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Archive for Thursday, April 14, 2011

Town Talk: Webster’s mobile homes closes in North Lawrence; a growing worry in the development community; Borders down to final four days downtown

April 14, 2011

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News and notes from around town:

• A longtime North Lawrence business is now closed, in what may be a sign of how commercial lending standards in Lawrence are tightening. Webster’s Inc., a modular home dealer that has been in business for the last 44 years, has suddenly shut down. Jonathan Becker, a Lawrence attorney for Webster’s, said the closure came about after Lawrence-based University National Bank called in the note on the company’s financing.

Becker declined to go into any detail about how business had been at Webster’s recently or other factors that led to its loss of financing. But he did note that University National Bank is a lender that previously has entered into an agreement with bank regulators. As we previously reported in June of 2009, University National Bank entered into an agreement with the U.S. Comptroller of the Currency outlining specific restrictions the bank must adhere to during the coming months, and perhaps, years. Among the restrictions were to limit loan volumes until the bank corrects “deficiencies in asset quality,” in turn returning the bank “to a satisfactory condition.”

“They’re trying to clean up their lending operations by reducing their loans,” Becker asserted. “One of the ways to clean up is to start calling loans to reduce your loan portfolio. That is a fairly typical thing. Unfortunately, it affects the businesses that have borrowed the money from them with the expectation that they would be able to borrow the money through the length of the term of the loan and have those loans renewed based upon proper payments.”

But Todd Sutherland, president of University National Bank, said that is an inaccurate characterization of what has transpired. He said he can’t comment on specific lending relationships, but said the bank’s dealing with regulators “are not related at all” to the situation with Webster’s.

Sutherland did confirm University National remains under an agreement with the Office of the Comptroller. He said 60 percent of the banks in the Office of the Comptroller’s Western District are operating under some sort of agreement with the regulators. He said University National continues to make good progress on reaching the benchmarks spelled out by the regulators, but he said it was still too early to estimate when the bank may be released from the additional regulations.

“We have improved the numbers,” Sutherland said. “We would like it to be quicker, but given the economic situation it is difficult to move stuff. But we’re making definite progress.”

Regardless of all the ins-and-outs of banking and financing, the closing of Webster’s likely is affecting some people who were in the process of buying a home from the company. Becker didn’t comment on how many people may be in that situation, but he said the uncertainty about Webster’s future is likely to continue for sometime.

“The only thing I can ethically tell them at this point is that they need to get appropriate legal counsel,” Becker said of people who have gotten caught in the middle of the closing. “This is not a situation that is going to be resolved instantaneously.”

• There is a quite a bit of concern these days in the Lawrence development community about how regulators are forcing community banks to change their lending practices. It is not news that it has been tough in Lawrence and elsewhere to get commercial loans for new business ventures. But what is really worrying many in the development community is how difficult it has become to get refinanced. Developers often take out short term loans to temporarily finance raw ground that will be developed in the future or buildings that already have been constructed but aren’t yet fully leased. Those short-term loans often require the developer to only make interest payments, leaving the principal to be paid off once the project develops.

But now developers and bankers alike are telling me that those terms are changing greatly, at the insistence of bank regulators. In some cases, loans are only being refinanced if the developer can make interest payments plus pay off 10 percent of the principal per year.

One developer whom I respect recently told me he expects a significant number of lots and buildings to be turned back over to banks, if the regulatory environment doesn’t change soon. And that won’t be good for the local economy.

“It will put a lot of people out of business, and I think ultimately it will put banks out of business,” he said.

The people I have been talking to think community banks are being treated unfairly by regulators when it sure appears that it was the large institutional banks that created much of the financial crisis.

Of course, the people I’ve been talking to about this have vested interests, so it will be interesting to hear what some other people who follow the banking industry but may not be so directly tied to it believe. I’ll be looking for some of those types in the coming weeks, and will report back. It sure seems to be an issue worth watching, though.

• I’ve had several readers ask me how much time Borders has left before it closes its downtown Lawrence store. Well, the location is now down to its final four days in business, according to employees and several signs. (Actually a sign outside says five days, but employees assured me that Sunday is the last day the store will be open.) All items left in the store are marked down by 70 percent to 90 percent, and the store certainly has started to focus on selling its shelving and other fixtures.

Comments

jackpot 3 years, 8 months ago

Is lending the hold-up for D Donuts on 6th?

thebigspoon 3 years, 8 months ago

Why can't they just start using a different bank ?

tomatogrower 3 years, 8 months ago

They just want to get rid of all of the community banks, so that they can assure that the big banks will be too big to fail, again, and we taxpayers have to bail them out.

irvan moore 3 years, 8 months ago

developers had a sweetheart deal for years, buy property, let it sit and refinance it every year and not pay interest, just roll it over.

kernal 3 years, 8 months ago

I've never heard of a bank lending money to developers for acquisition and development loans without getting at least interest payments on the loans. Do you have first hand knowledge of this, beatnik?

Steve Jacob 3 years, 8 months ago

This is the best column on the ljw by far, just a shout out....

Anyway, the problem with community banks in general is if that community suffers financially, those banks are in trouble. US Bank and B of A are nationwide, so good and bad areas all balance out.

As far as Webster's/University Bank, housing still has not recovered, and it will get worse when interest rates go up again. And don't blame the bank, when the government tells you to raise money and limit loans, you do it.

BrianR 3 years, 8 months ago

I'm not sure it spells doom and gloom as it's not specific for our region; the WSJ identified manufactured home dealers as being in the top 10 dying industries.

mysterion 3 years, 8 months ago

The biggest problem with most developers is that they don't want to have any money in the game. They want to develop a property with the bank assuming the bulk of the risk and they always want their loans on an interest only basis, sometimes for a number of years. The rest of us have to reduce principal with every payment. Expecting a 10% curtailment annually is a good business practice, especially when one considers the thin personal balance sheets of most developers.

Mr. Sutherland acts like the fact that 60% of the Western District's banks being under some sort of agreement with regulators somehow makes it okay that University National has done a poor job managing its balance sheet. Of course, 40% of western district banks are not under any sort of regulatory action, likely because they didn't succumb to the temptation to lend developers cheap money, with no equity and no true plan of repayment. Of course there are other reasons some banks have stumbled, but in most cases it all comes back to failing to follow the fundamentals of good banking practices. There are good banks in Lawrence that invest heavily in the local community and make good decisions. The community banks that ultimately end up closing or getting purchased probably deserve it.

kshiker 3 years, 8 months ago

Do you have any actual statistics to back up your "overdevelopment" claim? You could at least cut and paste some like Merrill.

aholtw2 3 years, 8 months ago

since when has fewer mobile homes been a bad thing?

Richard Heckler 3 years, 8 months ago

This is not truly new news. It was only a matter of time until the commercial mismanaged lending practices would explode as the home lending fiasco did. This situation has been a concern for some time. In both markets it is known as flooded aka more than most markets can support. Obviously some were hoping this flooded commercial real estate "over building" would quietly go away.

What's the impact?

" In the parlance of the trade, many chains are simply over-stored." This economy may not bounce back anytime soon.

America has 9 million or more homes on the market and no jobs for an estimated 26 million.

Retail chains are cutting back. Talbot's and Border's are leaving Lawrence,Kansas. Then again Lawrence has an over built retail market so stores simply cannot support themselves.

The " boom town economy" mentality killed our economy. It will take several years to recover. Our local "boom town economy thinkers" perhaps could apply moratorium discipline.

America is Over Stored

America Is Over Stored ( Do Lawrence,Kansas planners,Chamber of Commerce and city government not realize this?)

The Wall Street bankers boom town economics building frenzy produced a bumper crop of new retail space. But the occupants haven't materialized.

The carnage in retail hasn't been this bad since an anarchist bombed Chicago's Haymarket Square in 1886. In January, Liz Claiborne said it would shutter 54 Sigrid Olsen stores by mid-2008; Ann Taylor announced that 117 of its 921 stores would be closed over the next three years, and Talbots axed the Talbots Men's and Talbots Kids concepts and 22 Talbots stores. Even Starbucks has scaled back its yearlong saturation-bombing campaign.

But back out inflation and sales of gasoline, and retail sales fell in real terms in the past year. Clearly, demand is down.

And supply is up. This decade's building frenzy produced a bumper crop of new retail space—from McStrip malls built near new McMansions, to hip new boutiques in the ground floors of hip new Miami condo buildings. But as is the case with those McMansions and condos, the occupants for new retail space haven't materialized.

In the fourth quarter of 2007, the national retail-vacancy rate rose for the 11th straight quarter to 7.5 percent—the highest level since 1996, according to research firm Reis, Inc.

With new projects coming online—34 million square feet of retail space will be completed in 2008—the rate is expected to spike further to 8 percent. In the parlance of the trade, many chains are simply over-stored.

Con't http://www.newsweek.com/id/112762

NY152 3 years, 8 months ago

I wish Galen Webber the owner of Websters dealership well in what ever he decides to do next.

Flap Doodle 3 years, 8 months ago

The three-year old article you cite isn't exactly news hot off the press either, planet-killer merrill.

Richard Heckler 3 years, 8 months ago

The problem is a lack of discipline in the banking and real estate/building community. This was bound to happen sooner of later as a result. With or without the Bush/Cheney fiasco.

The big banks are equally responsible.

City government must assume some responsibility for not demanding studies that would reveal whether or not there was a demand for the new construction. Instead of adopting the build it and they will come economics of destruction.

The over built residential community,two Wal-Marts and Baur Farms are but a few of the glaring examples.

City government was being advised of the over building consequences for years yet the Chamber's controlling power ruled.

Lawrence may well be a perfect example of economic displacement....... instead of economic growth.

muddfoot55 3 years, 8 months ago

Lawrence has a death wish on manufactured home parks. The city ordinances have changed so much that is is nearly impossible to move in a new home . Used to be "trailer parks" were on the edges and outskirts of town. No body cared then. It is developement that has encroched on them, and now they are in the middle of business territory and are concidered "unsightly." So add lack of sales to Webster's troubles as well. I am a middle aged, working, townie living in a manufactured home. This is what I could afford. Housing prices are cost prohibitive, apartments are over priced and if I could find one in my price range it would be a slum lord dump. Where else in Lawrence could I find a NICE 2 BR with a yard and parking for under $625 a month? NOWHERE! unless I am disabled, maybe. Home Depot wants to relocate, tear down , do away with the park next to them. There is an offer on the park I am in...they want to build apartments. At some point Lawrence needs to think about the working class in Lawrence that cleans the toilets at the Oread and cooks the meals in the dorms and all the trendy places down town. Whether you want to believe it or not, Lawrence needs the low to middle working class and we need somewhere to live.

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