Posts Tagged ‘credit crunch’

Is Wind the New Oil?

Tuesday, September 22nd, 2009

114975-004-10ac61f4After investing $16 billion in wind turbines, the United States has overtaken Germany as the world’s largest wind-power generator.  Wind power accounted for 42 percent of new generating capacity last year, an increase from just two percent four years ago. The American heartland’s sparsely populated states — from Texas to the Dakotas — are the ideal locations for wind turbines.

The momentum for wind power is slowing, though, and in July, T. Boone Pickens – oilman and clean-energy entrepreneur – called off plans for the world’s biggest wind farm in Texas.  His planned 687 turbines, valued at $2 billion, are now in search of a new location because the necessary transmission lines could not be built.  Harnessing wind power requires extensive grid infrastructure, which involves a complicated and lengthy state and municipal approval process.

The credit crunch also has caught up with the ability of wind farms to come online.  Wind is a capital-intensive business that requires long lead times.  While 2008 was a good year for wind power and installations are still moving forward, a slowdown is anticipated as firms fail to obtain the financing they need to purchase additional turbines.

Wind capacity grew by 50 percent last year, according to the American Wind Energy Association (AWEA).  In 2009, growth is expected to be around 20 percent.  The AWEA notes that although 2,800MW of new turbines were installed during the first quarter, just 1,200MW came online in the second.

Boom Market for CRE Buyer-Users

Thursday, August 13th, 2009

In terms of commercial property investment, one positive sign is from firms buying properties to use for their own business operations.  Called user-buyers, these investors have proven they are able to get money from banks to spend on property acquisitions — a relative rarity nowadays.  Those who do not need a766981491_aa0ae36a4b loan already have earmarked their own funds for such a purchase, enabling these user-buyers to acquire a building despite the credit crunch and increasingly wary lenders.

Real Capital Analytics reports that the number of user-buyer transactions in the Philadelphia metro area, for example, rose between June 2008 and June 2009.  During that time span, 25 percent of the 40 office and industrial purchases completed in the region were by users.  Mike Margolis, president of investment sales at Professional Realty Advisors, states, “Considering users are generally 10 to 15 percent of the market, that’s a substantial increase.  “One of the most recent transactions was the acquisition of a 25,200-square-foot building in suburban Phoenixville by a Sheppard Redistribution Inc., affiliate.  The purchased property will be used by the firm for their daily operations.

Green Buildings Impacted by the Credit Crunch, Recession

Tuesday, December 23rd, 2008

The credit crunch and sluggish return-on-investment environment are impacting green commercial real estate development – and not in a good way.  Even on projects where dirt actually gets moved, it will be more difficult to incorporate sustainable design principles as companies become more cost conscious.  The greening of the workplace should pick up once again if the high cost and availability of capital eases during 2009.  Already, the Federal Reserve Board’s two half-point interest-rate cuts, which slashed the overnight Fed funds rate to one percent, are having a measured but positive influence. According to National Real Estate Investor magazine, the credit freeze is not the only stumbling block to green projects right now.  Moderating fuel prices, currently at their lowest level in four years, are making renewable power sources – such as solar and wind – seem expensive at a time when people want to save money.  Still, companies with a serious commitment to green principles are motivated by a willingness to minimize their carbon footprint and conserve resources, rather than to just save a few dollars on utilities.

The bad news for sustainable-design proponents is that the recession may frustrate the federal government’s plan to offer tax credits to promote green design.  The reason is that tax credits cut a company’s tax bill; they offer little motivation to firms whose earnings are likely to be flat or suffer net losses during 2009.  Looking on the bright side, the credit crunch may stimulate awareness of sustainability by businesses looking for ways to control expenses over the long term.

The economy shouldn’t put green in the tank, and people should recognize that deflation is always temporary.  The options and futures market will bring energy costs up again.

Economy Grows 3.3 Percent During 2Q

Wednesday, September 3rd, 2008

Contrary to the recent grim news about home foreclosures, bank failures, the credit crunch, rising unemployment rates, soaring oil prices, inflation and stock-market jitters, the United States’ economy — surprisingly — grew by 3.3 percent during the second quarter of 2008.

The economy grew at its fastest pace in nearly a year, thanks primarily to foreign buyers purchasing inexpensive U.S. exports, as well as the tax rebates that sent Americans on a shopping spree.

According to Commerce Department statistics, the GDP increased at a 3.3 annual rate from April through June.  This revised statistic represents a significant improvement over the initial 1.9 percent estimate, and exceeded economists’ expectations of a 2.7 percent growth rate.

The rebound was welcome news after two grim quarters.  The economy contracted during the last three months of 2007, and registered a feeble 0.9 percent growth rate during the 1st quarter of 2008.  Spring’s 3.3 percent performance was the best result since the third quarter of 2007, when the economy grew by an impressive 4.8 percent.

Still, the good news is something of a fluke.  The economy is still quite fragile, according to Federal Reserve Chairman Ben Bernanke, who recently warned that the weakness will remain throughout 2008.  Analysts expect the economy to hit another pothole during the 4th quarter, once the glow of the tax rebates dims.  Additionally, exports could decline if other nations experience similarly slowing economies.

Add presidential politics into the mix.  Democratic nominee Barack Obama favors a second government-stimulus package, while Republican John McCain supports free trade and other business measures to energize the economy.  With less than two months remaining until the election, the candidates are certain to have a lot more to say on how they plan to energize the economy.

2nd Quarter 2008 Economic Update

Friday, August 1st, 2008

The 2nd quarter of 2008 ended with a slight economic rebound – an extremely lethargic one – that raises new fears of a recession.  The Commerce Department reported that the GDP increased at an annual rate of just 1.9 percent from April through June.  Although an improvement over the feeble 0.9 percent reported during the 1st quarter, the number was not as positive as the 2.4 percent increase that economists had predicted.

While any improvement is a welcome sign, the increase also indicates the fragile nature of the economy.  The numbers indicate that the recent income-tax rebate stimulus package did not work the magic that the government expected.  This news only leads to fears that the economy will remain unstable for the rest of the year, further curtailing capital expenditures by corporations and lengthening the credit crunch.

According to the federal government’s annualized revisions, the GDP actually contracted by 0.2 percent during the last three months of 2007.  That reflects the negative impact of the ongoing housing slump – the worst in 26 years – and cautious consumer spending because people are wary of purchasing big-ticket items just now.

It’s true that consumer spending rose 1.5 percent during the 2nd quarter, an improvement over the 0.9 percent reported during the 1st quarter.  This was the best showing since the 3rd quarter of 2007, when the economy was still performing strongly despite the housing slump.