toured a south Phoenix neighborhood that received NSP funds with Donovan, Pastor and local government and non-profit leaders.
Edmundo Hidalgo, president of Chicanos Por La Causa, pointed out a home in the area that had appreciated by 50 percent since his group put a homeowner in it using NSP funds.
Some Arizona communities have been criticized for enacting their NSP programs too slowly.
But Hidalgo said his group has been selling 20 to 40 homes a month using funds from the government program.
Pastor said Project Rebuild is the right program to complement NSP and help Arizona's construction industry. But first the Obama administration must find a way to fund it.
by Catherine Reagor The Arizona Republic Nov. 19, 2011 12:00 AM
Project Rebuild holds promise for housing industry
Dick's Sporting Goods buys W. Valley warehouse
Dick's Sporting Goods Inc. has completed the purchase of a 60-acre site in Goodyear to build a 600,000-square-foot fulfillment and distribution center expected to employ about 300 workers beginning in early 2013.
The sale first was reported in local real-estate publication Business Real Estate Weekly of Arizona and was confirmed Friday by a real-estate broker involved in the deal.
Dick's, a national retail chain based outside Pittsburgh, reportedly paid about $5.8 million for the property, located inside a 1,600-acre office and light-industrial park along the Loop 303 freeway alignment, about 2 miles north of Interstate 10.
The business park is called PV303 and was developed in 2008 by SunCor Development Co.
The seller was a joint venture involving Scottsdale-based Sunbelt Holdings LLC and Dallas-based Rockpoint Group LLC.
Commercial-real-estate broker Jones Lang LaSalle of Phoenix brokered the deal.
Sunbelt and Rockpoint acquired the property as part of a $65 million portfolio of commercial-real-estate assets SunCor sold to the joint venture in 2010.
Construction on the $30 million distribution center is scheduled to begin before Jan. 1 and wrap by January 2013.
Dick's, a publicly held company listed on the New York Stock Exchange under the symbol DKS, owns and operates more than 450 Dick's Sporting Goods stores in 42 states, according to the company's most recent financial-disclosure statement.
It also owns Golf Galaxy Inc., which operates about 80 golfing-equipment stores in 30 states.
Internet commerce outlets such as Amazon.com are driving a dramatic resurgence in demand for warehouse space in the Phoenix area, particularly in the West Valley.
Users of industrial real estate snapped up 1.6 million square feet of empty space in the third quarter, which marked the seventh consecutive quarter of rising demand, according to a recent report from commercial-real-estate firm Colliers International in Phoenix.
The Colliers report said industrial tenants have absorbed about 9.3 million square feet of vacant space during the past seven quarters.
The surge in demand is likely to continue, as large e-commerce providers continue to seek additional space for order-fulfillment and distribution centers to serve Arizona, California and other Western states.
Seattle-based Amazon.com announced plans in July to open a 1.2 million-square-foot distribution center at 800 N. 75th Ave. in Phoenix, its fourth such facility in the Phoenix area.
The company ultimately plans to expand its West Valley presence by another 2 million square feet, area brokers have said.
Several retailers also have opened or expanded regional distribution centers in the West Valley recently, including Gap.com and Macys.com.
Most fulfillment- and distribution-center jobs are relatively low-level positions involving unskilled labor.
A high percentage are seasonal, lasting only through the busy holiday shipping season from October through January.
Because of growth in the distribution-center sector, the vacancy rate among industrially zoned properties in Maricopa County has plummeted from nearly 18 percent in the first quarter of 2010 to 14.6 percent at the end of the third quarter this year, a recent Colliers International report said.
High demand also is driving new construction, according to Colliers' third-quarter analysis, with nearly 3.7 million square feet of warehouse and distribution-center space under development.
The industrial sector has not seen such a high level of activity since before the commercial-real-estate market crashed in 2008, brokers said.
In general, most e-commerce providers have chosen not to locate their West Coast distribution centers in California because of its much higher real-estate costs.
Analysts said many online and catalog retailers have settled on a two-pronged strategy, with order-fulfillment centers in metro Phoenix to serve Southern California and in Reno to serve Northern California.
by J. Craig Anderson The Arizona Republic Nov. 19, 2011 12:00 AM
Dick's Sporting Goods buys W. Valley warehouse
The sale first was reported in local real-estate publication Business Real Estate Weekly of Arizona and was confirmed Friday by a real-estate broker involved in the deal.
Dick's, a national retail chain based outside Pittsburgh, reportedly paid about $5.8 million for the property, located inside a 1,600-acre office and light-industrial park along the Loop 303 freeway alignment, about 2 miles north of Interstate 10.
The business park is called PV303 and was developed in 2008 by SunCor Development Co.
The seller was a joint venture involving Scottsdale-based Sunbelt Holdings LLC and Dallas-based Rockpoint Group LLC.
Commercial-real-estate broker Jones Lang LaSalle of Phoenix brokered the deal.
Sunbelt and Rockpoint acquired the property as part of a $65 million portfolio of commercial-real-estate assets SunCor sold to the joint venture in 2010.
Construction on the $30 million distribution center is scheduled to begin before Jan. 1 and wrap by January 2013.
Dick's, a publicly held company listed on the New York Stock Exchange under the symbol DKS, owns and operates more than 450 Dick's Sporting Goods stores in 42 states, according to the company's most recent financial-disclosure statement.
It also owns Golf Galaxy Inc., which operates about 80 golfing-equipment stores in 30 states.
Internet commerce outlets such as Amazon.com are driving a dramatic resurgence in demand for warehouse space in the Phoenix area, particularly in the West Valley.
Users of industrial real estate snapped up 1.6 million square feet of empty space in the third quarter, which marked the seventh consecutive quarter of rising demand, according to a recent report from commercial-real-estate firm Colliers International in Phoenix.
The Colliers report said industrial tenants have absorbed about 9.3 million square feet of vacant space during the past seven quarters.
The surge in demand is likely to continue, as large e-commerce providers continue to seek additional space for order-fulfillment and distribution centers to serve Arizona, California and other Western states.
Seattle-based Amazon.com announced plans in July to open a 1.2 million-square-foot distribution center at 800 N. 75th Ave. in Phoenix, its fourth such facility in the Phoenix area.
The company ultimately plans to expand its West Valley presence by another 2 million square feet, area brokers have said.
Several retailers also have opened or expanded regional distribution centers in the West Valley recently, including Gap.com and Macys.com.
Most fulfillment- and distribution-center jobs are relatively low-level positions involving unskilled labor.
A high percentage are seasonal, lasting only through the busy holiday shipping season from October through January.
Because of growth in the distribution-center sector, the vacancy rate among industrially zoned properties in Maricopa County has plummeted from nearly 18 percent in the first quarter of 2010 to 14.6 percent at the end of the third quarter this year, a recent Colliers International report said.
High demand also is driving new construction, according to Colliers' third-quarter analysis, with nearly 3.7 million square feet of warehouse and distribution-center space under development.
The industrial sector has not seen such a high level of activity since before the commercial-real-estate market crashed in 2008, brokers said.
In general, most e-commerce providers have chosen not to locate their West Coast distribution centers in California because of its much higher real-estate costs.
Analysts said many online and catalog retailers have settled on a two-pronged strategy, with order-fulfillment centers in metro Phoenix to serve Southern California and in Reno to serve Northern California.
by J. Craig Anderson The Arizona Republic Nov. 19, 2011 12:00 AM
Dick's Sporting Goods buys W. Valley warehouse
Tuesday, November 22, 2011
Phoenix, CityNorth developer clash - USATODAY.com
Phoenix's effort to revoke its $97.4million development agreement with the developer of CityNorth has gotten off to a rocky start.
Phoenix sent a letter to an attorney for the Klutznick Co. arguing that Klutznick has defaulted on the terms of the agreement.
Scott Hershman, who said Tuesday that he had not been in contact with the city, responded with a demand for the full amount of the agreement, claiming the city was interfering in the company's contractual rights. He also threatened a lawsuit.
The City Council in October directed city staff to study how to end the contract, which the city spent more than $750,000 in court defending from 2007 to 2010.
The agreement with Klutznick calls for the city to share with the developer half of the sales taxes generated at the northeast Phoenix project for 11 years and three months, or a maximum of $97.4million. The sharing agreement would start after the developer opened 1.2million square feet of retail space, plus parking structures with more than 3,000 free spaces.
An Arizona Republic analysis in 2009 indicated that for the project to bring in $97.4million over its lifetime, it would have to be one of the most successful retail projects in the nation.
CityNorth was envisioned as a $1.2billion project that, upon completion, would have about 6million square feet of mixed-use development. To date, 175,000 square feet of retail has been developed.
If the Klutznick Co. does not agree to walk away from the deal, the city will have to seek a legal settlement.
Meanwhile, Deputy City Manager David Krietor maintains that the agreement will never take effect. No progress has taken place on the project since 2008, when Phase 1 opened.
Phase 1 now is under separate ownership from the remainder of the 144-acre parcel, and a Klutznick Co. subsidiary, Northeast Phoenix Partners, is on the hook for a legal judgment of more than $100million in an unrelated case. It may need to use the land to satisfy the judgment.
by Michael Clancy The Arizona Republic Nov 19, 2011
Phoenix, CityNorth developer clash - USATODAY.com
Phoenix sent a letter to an attorney for the Klutznick Co. arguing that Klutznick has defaulted on the terms of the agreement.
Scott Hershman, who said Tuesday that he had not been in contact with the city, responded with a demand for the full amount of the agreement, claiming the city was interfering in the company's contractual rights. He also threatened a lawsuit.
The City Council in October directed city staff to study how to end the contract, which the city spent more than $750,000 in court defending from 2007 to 2010.
The agreement with Klutznick calls for the city to share with the developer half of the sales taxes generated at the northeast Phoenix project for 11 years and three months, or a maximum of $97.4million. The sharing agreement would start after the developer opened 1.2million square feet of retail space, plus parking structures with more than 3,000 free spaces.
An Arizona Republic analysis in 2009 indicated that for the project to bring in $97.4million over its lifetime, it would have to be one of the most successful retail projects in the nation.
CityNorth was envisioned as a $1.2billion project that, upon completion, would have about 6million square feet of mixed-use development. To date, 175,000 square feet of retail has been developed.
If the Klutznick Co. does not agree to walk away from the deal, the city will have to seek a legal settlement.
Meanwhile, Deputy City Manager David Krietor maintains that the agreement will never take effect. No progress has taken place on the project since 2008, when Phase 1 opened.
Phase 1 now is under separate ownership from the remainder of the 144-acre parcel, and a Klutznick Co. subsidiary, Northeast Phoenix Partners, is on the hook for a legal judgment of more than $100million in an unrelated case. It may need to use the land to satisfy the judgment.
by Michael Clancy The Arizona Republic Nov 19, 2011
Phoenix, CityNorth developer clash - USATODAY.com
Phoenix-area foreclosures way down in October
Home foreclosures made up 26 percent of all home-resale transactions in October, the lowest percentage since April 2009, according to an existing-home sales report issued Monday by Arizona State University.
However, report author Jay Butler warned against investing too much significance in the reduced foreclosure rate.
"Just because we're seeing a drop in foreclosures, that doesn't mean we have a healthy housing market," said Butler, professor emeritus at ASU's W.P. Carey School of Business. "Other types of activity and purchases are not increasing in order to push us forward."
Butler said the generally poor economic environment and anemic growth are inhibiting consumer confidence.
The foreclosure rate has dropped from 43 percent of the area's single-family, existing-home transactions in January and February to 26 percent in October, down from 29 percent in September.
Still, Butler said he doesn't expect the downward trend to continue throughout 2012.
"The numbers are deceiving because they only look at recorded foreclosures," he said. "Many more foreclosures may be lingering in the pipeline just because more paperwork and rules are being followed in the process now."
There were 1,900 foreclosures in October, down from 2,295 foreclosures in September and 3,380 foreclosures in October 2010, the report said.
Existing-home sales in October totaled 5,315 sales, down from 5,645 sales in September but an increase over the 4,695 sales in October 2010.
The median home-resale price in October was $125,000, identical to September's median price.
by J. Craig Anderson The Arizona Republic Nov. 14, 2011 06:04 PM
Phoenix-area foreclosures way down in October
However, report author Jay Butler warned against investing too much significance in the reduced foreclosure rate.
"Just because we're seeing a drop in foreclosures, that doesn't mean we have a healthy housing market," said Butler, professor emeritus at ASU's W.P. Carey School of Business. "Other types of activity and purchases are not increasing in order to push us forward."
Butler said the generally poor economic environment and anemic growth are inhibiting consumer confidence.
The foreclosure rate has dropped from 43 percent of the area's single-family, existing-home transactions in January and February to 26 percent in October, down from 29 percent in September.
Still, Butler said he doesn't expect the downward trend to continue throughout 2012.
"The numbers are deceiving because they only look at recorded foreclosures," he said. "Many more foreclosures may be lingering in the pipeline just because more paperwork and rules are being followed in the process now."
There were 1,900 foreclosures in October, down from 2,295 foreclosures in September and 3,380 foreclosures in October 2010, the report said.
Existing-home sales in October totaled 5,315 sales, down from 5,645 sales in September but an increase over the 4,695 sales in October 2010.
The median home-resale price in October was $125,000, identical to September's median price.
by J. Craig Anderson The Arizona Republic Nov. 14, 2011 06:04 PM
Phoenix-area foreclosures way down in October
Developer aims to restart condo project
A Dallas-based developer wants to revive a condominium project north of Scottsdale Fashion Square to build hundreds of high-end apartments.
JLB Partners is requesting city approval of its plan to build 369 apartments at what had been called Portales Place, a project that was to include 126 condos priced from $800,000 to $4.5. million.
Scottsdale-based Grace Communities started excavation of the project in December 2005 but did not get far. The failed development left behind a dust bowl and a vacant 10-acre site at Goldwater Boulevard and Highland Avenue.
JLB Partners would build apartments of up to four stories and two-story carriage-house apartments with attached garages, said Kevin Ransil, JLB's Arizona regional partner.
"It's an eyesore for the city of Scottsdale in a prominent location," Ransil said of the site. "We can get that hole filled up that's a reminder of a failed project."
Luxury-apartment projects have replaced condos as the housing choice of Scottsdale developers. The city has approved or is considering plans for 4,900 apartment units, including 700 units for Gray Development's Blue Sky project northeast of Camelback and Scottsdale roads.
The Portales apartments would give residents access to the same lifestyle amenities that downtown condo owners enjoy without having to invest a half-million dollars for a condo, Ransil said.
There is strong demand for apartments downtown since no Class A units have been built in the area in more than a decade, he said.
The apartment site is west of a pair of 65-foot-tall office buildings in the Portales Corporate Center and the 65-foot Optima Camelview condos.
JLB's carriage-house apartments would run along the northern and western edges of the property, adjacent to the Rancho Vista neighborhood to the west and Camelback Park Estates to the north. Both are single-family residential neighborhoods.
Access to the apartments would be on the northeastern edge of the property at Chaparral Road and on Goldwater Boulevard just north of Highland Avenue.
The four-story apartment buildings would include an underground parking garage.
The apartments would range in size from about 600 to 1,300 square feet, Ransil said.
It's too early to project the rental costs, but JLB expects that residents will have an average income of more than $100,000.
With 500 residents expected to live in the apartments, that will bring a lot of purchasing power to downtown, Ransil said.
JLB has developed about 20,000 apartment units in Texas, Florida, Georgia, North Carolina, Nevada, Arizona, New England and suburban Washington, D.C.
That includes Block 1949, a student-housing apartment building with 225 units at 1949 W. University Drive in Tempe that was completed in 2010. JLB has since sold that complex.
ML Manager LLC, the successor of Mortgages Ltd., is the owner of the Portales site. JLB has the property under contract with a scheduled closing in mid-December, said Mark Winkleman, ML Manager chief operating officer.
He declined to disclose the price until the deal closes. A previous Portales deal in the spring that did not close had a sale price of $14.6 million.
Zoning attorney John Berry, who is representing JLB, said the Portales apartment project is below the site's 65-foot height limit and includes more open space than previously planned.
JLB's site-plan amendment must be reviewed by the Scottsdale Development Review Board, Planning Commission and City Council.
The plans were submitted Nov. 3. No dates have been set for public hearings on the project.
by Peter Corbett The Arizona Republic Nov. 14, 2011 09:20 AM
Developer aims to restart condo project
JLB Partners is requesting city approval of its plan to build 369 apartments at what had been called Portales Place, a project that was to include 126 condos priced from $800,000 to $4.5. million.
Scottsdale-based Grace Communities started excavation of the project in December 2005 but did not get far. The failed development left behind a dust bowl and a vacant 10-acre site at Goldwater Boulevard and Highland Avenue.
JLB Partners would build apartments of up to four stories and two-story carriage-house apartments with attached garages, said Kevin Ransil, JLB's Arizona regional partner.
"It's an eyesore for the city of Scottsdale in a prominent location," Ransil said of the site. "We can get that hole filled up that's a reminder of a failed project."
Luxury-apartment projects have replaced condos as the housing choice of Scottsdale developers. The city has approved or is considering plans for 4,900 apartment units, including 700 units for Gray Development's Blue Sky project northeast of Camelback and Scottsdale roads.
The Portales apartments would give residents access to the same lifestyle amenities that downtown condo owners enjoy without having to invest a half-million dollars for a condo, Ransil said.
There is strong demand for apartments downtown since no Class A units have been built in the area in more than a decade, he said.
The apartment site is west of a pair of 65-foot-tall office buildings in the Portales Corporate Center and the 65-foot Optima Camelview condos.
JLB's carriage-house apartments would run along the northern and western edges of the property, adjacent to the Rancho Vista neighborhood to the west and Camelback Park Estates to the north. Both are single-family residential neighborhoods.
Access to the apartments would be on the northeastern edge of the property at Chaparral Road and on Goldwater Boulevard just north of Highland Avenue.
The four-story apartment buildings would include an underground parking garage.
The apartments would range in size from about 600 to 1,300 square feet, Ransil said.
It's too early to project the rental costs, but JLB expects that residents will have an average income of more than $100,000.
With 500 residents expected to live in the apartments, that will bring a lot of purchasing power to downtown, Ransil said.
JLB has developed about 20,000 apartment units in Texas, Florida, Georgia, North Carolina, Nevada, Arizona, New England and suburban Washington, D.C.
That includes Block 1949, a student-housing apartment building with 225 units at 1949 W. University Drive in Tempe that was completed in 2010. JLB has since sold that complex.
ML Manager LLC, the successor of Mortgages Ltd., is the owner of the Portales site. JLB has the property under contract with a scheduled closing in mid-December, said Mark Winkleman, ML Manager chief operating officer.
He declined to disclose the price until the deal closes. A previous Portales deal in the spring that did not close had a sale price of $14.6 million.
Zoning attorney John Berry, who is representing JLB, said the Portales apartment project is below the site's 65-foot height limit and includes more open space than previously planned.
JLB's site-plan amendment must be reviewed by the Scottsdale Development Review Board, Planning Commission and City Council.
The plans were submitted Nov. 3. No dates have been set for public hearings on the project.
by Peter Corbett The Arizona Republic Nov. 14, 2011 09:20 AM
Developer aims to restart condo project
Phoenix home-fraud lawsuit leads to indictment
A case that likely would have died in civil courts came back to life with a multicount indictment unsealed in federal court last month that accuses a Valley man of fraud and money laundering for his work with historic homes near downtown Phoenix.
The allegations against Jere Parkhurst will be familiar to anyone who lived in the Valley during and after the housing boom: Parkhurst, a Litchfield Park resident, is accused of taking money from investors, promising a 20 percent return within six months as he bought, renovated and sold historic homes for a profit.
The investors included a schoolteacher, engineer and other middle-class residents looking to pad their retirement accounts with proceeds from the booming Valley housing market. Investors allege in civil lawsuits that as the bottom began to fall out of the market, Parkhurst saw what was coming and funneled the money earmarked for renovations into his own accounts.
Parkhurst's activities resulted in a series of suits being filed against him in civil court from 2007 through 2009, all of which were either settled or dismissed with victims claiming they never received any of the court-ordered payments.
That's where it could have ended - until investor Katie Muha got angry.
Frustrated that an attorney said it would cost $75,000 in legal fees to try to recoup $46,000 from Parkhurst, Muha hired a private investigator who dug into Parkhurst's past and presented the information first to the Arizona Attorney General's Office, which passed on the case, and then to federal officials.
Those efforts paid off last month when a 27-count indictment against Parkhurst was unsealed in federal court.
Parkhurst's attorney said his client intends to fight the allegations.
The U.S. Attorney's Office declined comment.
But for investors like Muha, a Gilbert teacher, and her husband, the indictment was vindication after years of trying to hold Parkhurst accountable for his actions.
Muha and her husband were drawn to the investment opportunity in early 2007 by friends who were "making money left and right" renovating and flipping historic homes near downtown Phoenix. They worked with Parkhurst to buy a home on Lewis Street, which was renovated and sold months later for a profit, Muha said. Another opportunity arose in the spring and they invested again, but by then the market started to turn and Muha said they decided to sell the house at the first opportunity. But Parkhurst could not repay the $100,000 they invested, she said.
"What Jere had been doing was using money for the first deal for the second deal," Muha said. "When the wheels came off the bus he couldn't pay for it. I really think that he knew that things were going south and he grabbed as much money as he could grab before it went down."
The Muhas' claim mirrors many of the other civil lawsuits filed against Parkhurst, with investors alleging losses estimated to range from several thousand dollars to more than $1 million.
Many of the investors who filed claims against Parkhurst and scored rulings and settlements in their favor say they have never been paid, much like Muha, who holds out some hope that the federal court case will succeed where the civil actions fell short.
"I hope he goes to jail," she said. "I know I'm never going to get my money back. That was a tough lesson to learn. I should have made sure that money never went directly to him, but to an escrow officer."
A lot of green investors learned similar lessons when the bottom fell out of the Valley's housing market, but experts say that guidance still holds true, particularly with the abundance of short-sale and foreclosed properties on the market that continue to lure investors.
"Even though you think that it's a relic of what happened four or five years ago, it's still going on," said Eric Forster, a mortgage-fraud expert from Los Angeles. "The best thing to do, which no one does, is use a real-estate attorney before they give the money to anyone. Most people just don't have a sense of what they're getting into."
by JJ Hensley The Arizona Republic Nov. 13, 2011 08:47 PM
Phoenix home-fraud lawsuit leads to indictment
The allegations against Jere Parkhurst will be familiar to anyone who lived in the Valley during and after the housing boom: Parkhurst, a Litchfield Park resident, is accused of taking money from investors, promising a 20 percent return within six months as he bought, renovated and sold historic homes for a profit.
The investors included a schoolteacher, engineer and other middle-class residents looking to pad their retirement accounts with proceeds from the booming Valley housing market. Investors allege in civil lawsuits that as the bottom began to fall out of the market, Parkhurst saw what was coming and funneled the money earmarked for renovations into his own accounts.
Parkhurst's activities resulted in a series of suits being filed against him in civil court from 2007 through 2009, all of which were either settled or dismissed with victims claiming they never received any of the court-ordered payments.
That's where it could have ended - until investor Katie Muha got angry.
Frustrated that an attorney said it would cost $75,000 in legal fees to try to recoup $46,000 from Parkhurst, Muha hired a private investigator who dug into Parkhurst's past and presented the information first to the Arizona Attorney General's Office, which passed on the case, and then to federal officials.
Those efforts paid off last month when a 27-count indictment against Parkhurst was unsealed in federal court.
Parkhurst's attorney said his client intends to fight the allegations.
The U.S. Attorney's Office declined comment.
But for investors like Muha, a Gilbert teacher, and her husband, the indictment was vindication after years of trying to hold Parkhurst accountable for his actions.
Muha and her husband were drawn to the investment opportunity in early 2007 by friends who were "making money left and right" renovating and flipping historic homes near downtown Phoenix. They worked with Parkhurst to buy a home on Lewis Street, which was renovated and sold months later for a profit, Muha said. Another opportunity arose in the spring and they invested again, but by then the market started to turn and Muha said they decided to sell the house at the first opportunity. But Parkhurst could not repay the $100,000 they invested, she said.
"What Jere had been doing was using money for the first deal for the second deal," Muha said. "When the wheels came off the bus he couldn't pay for it. I really think that he knew that things were going south and he grabbed as much money as he could grab before it went down."
The Muhas' claim mirrors many of the other civil lawsuits filed against Parkhurst, with investors alleging losses estimated to range from several thousand dollars to more than $1 million.
Many of the investors who filed claims against Parkhurst and scored rulings and settlements in their favor say they have never been paid, much like Muha, who holds out some hope that the federal court case will succeed where the civil actions fell short.
"I hope he goes to jail," she said. "I know I'm never going to get my money back. That was a tough lesson to learn. I should have made sure that money never went directly to him, but to an escrow officer."
A lot of green investors learned similar lessons when the bottom fell out of the Valley's housing market, but experts say that guidance still holds true, particularly with the abundance of short-sale and foreclosed properties on the market that continue to lure investors.
"Even though you think that it's a relic of what happened four or five years ago, it's still going on," said Eric Forster, a mortgage-fraud expert from Los Angeles. "The best thing to do, which no one does, is use a real-estate attorney before they give the money to anyone. Most people just don't have a sense of what they're getting into."
by JJ Hensley The Arizona Republic Nov. 13, 2011 08:47 PM
Phoenix home-fraud lawsuit leads to indictment
Sunday, November 13, 2011
Ariz. high court may weigh Chandler site
The Arizona Supreme Court has been asked to get involved in the feud over who owns Elevation Chandler, the abandoned 10.5-acre construction site near Loops 101 and 202.
The dispute has ramifications for all trustee sales in Arizona's commercial real-estate industry, appellants say.
California-based Point Center Financial, the lender that foreclosed, and TD Service Company of Arizona, the company that held a flawed trustee sale, have asked the Supreme Court to review the state Court of Appeals' decision that favored Tom Peltier of BT Capital, a Phoenix foreclosure speculator.
BT Capital claims it won the property for $1,000,001 at a trustee sale on June 15, 2009, but TD Service and Point Center disagree.
Elevation Chandler, on the southern edge of Westcor's Chandler Fashion Center, was to have been a high-rise luxury hotel topped by condominiums. Developer Jeff Cline of Scottsdale had visions of building a second tower of condos, as well as a parking garage and a fitness center.
Construction stopped abruptly in April 2006.
On the day of the trustee sale, the outstanding balance due was at least $32.7 million.
TD Service made several errors in the notice and posting of the sale.
At the sale, auctioneer Steve Vadas made an opening bid of $1 million for Point Center, and Peltier of BT Capital bid $1,000,001. No further bids were made, even though Point Center had told TD Service earlier to bid up to $25 million if there was competition. After Peltier's bid, the auctioneer called his home office and was told to award the property to BT Capital.
That sale was actually the second Elevation Chandler sale that day. One had been held about noon, at which Point Center had the winning bid. Peltier showed up about 4 p.m. asking about the Elevation Chandler sale, which had been scheduled for 2 p.m. When he was told the sale had been held, he insisted he be given a chance to bid, so the auctioneer held a second sale.
The next day, a standoff occurred between Peltier and TD Service. TD Service said the second sale was invalid and it refused to accept the balance from Peltier, who would not take back his $10,000 deposit.
BT Capital filed a lawsuit in Maricopa County Superior Court against TD Service and Point Center Financial for breach of contract, negligence, negligent misrepresentation and punitive damages.
Maricopa County Superior Court Judge Bethany Hicks dismissed BT Capital's complaint, so BT Capital appealed.
On Sept. 27, 2011, the state Court of Appeals reversed Hicks' decision, saying TD Service couldn't void a completed bidding process.
TD Service and Point Center Financial are asking for a review by the state Supreme Court.
Despite BT's lawsuit, another trustee sale was held July 1, 2010, at which time Point Center took back the property.
Joseph Cotterman, Phoenix attorney for Point Center, said if the Supreme Court hears the case, Point Center will ask the court to rule that the sale that occurred at noon June 15 invalidated the attempt to sell the property at 4 p.m.
A second question for the Supreme Court from Point Center stems from the third trustee sale on July 1, 2010, at which Point Center foreclosed. Peltier attended that sale but didn't bid, saying he already owned the property.
"We're asking the Supreme Court to find that sale (on July 1, 2010) trumped everything that came before, and as a result of that one, everything else about this case is moot," Cotterman said.
Phoenix attorney Roger Cohen, who represents TD Service, said his client is asking the Supreme Court three questions, including how much discretion a trustee like TD Service has.
"The main thing we're asking is for the court to look at is whether the duties of the trustee are limited to ministerial acts -- doing something by rote -- or whether the trustee has discretion," Cohen said.
"We believe the trustee, after the bidding is closed, has discretion to look at the record to see whether all of the statutory requirements have been satisfied before accepting payment," Cohen said.
A second question from TD Service is whether the Court of Appeals erred in treating the case as contractual rather than statutory.
The Appeals Court relied on a case in Washington state that treats the process as contractual, but a California case follows the principle that it's statutory.
Finally, TD Service wants to know whether the court should look at a combination of "inadequacy of price" and errors in the bidding process.
Superior Court Judge Hicks cited the price and the errors when she dismissed BT's complaint.
Even if the Arizona Supreme Court refuses to review the case, the battle is far from over.
If the court denies the case a hearing, Cotterman said, "I think the appellate court ruling will stand, but that doesn't mean BT wins. It says Point Center and TD don't win for the reasons the trial court said."
The appellate court told the litigants to go back to Superior Court and finish the case.
"It still leaves room for any party to win," Cotterman said. "There are several issues we could win on at trial court, because the Appeals Court left several issues open."
Cotterman said he hopes the Supreme Court will hear will hear the appeal because "we think in an economy, and especially a real-estate climate like Arizona has, they're very important questions, and some haven't been answered by the court before."
Because of the high volume of foreclosures in Arizona, this dispute is not simply academic, TD Service said in court papers.
"This opinion goes to the heart of the rights, duties and obligations of an essential participant in these sales -- the trustee -- thereby raising a significant issue of statewide importance," TD said in court papers.
Litigation has discouraged potential buyers, who are leery of a parcel with a clouded title. However, Archstone Apartments of Englewood, Colo., did sign a letter of intent and received financing to buy the property.
That letter was signed in August. Archstone did not return The Republic's phone calls.
by Luci Scott The Arizona Republic Nov. 11, 2011 03:50 PM
Ariz. high court may weigh Chandler site
The dispute has ramifications for all trustee sales in Arizona's commercial real-estate industry, appellants say.
California-based Point Center Financial, the lender that foreclosed, and TD Service Company of Arizona, the company that held a flawed trustee sale, have asked the Supreme Court to review the state Court of Appeals' decision that favored Tom Peltier of BT Capital, a Phoenix foreclosure speculator.
BT Capital claims it won the property for $1,000,001 at a trustee sale on June 15, 2009, but TD Service and Point Center disagree.
Elevation Chandler, on the southern edge of Westcor's Chandler Fashion Center, was to have been a high-rise luxury hotel topped by condominiums. Developer Jeff Cline of Scottsdale had visions of building a second tower of condos, as well as a parking garage and a fitness center.
Construction stopped abruptly in April 2006.
On the day of the trustee sale, the outstanding balance due was at least $32.7 million.
TD Service made several errors in the notice and posting of the sale.
At the sale, auctioneer Steve Vadas made an opening bid of $1 million for Point Center, and Peltier of BT Capital bid $1,000,001. No further bids were made, even though Point Center had told TD Service earlier to bid up to $25 million if there was competition. After Peltier's bid, the auctioneer called his home office and was told to award the property to BT Capital.
That sale was actually the second Elevation Chandler sale that day. One had been held about noon, at which Point Center had the winning bid. Peltier showed up about 4 p.m. asking about the Elevation Chandler sale, which had been scheduled for 2 p.m. When he was told the sale had been held, he insisted he be given a chance to bid, so the auctioneer held a second sale.
The next day, a standoff occurred between Peltier and TD Service. TD Service said the second sale was invalid and it refused to accept the balance from Peltier, who would not take back his $10,000 deposit.
BT Capital filed a lawsuit in Maricopa County Superior Court against TD Service and Point Center Financial for breach of contract, negligence, negligent misrepresentation and punitive damages.
Maricopa County Superior Court Judge Bethany Hicks dismissed BT Capital's complaint, so BT Capital appealed.
On Sept. 27, 2011, the state Court of Appeals reversed Hicks' decision, saying TD Service couldn't void a completed bidding process.
TD Service and Point Center Financial are asking for a review by the state Supreme Court.
Despite BT's lawsuit, another trustee sale was held July 1, 2010, at which time Point Center took back the property.
Joseph Cotterman, Phoenix attorney for Point Center, said if the Supreme Court hears the case, Point Center will ask the court to rule that the sale that occurred at noon June 15 invalidated the attempt to sell the property at 4 p.m.
A second question for the Supreme Court from Point Center stems from the third trustee sale on July 1, 2010, at which Point Center foreclosed. Peltier attended that sale but didn't bid, saying he already owned the property.
"We're asking the Supreme Court to find that sale (on July 1, 2010) trumped everything that came before, and as a result of that one, everything else about this case is moot," Cotterman said.
Phoenix attorney Roger Cohen, who represents TD Service, said his client is asking the Supreme Court three questions, including how much discretion a trustee like TD Service has.
"The main thing we're asking is for the court to look at is whether the duties of the trustee are limited to ministerial acts -- doing something by rote -- or whether the trustee has discretion," Cohen said.
"We believe the trustee, after the bidding is closed, has discretion to look at the record to see whether all of the statutory requirements have been satisfied before accepting payment," Cohen said.
A second question from TD Service is whether the Court of Appeals erred in treating the case as contractual rather than statutory.
The Appeals Court relied on a case in Washington state that treats the process as contractual, but a California case follows the principle that it's statutory.
Finally, TD Service wants to know whether the court should look at a combination of "inadequacy of price" and errors in the bidding process.
Superior Court Judge Hicks cited the price and the errors when she dismissed BT's complaint.
Even if the Arizona Supreme Court refuses to review the case, the battle is far from over.
If the court denies the case a hearing, Cotterman said, "I think the appellate court ruling will stand, but that doesn't mean BT wins. It says Point Center and TD don't win for the reasons the trial court said."
The appellate court told the litigants to go back to Superior Court and finish the case.
"It still leaves room for any party to win," Cotterman said. "There are several issues we could win on at trial court, because the Appeals Court left several issues open."
Cotterman said he hopes the Supreme Court will hear will hear the appeal because "we think in an economy, and especially a real-estate climate like Arizona has, they're very important questions, and some haven't been answered by the court before."
Because of the high volume of foreclosures in Arizona, this dispute is not simply academic, TD Service said in court papers.
"This opinion goes to the heart of the rights, duties and obligations of an essential participant in these sales -- the trustee -- thereby raising a significant issue of statewide importance," TD said in court papers.
Litigation has discouraged potential buyers, who are leery of a parcel with a clouded title. However, Archstone Apartments of Englewood, Colo., did sign a letter of intent and received financing to buy the property.
That letter was signed in August. Archstone did not return The Republic's phone calls.
by Luci Scott The Arizona Republic Nov. 11, 2011 03:50 PM
Ariz. high court may weigh Chandler site
34 years of keeping families in their homes
Rebecca Flanagan recently retired as the head of the Phoenix office of the U.S. Department of Housing and Urban Development after 34 years of fighting for affordable housing, stabilizing neighborhoods, finding food and clothing for struggling families and in the end keeping families in their homes and off the streets.
Flanagan's career with HUD started in 1977 after an unexpected discussion with a neighbor as she was pulling out of the driveway of her Denver home.
"Our neighbor flagged me down," Flanagan said. "I unrolled the window and she asked me if spoke Spanish. I said 'si,' and she told me that HUD's Denver regional office was looking for a part-time administrator who spoke Spanish."
Flanagan, who had two very young sons at the time, was interested in a part-time job and interviewed with HUD. Three months later, after she had considered selling hair products part time to bring in some extra cash for her family, HUD finally called back and offered her the job.
Flanagan's role with HUD quickly grew, and when she and her husband moved back to Southern California, she was able to keep working with the agency.
In 1990, Flanagan was named deputy director of the Phoenix field office of HUD. One of her first assignments turned into a project that changed the lives of thousands of Phoenix students and helped revitalize a neighborhood east of downtown. It's a project that spanned her career at HUD in Phoenix.
"One of the first things I did when I reached Phoenix was volunteer to be principal for the day at Wilson Elementary School," she said.
"I asked the principal what else we could do. He sent me a very long list."
The Wilson school, in a lower-income neighborhood in east Phoenix, needed a lot: mentors for both students and families and clothes, shoes, backpacks, school supplies, food and nearby affordable housing for not only residents but teachers.
Flanagan took it on. HUD employees are allowed to be paid for eight hours of non-profit work a month, so she tapped everyone she could to volunteer as mentors for a class of 20 at the elementary school. Chicanos Por La Causa redeveloped two homes near the school to provide more affordable housing.
Then, Phoenix took over a run-down apartment complex across the street from the school and renovated it for low-income residents.
A bank executive got involved, and students at a Tempe school, and soon every student at Wilson had new shoes and more food in their kitchens.
"Some of the kids had their only meal a day when they ate a school lunch," said Flanagan, who keeps in touch with the girl she mentored and went on to junior college and is married with a family.
That is one of Flanagan's favorite accomplishments at HUD.
One of her biggest disappointments is that during the past few years she and the agency couldn't do more to keep people from losing homes to foreclosure.
"It seemed like every federal housing program rolled out, we couldn't use in Arizona," she said.
"We had a special congressional meeting earlier this year to try to get the program adjusted to help the state's homeowners more. Not much has happened from that meeting yet, but I am still hopeful that Arizona be a pilot for programs that will work and help slow foreclosures."
by Catherine Reagor The Arizona Republic Nov. 11, 2011 05:01 PM
34 years of keeping families in their homes
Flanagan's career with HUD started in 1977 after an unexpected discussion with a neighbor as she was pulling out of the driveway of her Denver home.
"Our neighbor flagged me down," Flanagan said. "I unrolled the window and she asked me if spoke Spanish. I said 'si,' and she told me that HUD's Denver regional office was looking for a part-time administrator who spoke Spanish."
Flanagan, who had two very young sons at the time, was interested in a part-time job and interviewed with HUD. Three months later, after she had considered selling hair products part time to bring in some extra cash for her family, HUD finally called back and offered her the job.
Flanagan's role with HUD quickly grew, and when she and her husband moved back to Southern California, she was able to keep working with the agency.
In 1990, Flanagan was named deputy director of the Phoenix field office of HUD. One of her first assignments turned into a project that changed the lives of thousands of Phoenix students and helped revitalize a neighborhood east of downtown. It's a project that spanned her career at HUD in Phoenix.
"One of the first things I did when I reached Phoenix was volunteer to be principal for the day at Wilson Elementary School," she said.
"I asked the principal what else we could do. He sent me a very long list."
The Wilson school, in a lower-income neighborhood in east Phoenix, needed a lot: mentors for both students and families and clothes, shoes, backpacks, school supplies, food and nearby affordable housing for not only residents but teachers.
Flanagan took it on. HUD employees are allowed to be paid for eight hours of non-profit work a month, so she tapped everyone she could to volunteer as mentors for a class of 20 at the elementary school. Chicanos Por La Causa redeveloped two homes near the school to provide more affordable housing.
Then, Phoenix took over a run-down apartment complex across the street from the school and renovated it for low-income residents.
A bank executive got involved, and students at a Tempe school, and soon every student at Wilson had new shoes and more food in their kitchens.
"Some of the kids had their only meal a day when they ate a school lunch," said Flanagan, who keeps in touch with the girl she mentored and went on to junior college and is married with a family.
That is one of Flanagan's favorite accomplishments at HUD.
One of her biggest disappointments is that during the past few years she and the agency couldn't do more to keep people from losing homes to foreclosure.
"It seemed like every federal housing program rolled out, we couldn't use in Arizona," she said.
"We had a special congressional meeting earlier this year to try to get the program adjusted to help the state's homeowners more. Not much has happened from that meeting yet, but I am still hopeful that Arizona be a pilot for programs that will work and help slow foreclosures."
by Catherine Reagor The Arizona Republic Nov. 11, 2011 05:01 PM
34 years of keeping families in their homes
France outraged over 'shocking' debt downgrade mistake
PARIS - France reacted with outrage after the Standard & Poor's ratings agency accidentally sent out a message saying it was downgrading the country's prized "AAA" credit rating.
During a tumultuous week in Europe's protracted debt crisis, the error stood for an hour and a half Thursday before it was retracted by the agency -- spooking markets by foreshadowing an event that could sound the death knell for the 17-nation eurozone.
The accident came just as Greece and Italy both were selecting interim governments led by financial experts to guide them out of the continent's debt crisis. Most European markets were still open at the time, and U.S. financial markets were in full swing.
Some of the fallout from S&P's error could not be undone despite the rating agency's statement saying the original message had gone out to some subscribers because of a technical error and its reaffirmation that France's credit rating remained "AAA" -- the highest level -- and stable.
The yield, or interest rate that France pays to borrow money for 10 years, has risen 0.32 percentage points since Thursday morning, hitting 3.48% Friday, the highest rate since May.
In the midst of a crisis in which fear-driven rumors drive the markets as much as confirmed fact, the error also reminded investors that France does have some financial difficulties. And in volatile markets, the suggestion of something amiss is nearly as bad as having something amiss.
French Finance Minister Francois Baroin did his best to quell fears, calling the error a "rather shocking rumor of information that has no foundation."
"We won't let any negative message go," he said in Lyon in comments published Friday on the La Tribune newspaper website.
The French market regulator immediately opened an investigation into the mistake at Baroin's behest, and the minister also called for a European probe.
The error may have increased the pressure on French bond yields, but they were already rising -- because, like many countries, France is struggling with slow growth and high debt piled up during its boom years.
The rise of government-issued bond yields is at the heart of Europe's debt crisis: The increase of those interest rates in Ireland, Portugal and Greece -- because investors considered them increasingly bad risks -- eventually forced each of those countries to seek massive international bailouts.
Now Italy is coming under the same pressure. That poses a bigger problem because its economy and debts dwarf the others -- Italy's economic output is 17% of the eurozone compared to a combined 6% for the other three nations. Europe actually doesn't have enough money to fully bail Italy out.
But a French debt downgrade would be a problem in an even more important way. France and Germany's "AAA" credit ratings are the bedrock of Europe's bailout fund. Because the debt of those two countries is considered so safe, the fund pays very favorable interest rates on its bonds.
Some analysts said the accident may have tipped the actual thinking at the ratings agency.
"I can't remember a situation where an agency released a rating movement in error and no doubt there will be many people who believe that there is no smoke without fire and that this cannot have happened unless S&P were preparing the ground for a downgrade," Gary Jenkins, an analyst with Evolution Securities, said Friday.
He hastened to add: "I have no idea if this is the case or if it was just a genuine error."
S&P, however, does not even have France on surveillance -- the step that typically comes before a rating is downgraded. Moody's, on the other hand, says it is studying whether to put France's rating on notice.
A downgrade of French debt would also pose a domestic problem for that nation. President Nicolas Sarkozy, who is expected to face a reelection battle next spring, has staked his credibility on balancing France's budget by 2016.
Along the way, Sarkozy has laid out yearly targets for reducing France's deficit -- each one tied to a growth projection. But those forecasts have repeatedly proven too rosy and his conservative government has already twice this year been forced to introduce extra cuts to stay on target.
It's clear the last thing Sarkozy wants to see is for French borrowing costs to rise as his government fights to reduce its deficits and keep the eurozone united.
On Thursday, the European Commission said it considered France's growth forecast for 2013 too high -- and Baroin quickly responded that Paris has already set aside a reserve fund for that eventuality.
by Sarah Dilorenzo Associated Press Nov. 11, 2011 09:25 AM
France outraged over 'shocking' debt downgrade mistake
During a tumultuous week in Europe's protracted debt crisis, the error stood for an hour and a half Thursday before it was retracted by the agency -- spooking markets by foreshadowing an event that could sound the death knell for the 17-nation eurozone.
The accident came just as Greece and Italy both were selecting interim governments led by financial experts to guide them out of the continent's debt crisis. Most European markets were still open at the time, and U.S. financial markets were in full swing.
Some of the fallout from S&P's error could not be undone despite the rating agency's statement saying the original message had gone out to some subscribers because of a technical error and its reaffirmation that France's credit rating remained "AAA" -- the highest level -- and stable.
The yield, or interest rate that France pays to borrow money for 10 years, has risen 0.32 percentage points since Thursday morning, hitting 3.48% Friday, the highest rate since May.
In the midst of a crisis in which fear-driven rumors drive the markets as much as confirmed fact, the error also reminded investors that France does have some financial difficulties. And in volatile markets, the suggestion of something amiss is nearly as bad as having something amiss.
French Finance Minister Francois Baroin did his best to quell fears, calling the error a "rather shocking rumor of information that has no foundation."
"We won't let any negative message go," he said in Lyon in comments published Friday on the La Tribune newspaper website.
The French market regulator immediately opened an investigation into the mistake at Baroin's behest, and the minister also called for a European probe.
The error may have increased the pressure on French bond yields, but they were already rising -- because, like many countries, France is struggling with slow growth and high debt piled up during its boom years.
The rise of government-issued bond yields is at the heart of Europe's debt crisis: The increase of those interest rates in Ireland, Portugal and Greece -- because investors considered them increasingly bad risks -- eventually forced each of those countries to seek massive international bailouts.
Now Italy is coming under the same pressure. That poses a bigger problem because its economy and debts dwarf the others -- Italy's economic output is 17% of the eurozone compared to a combined 6% for the other three nations. Europe actually doesn't have enough money to fully bail Italy out.
But a French debt downgrade would be a problem in an even more important way. France and Germany's "AAA" credit ratings are the bedrock of Europe's bailout fund. Because the debt of those two countries is considered so safe, the fund pays very favorable interest rates on its bonds.
Some analysts said the accident may have tipped the actual thinking at the ratings agency.
"I can't remember a situation where an agency released a rating movement in error and no doubt there will be many people who believe that there is no smoke without fire and that this cannot have happened unless S&P were preparing the ground for a downgrade," Gary Jenkins, an analyst with Evolution Securities, said Friday.
He hastened to add: "I have no idea if this is the case or if it was just a genuine error."
S&P, however, does not even have France on surveillance -- the step that typically comes before a rating is downgraded. Moody's, on the other hand, says it is studying whether to put France's rating on notice.
A downgrade of French debt would also pose a domestic problem for that nation. President Nicolas Sarkozy, who is expected to face a reelection battle next spring, has staked his credibility on balancing France's budget by 2016.
Along the way, Sarkozy has laid out yearly targets for reducing France's deficit -- each one tied to a growth projection. But those forecasts have repeatedly proven too rosy and his conservative government has already twice this year been forced to introduce extra cuts to stay on target.
It's clear the last thing Sarkozy wants to see is for French borrowing costs to rise as his government fights to reduce its deficits and keep the eurozone united.
On Thursday, the European Commission said it considered France's growth forecast for 2013 too high -- and Baroin quickly responded that Paris has already set aside a reserve fund for that eventuality.
by Sarah Dilorenzo Associated Press Nov. 11, 2011 09:25 AM
France outraged over 'shocking' debt downgrade mistake
Dallas developer to revive stalled Scottsdale condo project
A Dallas-based developer wants to revive a stalled condominium project north of Scottsdale Fashion Square to build hundreds of high-end apartments.
JLB Partners is requesting city approval of its plan to build 369 apartments at what had been called Portales Place, a project that was to include 126 condos priced from $800,000 to $4.5 million.
Scottsdale-based Grace Communities started excavation of the project in December 2005 but did not get very far. The failed development left behind a dust bowl and a vacant 10-acre site at Goldwater Boulevard and Highland Avenue.
JLB Partners would build apartments of up to four stories and two-story carriage-house apartments with attached garages, said Kevin Ransil, JLB's Arizona regional partner.
"It's an eyesore for the city of Scottsdale in a prominent location," Ransil said of the site. "We can get that hole filled up that's a reminder of a failed project."
Luxury-apartment projects have replaced condos as the housing choice of Scottsdale developers. The city has approved or is considering plans for 4,900 apartment units including 700 units for Gray Development's Blue Sky project northeast of Camelback and Scottsdale roads.
Rentals an option
The Portales apartments would give its residents access to the same lifestyle amenities that downtown condo owners enjoy without having to invest a half million dollars for a condo, Ransil said.
There is strong demand for apartments downtown since no Class A units have been built in the area in more than a decade, he said.
The apartment site is west of a pair of 65-foot-tall office buildings in the Portales Corporate Center and the 65-foot Optima Camelview condos.
JLB's carriage-house apartments would run along the northern and western edges of the property, adjacent to the Rancho Vista neighborhood to the west and Camelback Park Estates to the north. Both are single-family residential neighborhoods.
Access to the apartments would on the northeastern edge of the property at Chaparral Road and on Goldwater Boulevard just north of Highland Avenue.
The four-story apartment buildings would include an underground parking garage.
The apartments would range in size from about 600 to 1,300 square feet, Ransil said.
It's too early to project the rental costs, but JLB expects that residents will have an average income of more than $100,000.
That will bring a lot of purchasing power to downtown from more than 500 residents of the apartments, Ransil said.
JLB has developed about 20,000 apartment units in Texas, Florida, Georgia, North Carolina, Nevada, Arizona, New England and suburban Washington, D.C. That includes Block 1949, a student-housing apartment building with 225 units at 1949 W. University Drive in Tempe that was completed in 2010. JLB has since sold that complex.
Portales site under contract
ML Manager LLC, the successor of Mortgages Ltd., is the owner of the Portales site. JLB has the property under contract with a scheduled closing in mid-December, said Mark Winkleman, ML Manager chief operating officer.
He declined to disclose the price until the deal closes. A previous Portales deal in the spring that did not close had a sale price of $14.6 million.
Zoning attorney John Berry, who is representing JLB, said the Portales apartment project is below the site's 65-foot height limit and includes more open space than previously planned.
JLB's site-plan amendment must be reviewed the Scottsdale Development Review Board, Planning Commission and City Council.
The plans were submitted last week, and no dates have been set for public hearings on the project.
by Peter Corbett The Arizona Republic Nov. 11, 2011 07:58 AM
Dallas developer to revive stalled Scottsdale condo project
JLB Partners is requesting city approval of its plan to build 369 apartments at what had been called Portales Place, a project that was to include 126 condos priced from $800,000 to $4.5 million.
Scottsdale-based Grace Communities started excavation of the project in December 2005 but did not get very far. The failed development left behind a dust bowl and a vacant 10-acre site at Goldwater Boulevard and Highland Avenue.
JLB Partners would build apartments of up to four stories and two-story carriage-house apartments with attached garages, said Kevin Ransil, JLB's Arizona regional partner.
"It's an eyesore for the city of Scottsdale in a prominent location," Ransil said of the site. "We can get that hole filled up that's a reminder of a failed project."
Luxury-apartment projects have replaced condos as the housing choice of Scottsdale developers. The city has approved or is considering plans for 4,900 apartment units including 700 units for Gray Development's Blue Sky project northeast of Camelback and Scottsdale roads.
Rentals an option
The Portales apartments would give its residents access to the same lifestyle amenities that downtown condo owners enjoy without having to invest a half million dollars for a condo, Ransil said.
There is strong demand for apartments downtown since no Class A units have been built in the area in more than a decade, he said.
The apartment site is west of a pair of 65-foot-tall office buildings in the Portales Corporate Center and the 65-foot Optima Camelview condos.
JLB's carriage-house apartments would run along the northern and western edges of the property, adjacent to the Rancho Vista neighborhood to the west and Camelback Park Estates to the north. Both are single-family residential neighborhoods.
Access to the apartments would on the northeastern edge of the property at Chaparral Road and on Goldwater Boulevard just north of Highland Avenue.
The four-story apartment buildings would include an underground parking garage.
The apartments would range in size from about 600 to 1,300 square feet, Ransil said.
It's too early to project the rental costs, but JLB expects that residents will have an average income of more than $100,000.
That will bring a lot of purchasing power to downtown from more than 500 residents of the apartments, Ransil said.
JLB has developed about 20,000 apartment units in Texas, Florida, Georgia, North Carolina, Nevada, Arizona, New England and suburban Washington, D.C. That includes Block 1949, a student-housing apartment building with 225 units at 1949 W. University Drive in Tempe that was completed in 2010. JLB has since sold that complex.
Portales site under contract
ML Manager LLC, the successor of Mortgages Ltd., is the owner of the Portales site. JLB has the property under contract with a scheduled closing in mid-December, said Mark Winkleman, ML Manager chief operating officer.
He declined to disclose the price until the deal closes. A previous Portales deal in the spring that did not close had a sale price of $14.6 million.
Zoning attorney John Berry, who is representing JLB, said the Portales apartment project is below the site's 65-foot height limit and includes more open space than previously planned.
JLB's site-plan amendment must be reviewed the Scottsdale Development Review Board, Planning Commission and City Council.
The plans were submitted last week, and no dates have been set for public hearings on the project.
by Peter Corbett The Arizona Republic Nov. 11, 2011 07:58 AM
Dallas developer to revive stalled Scottsdale condo project
Wall Street safety net still is full of holes
WASHINGTON - After countless new rules designed to make Wall Street safer, it's come to this: Another securities firm has collapsed over risky, poorly disclosed bets.
Not enough, in other words, has changed since the U.S. financial system nearly toppled three years ago.
The bankruptcy filing last week by MF Global Holdings Ltd. didn't freeze lending and panic investors around the world, as Lehman Brothers' did in 2008. But the rapid fall of the firm run by former New Jersey Gov. Jon Corzine shows risky behavior persists, despite a vast regulatory overhaul.
As lenders abandon Italy this week and stocks plummet on fear that defaults in Europe are all but inevitable, those new rules are about to be put to the test.
One question no one can answer: Is the financial system, with its expanding web of connections that even experts can't trace, any safer?
"People are making the same dumb bets," said investor Michael Lewitt of Harch Capital, who calls Washington's new rules inadequate.
MF Global's collapse suggests that:
Financial companies are making risky bets with borrowed money and hiding them off their balance sheets. In MF Global's case, scant disclosure made it harder for people to see the danger until it was too late.
Those bets are being made with their own money but are threatening customers and trading partners. Dodd-Frank, the Wall Street overhaul passed last year, focused on big, complex financial companies whose failure could topple other firms. The law bans these "systemically important" companies from making such bets with their own money, called proprietary trading. But it does little about smaller financial firms like MF Global.
Many financial companies operate without coordinated oversight by regulators. MF Global was watched over by several regulators. But no one was in charge of coordinating them. Financial companies, aside from the biggest, face the same patchwork oversight that failed to stop risky bets before the financial crisis.
The bust of MF Global itself is not an indictment of the new rules. Dodd-Frank wasn't designed to prevent all financial failures. In fact, some failures can be healthy if they discourage investors from taking on excessive risk.
But MF Global's collapse brought heavy costs. It caused millions in losses for investors. It threw commodity markets into disarray. And it left customers confused and angry because $593 million of their money is missing.
"The question for regulators is: 'How did this happen?'" said David Kotok, a money manager at Cumberland Advisors. "Could we have seen it coming?"
The answer: Yes -- but you had to look hard.
MF Global failed after buying billions of European government bonds on a hunch they were less risky than many investors assumed. The trouble wasn't so much the bet itself. It was how the firm disclosed it and financed it.
MF Global didn't recognize those bonds on its balance sheet for all to see. Instead, they were shunted "off-balance sheet," their presence noted deep in its financial statements. Some separate filings with regulators excluded them entirely.
This sleight-of-hand was possible because of an accounting maneuver used by Lehman to hide its debt before it failed: Instead of holding onto the bonds it had just bought, MF Global "sold" them to other companies in exchange for cash -- with the promise to buy them back later.
In effect, it was borrowing the cash but not calling it that because technically it came from a "sale." And because the bonds were off its books, MF Global didn't have to acknowledge the risk they posed.
Other firms have struck similar off-balance-sheet deals, but poor disclosure makes them difficult to track.
The lack of detail about financial companies' holdings can lead to panic selling. Fearing another MF Global, investors started dumping shares of broker Jefferies Group Inc. last month. The stock recovered after the company released details showing its bets were smaller and not funded by the same off-balance-sheet deals.
Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said the hidden debt at MF Global makes her wonder if regulators have learned anything from the financial crisis. She noted that American International Group Inc. used off-balance-sheet "swaps" to bet that U.S. homeowners would pay back their mortgages -- that is, until it collapsed and had to be bailed out by taxpayers.
"We've seen this movie before," Tavakoli said.
Under Dodd-Frank, large financial companies that played a big role in the financial crisis are subjected to new, stricter oversight. But that's not the case with smaller firms.
Christopher Whalen, managing director at Institutional Risk Analytics, noted that banks must file quarterly "call reports" listing a wide range of details about their risks -- but that no such disclosure is required of smaller financial firms like MF Global.
"The problem is, they are still very opaque," Whalen said.
In the case of MF Global, it not only made "proprietary" bets banned at larger firms, it did so with gobs of borrowed money.
One measure of that, its so-called leverage ratio, hit 31-1 in September, similar to Lehman's before it failed. Most big banks are closer to 10-1 now.
Of course, the risks taken by MF Global may prove more an exception than a rule. But Louise Purtle, an analyst at research firm CreditSights, is worried.
She wrote in a report last week that, as regulators crack down on the largest financial companies, risk could be building in the "shadow banking system" -- the thousands of hedge funds, small brokers, money managers and other non-bank financial firms out of the spotlight.
by Daniel Wagner Associated Press Nov. 11, 2011 12:00 AM
Wall Street safety net still is full of holes
Not enough, in other words, has changed since the U.S. financial system nearly toppled three years ago.
The bankruptcy filing last week by MF Global Holdings Ltd. didn't freeze lending and panic investors around the world, as Lehman Brothers' did in 2008. But the rapid fall of the firm run by former New Jersey Gov. Jon Corzine shows risky behavior persists, despite a vast regulatory overhaul.
As lenders abandon Italy this week and stocks plummet on fear that defaults in Europe are all but inevitable, those new rules are about to be put to the test.
One question no one can answer: Is the financial system, with its expanding web of connections that even experts can't trace, any safer?
"People are making the same dumb bets," said investor Michael Lewitt of Harch Capital, who calls Washington's new rules inadequate.
MF Global's collapse suggests that:
Financial companies are making risky bets with borrowed money and hiding them off their balance sheets. In MF Global's case, scant disclosure made it harder for people to see the danger until it was too late.
Those bets are being made with their own money but are threatening customers and trading partners. Dodd-Frank, the Wall Street overhaul passed last year, focused on big, complex financial companies whose failure could topple other firms. The law bans these "systemically important" companies from making such bets with their own money, called proprietary trading. But it does little about smaller financial firms like MF Global.
Many financial companies operate without coordinated oversight by regulators. MF Global was watched over by several regulators. But no one was in charge of coordinating them. Financial companies, aside from the biggest, face the same patchwork oversight that failed to stop risky bets before the financial crisis.
The bust of MF Global itself is not an indictment of the new rules. Dodd-Frank wasn't designed to prevent all financial failures. In fact, some failures can be healthy if they discourage investors from taking on excessive risk.
But MF Global's collapse brought heavy costs. It caused millions in losses for investors. It threw commodity markets into disarray. And it left customers confused and angry because $593 million of their money is missing.
"The question for regulators is: 'How did this happen?'" said David Kotok, a money manager at Cumberland Advisors. "Could we have seen it coming?"
The answer: Yes -- but you had to look hard.
MF Global failed after buying billions of European government bonds on a hunch they were less risky than many investors assumed. The trouble wasn't so much the bet itself. It was how the firm disclosed it and financed it.
MF Global didn't recognize those bonds on its balance sheet for all to see. Instead, they were shunted "off-balance sheet," their presence noted deep in its financial statements. Some separate filings with regulators excluded them entirely.
This sleight-of-hand was possible because of an accounting maneuver used by Lehman to hide its debt before it failed: Instead of holding onto the bonds it had just bought, MF Global "sold" them to other companies in exchange for cash -- with the promise to buy them back later.
In effect, it was borrowing the cash but not calling it that because technically it came from a "sale." And because the bonds were off its books, MF Global didn't have to acknowledge the risk they posed.
Other firms have struck similar off-balance-sheet deals, but poor disclosure makes them difficult to track.
The lack of detail about financial companies' holdings can lead to panic selling. Fearing another MF Global, investors started dumping shares of broker Jefferies Group Inc. last month. The stock recovered after the company released details showing its bets were smaller and not funded by the same off-balance-sheet deals.
Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said the hidden debt at MF Global makes her wonder if regulators have learned anything from the financial crisis. She noted that American International Group Inc. used off-balance-sheet "swaps" to bet that U.S. homeowners would pay back their mortgages -- that is, until it collapsed and had to be bailed out by taxpayers.
"We've seen this movie before," Tavakoli said.
Under Dodd-Frank, large financial companies that played a big role in the financial crisis are subjected to new, stricter oversight. But that's not the case with smaller firms.
Christopher Whalen, managing director at Institutional Risk Analytics, noted that banks must file quarterly "call reports" listing a wide range of details about their risks -- but that no such disclosure is required of smaller financial firms like MF Global.
"The problem is, they are still very opaque," Whalen said.
In the case of MF Global, it not only made "proprietary" bets banned at larger firms, it did so with gobs of borrowed money.
One measure of that, its so-called leverage ratio, hit 31-1 in September, similar to Lehman's before it failed. Most big banks are closer to 10-1 now.
Of course, the risks taken by MF Global may prove more an exception than a rule. But Louise Purtle, an analyst at research firm CreditSights, is worried.
She wrote in a report last week that, as regulators crack down on the largest financial companies, risk could be building in the "shadow banking system" -- the thousands of hedge funds, small brokers, money managers and other non-bank financial firms out of the spotlight.
by Daniel Wagner Associated Press Nov. 11, 2011 12:00 AM
Wall Street safety net still is full of holes
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