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Low charges, wanted repairs lure ‘huge water’ to Uncle Sam’s plumbing

Daily SF News — Mon, 11 Dec 2023 18:49:54 +0000

It was as if someone tugged at a thread that long weekend in November, split the nation’s seam and exposed a nasty wound in its guts.

It happened first in downtown Baltimore. On Nov. 8, a 20-inch pipe burst, sending hundreds of thousands of gallons of water into the streets, closing businesses, snarling traffic and flooding the underground, where cars floated in garages.

Then in Chicago, a broken water main created a 43-foot sinkhole that swallowed several cars as millions of gallons of water gushed onto streets near busy Lake Shore Drive on the city’s North side.

Finally on Nov. 10, near San Francisco, a pipe that carries water to 2.4 million people burst, shooting a 100-foot geyser into the air. A shut-off valve was jammed for three days, and the area lost more than 70 million gallons of water.

By and large, Americans have a safe, plentiful and cheap water supply, but those three days in 2002 were a case study in the nation’s water woes. The country’s geriatric water pipes need to be fixed or replaced, and government and industry studies have estimated that it will take between $150 billion and $1 trillion over the next three decades to do the job.

Both public and private water purveyors are battling for a piece of that new market. But private water companies, led by French and German multinationals, appear poised to take the lead in providing drinking water to American consumers. With money and free-market ideology on their side, they appear to be winning battles in Congress, although the going is still rough in the court of public opinion.

Private water interests have become a major political force in the debate about the country’s water infrastructure, according to a year-long investigation by the International Consortium of Investigative Journalists, a project of the Center for Public Integrity. Since 1996, when the Environmental Protection Agency first warned of a looming water infrastructure crisis, private water companies and their associations have ratcheted up spending in the political arena, allocating millions to influence and support lawmakers.

The ICIJ investigation analyzed campaign finance records from the 1996 through the 2002 election cycles — a time when Congress was considering two pieces of legislation that affected the privatization of drinking water systems. One, a tax law favorable to privatization, was passed; the second, a funding bill that encourages privatization, is expected to be taken up again in the 2003 Congress.

From 1995 through 1998, the water utility industry, its employees and their political action committees, spent less than $500,000 on campaign contributions — a blip on the national campaign finance radar. But in the last two election cycles — from 1999 to 2002 — campaign spending more than tripled to roughly $1.5 million. Most of that came from a core group of seven of the nation’s largest private water companies and the industry association that represents them.

Of the private water companies, utilities and water associations that reported having lobbied on legislation related to privatization from 1996 to 2002, proponents outspent opponents 12 to 1, according to federal lobby disclosure forms.

The National Association of Water Companies, the private utility industry group, and the seven private companies – nearly all foreign-owned – emerged as donating giants among the water sector. Over the last seven years, those firms and their employees together contributed 84 percent of the roughly $2 million the water utility sector donated to federal election campaigns.

More than half of the sector’s campaign spending came from two large New Jersey-based companies, United Water Resources Inc., a French subsidiary, and American Water Works Co. Inc., which was acquired by a German conglomerate on Jan. 10, 2003.

Of the seven U.S. private water companies that were major political donors, only one is still American-owned: Philadelphia Suburban Corp. Inc. of Bryn Mawr, Pa.

Under U.S. campaign finance laws, U.S.-based subsidiaries of foreign corporations could contribute unregulated “soft money” contributions to political parties; the Bipartisan Campaign Reform Act of 2002, better known as McCain-Feingold, banned soft money contributions to the political parties.

United Water was purchased in 2000 by Paris-based Suez Lyonnaise des Eaux, the world’s largest water company; since 1994, Suez maintained a “strategic alliance” with the Harrington, N.J.-based, company. Suez also owns US Water LLC, also based in New Jersey. Vivendi, the second French water giant, bought United States Filter Corp. of Palm Desert, Calif., in 1999.

RWE AG, a German multinational company, purchased American Water Works of Voorhees, N.J., which serves 15 million people in 27 states and three Canadian provinces and is the largest publicly traded water company in the United States. Thames Water LLC, a British subsidiary of RWE, operates E’town Corp. of Westfield, N.J. Aquarion Services Co. of Bridgeport, Conn., is owned by Kelda Group PLC of England.

On the lobbying front, another key battleground of political influence, just three groups — the National Association of Water Companies, United Water and American Water Works — accounted for more than 90 percent of the $2.4 million spent by those in the water utility sector that traditionally have supported privatization measures.

By contrast, groups that generally have opposed privatization, such as the Association of Metropolitan Water Agencies, an industry organization for public water utilities, spent just more than $200,600 between 1996 and the first half of 2002 to make their case with lawmakers.

Publicly owned water companies spent more than $2.3 million lobbying on an array of issues. But it was not clear from the disclosure forms that they are required to file how much of their lobbying dollars were aimed at influencing the privatization debate.

Due to corporate diversification and the vagueness of lobby disclosure forms, it was also impossible to determine the specific spending patterns of two major private water players. But French media giant Vivendi Universal — parent company of its water unit Vivendi Environnement and of the U.S. water company USFilter — and the California-based Bechtel Group, former parent of US Water, are both big spenders on political campaigns and lobbying.

Jim Creedon, a spokesman for United Water, said political spending by the water companies is “never given with the intention of influencing opinion.” It is, however, a way to get noticed, a kind of calling card left at lawmakers’ doors. Marilyn Ware, chairwoman of American Water Works, and Marian S. Ware, her mother, gave $350,000 in soft money to a branch of the Republican National Committee. In September 2002, Marilyn Ware was appointed by President George W. Bush to serve on his National Infrastructure Advisory Committee.

Water privatization, which has gained momentum in the rest of the world over the last decade, is poised to become a strongly contested issue in the United States. Private owners and managers of water utilities by the start of 2003 made up roughly 15 percent of the industry, leaving plenty of room for expansion.

Decaying infrastructure

The hodgepodge of federal grants and loans that states typically rely on to help upgrade their water systems is dwindling. The Environmental Protection Agency estimated in September 2002 that the budget shortfall to make these repairs may reach $263 billion by 2019 for drinking water alone.

The Republican-led Congress does not appear inclined to dole out extra money for large public projects when the funding stream is renewed in 2003. In general, the government’s position “is to let markets work,” said Bennett Raley, assistant secretary for Water and Science at the Interior Department. Typifying its attitude toward public companies, the Bush administration is seeking to privatize part of the postal service.

Based on past experience in other countries, though, privatizing water carries risks. The water giants not only will raise rates to cover costs, critics say, but will use monopolies over water systems and rights to manipulate the system, much the way electricity companies were accused of doing in California in the summer of 2001. Critics fear that these companies will not be held accountable, so jobs will be lost, quality will wane and the poor will lose service.

“Why does somebody need to make money on your water?” said Dick Hierstein, city manager ofPekin, Ill., which decided to buy back its water system from American Water Works. “Does somebody need to make money off the air you breathe? It is as simple as that.”

Defenders of the publicly owned water systems say they have worked well despite a shortage of cash. They argue that water is a homeland security issue, an area where government spending can be defended as legitimate and perhaps even patriotic. “Water infrastructure is not failing right and left, like a road with potholes or a river erupting into flames, because public water systems are doing a great job,” said Michael Arceneaux, a spokesman for the Association of Metropolitan Water Agencies, which represents municipal utilities serving more than 100,000 customers.

“Clean and safe water is no less a national priority than are national defense, an adequate system of interstate highways, and a safe and efficient aviation system,” added Norida Torriente, a spokeswoman for the American Society of Civil Engineers.

But the major private utilities have plenty of experience around the world dealing with opposition and have had some success in America doing what they do everywhere — buying up local companies, donating to politicians and tapping into lobbies to change legislation to smooth the way for privatization.

“With [American Water], we will inherit their existing political and lobbying skills,” said Peter Spillett, head of Environment, Quality and Sustainability for Thames Water, in an interview at his office outside London. “In Washington, we will employ useful lobbyists and so on.”

Gérard Payen, senior executive vice president of Suez, said that its U.S. subsidiary is still developing alliances with politicians and industry groups. The United States and China are the company’s main expansion targets, Payen said.

From the business perspective, there is no reason Suez should not succeed.”Running water systems is a business,” said Debra Coy, vice president of Schwab Capital Market’s Washington Research Group. Everything else, she added, is “emotional rhetoric.”

The open U.S. market

Private water companies are not a new concept in the United States. They were set up in Rhode Island in 1772. By 1799, the Manhattan Company, which was associated with Manhattan Bank and then the Chase Manhattan Bank, was created to clean up New York’s water. But it neglected the public needs, and eventually the city government, in 1842, embarked on the nation’s largest public water project by bringing in water from the Croton River.

Baltimore’s water system bounced between public and private owners over more than a 50-year span in the 1800s that included cholera outbreaks and contaminated wells. In 1830, city officials accused the private water company of supplying water only to the rich. Yet it took 20 years for the city to buy back the assets.

By 1850, 50 of the country’s 83 systems were privately owned. That changed to a system largely run by public utilities during the early 20th century as population boomed and advocates crusaded for public hygiene, disease prevention and fire protection.

Today, public utilities serve 81 percent of the American population. Yet private companies own about 70 percent of American drinking water systems, EPA figures show. But these are generally small, rural operations.

Analysts expect the $60 billion drinking water market to grow to between $180 billion and $200 billion by 2019 due to the anticipated infrastructure needs.

Much of the current private involvement in water is in management, rather than outright ownership of waterworks. It is within this market of management services that the French and German companies are hoping to expand. In these public-private partnerships, which Congress is expected to endorse, contracts typically last for 20 years.

Vivendi Environnement and Suez secured billion-dollar contracts in some of America’s largest cities, including Atlanta and Indianapolis. Cities fromCamden, N.J., to Stockton, Calif., also have contracted or are looking to contract with these companies.

Atlanta had been touted as a “trophy contract” for private companies after it signed a 20-year, $20.8 million deal with United Water in 1999 – at the time, the nation’s largest public-private partnership contract. But Mayor Shirley Franklin, who took office after the deal was signed, canceled the contract on Jan. 24, 2003.

Citing a city audit of United Water operations, Franklin complained that the company had not kept up with maintenance and repair work and failed to collect millions of dollars in unpaid bills. The company saved the city only about $10 million a year, or half its projections, a January 2003 audit showed, according to Greg Giornelli, chief policy officer for Atlanta.

United Water chairman and CEO Michael Chesser said the company had improved its performance over the last several months. However, both the city and company agreed that the contract did not provide “an economically viable framework” for either party’s future, he said in a press statement.

In 2001, Indianapolis bought the assets of the local private water company that served the city for 131 years. Nine months later, city officials awarded the nation’s largest management contract to date — a 20-year, $1.5 billion-deal to Vivendi’s USFilter.

After three years and almost $4 million in planning, the New Orleans Sewerage and Water Board rejected plans for a water and wastewater private management contract worth just under $1 billion. USFilter had been seen as the top contender in the New Orleans deal. City officials led by Mayor Ray Nagin said they needed a private manager to keep water rates from skyrocketing and to meet federal mandates to overhaul the city’s sewer system, a major source of pollution.

The water deal had been expected to sail through a vote of the water board, but it died in October 2002 after several council members abruptly withdrew support. Two of the 13 board members whose terms expired in October — and who voted against the measure — were not reappointed by Nagin, who has said publicly that he is considering reopening the bidding process in February.

Cities have viewed privatization as an option for many years. They have lobbied the government intermittently since the 1980s — when Chicago Mayor Richard M. Daley picked up the torch during a budget battle — to change the tax code in a way that would enable cities to contract with private companies, including water companies.

The U.S. Conference of Mayors, a nonpartisan organization of cities with populations of 30,000 or more, joined with the Washington-based industry group, the National Association of Water Companies, to lobby the Internal Revenue Service to change language in the tax code that penalized cities with loss of tax-exempt status if they contracted private companies for more than five years.

The tax status is crucial to the finances of cities because it allows them to borrow money at significantly lower rates and with tax-free interest payments on the government bond market. Private companies claimed they found it difficult to recover costs with contracts limited to five years.

Success came in 1997, when the IRS extended the contract limits to 20 years. That step encouraged private water companies to begin expanding their operations in the United States.

The big companies view the U.S. market hungrily because Americans are among the largest per capita water-users in the world — and pay among the lowest rates.

In 2001, the Congressional Budget Office estimated that Americans paid an average of 0.5 percent of their annual household budgets on water and wastewater bills during the 1990s. That could rise slightly, from 0.6 percent to 0.9 percent by 2019, the report estimated.

A 2002 rate survey by Raftelis Financial Consulting of North Carolina showed that drinking water fees grew by 8.8 percent from 1996 to 2001. Last year, American customers paid an average of $16.46 a month for typical usage of 7,480 gallons of water.

For private companies, this simply means there is plenty of room to increase rates. That could lead to angry backlash, critics said. But on the other hand, the companies may find plenty of justification.

Overall, government reports show that conservation efforts have reduced water consumption and lowered the revenue utilities desperately need for capital improvements. Drought and a population that is expected to double in the next 50 years have led to worries of future shortages.

Several aquifers, including the Ogallala in Texas and the Potomac-Raritan-Magothy in New Jersey, already are under duress. Last summer, more than 40 percent of the nation experienced a drought, forcing some towns, such as Westminster, Maryland, to consider purchasing water from outside sources. Getting water to these regions could cost more money.

In 1996, the EPA released a report that identified the need for improvements in the U.S. water infrastructure. By 2001, bipartisan legislation to fund these projects had been introduced in Congress. It required utilities for the first time to consider alternate management options — including private partnerships — before they receive federal money. Congress is expected to reconsider that legislation in early 2003.

Diane VanDe Hei, executive director of the Association of Metropolitan Water Agencies, the public utilities industry group, said there should be no federal mandate for privatization. “I don’t think there is enough information or data for the federal government to endorse public-private partnerships,” she said.

The companies believe the proposed legislation simply “encourages creative asset management,” said Louis Jenny, director of federal relations at the National Association of Water Companies, the trade group for private companies.

Against the tide

Labor unions and the watchdog group Public Citizen waged an 18-month-long campaign to halt the trend toward privatization around the United States.

The groups heavily lobbied Congress in 2001 and 2002 to excise language from the bill advocating private partnerships, which Public Citizen said “jeopardizes public access to safe and affordable drinking water and adequate wastewater treatment by making federal assistance conditional on the recipient’s consideration of privatization.”

The Senate version made a moderate concession, changing the phrase that explained funding conditions from considering “public-private partnerships” to “forming cooperative partnerships.” The House version remained the same.

A coalition of municipal water companies and public interest groups formed an anti-privatization lobby that called on Congress to increase grants and loans to $57 billion over five years to improve public utilities’ infrastructure. Private companies objected to the expanded grants because they would remove the incentive to privatize.

Eventually, labor unions, which also opposed privatization, were able to kill the bill. They wanted contractors to be paid the federal prevailing wage, a collectively bargained figure that typically exceeds market rates. Without that provision, privatization threatens labor unions’ bargaining clout.

During the campaign over the bill, Public Citizen cited several bribery and corruption convictions — overseas and in the United States — as evidence that global water companies could not be trusted with the nation’s water supply.

In 2001, Aqua Alliance Inc., parent company of Professional Services Group, a wastewater treatment company, pled guilty to bribing a New Orleans Sewerage and Water Board official in exchange for favorable treatment. Board member Katharine Maraldo and three PSG employees were indicted in U.S. District Court in Houston, Texas, for conspiracy, mail fraud and interstate travel in aid of bribery. Maraldo was convicted in June 2002 of accepting legal services and more than $70,000 in cash from the company. Michael Stump, a former PSG executive, also was convicted on charges related to bribery. Two others were acquitted on all charges, and one man killed himself in May 2002.

In Atlanta, according to Public Citizen, state campaign finance records showed that donations from four executives of United Water Services Inc., a division of United Water Resources Inc. and a minority subcontractor to Atlanta Mayor Bill Campbell’s 1999 reelection campaign, totaled $4,750. Such donations are not illegal, unless clear evidence exists that a donation was given in exchange for a government contract.

Bill Campbell’s brother, Ralph, who ran for the state auditor office in North Carolina, received more than $10,000 in contributions from United Water executives in Georgia, Indiana, California and New Jersey. The company does no business in North Carolina.

The ‘champions’

The usual practice of the private water companies is hard-nosed.

Howard Woods, former director of business development for American-Anglian, a now-defunct branch of American Water Works, described the 1990s as a cut-throat period in the water business in the United States. Companies bid so low that they risked tiny profit margins, he said. The thinking was that they could always renegotiate later to recoup their costs — a common practice in the water business in other parts of the world.

“You could think of it as gutsy,” he said. “But I tell you that was the way to open the door.”

Today, the fervor has subsided a bit, said Woods, now a consultant. “We make sure that we are viewed as the ‘good guy’ to hire and at the end of the day, we make sure the decision was based on who had the lower number on the piece of paper. It’s not necessary to do anything else to win the job.”

But according to insiders, the process is not always that simple. One common practice of the water companies, they say, is to develop “champions,” or local powerbrokers, such as mayors, council members or legislators, to carry their message to both city councils and the people. They try to persuade local governments facing the headaches of budget crunches, labor strife and decaying systems that the answer to their woes lay in privatization.

Around the world, companies such as Suez, Vivendi, Thames and Saur have proven to be masters at this skill. In Europe, they ally themselves with city mayors or top managers. In South America and Asia, they join hands with powerful local businessmen who have close ties to senior politicians.

In the United States, the result often is a symbiotic relationship between the companies and local politicians. A former New Jersey lawmaker, a consultant who has worked with private water companies, said the companies carefully scout their potential “champions,” looking for the lone party member on councils, political neophytes, or mayors.

Typically beleaguered, rarely thriving, the municipalities these politicians represent often can’t make payroll, struggle with labor problems or, sometimes, just want cleaner water for their citizens.

Enter the private companies and their champion with promises of a grand solution. The consultant said company representatives carefully train their “champion” on how to sell the product. Dinners, trips, theater tickets and sometimes cash follow, he said. On a recent visit, the New Jersey consultant gave a former champion several hundred dollars to “help him out,” he said.

In the meantime, the companies wage a quiet public relations campaign. They meet with local reporters and editors to persuade them to publish stories or editorials about the water debate. They find residents to write letters to the editor endorsing privatization. Often, they recruit people to pad official planning meetings that otherwise go unattended to speak up on behalf of privatization. This technique can often get them past the EPA’s requirement that municipalities hold open meetings for public comment, the consultant said.

Scott Edwards, spokesman for USFilter, acknowledged use of the word “champion” to describe allies in cities where his company has plans. However, he noted that his company requires all its contractors to sign documents prohibiting them from engaging in illegal activity, and specifically bribes.

Kerry Lauricella, a former councilman in Harahan, La., said he often felt “wooed” by prospective contractors, although he said neither he nor anyone he knew took bribes or were otherwise influenced.

Harahan, a suburb of New Orleans, eventually chose to privatize its wastewater system because it felt it had no choice. Harahan operated with a $4 million budget with about two-thirds earmarked for safety protection. It was difficult, he said, to handle capital projects.

“We did what a lot of cities do — keep taping it and taping it and sooner or later tape doesn’t work anymore,” he said about municipalities’ struggles to make major infrastructure repairs.

In 1996, the town contracted its wastewater services to a company that was later bought by USFilter. Lauricella said he does not feel entirely good about it. “I have mixed emotions on having a non-American company with its hand on the tap of America’s water valve,” he said. “You don’t know what will happen.”

Some towns are voting ‘no’

In Kentucky, a grassroots movement is opposing RWE’s purchase of American Water, whose subsidiary, Kentucky-American Water Co., serves more than 290,000 customers in the Lexington-Fayette Urban County area. The county is considering purchasing the company itself.

Officials in the Illinois towns of Pekin and Peoria — which have some of the highest water rates in the state — have reported problems with their water companies, both subsidiaries of American Water Works, and have taken steps to buy back the assets. Pekin officials have complained about burst pipes and malfunctioning hydrants. Officials in Peoria contend the water company overcharges for its service.

“Our studies show that the cost of water in Peoria is twice that of other similar-sized cities in the country,” said Terry Kolbuss, executive director of the Tri-County Regional Planning Commission in East Peoria, Illinois, who began advocating public ownership of the utility several years ago while he worked as a business development consultant.

Susan Atherton, a spokeswoman for Illinois-American Water Co., said that rates in Pekin and Peoria are not the highest in the state and that many other suburbs pay far more for their water. She said the customers served by Illinois-American pay a “fair rate” and get “excellent service” in return. Atherton added that state regulators, not the company, established the rates charged by privately owned companies.

In blue-collar Pekin, few can afford the higher rates. The steamboat and railroad industry that fed the little town along the Illinois River has left little more than rusted factories on its willowed banks. One of America’s fading mainstreet towns, Pekin has little more to offer its residents than a candy store, a few diners, trinket shops and a tavern with a crumbling facade.

Hierstein, Pekin’s city manager, said the company’s service — in private hands since 1886, in Illinois-American Water’s control since the early 1980s — had declined in recent years. Company officials counter with an Illinois Commerce Commission report that Pekin’s number of customer complaint calls ranked among the lowest in the state from 1999 to 2001.

ICIJ researcher Daniel Politi contributed to this report.

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San Francisco Updates Contractors’ Well being Requirements, Pay Charges

Daily SF News — Fri, 08 Dec 2023 00:03:19 +0000

HCAO Requirements

San Francisco contractors and tenants (including those at the city’s international airport and port) must offer minimum health benefits at no cost to covered employees under the HCAO. The ordinance applies to employees who work at least 20 hours per week on a city contract or city property. Employees working on a San Francisco contract are covered, even if their contract work is done outside the city.

Minimum Standards
Effective Jan. 1, 2020, updated minimum standards from the Office of Standards and Labor Enforcement (OLSE) require plans to cover all services listed in California’s current essential health benefit (EHB) benchmark plan. The standards apply to employee-only coverage and don’t include or require dental or vision benefits. The OLSE also has released an updated poster that employers must conspicuously display in each San Francisco worksite by July 1, 2019.

Employers must annually obtain covered employees’ signed acknowledgment of a HCAO statement of rights. Employees may waive their coverage rights by signing the appropriate form. All notices and posters must be available in English, Spanish, Chinese, and any other language spoken by at least 5% of the employees at the workplace or job site.

2020 Limits
Besides covering EHBs, a contractor’s health plan must comply with the following standards:

Employers must pay for 100% of the coverage with no employee contributions.
The maximum in-network deductible of $2,000 ($200 for prescriptions drugs) must include 100% of actual expenditures that count toward the medical deductible, regardless of plan type and level.
The maximum in-network, out-of-pocket maximum (OOPM) expense of $7,850 for 2020 must include all types of cost sharing (deductible, copays, coinsurance, etc.).
Participants’ cost sharing must be capped at 20% for in-network treatment and 50% for out-of-network care.
Primary care copayments can’t exceed $45.

Employers may use any health savings/reimbursement product that complies with the minimum OOPM standard, and all gold- and platinum-level plans are deemed compliant, according to the Department of Public Health’s clarifications. Employers can offer other contributory options but must make at least one plan available at no cost to covered employees that meets minimum standards.

Alternative Payment
Effective July 1, 2019, HCAO-covered employers that don’t provide minimum benefits must pay the city an additional $5.40 per hour for covered employees who live or work in San Francisco. For covered employees who live or work outside San Francisco, employers must make these payments directly to the employees. The payment is capped at $216 per workweek.

This rate is annually adjusted for inflation on July 1. Employers should remit these amounts along with the HCAO Payment Option Form.

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Rents in San Francisco Holding Under Pre-Pandemic Charges – SocketSite™

Daily SF News — Wed, 26 Jul 2023 11:44:13 +0000

The weighted average asking rent for an apartment in San Francisco has effectively held at around $3,600 over the past quarter, which is less than 3 percent higher than at the same time last year, 12 percent lower than prior to the pandemic and 19 percent below its 2015-era peak of nearly $4,500 a month, with the average asking rent for a one-bedroom in San Francisco holding at around $3,000 per month (which is less than 2 percent higher than at the same time last year, 15 percent lower than prior to the pandemic and 19 percent below peak).

At the same time, the number of apartments listed for rent in San Francisco ticked up a (1) percent over the past month, with 13 percent more units now listed for rent than there were prior to the pandemic, the inventory of condos and single-family homes for sale across the city ticking up, and the cost of capital having jumped.

Our analysis of the rental market in San Francisco is based on over 170,000 data points going back to 2004 that we maintain, normalize and index on a monthly basis, not simply a few years of data or recollections. We’ll keep you posted and plugged-in.

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What Are Older Workplace Towers Price When They Lastly Promote amid File Emptiness Charges? Not A lot. Enormous Losses All over the place

Daily SF News — Sun, 09 Apr 2023 08:32:07 +0000

But foreclosures are far worse, including a complete wipe out of CMBS investors.

By Wolf Richter for WOLF STREET.

36% loss. Private equity firm Blackstone has sold two 13-story Class A office towers, the Griffin Towers, in Santa Ana, Orange County, California for $82 million to a joint venture between Barker Pacific Group and Kingsbarn Realty Capital . The towers erected in 1987 have a vacancy rate of 24%.

According to the Commercial Observer, Blackstone bought the towers in 2014 for $129 million. The selling price represents a loss of 36%. And Blackstone got lucky with this deal.

In 2007, at the height of the previous CRE bubble, the towers changed hands for $183.8 million. And in 2010 it sold again for $89.9 million. In Orange County, office vacancy hit a record 23.1% in the first quarter of 2023, according to Savills.

jingle mail. Blackstone has demolished other office towers, most notably a year ago when it abandoned the largely vacant 26-story, 621,000-square-foot 1950 building at 1740 Broadway in Midtown Manhattan to let lenders — CMBS holders — take the one that remained Loss.

It bought the property in 2014 for $605 million. It then borrowed $308 million for it. And by March 2022, the tower’s value had fallen so far below loan value ($308 million) that Blackstone was better off letting CMBS holders absorb the remaining loss, and it washed itself away from it.

47% loss. In Houston, Parkway Property sold the 960,000-square-foot San Felipe Plaza in Uptown to Sovereign Partners for $82.8 million in late March. The tower was built in 1984. Parkway Property finally got the tower when it acquired Thomas Properties, which bought the property in 2005 for $156.5 million. So that was a 47% loss.

The vacancy rate for Class A offices in Houston has been around 30% for years and has fallen to 32.3% in the first quarter of 2023, according to Savills. The vacancy rate had blown up first due to the oil crisis, which began in earnest in 2015, and then due to work from home and associated property shedding. According to the Houston Business Journal, the tower was last valued at $219 million.

37% loss and more? In Manhattan, the Chetrit Group sold the 617,000 sf tower at 850 Third Ave in March. to its lender HPS Investment Partners for $266 million after paying $422 million for it in 2019. That’s a 37% loss in three years after the property.

But this story is not over yet, and the outcome is still unclear. In October 2021, Chetrit refinanced the property with a $320 million loan from HPS, and HPS has now assumed the collateral, which only covers part of the loan’s value. The final loss of HPS becomes clear when the building is sold.

40% discount, 47% loss. Argentic Investment Management, a lender, brought the 1923 Barney’s New York Building to 115 Seventh Ave in March. for around 30 million dollars on the market. The seven-story building is empty. The lender had acquired the building in foreclosure proceedings initiated in September 2020. In March 2022, he took possession of the building for $49.5 million. The defaulted mortgage was $46.2 million at the time, plus costs and fees. If Argentic can actually sell the building for $30 million, that would be a 40% haircut.

The defaulting owner bought the building in 2014 for $57 million, and a sale price of $30 million would represent a discount of 47% from the 2014 price.

Office tower foreclosures are far worse.

88% loss and 82% loss. Finding a buyer for an office tower yields far better results than selling it at foreclosure. For example, in Houston’s Energy Corridor, two towers in Westlake Park were sold in foreclosure. The towers were collateral for CMBS, and investors took the losses on the debt.

Both towers had been built in the 1980s and renovated some time ago, but were losing tenants who moved into the newest and best office towers to hit the market in Houston — the flight to quality that older office towers have in high-vacancy markets sunk .

After all was said and done, including costs and foreclosure fees, CMBS holders had an 82% loss rate at Two Westlake Park in mid-2020 and an 88% loss rate at Three Westlake Park in early 2022. I have discussed this under the time.

Real estate is slow to develop: the entire process took about two years, from the disruption of the towers when the loans were sent into special administration to the actual foreclosure.

100% loss. That’s about as bad as office towers. The vacant, 46-story, 1.4 million square foot office tower, built in 1985 and formerly called One AT&T Center, in downtown St. Louis was sold in a foreclosure sale in April 2022 for $4.1 million .

In 2006, the property was purchased for $205 million and became collateral for a $112 million mortgage securitized with CMBS in December 2006. It made up 98.5% of the BSCMS 2007-T26. The first two letters “BS” stand for “Bearn Stearns,” which the CMBS issued in 2007, a year before Bear Stearns collapsed. At the time of the securitization, the property was valued at $207.3 million.

In 2017, after AT&T, the only tenant, moved out and the landlord stopped making mortgage payments, lenders — represented by US Bank’s Special Servicer Trustees — foreclosed on the building. The outstanding mortgage balance at the time was $107 million.

The specialist contractor eventually sold the tower to New York developer SomeraRoad in April 2022 for $4.1 million. However, according to Trepp, who is tracking CMBS, all proceeds from the sale were eaten up by special service fees and $4.25 million in liquidation costs. It was a classic 100% total wipeout for CMBS holders.

Sense of reality in San Francisco?

One of the worst major office markets in the US is San Francisco, with a record vacancy rate of nearly 33% in the first quarter and counting. In the years 2022 and 2023 there have not yet been any sales or foreclosures. The last sale was in 2021, PG&E sold its 1.6 million sf headquarters complex to developer Hines for $800 million.

But that was in 2021, when the Fed was still QEing and pushing interest rates close to 0%. Those were the crazy days of consensual hallucinations. Everything has changed since then.

So now there have been two massive defaults in San Francisco: PIMCO’s Columbia Property Trust has defaulted on the debt of the 201 California St. and 650 California St. office towers in the Financial District.

Lenders certainly don’t want to end up with these towers as there are already towers for sale within a few blocks on California Street.

Union Bank is trying to sell its headquarters at 350 California and lease back part of it. The tower originally went up for sale last year for $250 million. Union Bank subsequently delisted it and relisted it in February at a 52% discount to $120 million.

And Wells Fargo tried to sell its 550 California Tower in 2022 for $160 million. It withdrew the listing and will try again in 2023. This time it could market the tower at a 67% discount off the original list price, which would cost around $53 million, according to the San Francisco Business Times.

At this point nobody knows what anything is worth. There have been no transactions since the end of the free money era. But with Wells Fargo (-67%) and Union Bank (-52%) cutting prices on their towers, a sense of reality seems to be setting in.

The older towers, from around the 1980s, have the biggest problems.

Houston used to be the worst major office market in the US, with a vacancy rate hovering around 30% for years. Now San Francisco has shot past Houston in spectacular fashion.

And yet new towers were and are being built in both cities. And what ultimately happens is that when the lease expires, companies move out of their old quarters and into the newest and best building, while downsizing, lowering their rents, and leaving the old office towers vacant—the infamous “flight to quality.” “. “, which sinks old office towers. It’s the old office towers that get into trouble, not the new ones.

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North San Francisco Bay Space residential actual property markets react to spiking rates of interest

Sun, 04 Sep 2022 08:21:23 +0000

US economic conditions are shutting the door on the red-hot residential real estate market in the North Bay, with increasing interest rates contributing to May’s double-digit percentage drop in the region’s home sales, according to the California Association of Realtors.

And this may be just the start of a changing real estate market, thanks in part to interest rates that have doubled since the start of the year.

“The industry was caught very blindsided by that, because all of the mortgage-lending industry and most economists expected mortgage rates to remain in the (3% range) all during this year,” said Nevin Miller, president and CEO of San Rafael- based Pinnacle Loans, which serves Marin, Sonoma, Napa and Solano counties, as well as Southern California. “For them to go from 3% to 6% is a shock to the market.”

The current market still favors sellers, he noted, but that doesn’t mean they aren’t reacting, even with all-time low inventory.

“Sellers who have now got a ton of equity because homes have appreciated so much are rushing to put their home on the market before the market changes, which it is doing now,” Miller said.

In the North Bay, year-over-year property sales in May were down in several counties, according to the agent association. Sonoma County home sales dropped by 22.8% to 385 homes sold; Napa County 12.1% to 102 homes; and Marin County, 10.1% to 178 homes, CAR reported. Solano County sales, however, rose 5.8% to 328 homes sold in May.

This wasn’t surprising to CAR Deputy Chief Economist Oscar Wei, who noted that Solano is the most affordable county in the Bay Area and North Bay.

Insights and cash

In Sonoma Valley, while large overbids on homes have not been unusual, with three-quarters of offers coming in all-cash, the buying frenzy reached out to traditionally more affordable areas of the county, said Duane Margreiter, sales manager for Century 21 NorthBay Alliance in Sonoma. One of his properties was a $1 million home in Windsor, where overbids had previously gone as high as asking $25,000 over, and that property sold for $75,000 over.

“We’re seeing a shift in the market,” Margreiter said. “Buyers are taking a different look. They’re realizing that they do not need to put in an offer on the first thing they see.”

While the rise in interest rates is likely to initially price out first-time homebuyers, overall it likely will result in a shift to a more balanced market, rather than a crash like in 2005 to 2012, when the Great Recession had a wave of foreclosures , Margreiter said.

Patricia Oxman, a 30-year real estate veteran and top producer for Golden Gate Sotheby’s International Realty, said the Marin County market data she tracks suggests local entry-level buyers have already pulled back so far this year, but higher-priced homes continue to be selling.

Sales of single-family homes in Marin County are down 17%, with 1,120 changing hands so far this year, compared with 1,346 in the same time frame last year. Home sales under $1 million have dropped to 72 from 145 a year ago. Sales of mid-range homes ($2 million to $4 million) moved down to 48% of all sales from 54% last year, while top-end homes (over $4 million) now make up 46% of sales, up from 34% a year ago.

“The luxury market is still strong because buyers pulled money out in anticipation of the purchase, and 28% of our sales are all cash,” Oxman said.

Gerrett Snedaker, broker and partner with Better Homes and Gardens Real Estate-Wine Country Group, said he’s seen “a decrease in multiple offers and selling homes in excess of asking prices.” The firm has multiple offices in Napa, Sonoma and Mendocino counties.

In May, 16% of homes in the three counties sold at reduced prices, and by late June that proportion is 19%, in line with the level from a year before, according to Snedaker. And the share of homes selling for over the asking price was 55% in May, 44% through late June and 52% a year before.

Market influences

The changing market conditions have already started to reduce prices on listings.

Just over 9% of Sonoma County listings experienced a price cut in May, compared with 6.9% in April and 4.9% in March, Zillow reported. About the same percentage of sellers lowered their prices in neighboring Napa County, in contrast to reductions in April at 7.1% and 6.3% in March. To the west in Marin County, 6.8% of listings were lowered, versus 5.1% in April and 4.9% in March.

Much of this trend is due to “rising interest rates on the back of the incredible price appreciation in recent years,” Zillow spokesman Matt Kreamer pointed out, adding: “People are being priced out.”

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Regardless of Rising Curiosity Charges, Bay Space’s Sizzling Housing Market But To Cool Off – CBS San Francisco

Thu, 21 Apr 2022 07:09:19 +0000

DUBLIN (KPIX 5) – As interest rates creep up, many thought it would mean some potential home buyers would back off. So far, that doesn’t seem to be the case in the Bay Area’s red-hot market.

March was another record month for California and Bay Area real estate. The median single-family home price in California, in March, was $849,080, according to the California Association of Realtors.

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Here were the median sale prices for single-family homes in the nine Bay Area counties:
• Alameda: $1,430,000
• Con Costa: $965,900
• Marine: $1,737,500
• Napa: $998,000
• San Francisco: $2,060,000
• San Mateo: $2,280,000
• Santa Clara: $1,950,000
• Sonoma: $833,750
• Solano: $604,000

“The headlines are screaming historically high sales prices. The finer print is, people still want to buy homes,” said David Stark, with the Bay East Association of Realtors. “If you look at how long a home was on the market, it’s at historically low levels, which tells us that buyers are not only willing to pay those prices, but they’re willing to pay those prices quickly.”

Mortgage interest rates are rising. However, that phenomenon doesn’t seem to have had an effect on the market yet, according to John Levine, the VP & Chief Economist of the California Association of Realtors.

“Even as rates have really, surged over the course of the last eight weeks or so, we haven’t seen that affect buyer demand for several reasons,” Levine told KPIX 5. “But the bottom line is, we still have ultimately too many buyers and not enough homes to put them in, that’s keeping the market relatively strong.”

In March, for the first time in about two years, the inventory of available homes did not shrink, according to the latest figures.

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“It is significant that we actually have more for the first time in a very long time. We still have a long way to go to get back toward something that looks normal,” Levine said. “But, I think for those buyers in particular who really do want to move forward with those transactions and get in while the gettin’ was good as it were with rates, that’s good news in the sense that they might have a few more options moving forward.”

Bay East President and Realtor Sheila Cunha tells KPIX 5 while the market is still “crazy,” it’s not quite as crazy as it was a few months ago.

“We’re not seeing quite as many offers right now as we did four or five months ago,” she said.

Cunha believes the rising interest rates will ultimately lead to some potential homebuyers backing off, but doesn’t think that’ll happen until the summertime.

“I think it’s coming. I think as the Fed continue to raise the interest rates you’ll see buyers not being able to afford what they once could,” she said.

As for the inventory, she thinks that will slowly start to increase as well.

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“Spring is usually our busiest season,” she said. “I think we’ll start seeing more homes coming on the market.”

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South San Francisco to extend sewer charges | Native Information

Sun, 20 Feb 2022 01:14:24 +0000

Sewer rates in South San Francisco will likely increase by 2% in July, up to $62.75 monthly for single-family residences and $56.33 for apartments.

The increase will cover rising costs to operate the service, including needed improvements to the system, according to the city.

This year’s increase will be followed by a 3% increase each year for the following four years, with rates eventually reaching $72 monthly for single-family residents and $65 for apartments in July 2026, according to a preliminary plan still subject to final approval. The council previously approved a five-year plan for increasing rates; the current fiscal year is the last in the plan.

Residential customers in the city pay fixed annual charges per dwelling unit while commercial customers pay based on use. Commercial rates are also set to increase by 2% this year.

The increase falls below the city’s average increase rate of 3.5% over the last 10 years.

South San Francisco’s rates for single-family homes this year will remain the sixth lowest out of 23 agencies providing the service in the county, according to the city.

“I know as a ratepayer when we see these increases it’s kind of a sticker shock,” Mayor Mark Nagales said. “But I want to emphasize that the money is being used … for the construction of a new sewer collection system, new treatment systems, operation maintenance and repair, all important functions.”

Improvements to the sewer collection system includes pipe replacements, and work to the wastewater treatment plant includes fortifications against sea level rise. Work is projected to cost $50 million over the next five years.

As required by state law, the city sent notices of the rate increase to the city’s 14,000 ratepayers. A majority protest would have blocked the increase. Six protests were received according to the city. This year’s increase will be subject to final approval by the City Council in June, and each consecutive year’s increase will also be subject to approval in the corresponding year.

The city has a sewer rate assistance program that can save low-income residents up to $76 annually.

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San Francisco case charges double in 5 days as omicron tightens grip

Wed, 22 Dec 2021 05:20:00 +0000

The highly contagious variant of Omicron appears to be well established in the Bay Area and is likely to encourage outbreaks and early spikes in COVID-19 cases across the region, health officials said Tuesday.

Case numbers in San Francisco have doubled in the past five days, almost certainly due to the spread of omicrons in the community, said Dr. Grant Colfax, Head of the Department of Health. He said the city has now identified 32 Omicron cases, but he suspects there are many more.

The variant is also the likely source of a major COVID outbreak in Marin County that infected more than half of those attending a Christmas party. At Stanford, nearly three-quarters of the virus samples screened for variants in the past week appear to be omicrons, said Dr. Ben Pinksy, director of the clinical virology laboratory that performs genome sequencing for several Bay Area counties.

“It has really picked up speed over the last week. We went from very few to essentially the most omicrons, ”Pinksy said. “I think almost all cases will soon be omicron.”

The soaring tide from Omicron is reported across California and resulted in Governor Gavin Newsom on Tuesday saying he would soon have all health care workers boosted in addition to a full vaccination. Studies are increasingly showing that Omicron is better able to evade vaccine immunity than previous variants, but boosters appear to numb infection and prevent serious illness.

Bay Area health officials are preparing for a spate of Omicron cases in the coming weeks or even days as Omicron spreads across the country at an amazing rate. The first US case of Omicron was reported in San Francisco on December 1, and by last week the variant accounted for three-quarters of the cases nationwide, according to estimates by the Centers for Disease Control and Prevention.

In response to swelling cases across the country, President Biden announced new maneuvers to combat Omicron on Tuesday, including plans to ship half a billion rapid test kits to American households and deploy thousands of federal health workers to parts of the country to deal with an intolerable burden of hospitals to expect.

Much remains uncertain how an omicron surge would play out in the United States, and especially in high-vaccine places like the Bay Area. Local health officials say they are concerned that even if most of the cases caused by Omicron are mild, a massive spike – potentially causing a more widespread disease than any previous spike – could overwhelm hospitals or disrupt basic services like education or transportation .

“It’s so difficult to get our collective minds under it because Omicron is moving at a breathtaking speed,” said Dr. Sara Cody, Santa Clara County Health Officer. “It’s difficult for us humans to keep up with this virus.”

Kaiser Permanente Tent, 2350 Geary Blvd .; Monday-Friday, 8.30 a.m. to 3.30 p.m.

Chinese Hospital, 845 Jackson St .; Monday-Friday, 9:00 a.m. to 3:30 p.m. (closed from 12:30 p.m. to 1:30 p.m.)

San Francisco General Hospital, 1001 Potrero Ave., Building 30; Monday-Friday, 10 a.m.-6 p.m.

Southeast Health Center, 2401 Keith St .; Open Monday-Friday, 9 a.m.-4.30 p.m., Thursday until 7 p.m.

See morecollapse

Omicron appears to be taking over at a particularly challenging time in the Bay Area – just days before Christmas, a holiday many residents wanted to celebrate two or three weeks ago with little fear of COVID given the overall high vaccination rates.

Health officials said they wouldn’t stop people from gathering for the holidays this year. But the new variant, which is heavily mutated and potentially better able to evade immunity and infect even fully vaccinated individuals, poses new risks.

According to Bay Area health officials, there is an urgent need for anyone who has been fully vaccinated for at least six months to receive a booster, if they haven’t already. “What is worrying is that vaccination may not offer much protection in people who are not given a booster,” said Dr. Chris Farnitano, Contra Costa County Health Officer. “A booster shot may not protect you from a mild illness, but it should protect you from a serious illness.”

Cody noted that the Bay Area’s robust vaccine uptake could make the region a little more susceptible to Omicron than other parts of the country, given that so many people were vaccinated early, which means their antibody immunity has now faded.

“We were in great shape and now the immunity is off and we all need to be strengthened,” said Cody. “Now if I could hire anyone eligible in the county to increase, I would wave my wand and do that.”

Omicron has not yet turned into a regional surge in coronavirus cases, although numbers are rising across the Bay Area. On Monday, the region reported about 1,100 cases a day, about double what it was a month ago. Hospital admissions have also increased by around 20%.

But local health officials said they see worrying signs of an impending spike and have no reason to believe the region will be spared the spate of cases already reported in other parts of the country.

Preliminary reports in San Francisco show the case rate doubled from December 13 to December 18 – from about 10 cases per 100,000 people per day to 21 cases per 100,000, according to Colfax. “And I expect that case rate will double every two to three days,” he said.

“If Delta COVID was on steroids, Omicron COVID is on speed,” Colfax said. “It’s so much more transferable.”

Colfax noted that while only 32 Omicron cases have been reported to date, San Francisco should assume this is much more widespread – a concern that is being echoed by health officials across the Bay Area, even in counties that still support Omicron have not identified.

“We haven’t contacted Omicron yet, but we expect there are many cases in San Mateo County,” said Dr. Curtis Chan, the assistant health officer. Coronavirus cases had risen in San Mateo County for about two weeks, he said, attributing the rise to Delta and Omikron.

In Alameda County – which identified one of the first omicron outbreaks in the country in early December, among a group of healthcare workers who attended an out-of-state wedding – cases are also rising, likely due to the new variant, said Dr. Nicholas Moss, the health officer.

Like his colleagues, Moss advised people to make more arrangements than they might originally intended for holiday celebrations. Ideally, people would do quick tests before attending a gathering, Moss said, though he acknowledged the tests can now be hard to find.

But aside from the tests, he and other health officials said people should consider skipping large holiday parties and focusing on smaller get-togethers with close family members. They should try to gather outdoors whenever possible and open windows and doors if they need to meet indoors. People should wear face covering around those at high risk.

“We have now reached the point where the mental health needs – the human needs – of being with loved ones and friends are so important,” said Dr. Karen Relucio, Napa County’s Health Officer. “We don’t want to tell people what to do. People have to decide individually whether to take this risk. “

The Chronicle’s author, Catherine Ho, contributed to this report.

Erin Allday is a contributor to the San Francisco Chronicle. Email: eallday@sfchronicle.com Twitter: @erinallday

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Main Central Banks Transferring at Totally different Speeds to Confront Inflation; Financial institution of Mexico Lifts Charges Once more

Sat, 18 Dec 2021 20:54:38 +0000

Nice day. The Federal Reserve, the Bank of England and the European Central Bank have embarked on different policy paths this week, underscoring how the central banks’ plans to phase out multi-billion dollar stimulus policies and aim for higher interest rates are developing at different speeds around the world with large economies that are with face an incomplete recovery while inflationary pressures mount. Meanwhile, the Bank of Mexico hiked rates again on Thursday, only this time it raised its overnight money target by half a percentage point to 5.5% after having raised it by quarter points at its previous four meetings. Latin American competitors Brazil and Chile have also hiked interest rates faster in response to rising inflation. In addition, the Japanese central bank has kept its monetary policy extremely loose earlier today and expressed minimal concern about inflation.

Now for today’s news and analysis.

Main Central Banks Transferring at Completely different Speeds to Confront Inflation; Financial institution of Mexico Lifts Charges Once more

Fri, 17 Dec 2021 14:40:44 +0000