Banks Tightening and Businesses Closing!!!!!
It is not just homeowners in financial hot water. You know various real estate companies are having trouble paying the bills, too. Attorney Evan Smiley is a bankruptcy/insolvency specialist at Weiland, Golden, Smiley, Wang Ekvall & Strok in Costa Mesa and co-author of “Bankruptcy for Businesses,” published last year. We’ve heard he’s been plenty busy lately …
Us: You guys have had a dramatic shift in work relating to real estate troubles …
Evan: At this point, we have been deluged by residential land development insolvencies. We are in workout discussions in many of them. In some instances we represent the land developers, and in others we represent the lenders. Everyone is nervous and there is a lack of confidence in the marketplace. In addition, many banks are attempting to get their loan portfolios divested of real estate loans. As a result, they are not renewing loan facilities as they have done in the past, and are calling notes due and payable. There are also enormous problems facing the homebuilders. There are partially completed projects where the cost of construction exceeds the gross sales price. The private equity market for developers (i.e. the money that developers often use to finance their deals) has also dried up. Everyone is running for cover and trying to sit tight to wait out this recession.
Us: From what you see and hear … Any chance we’ll have a “bottom” soon?
Evan: It’s hard to tell but it doesn’t seem like Southern California has bottomed out. Prices are still dropping, home sales are declining, and development deals are being put on hold. With the tightening of the credit markets, homebuyers are unable to purchase homes without a significant downpayment. This has greatly lessened the demand.
Us: What kind of financing do troubled real-estate firms have?
Evan: With the lessened demand for homes, there is an over-abundance of supply, thereby creating a drastic softening of the value of homes and lots. Land developer financing typically runs in one-year terms. Land developers relied upon stable, or increasing values, to roll over these large balloon payments. However, since the collateral has diminished in value, lenders are nervous and are demanding to be paid in full. In addition, there is a lack of replacement lenders resulting in the default of many loans.
Now banks are cutting off credit card customers. Last week, Citi sent out notices to over 100,000 customers telling that the cards will be revoked in March. Countrywide and Bank America did a similar thing with Home Equity Lines.
Retailers are now feeling the pinch from tightening credit. And my what a hard pinch it is....Hundreds of Stores closing around the country:
Announcements over the last couple months include Movie Gallery closing another 400 stores; Charming Shoppes closing 150 stores and cutting expansion plans by 50%; Starbucks closing 100 stores and slowing expansion plans by 34%; Ann Taylor shuttering 117 stores and slowing store growth; Boston Market evaluating its real estate opportunities; Buffet Holdings sorting out its underperformers; Sprint Nextel closing 125 stores and 4,000 distribution points; Cost Plus World Market closing 18 stores; Liz Claiborne closing 54 Sigrid Olsen stores; New York & Company axing the Jasmine Sola brand and its 32 stores; Ethan Allen closing 12 stores; PacSun closing all of its 173 demo stores; and Talbots exiting its kids and men's lines through closure of 78 stores.
Others include Rite Aid exiting Nevada by closing 28 stores; Macy's closing nine stores; Krispy Kreme expecting many franchisees to close stores; Kirkland's Home likely closing 130 stores; CompUSA's remaining 103 stores being disposed of; Rent-A-Center closing 280 stores; Sofa Express closing 44 stores in bankruptcy; 84 Lumber closing 12 stores; Home Depot closings some call centers; Levitz Furniture disposing of 76 stores in bankruptcy; Pep Boys closing 31 stores; Lifetime Brands closing 30 stores; Big A Drugs liquidating its 21 stores; and more.
You think those stores had employees generating an income, spending in the community, and paying taxes? You think those stores generated sales taxes for the municipalities. What about rent for the landlords?
Why do you think commercial vacancies are rising? To throw a little salt in the wound, what about the thousands of mortgage companies that have closed in the past year shuttering storefronts. And that is just the beginning, what about the Real Estate Agents, Building Suppliers, and Construction Companies. You wondor how reported unemployment stayed so high.
Audited financial statements come out in a few weeks. It could get really interesting, especially for the banks. S&P "improving" the way it rates investments(what the old way sucked?) and banks may have to come clean on their reserves......will "marked to myth" go the way of the dodo bird?
Banks losing billions, profits declining, layoffs increasing, wages stagnant, prices rising, government revenues falling, deficits increasing, state services contracting, needs rising as our population grows and ages, consumer confidence at lows, government leaders......well that is a whole new blog.