News from: NYT A downtown San Francisco office building that sold for $400 a square foot in 2006 has traded for just $172 a square foot, a 57 percent decline ...From the NY Times Magazine, a photo essay: Ruins of the Second Gilded Age (ht Shawn)
The sale, at a price that represents about 25 percent of replacement cost, represents the first San Francisco office building sale in a year. ... Colliers International Executive Vice President Tony Crossley said the price "gives the market a data point it has been lacking."
One of the costliest and highest-profile condominium developments in the country -- the $8.4 billion City Center project in Las Vegas -- is facing a revolt from some early buyers. ... So far, buyers have put down $313 million in deposits on 1,500 units in the 2,440-unit complex. Those who agreed to buy early on now fear they will take possession of condos whose market values are far below what they agreed to pay. Many of the contracts were signed in 2006 and 2007 ...
The downgrade to 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis. Since no agreement was reached by the June 30, 2009 fiscal year (FY) end, the state's controller has now begun issuing registered warrants (IOUs) for certain non-priority payments to preserve cash, and the budget gap to be addressed has increased to $26.3 billion from $24.3 billion. The use of IOUs for non-priority payments would offset cash shortfalls into September 2009 as now currently projected.Fitch downgraded California from A to A-minus just 10 days ago.
The Rating Watch Negative reflects the short-term risk, in Fitch's view, that institutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges and weighing on the state's credit. Resolution of the Negative Watch will depend on actions taken to address the cash flow imbalance. The 'BBB' rating indicates that expectations of default risk remain low, although the rating is well below that of most other tax supported issuers. GO debt in California has a constitutional prior claim on revenues, although after education; appropriation debt has a lesser legal claim, but the controller prioritizes payment directly after GO debt service, ahead of other mandatory payments.
With issuance of IOUs for non-priority payments, margins for meeting constitutional and court-required contractual commitments are narrowing. After September 2009, absent any proposed budget and payment adjustments, cash deficits will expand dramatically. Cash flow solutions, including the ability to access short-term borrowing, are inextricably tied to reaching timely agreement on effective and credible budget solutions.
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The inability of the state to reach agreement has prompted the controller to begin issuing IOUs for non-priority payments, primarily disbursements to vendors, for certain social services, and for tax refunds, in order to ensure payment of priority payments, including GO and lease debt service. The controller's office estimates that $3 billion in IOUs will be issued during July 2009; priority payments of $10.8 billion will be made for education, debt service, Medicaid, payroll, pensions and other mandatory contractual obligations. Projections will be revised to reflect June revenue performance and other changes but as currently estimated, cumulative cash deficits of $3.7 billion are projected through August, offset by $4.5 billion in non-priority payments that could be covered with IOUS, excluding tax refunds. However, by the end of October, the projected cash deficit expands to $16.1 billion, well beyond non-priority spending of only $10.6 billion, excluding tax refunds.
emphasis added
The first quarter saw the largest rent decline in a decade for Los Angeles County, Reis' [Victor Calanog, director of research] said. Effective rents, those that take concessions into account, fell 1.7% in the first quarter of this year from the fourth quarter of 2008, while asking rents dropped 1%.And vacancy rates are rising:
The rate climbed to 5.3% in the first quarter from 3.8% in the first quarter of 2008, said [Reis' Calanog] ... In contrast, vacancies had been hovering between 2% and 3% for the last decade.Declining rents puts more pressure on house prices ... and rents could continue to fall through 2010.
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The last time vacancy rates were this high in Los Angeles County was in the early 1990s, when they hit 5%.
We believe we are looking at a negative rent curve for the next two years.
We believe on a composite basis, market rents in 2009 could fall between 3 and 6% from peak levels in 2008. And the rent cuts in 2010 could be deeper ...
California's fiscal crisis continued unabated Friday with most major banks refusing to cash the state's IOUs starting today, the state controller delaying $4 billion in payments to public schools ...And Felix Salmon has a nice chart on who gets paid cash, and who gets IOUs: California: The haves and have-nots
State Controller John Chiang and state Superintendent of Instruction Jack O'Connell said $4 billion in payments to local school districts that were supposed to go out on Friday will be delayed until July 30. The move will conserve cash for the state, which has been issuing IOUs since July 2. ...
As of Friday morning, the state controller had mailed 101,930 IOUs covering more than $389 million in payments, said Hallye Jordan, a spokeswoman for Chiang.
And despite a plea from state Treasurer Bill Lockyer that banks extend their Friday deadline to accept the IOUs, most refused to do so.
Citibank agreed to a one-week extension, while Bank of the West said it will accept IOUs until further notice. The banks that rejected extension requests include Bank of America, Wells Fargo, JPMorgan Chase and Union Bank ...
"California continues to pay for its history of unbalanced budgets. The State spent $10.4 billion more than it collected last year alone, and is now without enough cash to cover all of its payment obligations," said Chiang.Many other states have serious budget problems too.
"Our major sources of revenue have continued their trend downward, leaving no viable option but to craft a new budget that recognizes California's recovery has yet to begin."
Personal income taxes in June were $987 million below (-18.0%) estimates in the May Revision, and sales taxes were short by $154 million (-5.8%). Corporate taxes were $1.31 billion above estimates (41.2%). Corporate taxes in May and June were boosted by a surge of payments from corporate taxpayers hoping to avoid a new State penalty.
The State started the fiscal year with a $1.45 billion cash deficit, which grew to $11.9 billion on June 30, 2009. Borrowed money from special funds provided enough cash to fund State operations through June 30. The Controller faced a large cash shortfall at the end of July, forcing his office to begin issuing registered warrants or "IOUs" to any General Fund payment that was not protected by the State Constitution, federal law, or court decision. Without IOUs, the State would have run out of cash and begun missing those protected payments at the end of July.
While updated cash projections show that IOUs will preserve enough cash to make those protected payments through September, the cash shortfall in October will endanger the State's ability to make those payments.
Towards a Solution to the Debt Crisis in California The State could walk away & create its own credit machine- by Ellen Brown - 2009-07-14
[Joseph A. Dear, the fund's new head of investments] wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.The post title is an old gambling saying. Actually now is probably a better time to buy some of these assets than a few years ago.
That's right, he wants to load up on many of the very assets that have been responsible for the fund's recent plunge.
Placentia city officials are howling in effort to keep state hands out of their coffers. The plan to seize millions could bankrupt the city, they say.
"We may have to declare bankruptcy – that's how serious this is," said City Administrator Troy Butzlaff. "This is something the system can't endure. We just avoided bankruptcy by doing all the right things; by cutting back, by getting concessions from staff, by cutting $4.5 million over last year's budget."
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Butzlaff said earlier this week the state legislators' budget proposals could take roughly $900,000 from gas tax money, $800,000 from property tax money, and $400,000 from the Redevelopment Agency.
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"Some of my cities are in good shape, some are teetering on the edge," [State Sen. Bob Huff, R- Diamond Bar] said. "It's not fair for the state to outsource its miseries to the local level."
"It's entirely likely we will ultimately see further declines in revenue, which will almost certainly require further budget action," said Assembly Minority Leader Sam Blakeslee, a Republican from San Luis Obispo.Of course, one of the key elements of the new California budget is to have the state use money that is normally allocated to cities. So I expect layoffs at the local level in addition to the possibility of further state revenue declines.
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Officials will also be watching monthly revenue reports from the Department of Finance and the controller's office to look for signs of new trouble in the months ahead.
"It's entirely likely we will ultimately see further declines in revenue, which will almost certainly require further budget action," said Assembly Minority Leader Sam Blakeslee, a Republican from San Luis Obispo.Of course, one of the key elements of the new California budget is to have the state use money that is normally allocated to cities. So I expect layoffs at the local level in addition to the possibility of further state revenue declines.
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Officials will also be watching monthly revenue reports from the Department of Finance and the controller's office to look for signs of new trouble in the months ahead.
"It's entirely likely we will ultimately see further declines in revenue, which will almost certainly require further budget action," said Assembly Minority Leader Sam Blakeslee, a Republican from San Luis Obispo.Of course, one of the key elements of the new California budget is to have the state use money that is normally allocated to cities. So I expect layoffs at the local level in addition to the possibility of further state revenue declines.
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Officials will also be watching monthly revenue reports from the Department of Finance and the controller's office to look for signs of new trouble in the months ahead.
