NEW YORK: As condo closings loom, U.S. lenders could be at risk

Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th-floor condo on the south strip in Las Vegas. And in San Diego, Jeanette Graham would just like to meet the neighbors.

Their predicaments have a common thread that leads to Chicago and shares in Corus Bank, the lender that financed construction of the condo developments involved. Whether buyers like Miglin and Mills close on their units will be a crucial indicator for Corus and for other banks and real estate developers across the United States.

Many condo projects started during the real estate boom are just being completed, and developers must begin repaying loans taken out before the market turned sour. If buyer cancellations are high and developers struggle, lenders like Corus may be left holding the bag.

“Were at the riskiest point of the condo lending cycle as these projects are being completed,” Jefferson Harralson, a bank analyst at Keefe, Bruyette Woods, said. “In the coming weeks and months, were going to find out what the demand for these condos really are.” While most banks do not have the exposure to the condo market that Corus has, he said they still faced risk. Banks typically allocate an average of 15 percent of their loans to construction and the rest to consumer loans and other real estate.

Corus sbet heavily that thousands of buyers, many hoping to turn a quick profit, would snap up condos. Today, 93 percent of its outstanding construction loans - $3.78 billion of $4.1 billion - are in condos. Of that, about 33 percent is in projects in Miami and 9 percent in Las Vegas, according to regulatory filings. More than half of the amount - $2.15 billion - is due within the next year.

Across the country, the number of condos completed this year will be 45 percent higher: 232,933 compared with 160,239 in 2006, according data tracked by the real estate investment brokerage, Marcus Millichap. In the third quarter, overall sales dropped 46 percent in Las Vegas and 29 percent in Miami, according to Marcus Millichap. Sales nationwide dropped 12 percent through August.

“Up until this point, Corus has been relatively unscathed with essentially one foreclosure,” said Peyton Green, an analyst in the Nashville office of FTN Midwest Research Securities Corporation.

But investors have shorted about a third of the banks outstanding shares, expecting the price to decline. Shares have already dropped 24 percent in the last year. Corus said in its last quarterly filing that “a surge in buyer cancellations could be especially painful, particularly if a substantial percentage of a given projects presale buyers did not close.”

Still, the Corus president, Robert Glickman, expressed optimism. He said in an e-mail message that the success of the projects depended on “good developers - those that are diligent, successful - need to keep up the buyers interest and desire to close.” So far, he said, developers have used many successful strategies “to ensure that buyers come to the closing table.”

That optimism raises warning signs with analysts like Jack McCabe, a real estate consultant in Deerfield Beach, Florida. He has been hired by hedge funds and other investors to track 8 of 12 projects Corus has made loans on in Miami and advise them on their progress.

“In this market downturn, even the most successful developers with the best projects and the best geographic locations are going to take hits,” McCabe said. “Mr. Glickmans comments are eagerly overoptimistic and do not match the severity of this downturn.”

A Miami real estate consultanti, Lew Goodkin, said a number of buyers were hiring lawyers because developers were about to complete condos and buyers would be expected to come up with cash to close. “Theyre going to do everything they can to get their money back,” said Goodkin, who has been hired by institutional investors trying to short Coruss stock or buy up its loans at a discount.

Many buyers, he said, thought that they would be able to sell the contracts on the apartments at a profit and never close on them. That was what Miglin was trying to do before he realized he could not afford the monthly costs of the $391,000 apartment he bought at the Marina Blue project in Miami.

The 36-year-old Los Angeles-based computer consultant put down his deposit two years ago. A year ago, he hired his developer to sell the 46th floor apartment. But in August, Miglin advertised the condo on Craigs List, along with seven other Marina Blue sellers who were trying to get rid of their apartments.

LONDON: The chancellor of the Exchequer, Alistair Darling, is expected to cut the British economic growth forecasts for next year made by his predecessor - and now the prime minister - Gordon Brown when he presents his first prebudget report Tuesday.

But the Treasury chiefs spending update may also come with an electorate-friendly measure like a cut in taxes on home purchases or inherited wealth. Darling has said that the global credit crisis, sparked by U.S. defaults on subprime mortgages, will have an impact on the British economy. Darling is also expected to lift his borrowing forecasts.

“Weve been skeptical over the strength of the Treasurys forecast for some time, and given the credit squeeze there are even more downside risks,” said Philip Shaw, chief economist at Investec. “The chancellor is picking up the reins of the economy at a difficult juncture.”

Brown penciled in growth of 2.75 percent to 3.25 percent this year and 2.5 percent to 3 percent next year in his last budget as treasurer in March.

Economists said the 2008 forecast could be trimmed to 2.25 percent to 2.75 percent, bringing it closer in line with economists average predictions of 2.2 percent.

“Exports are vulnerable to a global slowdown, while at home business investment may be constrained by tighter credit conditions,” said Andrew Smith, chief economist at KPMG, a business services firm.

Slower economic growth will also make it difficult for the government to stick to its borrowing targets.

It had planned to cut its borrowing to 30 billion, or $61.2 billion, from 34 billion in the current fiscal year, a goal that now appears shaky.

The prebudget report comes as Brown struggles to defend his announcement Saturday that there will not be an election this year or next.

Analysts said that decision indicated that the government believed that the economy was not headed for a sharp slowdown, a potentially risky analysis given the current turmoil in markets. They warned that high levels of household and government debt could take a greater toll on the domestic economy than the Treasury anticipates.

DUBLIN: P. J. McGoldrick cannot live on land he owns five miles from his birthplace in County Sligo in the west of Ireland. He isnt local enough.

The former chief executive of the Irish budget airline operator Ryanair Holdings was denied permission to build a seafront cottage in Carrowdough. Local planners favor farmers from the immediate area when granting permits, thwarting McGoldricks dream of retiring to the place where he swam as a boy.

“I thought, My fathers turning in his grave at this, ” said McGoldrick, 67, whose relatives are buried in County Sligo. “We were devastated.”

Twenty-three agencies in rural Ireland are pulling in the welcome mat with locals-only laws that require potential house builders to have jobs in their areas or even to be fluent in Gaelic, according to the European Commission. Opponents of the rules say they unfairly deny people like McGoldrick the chance to enjoy the fruits of successes achieved elsewhere.

The commission, the European Unions executive agency, is examining the restrictions to determine whether they breach an EU treaty that grants citizens of member nations the right to settle anywhere in the region.

“Its unconstitutional in every way,” said Jim Connolly, a founder of the Irish Rural Dwellers Association, which is campaigning to change the rules. He estimated that about a quarter of all applications to build in rural areas were rejected under the criteria.

“Im hoping EU law will put an end to it,” Connolly said.

Seosamh OCuaig, a council member in County Galway on the west coast, is among those who favor the restrictions.

Many applicants are city dwellers who want to build second homes and that, he fears, would clutter up the countryside and cause house prices to rise beyond the reach of local people.

“This would open it up to every Tom, Dick and Harry with money,” OCuaig said. The agency he serves on, the Galway County Council, tests the Gaelic skills of prospective house builders in Irish-speaking areas, known as the Gaeltacht, to help protect the language and the culture.

Average house prices in Ireland have more than tripled to \301,267, or $424,515, since 1997, fueled by the fastest economic growth in the euro region. In the capital, Dublin, prices have almost quadrupled to \411,069.

The number of vacation homes doubled from 1996 to 2006, and now represent 2.8 percent of the housing stock. Local newspapers have popularized the term “bungalow blitz” in reference to the property boom.

A proliferation of detached homes in rural Ireland would overload power, sewage and road networks and make it more difficult to provide services to residents, according to the government.

Under guidelines issued in 2005, planners were told by the government to favor applicants who were an “intrinsic part” of the rural community, like farmers and other full-time workers. Consideration should also be given to the effect development in the Gaeltacht would have on the survival of the Irish language, the government said.

Dennis Lillis said the locals-only rules had kept him from relocating closer to his elderly mother. His request to build in Kilcarrig, County Carlow, was rejected in April, even though the plumber and his wife lived two kilometers, or 1.25 miles, away.

“I was born and raised a mile down the road,” said Lillis, 38. “Its disgusting that you cant build next to your own mother.”

In June, the EU asked the Irish government to explain the objectives behind the rules. The request was spurred by a complaint from an unsuccessful permit applicant in County Wicklow, on the east coast, where planners favor those who have lived in the immediate vicinity for 10 consecutive years.

“Citizens from other member states will very rarely be able to claim former residency or presence of family members,” the European Commission said in announcing its request. “Moreover, they may wish to pursue activities which do not fall within the limiting list” that allows access.

This isnt the first time the EU has questioned a countrys planning rules.

Austria was required to change its guidelines after joining the bloc in 1995. Previously, foreigners were not allowed to buy homes in the western region of Tyrol unless it was their main residence. Now all EU citizens, including Austrians, are barred from buying or building new vacation homes in Tyrol, which borders Italy and Bavaria in southern Germany.

Ireland responded to the European Commission on Sept. 28, according to a spokesman for the Department of the Environment, Heritage and Local Government. He declined to give details.