September 11, 2008
Commercial real estate market isn't sharing woes of residential counterpart
By Yudislaidy Fernandez Unstable conditions in residential real estate aren't spilling over to the commercial market in Miami-Dade County, the county's property appraiser says. The mid-year report indicating the assessment of property values shows a stable commercial market in 2007 and 2008, according to the preliminary assessment roll, said property appraiser Marcus Saiz de la Mora. "The analysis in the market is pretty much flat," he said. "Commercial properties seem to be stable as of January, with a consistent rate of change, which we have seen in prior years, unlike the residential real estate market," he said. He noted the analysis included January and February. This year's wrap-up of commercial values in all 35 municipalities in Miami-Dade plus the unincorporated region indicates an increase of 6.8%, from $55.8 billion in 2007 to $59.5 billion in 2008. The tax base includes all types of commercial properties including retail, office, mixed-use and industrial, as well as vacant commercial and industrial land, he said. The overall preliminary tax roll countywide declined 2.6%, from $245 billion in 2007 to $239 billion this year. The overall roll, however, encompasses all properties: residential, multi-family and commercial classes such as retail, office and hotels, he said. It's determined based on historical data collected the previous year and just the first months of the current year, he said. The plunge in overall values is a result of the residential market's decline and adjustments made under constitutional Amendment One, which added $25,000 more to the Homestead Exemption. While the volatile residential market kept rising during the past five to six years, increasing at a much higher rate than commercial, the rate of change for commercial has remained a constant 4% to 9%, said Mr. Saiz de la Mora, who has been in the property appraiser's office 24 years. "The residential and multi-family market now is very flat, reflecting value drop, and commercial is in a more normal rate of growth," he said. "As you break it down between municipalities you see small changes in values." He said identifying why a municipality's commercial property values may have a sharp increase or steep fall can take different avenues. For example, four cities — Bal Harbour, North Bay Village, Virginia Gardens and Sunny Isles Beach — saw commercial property values fall this year. This abrupt change is typically attributed to demolition because it wipes out the value of the property and any taxes that could be collected from it, Mr. Saiz de la Mora said. He added that when structures are razed, taxing authorities lose revenues because they can't charge taxes for a building that doesn't exist. But that negative value can change a couple of years down the road as the cleared lots are resurrected with new developments, he said. In the long run, the newly-constructed properties gain a higher value. For example, Bal Harbour, an affluent community with high buying power just north of Miami Beach, had a 2.2% percent drop. Mr. Saiz de la Mora said this fall in value may be an alert that new commercial-related construction is to take place there. Meanwhile, in the past year other cities gained significantly in value, such as Florida City with a 32.7% gain, Bay Harbor Islands at 23.7% and El Portal, up 26.5%. Mr. Saiz de la Mora said the high percentage gain of a municipality like Florida City — ranked highest — indicates the "tremendous" growth in the southern point of the county. Typically, commercial property values usually grow no more than 9% year to year, he said. Other cities' commercial values grew too: City of Miami up 4.2%, Coral Gables 2.3%, Aventura 0.8% and Doral 7.3%. The assessment reports are delivered by July 1 to the taxing authorities, including the county, each city and the Miami-Dade School Board. The appraiser's collected data is then used by the local elected officials to set their millage rate.
DOE has launched the Commercial Real Estate Energy Alliance (CREEA), a partnership of commercial real estate owners and operators that have volunteered to work with DOE to drastically reduce the commercial real estate sector's energy consumption and greenhouse gas emissions. Commercial buildings currently account for 18% of the nation's energy consumption and carbon dioxide emissions. CREEA will provide a link between commercial building owners and operators and DOE's research and technologies and will act as national forum to share best practices and practical experiences in energy efficiency. CREEA steering committee members include leading real estate and building engineering organizations; the U.S. General Services Administration, which manages federal buildings; U.S. and global leaders in real estate services, such as CB Richard Ellis, Cushman & Wakefield Inc., Grubb & Ellis Company, Jones Lang LaSalle, Transwestern, and USAA Real Estate Company; and top hotel, casino, and resort owners, such as Hilton Hotels Corporation, MGM Mirage, The Walt Disney Company, and Wyndham Hotels and Resorts, LLC.
CREEA is the second energy alliance launched by DOE in the commercial buildings sector. The Retailer Energy Alliance, launched in 2008, provides similar resources and services for retail businesses, including Walmart, Target, and Macy's. Both alliances are part of DOE's Net-Zero Energy Commercial Building Initiative, which aims to achieve market-ready, net-zero-energy commercial buildings by 2025. The initiative is supported by the National Laboratory Collaborative on Building Technologies, under which five of DOE's national laboratories have been working toward the net-zero energy goal, and the Commercial Building National Accounts, which includes DOE-selected companies and organizations that conduct cost-shared research, development, and deployment for new building technologies. See the DOE press release and the CREEA Web page on DOE's Building Technologies Program Web site.
DOE has taken a number of steps to encourage energy efficiency in the design of new buildings. In 2001, DOE released the first version of EnergyPlus, an energy modeling tool that has been updated at least twice each year. And last year, DOE released OpenStudio, a plug-in for the Google SketchUp 3-D drawing program that allows SketchUp to work seamlessly with the EnergyPlus program. The most recent versions of both EnergyPlus and OpenStudio were released on April 13, and both are available on the EnergyPlus page of DOE's Building Technologies Program Web site. That site also features a selection of benchmark models for 16 types of building in 16 locations to help designers understand the energy use of similar new buildings. The models were developed last year with the help of three of DOE's national laboratories.
As seen in MoneyandMarkets
by Nilus Mattive
In the Dividend Superstars issue that just went to press, I talked about FICO credit scores — the three-digit numbers that greatly determine how much money we can borrow, what interest rates we pay, and even how employers and landlords view us.
And I think this information is so critical to your financial life that I want to go over some of the details again here in Money and Markets today. Plus, I want to tell you why I think the system as it stands today is treating many responsible savers and borrowers unfairly in these credit-crunched times. That's something I didn't have room for in the latest Dividend Superstars newsletter.
So let's get into it ...
The Basics of Credit Scores
If you've been reading my columns and issues, you know I firmly believe you should pull your credit reports from the three major reporting agencies — Equifax, Experian, and Transunion — once a year. Doing so is now completely free because of the Fair Credit Reporting Act.
You can choose to pull all three reports at one time, or space them out throughout the year so you get a frequent look into your records.
Whatever way you choose to do it, look for errors, incorrect addresses, or any suspicious activity. If you have questions or corrections, don't hesitate to contact the agency. After all, your credit score affects the interest rates you pay on all kinds of loans.
To get those reports, call 1-877-322-8228. You can also request them by mail at: Annual Credit Report Service, P.O. Box 105281, Atlanta, GA 30348-5281.
Of course, when you pull those reports you WILL NOT see your actual credit score, which is derived from your reports.
The most commonly cited credit score number is known as your "FICO score," named after the firm that created it, Fair Isaac Co. The three-digit number falls between 300 and 850, with most people falling into the 600s or 700s.
Landlords and employers use credit scores as a way to get a sense of who you are, and as I noted, a FICO score greatly affects your borrowing ability. Fair Isaac says a borrower with a 580 might pay three percentage points more for a loan than someone with a 720!
The importance of your FICO is only getting more dramatic with the ongoing credit crunch. Some mortgage lenders have even been creating additional tiers above the 740-750 level, which has typically represented the general cutoff point for their "best" customers.
How a FICO Score Is Calculated, Along With Recent Important Changes ...
Fair Isaac's website gives the following general guidelines:
The rest of your score comes from a mix of other factors. And note that the exact algorithm behind the FICO score is a closely guarded secret that is continually being tweaked.
For example, in February of 2009 Fair Isaac made a number of important changes to the formula:
So How Can You Help Your Score (Or At Least Not Hurt It)?
Here are some of the basic steps you can take:
First, you should keep a few credit cards open for as long as possible, and with high available lines of credit even if you aren't really using them all that often.
It can make sense to close a couple newer cards, especially if they levy annual fees, but be careful that you'll still have a healthy amount of available credit and a long continuous history.
And don't let your few cards sit completely idle because lenders may unexpectedly close them, reduce your available credit, or stop reporting the activity to the credit agencies.
Second, you should not go around opening new cards just to get those initial 10 percent-off discounts or shopping for a home equity loan just to see what rate you can get. FICO tries to account for similar credit inquiry activity all falling within a small window (roughly 45 days) such as when you go mortgage shopping, but it still makes sense to limit your activity in this area.
Third, high balances are to be avoided. And if possible, you should spread out your activity among a few cards.
Fourth, don't forget about the simple steps like consistently paying bills on time and correcting errors on your credit reports, either.
Yet All This Begs One Last Question: Is the FICO System Even Fair in Today's Environment?
Think about some of the steps I just outlined: Keep cards open that you aren't really using ... have a "healthy mix of debt" ... and don't shop around for loans very often.
Do those make sense to you? Do those sound like steps a conservative consumer should take?
And yet these are apparently some of the best ways to get — and keep — a top credit score.
Consider this case: A hypothetical borrower has paid cash for his house and cars. He uses just one rewards card for all his purchases and pays off the balance in full every month, though he sometimes changes what card he uses based on the best rewards program at the time. And he frequently rolls his savings into CDs with whatever bank pays the highest rates.
Now, that sounds like someone I would loan money to! I mean, the guy has no debt and makes sound financial decisions.
Yet, as far as the FICO system is concerned, he doesn't have much of a credit history nor a smattering of loans. And all that credit card and CD shopping will also cause a lot of credit report pulls.
Oh, and get this: From what I've heard, the FICO system doesn't recognize patterns like regularly paying off large credit card balances. So in our hypothetical example, Mr. Conservative would also show a high debt-to-available credit balance.
Now, I'm sure this guy would still have a very decent score. And if he's cash rich and debt free, he probably wouldn't give a darn what Fair Isaac's system thought of him, either.
But what if he did decide to go shopping for a second home mortgage? Would the system — or the lenders who blindly rely on it — actually see him for the low-risk borrower he is?
My general impression is that FICO is best applied to the masses — people who live with all kinds of loans and spend the rest of their days faithfully paying off little bits here and there. And I guess that's exactly who lenders want to court, too.
Still, anyone who is responsible and doesn't fit "the mold" might be left calling FICO's creator "Unfair Isaac" when it's time to shop for a loan.
Washington, February 23, 2010
Although the economy has been growing lately, fallout from the recent recession continued to negatively impact commercial real estate sectors in the fourth quarter, but there is hope for some improvement next year, according to the National Association of Realtors®.
Lawrence Yun, NAR chief economist, said commercial real estate almost always lags the economy. “Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher and many commercial property owners will need to make rent concessions,” he said.
“With the job market expected to turn for the better later this year, we’ll see rising demand for office and warehouse space, but that isn’t likely before 2011,” Yun said. “At the same time, improved consumer confidence would help sustain the retail sector and encourage more people to enter the rental market.”
Yun notes that commercial vacancy rates remain high in most market areas and are depressing rents.
The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 700 local market experts,1 suggests a flattening level of business activity in upcoming quarters with 55 percent of members expecting the market to improve in the second quarter.
The SIOR index rose 0.2 percentage point to 35.5 in the fourth quarter, compared with a level of 100 that represents a balanced marketplace. This is the first gain following 11 consecutive quarterly declines. Although some indicators show that a decline in commercial property values is beginning to flatten, 86 percent of respondents report prices are below replacement costs.
Nearly nine in 10 survey participants said new commercial development is virtually nonexistent in their market areas, and rent concessions are reported almost everywhere.
An independent survey earlier this month showed a couple dozen banks are willing to expand commercial credit this year, which is critical. The lending expansion is aided by the Federal Reserve's Term Asset-Backed Loan Facility, which is encouraging issuance of commercial mortgage-backed bonds. In addition, regulators are prodding lenders to extend terms for many existing commercial loans.
“We have a long way to go for satisfactory levels of commercial credit, but these are important first steps,” Yun said. “Given that about $1.4 trillion in commercial debt will come due over the next three years, more extensive action is needed and the Fed needs to more actively help resuscitate commercial mortgage-backed securities. The credit improvement will mean more commercial property sales in 2010, even some at deeply discounted prices.”
Looking at the overall market, commercial vacancy rates generally will stay at elevated levels, according to NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK.2 The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.
With a lot of sublease space currently on the market, vacancy rates in the office sector are forecast to rise from 16.3 percent in the fourth quarter of 2009 to 17.6 percent in the fourth quarter of this year; the longer term outlook is for vacancies to average 17.4 percent in 2011.
Annual office rent is projected to decline 7.2 percent in 2010, following a drop of 12.7 percent last year. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 27.3 million square feet in 2010.
There is proportionately less industrial sublease space on the market than in the office sector, but obsolescence remains a factor. Industrial vacancy rates will probably rise from 13.9 percent in the fourth quarter of last year to 14.9 percent in the closing quarter of 2010; they could average 14.5 percent next year.
Annual industrial rent is likely to fall 9.6 percent this year, after declining 10.9 percent in 2009. Net absorption of industrial space in 58 markets tracked is seen at a negative 93.5 million square feet in 2010.
Retail vacancy rates are expected to edge up from 12.4 percent in the fourth quarter of 2009 to 12.7 percent in the same period of this year, and may hold at that level in 2011.
Average retail rent is forecast to decline 2.4 percent in 2010, following a drop of 4.0 percent in 2009. Net absorption of retail space in 53 tracked markets should be a negative 3.4 million square feet this year.
The apartment rental market – multifamily housing – is poised to gain from a rise in household formation. Multifamily vacancy rates are likely to decline from 7.4 percent in the fourth quarter of last year to 6.6 percent in the fourth quarter of 2010, and possibly edge down to 6.1 percent next year.
Average rent is projected to decline 3.4 percent this year, following a decline 3.6 percent in 2009. Multifamily net absorption is expected to be 115,000 units in 59 tracked metro areas this year.
The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.
The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.
More than 81,000 NAR and institute affiliate members offer commercial brokerage services.The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Before you buy property overseas you need to know what you're doing. Here are seven fundamental guidelines for investing successfully in overseas real estate, each critically important, especially in emerging and undervalued markets.
I got this information from my longtime friend and former colleague, Kathie Peddicord. Kathie is an experienced offshore real estate consultant and author of “How to Retire Overseas.”
1. Beware of net commissions. In many countries, real estate agents (not the property owners) set the sale price. The seller specifies what amount he wants to make but tells his agent: “Sell the place for whatever you want." The agent may try to sell for 50% or even 100% more.
In foreign markets these deals are particularly dangerous for buyers, because there's no U.S.-style Multiple Listing Service. So, there's no way to compare selling prices of similar properties. The easiest way to avoid this practice is to negotiate directly with the property owner.
2. Title insurance is available for offshore real estate. Buyers will always be told by the seller and his attorney that the title is good … that there is no need to worry … that they'll do all the paperwork to register the property in your name.
Never, ever rely on verbal promises, especially since almost anywhere you can buy a title insurance policy almost identical to what you'd find in the U.S. Raising the question of title insurance early in the discussions will head off future problems. If the seller has something to hide and becomes confrontational, you should look elsewhere.
3. Always buy fully titled real estate, not “rights of possession.” Rights of possession are found in some countries like Panama. This means you get only possession of a property with the possibility that the full title may be obtained after a length of time (normally about 15 years). But such rights are subject to legal challenge by the titled owners of the land.
The owner of the land trying to sell his rights of possession and his agent may not tell you that the land is not titled. If you ask, they may tell you "rights of possession are just like title." That's untrue. Walk away from any property being sold merely as rights of possession.
4. Beware of laws that restrict foreign ownership. When buying foreign real estate, you must know the local rules governing foreign ownership of the specific land in which you interested.
In some countries, foreign buyers must purchase through a corporation. In others, foreigners are not allowed to buy oceanfront or coastal property or in other designated areas. Calculate the expense of dealing with such restrictive rules to decide if you are getting a good deal.
5. Offshore real estate markets can be difficult to navigate. In many countries there are no multiple listings, no sales histories, and often no real estate agents. For foreign buyers, the asking price may be higher than for a local because the seller assumes you don't know the market and that you have more money to spend.
To avoid this, start with local realtors and get an idea of the general market. Visit areas of interest. Look for "For Sale" signs. Stop in local bars and talk with whoever you can. It helps if you have a reliable local contact to act as your front person to be sure you're quoted true local market prices.
6. Learn the options of offshore financing. In Western Europe, Panama and Mexico, loans should be available through a local bank, especially if you're a resident of the country. Although European rates are low, you can't get the high loan-to-value loans that U.S. banks used to give before the crash. Also, don't expect a 30-year mortgage; 20 years is more typical. In less-developed countries, your options may be limited to developers who offer direct financing with terms that are generally are not appealing.
You might arrange a loan in the U.S. using U.S. collateral (a second mortgage). Some offshore private banks will lend money against the value of your investment portfolio held with them in your choice of currencies, but watch the currency exchange risk.
7. Market price, not asking price, must be your guide. For real estate in developing markets, the asking price is just a starting point; there are no multiple listings or comparative sales lists. Sellers price property based on what they'd like to make, momentary cash needs or how neighboring properties have sold, regardless of how those properties compare with their own.
Bottom line: Offer only what you believe the property really is worth, even if it’s only half the asking price. What it is really worth, the market value, is determined by the prices at which similar properties have recently sold.
Until now, U.S. law has not required that direct ownership of real property in a foreign country be reported per se to the IRS. At the moment, a U.S. person can own an offshore vacation or retirement home with considerable privacy.
However, U.S. persons are required to report income from real estate holdings, wherever they are located, so this privacy does not apply to rental real estate.
But non-reporting of foreign real estate may be about to change.
The so-called 2010 HIRE Act contained the “Foreign Financial Assets Report” (FATCA) that requires that U.S. persons file a new (as yet unissued) IRS form with their income tax return to disclose any foreign “financial assets” with a combined value exceeding $50,000.
It appears that personally owned offshore assets, such as real estate or business assets that are not owned by a legal entity, might be excluded from this new report. But the law gives the IRS broad discretion to write the reporting rules so until those rules are issued the question remains open. I’m watching this closely and will let you know if something changes or if we get any additional information.
Start looking for your offshore haven, and take your time to find the right realtor, lender and, most importantly, the right home where you’ll spend not just your retirement money, but perhaps your retirement itself. International living is easy if you know the ropes.
That’s the way it looks from here,
Bob BaumanLegal Counsel and Senior Editor, The Sovereign Society
Realtor Association of Greater Miami and the Beaches, Realtor Association of Miami-Dade division ending as twin entities merge
By Yudislaidy Fernandez Florida's two largest realtor associations are merging into the Miami Association of Realtors and will emerge as the third-largest realty association in the nation. The competing Realtor Association of Greater Miami and the Beaches and the Realtor Association of Miami-Dade County become one Aug. 1, when the merger is made official for a combined almost 22,000 members. In the new association, Teresa King Kinney, who heads the Realtor Association of Greater Miami and the Beaches, is taking the chief executive officer role. Martha Bullman, who's led the Realtor Association of Miami-Dade County for 18 years, said she's stepping down and won't be part of the new leadership. The historic merger came together in about a month, developing from discussions on how together the groups could provide more services, tools and resources and create a stronger voice, leaders said. The first merger meeting was June 24. "At that one meeting, we reached agreements on every major decision that needed to be made to go forward with the merger," Ms. King Kinney said. The associations' leaders "voted unanimously to go forward." A shorter name was picked to focus on the Miami brand. "That's the brand that recognizes our entire marketplace," she said, adding that's how international buyers recognize this market. The Keyes Co.'s Victor Ulloa, Miami-Dade association president, said members favored the merger because they know, especially in these challenging times in real estate, that "there is strength in numbers." The 21,726-member Miami association will push past Chicago, which has 12,460, as third largest US realtor association. The newly-formed group is just 264 members short of becoming second largest by passing the Long Island Board of Realtors, with 21,990, Ms. King Kinney noted. Houston tops the list at 22,780. Once the merger is final, members become part of the Miami association and then will pay a single annual fee, which she said won't increase. The two associations failed in merger talks in 1998 after nine months at the negotiation table, Ms. King Kinney said, but now the timing is right. "We have gotten so intermingled in the past two to three years, it's gotten to the point where they are us and we are them," she said. "It was the right timing and the right leadership," added Jack Levine, the Miami-Dade realtor association's treasurer, who'll chair the new association. With the merger, Ms. King Kinney said there'll be little staff duplication because each has different divisions and programs, plus double the membership equals more staff needed. Together, the group is to have locations in five cities: Miami Springs, North Miami Beach, Coral Gables, North Miami and Plantation. Coldwell Banker's Terri Bersach, current chair of RAMB's board, said the union will add value and benefit all members. "Combining tools and resources to do business, considering what our industry has gone through, will be able to empower members," she said. "All we've heard is positive comments from all the members, and everyone seems excited about it."
2010 ICSC MARKED BY INCREASED OPTIMISM & ACTIVITYRetail TrafficMany attendees at last week's ICSC RECon 2010 event in Las Vegas displayed cautious optimism for the retail property sector. ARTICLE CONTINUED...
Delinquencies in commercial mortgage-backed securities continued at historical highs in May, up 40 basis points to 8.42 percent, said Trepp LLC, New York.
Trepp recorded 8.02 percent in CMBS delinquencies in April for CMBS loans more than 30 days delinquent. The firm said the overall delinquency rate would be nearly 9 percent “if defeased loans were taken out of the equation.”
Seriously delinquent loans—more than 60 days in foreclosure, real estate owned (REO) or non-performing balloons—were up 41 basis points to 7.55 percent.
Fitch Ratings, New York, said average loss severities for its U.S. CMBS rated universe will continue to exceed historical averages through the end of 2011.
In Fitch's U.S. CMBS Loss Study, the ratings agency said it expects higher loss severities for all property types this year. Annual loss severities by property type last year were at 58 percent for multifamily; 48.2 percent for retail; office at 56.9 percent; industrial at 48.8 percent and hotels at nearly 82 percent.
In its monthly delinquency report, Trepp said multifamily had the highest delinquency rate among major property types, up 28 bps to 13.34 percent, and lodging—hotel delinquencies—jumped nearly 130 bps to 18.45 percent. Office delinquencies approached 6 percent—now at 5.81 percent—after up 44 bps from April, and retail CMBS delinquencies increased 42 bps to more than 6.86 percent. Only industrial properties posted a delinquency rate decline among major property types.
Fitch said its overall view of the CMBS sector remains negative, and maturations for 10-year fixed rate 2005 to 2007 vintages are fewer than five years away.
Fitch's 2009 losses were primarily in the 1998 vintage, led by the hotel sector, and the 2006 vintage, dominated by multifamily losses.
Fitch reported underperforming properties in states with weak economies, which led to an increase in rated U.S. CMBS delinquencies for April to 7.48 percent.
Temporary Property Tax Relief for Homes with Chinese Drywall
Today, Governor Charlie Crist signed HB 965 into law, which provides temporary property tax relief for some who own properties that have been significantly affected by Chinese drywall.
When the property appraiser determines that a single-family residential property is affected by drywall with elevated levels of elemental sulfur that results in corrosion of certain metals and needs remediation to bring that property up to current building standards, the property appraiser shall adjust the assessed value of that property by taking the presence and impact into consideration. If a building cannot be used for its intended purpose without remediation or repair, then the value of the building shall be assessed at $0, but not the land. Home owners who need to vacate the property in order for the drywall to be repaired would not lose their homestead exemption under the law, provided they did not establish a new homestead elsewhere.
In cases of newly purchased properties, the relief only applies to properties in which the buyer was unaware of the issue at the time of purchase. It does not apply if the presence was disclosed. This relief is repealed on July 1, 2017, unless reenacted by the Legislature.
According to Florida's Division of Emergency Management, "As of March 1, 2010, the preassessment has determined that there are 530 homes in Florida that meet the [Florida Department of Health] threshold for being impacted (the homes have been subject to metal corrosion due to Chinese drywall). Further, county property appraisers in Florida have identified 2505 homes that have had their value adjusted downward based on damages from the presence of Chinese drywall. An additional 846 claims for adjustment due to the presence of Chinese drywall are pending."
Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $18.0 billion in the first quarter of 2010, a $12.5 billion improvement from the $5.6 billion the industry earned in the first quarter of 2009, but still well below historical norms for quarterly profits. More than half of all institutions (52.2 percent) reported year-over-year improvements in their quarterly net income. Fewer than one in five institutions (18.7 percent) reported net losses for the quarter, compared to 22.3 percent a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.54 percent, from 0.16 percent a year ago. This is the highest quarterly ROA for the industry since the first quarter of 2008.
"There are encouraging signs in the first-quarter numbers," said FDIC Chairman Sheila C. Bair. "Industry earnings are up. More banks reported higher earnings, and fewer lost money." She added that the $18 billion in net income during the quarter "is more than three times as much as banks earned a year ago, and it is the best quarterly earnings for the industry in two years."
The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While first-quarter provisions were still high, at $51.3 billion, they were $10.2 billion (16.6 percent) lower than a year earlier. Lower expenses for goodwill impairment and other intangible asset charges added $5.0 billion to pretax earnings.
The FDIC noted signs of improvement in asset-quality trends as the growth of troubled loans slowed for a fourth consecutive quarter. The percentage of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) rose from 5.38 percent to 5.45 percent at the end of the first quarter, the highest level in the 27 years that insured institutions have reported these data. However, the $17.4 billion (4.4 percent) increase in noncurrent loans was the smallest quarterly increase in two and a half years, as the amounts of commercial and industrial loans and construction and development loans that were noncurrent each declined for the second consecutive quarter. Insured banks and thrifts charged off $52.4 billion in uncollectible loans during the quarter, up from $37.9 billion a year earlier, but less than the $53.6 billion they charged off in the fourth quarter of 2009.
The extent of improvement in both noncurrent loans and charge-offs was understated because of the implementation of new accounting standards – FAS 166 and 167. These rules require banks to report on their balance sheets many existing securitized credit card and other consumer loans that had not been included in banks' loan portfolios. The rules also require reporting the noncurrent loans and charge-offs associated with these securitized loans.
Total loans and leases increased by $220.4 billion (3.0 percent) during the quarter, but the growth in reported loan balances was the result of FAS 166 and 167, which caused more than $300 billion in existing securitized loans to be included in institutions' reported loans. Most of the loan balances added to reported totals under the new rules were credit cards and other loans to consumers. Total assets of insured institutions rose by $248.6 billion (1.9 percent), but the industry's total assets and total loans would have declined in the quarter absent the new accounting rules.