Thursday, April 24, 2008

McAllister Ranch developer defaults on $235 million loan

From the Bakersfield Californian:

The developer behind southwest Bakersfield’s planned McAllister Ranch golf course community has defaulted on a $235 million loan against the property, the latest in a series of signs suggesting the project may be in financial distress.

The planned 6,000-home neighborhood near Panama Lane and South Allen Road is also beset by lawsuits and legal filings alleging unpaid construction bills.

A default notice recorded Tuesday shows Irvine-based developer SunCal Cos. owes more than $4 million in late payments to lender Lehman Commercial Paper Inc., a New Jersey-based commercial money market dealer.

The filing is the first legal step in the foreclosure process, which could result in the property being repossessed if SunCal fails to right the debt. The notice lists the borrower as LBREP/L SunCal McAllister Ranch LLC, the affiliate company formed by SunCal for the McAllister Ranch project.

The 2,070-acre site already features a Greg Norman-designed golf course and partially built clubhouse. An artificial lake and parks are also in the master plan, company ads state.

Wednesday, April 23, 2008

Crisp and Cole update

Bakersfield Californian:

Hearing date set for David Crisp, Carl Cole

David Crisp, Carl Cole and three former Crisp, Cole & Associates employees accused of fraud in a state regulatory complaint are scheduled to appear in front of an administrative judge in Bakersfield this summer

A trial to examine the charges in a 25-page complaint filed by the Department of Real Estate last fall has been set to start on July 28 and run for three weeks, according to the Office of Administrative Hearings, the state department that runs such trials. Those named in the complaint, which alleges the group misled lenders in obtaining more than $12 million worth of loans, could be stripped of their real estate licenses.

Officials are looking for an appropriate venue to hold the trial, Pool said. A Bakersfield Masonic Temple is being considered as the trial site, but nothing has been finalized, he said.

As of April 16, more than $70 million worth of loans linked to Crisp, Cole, family members and associates have been foreclosed on or defaulted on, according to an ongoing Californian tally.

Developer goes bust

Bakersfield Californian:

Developer with local projects files for bankruptcy

A Sacramento homebuilder with several troubled Kern projects filed for bankruptcy protection Wednesday.

John D. Reynen of Reynen & Bardis Communities Inc., along with his wife Judy M. Reynen, filed for Chapter 11 protection as individuals saddled primarily with business debts, court documents filed in a federal bankruptcy court in Sacramento show.

Some other creditors:
• Wells Fargo Bank, $29 million
• IndyMac Bank, $26.8 million
• Comerica, $21.5 million
• Chase Bank, $17.5 million

Tuesday, April 22, 2008

Coming to a city near you

We sounded the alarm on CRE some time back, however, the local "experts" think otherwise.

From the Financial Times:

Regulator fears wave of bank failures

US bank failures could rise above “historical norms” as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator.

In an interview with the Financial Times, John Dugan, who oversees about 1,700 national banks as comptroller of the currency, said the growing problems for lenders follow a period of almost four years in which no institution regulated by his agency had failed.

“We’re going to have some more bank failures that will come back more to historical norms and may go above that with time,” he said. “That is a natural consequence of the economy going from historically exceptionally benign credit conditions to something that is more normal to something you would get in a downturn.”

Mr Dugan’s Office of the Comptroller of the Currency is particularly worried about lending by smaller banks to commercial real estate developers for condominiums and other projects. More than a third of smaller community banks have made commercial property loans that exceed 300 per cent of their capital, the OCC says. By comparison, in 1987, when hundreds of banks failed amid a commercial property collapse, such banks had commercial property loans equal to 175 per cent of their capital.

Bakersfield prices down 29% from the peak

March 2008 DQ numbers are out:

Bakersfield Median is down 20.56% YOY (down to $225,000)

Bakersfield Median peaked at $315,000 - we are now down 28.58% from the high.

Monday, April 21, 2008

Kern County $46 million to $66 million in the hole.

From the Central Valley Business Times:

Kern County may impose a hiring freeze as one way to curtail costs in the face of an estimated deficit of between $46 million and $66 million for the coming fiscal year that starts July 1.

The county’s board of supervisors will consider a virtual freeze on county hiring as well as curtailing non-personnel spending at their meeting Tuesday.

County Administrative Officer Ron Errea will deliver a proposal asking the board to give him the power to clamp down on county hiring and spending.

All new hires — and hiring of county “extra help” part-timers — would have to be approved by Errea’s office.

Friday, April 18, 2008

Notices of defaults continue to grow

The most recent details of NOD's are available from Fidelity Title. For the week we had 432 defaults. If we continue at that pace we will have 22,464 defaults in Kern County this year. What a disaster. All of the bottom callers need to check their analysis before they continue with their mind numbing drivel about how "now is the time to buy".

With defaults increasing, unemployment increasing and credit continuing to be very tight there is no way we are at the bottom.

NOD list from

California unemployment hits 6.2%; worse than Ohio, Pennsylvania

From the LA

California's unemployment rate rose by a whopping half a percentage point in March, reaching 6.2% as a weakening economy shed jobs in the ailing construction and financial activities sectors. In all, 1.13 million were unemployed

"This is a huge increase," said Howard Roth, chief economist for the state Department of Finance. He blamed the steady rise in joblessness -- up from 5.0% in March 2007 -- on deterioration of the crucial housing market. "The bubble has a slow leak, so it's hard to tell how long it will take" to fully deflate, he said.

Thursday, April 17, 2008

All Central Valley financial institutions feeling real estate impact, except one?

Numerous Central Valley financial institutions are hurting. However, there is one that appears to be bucking the trend. Are they really bucking the trend or is something else going on?

Here is a sampling of some recent financial results from Central Valley financial institutions.

Kern Schools FCU (Bakersfield):

Based on the 2007 annual report, which I received today, they are showing a decline in net income (from 2006 to 2007) of 71%. According to their report "This drop was caused by loan losses in 2007 totaling $13.055 million, compared to none in 2006".

That is a serious adjustment in loan losses and loan loss provision. However, I would expect loan losses to continue to go up as we find more homedebtors underwater. Look for 2008 losses to be much higher due to declining real estate values, an increase in unemployment and more foreclosures.

American River Bank (Sacramento):

American River Bankshares (NASDAQ: AMRB) of Sacramento, parent company of American River Bank, says its net income in the first quarter dropped 12.1 percent from year-ago levels to $1,833,000 from $2,086,000 during the first quarter of 2007.

“Clearly, first quarter earnings were negatively impacted by the $4 million increase from year end in our non-performing loans to nearly $12 million,” says David Taber, president and CEO. “We have a seasoned credit administration team in place that is managing our non-performing loans by establishing appropriate reserves and being proactive towards resolution of these credits."

Pacific State Bank (Stockton):

A squeeze on its interest margins helped lower profits at Pacific State Bancorp (NASDAQ: PSBC) of Stockton in the first quarter, according to Steven Rosso, president and C.E.O.

An increase of $45,000 ($210,000 total addition) or 27.3 percent in the provision for loan losses in the first quarter of 2008 over 2007 levels reflects the weakening economic environment within the bank's service areas, which management is actively monitoring and which may indicate the need to record additional provision in the future, it says.

Capital Corp of the West (Merced):

Capital Corp of the West (NASDAQ: CCOW) of Merced, parent company of County Bank, one of the Central Valley’s largest community banks, says it expects to report a net loss for 2007 of about $4 million, once everything is added up.

The bank says it’s “primarily as a result of the rapid decline in real estate values in California's Central Valley in the fourth quarter of 2007.”

It’s telling the Securities and Exchange Commission that it still cannot file the financials for last year because of the number of its loans it has to review “and the inability to obtain timely appraisals and other supporting market information.”

The company says certain of loans require an adverse classification and a substantially greater provision for possible loan losses.

“The company has also concluded that it had material weaknesses in its credit/lending and accounting functions,” it says. “The material weaknesses relate to the proper credit risk classification of loans, establishing the level of its allowance for loan losses, accounting for housing tax partnerships and certain other matters.”

San Joaquin Bank

First let me say I have no stock position in this bank. Also, this is not investment advice, I just find it interesting that one bank can report record profits in this declining market while every other bank is getting hammered with losses related to the housing and credit crises. How did they do it? Great risk management or was it an unjustified adjustment in their loan loss provision?

San Joaquin Bank (Bakersfield):

San Joaquin Bancorp (OTCBB: SJQU) of Bakersfield says its net income after tax was $9.4 million last year, an increase of 11 percent compared to $8.5 million in net income reported for 2006.

Dilute earnings per share in 2007 were $2.54, compared to $2.29 per diluted share reported for 2006, also an increase of 11 percent.

"We are pleased with the company’s performance in 2007 which represents our 24th consecutive year of record profits,” says Bart Hill, company president

From their 10k filing (

We reported record annual net income of $9,418,000 for the year ended December 31, 2007. The majority of the increase in 2007 came from increased net interest income and a reduction in the provision for loan losses.

How can a financial institution justify reducing their loan loss provision in an environment like this? All of the Central Valley institutions listed above are doing the opposite. If you look at the reports from the major financial institutions on Wall Street, they are dramatically increasing their loan loss provisions to the tune of hundreds of billions of dollars.

The Bakersfield Californian did a recent story on the CEO where they asked some tough questions of him.

Q. What is your favorite thing about doing business in Bakersfield and Kern County?

A. The people in Kern County are family oriented, friendly and hard working. That’s a winning combination for business.

Q. What’s a fun fact about you?

A. It’s sort of odd I’m a sailor in Bakersfield. I grew up sailing in the San Francisco Bay. I sail regularly on the coast. When the America’s Cup is on, I’m probably the only one in town watching it.

Based on that interview I guess we will never find out why they lowered their loan loss provision in what has been called the most difficult time for financial institutions since the Great Depression.

REIC members are really hurting right now

Hat tip to Fred

Recall when we were told that one of the companies listed below was doing great and we were all idiots. I guess we were right!

Bakersfield Californian:

The turmoil in the real estate industry has claimed another casualty, this time engulfing a high-profile Bakersfield home loan officer.

Robert Russo, who advertised as “Bakersfield’s Refi Guy” and twice ran for city political seats, filed for Chapter 13 personal bankruptcy on March 26.

“I cornered myself in that market of refi and it’s gone,” Russo, 49, said Thursday.

“That’s why it’s so scary now in this business,” Cheatwood said.

Last spring, Cheatwood was left with $22,000 worth of unpaid expenses when Mortgage Tree, the Modesto company she had worked for since 2001, closed its doors. Money was due to appraisers, utility companies and employees, she said. Cheatwood dipped into her retirement to recover, and now does loans for a locally owned mortgage banking company, Golden Empire Mortgage Inc.

Bakersfield Californian:

A Bakersfield real estate broker with a long history of messy property ownership has filed for personal bankruptcy

Khamphou Siripane, the head of Global Realty & Investment and All Community Home Loans Inc., filed for Chapter 13 bankruptcy on March 25.

He may owe as much as $500,000 to as many as 49 creditors, according to the bankruptcy filing.

Kern County records indicate Siripane’s personal real estate deals have been clouded for years by tax liens, foreclosure filings and property lawsuit notices.

Tuesday, April 15, 2008

4 years of equity is GONE!


The median price paid for a Southland home was $385,000 last month, the lowest since $380,000 in April 2004.

The weak start to the home buying season also saw another record dive in the median sales price, the result of depreciation, slow sales for higher-priced abodes and growing sales for discounted homes fresh out of foreclosure.