The Genesis Perspective

Five metro Denver homebuilders beat challenging market odds, increase sales and market share

In the first nine months of 2009 the long decline in metro Denver new home sales moderated to -20 percent, but the big news is that for the first time in four years, quarterly year-over-year new home sales increased in the third quarter – by 16 percent!  

Richmond American Homes moved up past D.R. Horton to become the #1 metro Denver homebuilder for the first nine months of 2009 with an 11.6% market share.  Oakwood Homes made a strong move up from #13 to #4 to capture 9.8% of the market.  Both of these builders posted over 50% increases in YTD sales and made these moves without offering attached housing products. 

Other builders moving up in the rankings with higher YTD sales include KB Home (#3), Century Communities (#5) and Meritage Homes (#9).  

Year-to-date new housing activity in Northern Colorado was up 14 sales (+6%) and in Colorado Springs YTD activity was down 38 sales (-10%).  In both cases the totals are so small that it is hard to draw definitive conclusions about movement – it just appears that these markets are bouncing around the bottom.   

In Northern Colorado, Journey Homes maintained a #1 ranking with a 19% market share and more than twice the number of YTD sales as its nearest competitors (D.R. Horton, KB and Oakwood).

In Colorado Springs, Classic Homes maintained the #1 position with a 16% market share, and Richmond jumped past Pulte into the #2 spot capturing 11% of the market.

 

Call to Action:  Give us a call at 303-662-0155 for more information and to see how we can help inform your housing related decisions in Colorado.

Genesis MicroMarket Reports

We have been spending time lately with asset managers and appraisers who are dealing with troubled assets as well as with buyers considering acquisitions of these assets.  One common problem we continue to hear about is the challenge of gathering accurate, relevant, and current housing information for localized markets.  To address this need we have created Genesis MicroMarket Reports that combine key localized neighborhood information about three factors that are critical to good decisions about any residential property: 

1. Supply - MLS listings
2. Demand - recent MLS sales activity for REO/distressed properties as well as 'normal' transactions
3. Shadow (Pending) Supply - number of foreclosure notices by time frame, loan balances

MicroMarket Reports combine compelling maps to illustrate these trends for foreclosure notices as well as for individual home sales and listings.  In addition, property specific details are provided for further review and analysis.  Click below to download a sample $300 report.

Download Sample MicroMarket Report

Remember, you define the neighborhood boundaries for the MicroMarket Report so the data and analysis will be specific to your situation.  Most Front Range locations from Colorado Springs to Fort Collins are available. 

At Genesis we are data and analysis geeks, so we understand you may want more (or less) than what we show in the sample report.  We will do our best to provide exactly what you need and to keep the cost within your budget. 

Call or email us for your MicroMarket Report:

• 303-662-0155
• mrinner@thegenesisgroup.net

Is Colorado's Banking Industry on the Ropes?

Last week, a surviving production builder client of Genesis reported that 12 banks contacted were all unable to lend for housing construction - they are simply out of the business regardless of the quality of the project or its sponsor.  Our client has reached the same conclusion as other Genesis clients; that private equity is the only realistic resource available for housing finance today. 

This situation provides a timely introduction to our announcement that The Lender Services Division of The Genesis Group has completed its First Quarter 2009 analysis of Colorado banks and their troubled assets, particularly real estate.  Here are some of our key findings about this industry. 

·         As a group, the 137 Colorado banks chartered in Colorado are well capitalized and are able to deal with their bad loans and REO (real estate owned).  These banks had nearly $1.14 billion in these 'troubled assets' but this was just 2.0 percent of all bank assets and 24.6 percent of total bank capital and reserves – an overall “Troubled Asset Ratio” of 24.6. 

·         However, nearly one third of Colorado banks (44 out of 137) had troubled asset ratios higher than 24.6, and these banks held almost $850 million of troubled assets.  This amounted to 4.7 percent of total assets of these banks and 47.6 percent of total capital plus reserves. 

·         In June, the FDIC took “administrative enforcement actions” against the two Colorado banks; these two banks had the highest troubled asset ratios.  Park State Bank & Trust of Woodland Park had a ratio of 117.6 and Valley Bank and Trust of Brighton had a ratio of 95.0 as of March 2009. 

These “Cease and Desist” orders require the banks to change lending practices as well as to improve their capital ratios by either increasing capital or reducing their exposures of bad loans.  Their new requirements are Tier 1 Leverage Capital ratios of 9% of assets and Total Risk Based Capital ratios of at least 13% of Risk Weighted Assets.  These orders can be viewed online at http://www.fdic.gov/bank/individual/enforcement/index.html

·         According to the Wall Street Journal, the recent failure of Colonial Bank of Alabama (August 14) “signals an ominous phase in the nation’s banking crisis.  Even as some large institutions show signs of stabilizing, a slew of regional lenders remain on the ropes.  And regulators appear to be giving up hope that some of them can be saved.”  As of First Quarter 2009 Colonial had over $26 billion in troubled assets and a 59.5 troubled asset ratio. 

None of the Colorado chartered banks fall into this “regional” category; the largest had assets of approximately $2.6 billion.  Still, eight Colorado banks had troubled asset ratios equal to or higher than Colonial’s 59.5 ratio. 

Two larger non-Colorado banks that are active in the state are Compass Bank ($61.5 billion assets) and US Bank ($258.5 billion assets).  Both of these institutions had troubled asset ratios of approximately 35. 

·         The most significant asset problems for Colorado banks are loans for real estate construction and development.  Troubled loans in this category added up to more than $504 million and comprised nearly two-thirds of all troubled real estate loans. 

 

 

The Genesis Group has released for publication the First Quarter 2009 “Colorado Bank Troubled Asset Report.”  Priced at $500, this T.A.R. report details key capital ratios and dollar amounts of assets and dollar amounts of troubled assets for each of the 137 Colorado chartered banks in these categories:

·         Real Estate Loans

·         Construction & Development Loans

·         Residential Loans (single and multi-family)

·         Commercial Real Estate Loans

Clck Download Asset Groups, New Frontier to see a sample of the information included in the report for New Frontier Bank in Greeley (closed in April by FDIC).

To order the report or if you have questions about it, contact Mike Rinner at The Genesis Group – 303-662-0155 or mrinner@thegenesisgroup.net

 

Definitions:

The “Troubled Asset Ratio” compares the sum of troubled assets with the sum of tier 1 capital plus loan loss reserves. Generally speaking, higher values in this ratio indicate that a bank is under more stress caused by loans that are not paying as scheduled.  Troubled assets include:

·         Loans that are 90 days or more past due

·         Loans that are in nonaccrual status.  Nonaccrual means the bank can no longer claim interest income from the loan.

·         Other real estate owned (primarily property the bank has acquired through foreclosures)

“Tier 1 capital,” also called core capital, includes common stock and retained earnings, subject to regulatory adjustments. 

 

 

McStain Files for Bankruptcy Protection

An article in today's online Boulder County Business Report notes that Louisville, Colorado based McStain Enterprises, Inc. has filed for bankruptcy.  We are sorry to hear that the bad economy and lending market have caused the failure of this local homebuilder known for building quality homes and communities in Colorado for over 40 years.  McStain led the way as one the first to embrace green building concepts and is know for its dedication to energy efficient, healthy homes. 

To see the BCBR article, click <here> and go to local news for Friday, May 29. 

Or paste this into your browser:  http://bcbr.com/enews.asp and go to local news for Friday, May 29.

More Good News for a Denver Rebound

The Denver area fared the best among 20 U.S. cities reporting sharp drops in home prices, according to data from Standard & Poor's/Case-Shiller home-price index that was released on Tuesday, May 26.  Denver reported a 5.5 percent decline, better than Dallas and Boston, which were down 5.6 and 8 percent, respectively. 

Click here to read entire article or paste the link below into your browser

 

http://www.denverpost.com/search/ci_12455302

 

Social Media Expert Kevin Knebl Wows Audience

The Genesis Group hosted its Second Quarter 2009 Briefing titled “Gaining Clarity in a Chaotic Market” yesterday, and the use of social networking was the highlighted topic.  Guest speaker Kevin Knebl demostrated ways for the housing industry to utilize these cutting edge internet based tools.  

 

We encourage you to check out Kevin’s website at www.kevinknebl.com.

Denver Leads Cities “On the Verge of Recovery”

According to “Today Show” real estate contributor Barbara Corcoran, Denver is the #1 city on the rebound” ahead of #5 San Francisco, #4 Seattle, #3 Austin and #2 Raleigh, NC. 

Corcoran rates Denver the leader in these categories:

1. Job Growth

2. Growing Population

3. Location With Good Weather

4. Lots of First-Time Buyers

5. No Overbuilding of Condos or Office Spaces

6. Vital Downtowns Where People Can Live Without a Car

7. Well Educated Population

8. Large Number of Foreclosures Early

Click <here> to see the Today Show video clip, or paste this into your browser:

http://www.msnbc.msn.com/id/21134540/vp/30825142#30825142

How Green Can It Get? Technology Is Catching Up With Our Wildest Dreams.

Did you know that buildings account for 39% of our energy consumption?  The awareness of this fact confirms it . . . green building is not a fad.  See what four architects envision in home building and how technology can make it happen within the next few decades. Can you imagine a tree-like house, where the “bark” or exterior is constructed of a thin, insulating film that would self-clean and self-heal if damaged?  Begin rethinking the way you live and read on!

To see the article click  <here>

 Or paste this into your browser: http://online.wsj.com/article/SB124050414436548553.html

 

Need to Sell a Vacant Home? Try Live Staging.

The Wall Street Journal reported this week on the phenomena of moving people into a vacant home to make it more marketable.  A San Diego firm solicited decorators to furnish a home at a discounted price in exchange for free rent and a bonus if the home sells quickly - and received 47 applications. 

To see the article click  <here>

Or paste this into your browser: http://online.wsj.com/article/SB124051998145749625.html

41 Colorado Banks, $676 Million Troubled Assets, FDIC to the Rescue with Legacy Loans Program?

19 U.S. Financial Institutions Deemed 'Too Big to Fail' - What About Colorado's 'Little Guys'?

The Federal Reserve Bank announced Friday that "Stress Tests" of 19 of the country's largest financial institutions revealed that some are undercapitalized now and others will need additional capital if the economic recession continues. Fed and Treasury officials continue to reassure capital markets that they will provide necessary assistance to these institutions, leading most observers to believe that they are considered 'too big to fail.'

Colorado banks have been a primary source of housing development finance for our dynamic Front Range population growth. As the national financial crisis deepened in 2008, banks around the country and in Colorado were increasingly impacted by troubled assets.  The majority of these assets are real-estated related, and housing-related in particular, from home loans to individuals to land development and construction loans to developers and homebuilders. 

One measure of the health of a bank is the ratio of its troubled assets divided by its total capital plus reserves.  The national median Troubled Asset Ratio (TAR) of 5.0 percent at the end of 2007 nearly doubled to 9.9 percent by the end of 2008. 

The Genesis Group analyzed the Troubled Asset Ratio (TAR) of nearly 150 banks based in Colorado.  Although the majority of Colorado banks have maintained relatively healthy balance sheets, our analysis revealed that 43 of them had double the national median TAR as of Year-End 2008.  Two of the worst of these banks with a total of $178 million in troubled assets have been closed.  Colorado National Bank in Colorado Springs has been sold (TAR 163.2%) and the FDIC is liquidating New Frontier Bank in Greeley (TAR 80.2%). 

Of the remaining Colorado banks, 41 banks with total assets of $20.3 billion had TAR’s more than double the national median at the end of 2008 (TAR’s ranged from 20.1% to 74.7%).  These banks had a total of $676 million in troubled assets and $1.975 billion in capital plus reserves, for a combined TAR of 35.1%. 

However, the bulk of bank troubled asset problems in the state are in 12 banks with $500 million in troubled assets.  These banks had assets of $15.1 billion and capital plus reserves of $1.46 billion at the end of 2008. 

The Genesis Group is helping private investors analyze troubled bank assets for purchase so they can be restored to financially productive use, a critical step in our economic recovery process.  The government's new Legacy Loans Program proposed by the FDIC and the U.S. Treasury may be another alternative for Colorado banks wanting to get these assets off their books. 

Legacy Loans Program – Boon, Bane or Not a Factor for Colorado Banks?

FDIC's Legacy Loans Program will provide banks that request government assistance with a means to clear distressed loans from their balance sheets.  Public-private investment funds (PPIFs) will be formed to purchase these loans and other assets from banks.  By provided up to 85 percent financing of the asset purchase price, the government apparently hopes to prevent banks from being forced to sell assets at liquidation prices, thus helping to stabilize real estate and financial markets. 

Briefly, each bank will be allowed to identify a pool of assets it wishes to sell, the FDIC will analyze the pool to determine an appropriate amount eligible for an FDIC loan guarantee, and then the pool will be offered to private equity bidders with the U.S. Treasury to provide a 1:1 equity match.  The highest bid will be awarded the asset pool purchase, although the bank would then have the final right to refuse the offer. 

FDIC accepted comments on the program through April 10 and will soon announce details of how the program will be structured.  Many of the comments received relate to the divergent interests of private investors (maximum financial gain) and the government (stabilizing the financial system).  Some of the unresolved issues to date include:

• Will private investors really bid more than liquidation price for PPIF assets because of the FDIC guaranteed "seller financing?"

• Who will have final say on the timing and price of resales of PPIF assets (private investors or Treasury)?

• Will there be profit limits for investors or compensation limits for asset managers and their employees?

• What will be the price of FDIC’s loan guarantee and the cost of FDIC's ongoing audits of the asset pool? 

• If the bank is allowed to cancel the sale at the end of the process, won’t investors be reluctant to spend the time and money to analyze the pool of assets and simply bid low, thus defeating the purpose of the program?

• Will FDIC’s analysis of the asset pool be available to potential investors?  When?

• The process may be inordinately costly for smaller Colorado banks with smaller dollar amounts of assets – will pools of assets from multiple banks be considered for the program?

In addition to these concerns, there appears to be rising public opposition to any government program that uses more taxpayer money to prop up privately owned failing financial institutions.  And some believe that while this program may prevent massive bank failures in the short run, it will just delay the final day of reckoning at greater taxpayer expense. 

See FDIC's website at http://www.fdic.gov/llp/index.html for more info on the Legacy Loans Program.