Foreclosure News Points to Long-Term Issues


I spoke yesterday with a financial advisor who remarked on the subprime mortgage crisis using past tense. More indications emerge today that he will be adopting present and future tenses to talk about the lending crisis, no doubt:

President Bush today announced measures designed to mitigate the wave of defaults, including expansion of an FHA program to include 80,000 additional households. According to a March, 2007 equity research report of the housing lending industry compiled by Credit Suisse, FHA and VA loans as a percent of the market have dropped from 28% in 1990 to 17% in 2000, and 7% in 2006. There are structural and funding issues in place that will undermine a simple fix. Listen to NPR’s analysis here.

– Residential lending has been in my professional peripheral vision, but a couple of items from the Credit Suisse report merit particular comment.  The report notes that interest-only (IO) and negative-amortization loans as a percentage of total purchase mortgage originations rose from 2% in 2000 to 29% in 2005, and 23% in 2006. Roughly one of four mortgages originated in the last two years are structured with static or increasing principal.

– What will be long-term consequences? We have a significant clue about the answer to that question in the graphic at the top of this post, which represents the par amount of adjustable-rate loans scheduled to have rates reset over the coming four to five years. The data reflect January, 2007 figures; it appears that over $40 billion will hit reset dates this month and for several to come. What happens when resets occur? An article in yesterday’s Christian Science Monitor provides a helpful glimpse.

Dealing with the mortgage crisis and its damage is going to require some serious barn-raising in the coming years.

Work With What You Have (and Repeat)

Minneapolis has since August 1 been a focus of international attention focused on the disastrous collapse of the I-35W bridge over the Mississippi River. In addition to the human impact of the event, much discussion has developed around the design of the forty-year-old bridge’s successor, and whether the new span will be multimodal or remain exclusive to cars and trucks. The catastrophic failure of the bridge, which served 140,000 vehicles per day in and out of downtown, is a high-profile opportunity to think about Minneapolis’ future form.

“The reinvention test,” a recent article in the Economist magazine, spoke to the need for cities to metamorphose over time. The editors conducted a survey of global livability rankings of major cities, and Minneapolis earned a place among the top 50 – along with just twelve other American cities. How the I-35W bridge is to be used – what combination of modes will be served, and the boldness of design chosen to span the dramatic portion of river gorge – is a physical symbol of how Minneapolitans envision their city of tomorrow.

The city has closely related experience on which to call. Just one half mile from where the bridge rests in the river is the center of the riverfront district. Starting in the mid-nineteenth century, the district was transformed into an interconnected system of flour mills. The work of engineers who constructed a water power system to harness the river’s water flow to power the mills is evident in the attached drawing (Download Fuller1873.jpg, courtesy of the Institute for Minnesota Archeology). The canal shown was concealed beneath a timber road bed, and the tailraces from the mills are shown as dotted lines.

The period 1880-1930 is recognized as the heyday of Minneapolis flour power. After 1930, changes in the market tilted against Minneapolis, and by 1960 the riverfront was in various stages of decline and neglect. Over a period of thirty years, leaders in Minneapolis have committed $299 million in public investments to infrastructure, environmental remediation, public facilities and parks. As of mid-2007, $1.56 billion of private investment has been placed along the riverfront in the form of condominiums, hotel rooms and commercial space.  In the last thirteen years, the estimated market value in the district has risen from $34 million to $334 million, in today’s dollars – an annual compounding increase of 19.2%.  The following "before and after" images are presented courtesy of the City of Minneapolis:

Second_st_beforeSecond_st_after_3 The comprehensive reuse of the unique landscape and structures left behind from the milling era suggests Minneapolis knows the demands of the reinvention test. Communities around the country are reinventing riverfronts, as discussed in this book released this month.  I hope the significant opportunity to use a new bridge as a multimodal landmark is addressed with the same commitment.

Three Reasons to Consider Business Improvement Districts

There is genuine irony surrounding business improvement districts (“BIDs”) today. On one hand, many leaders of municipalities and chambers of commerce are unaware of how they could be used, or assume BIDs are suited primarily to huge urban centers. On the other hand, the BID (or in Canada, BIA – business improvement area) is an elemental way of pooling revenue together for collective purposes, and a tool with great potential for communities small and large.

There are over 400 BIDs operating in the United States alone, and many more in Canada and Europe. Organized as a public-private partnership among owners of commercial property, the impetus for forming a BID is ordinarily the importance of promoting a community’s downtown. They are formed locally, requiring majority approval from business owners and legal authority on the state or provincial level.

Here are three reasons to love business improvement districts as an economic development tool:

1. Custom built. The boundaries, the basis for assessing the charges from participants, and how the district chooses to brand its downtown can be tailored to what face the civic and business leadership most wants to show the world.

2. Local priorities drive. Communities have used BIDs for a broad range of applications. New York City’s fifty-five BIDs have over twenty years channeled $830 million into capital improvements, sanitation, beautification, public safety and tourist programs. In Los Angeles, the Downtown Center Business Improvement District has focused on business recruitment and retention, as well as serving as a housing information clearinghouse for prospective residents and developers alike. In Duluth, Minnesota, BID resources have been targeted to branding Duluth as a waterfront destination.

3. Suited to communities large and small. In addition to the metropolitan cases noted above, BIDs have been used to great effect by smaller towns, as well. Take the City of Salmon Arm, British  Columbia, a town of roughly 16,000 residents. The Salmon Arm Downtown Improvement Association was the first district in the province; its existence dates to 1974, before authorizing legislation was approved. Over the last thirty-three years, the district has focused on revitalization efforts and sponsorship of special events downtown.

Communities, planners and business leaders interested in exploring the benefits of a business improvement district can contact Jon Commers, principal at Donjek. We can assist in thinking through the process, running preliminary scenarios, and evaluating the use of BIDs to meet you goals.