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Chuck McNeal, Chief Executive Officer for The Group, Inc.

Real Estate Projections

Home values are holding well overall, says Chuck McNeal, chairman and chief executive officer of The Group Inc. Real Estate. “Compared with last year, and using the Office of Federal Housing Enterprise Oversight (OFHEO) figures, quarter by quarter we actually had a positive appreciation. For one year, Fort Collins and Loveland are only down nine-tenths of one percent so values are holding pretty well.” The figures also include Windsor, since it is considered a Fort Collins market.

“If you look at the U.S. as a whole, prices dropped about eight percent, so it is truly better here. The reason for that is we didn’t have the big run up in prices in 2005 and 2006 like most places.”

Greeley, on the other hand, was hit a little harder. “Greeley was the first market to start to suffer in Northern Colorado. Some say it will be one of the first to come out, as well. For about five years, it was at almost negative 6.5 percent.”

From 1999 to 2003, Greeley was one of the fastest growing metropolitan statistical areas (MSA) in the U.S., McNeal says. “That led to an overheating of the market in terms of pricing, creating pressure for prices to come back down.”

That is not necessarily bad news. “What this is creating is tremendous affordability in our market right now, the best we’ve seen in decades, with low interest rates. So, especially for the first-time home buyer, it’s an ideal time to buy.”

REO (Real Estate Owned properties) represent foreclosures. Fort Collins figures include the Winsor area. Figures courtesy of The Group, Inc.

The foreclosure rates have slowed somewhat locally and nationally, adds McNeal. “It’s a little deceptive because there has been a moratorium from the government on foreclosures, which has slowed the rate down. However, the moratorium is being lifted, so we can expect the numbers to come back up again.”

Of the homes sold in Fort Collins in 2008, only 12 percent were foreclosures or real estate owned (REO) and eight percent were short sales – those sales negotiated at a lower price so they would not go into foreclosure. Loveland’s 2008 numbers reflect 21 percent foreclosures or REOs and about 8 percent short sales.

“Greeley was a very different picture with 52 percent foreclosures and 7 percent short sales,” he says. “That’s the bad news. The good news is there is a very hectic market for these foreclosed homes. They sell quickly and they usually have multiple offers. For those who have patience, it’s a good time to buy.”

Mortgage loans are available, McNeal says, and interest rates are close to an all-time low. “They’re under five percent now and our prediction is that will persist throughout this year. One of the first things you will notice as the country begins to climb out of the recession is that the rates are artificially low.”

More good news for the first-time buyer, says McNeal. “We’ve seen a big resurgence in FHA loans. They require 3.5 percent down and have looser qualifications. Our mortgage company typically gets only five percent of our business from FHA. Now it’s over 30 percent, which is common across the industry.”

There is also a good inventory of higher priced homes being sold at a reduced price. “The government is also being encouraged to open up credit lines on ‘jumbo’ loans to increase the number of higher priced homes that are selling.”

New homes are at a low point, McNeal says. “Buyers are extremely cautious and there is some inventory that needs to be absorbed. Greeley is in a better situation for new homes since they have a lower supply and good demand. Builders aren’t sitting on as much inventory in Greeley. In Fort Collins, Loveland, and particularly Windsor, builders are sitting on them. But,” he predicts, “lending to builders may loosen up. One area where builders will still feel tightness is in commercial lending. That is a tough area.”

As people look to sell, the old standby comes to play. “What we’re really seeing, more than at any time I can remember in my career, is the hyper-locality of the market. We always talk about ‘location, location, location,’ and that’s true now more than ever. You can’t really look at the market as a national whole or even at all of Fort Collins or Loveland. You have to look down at a neighborhood level to get a good picture. Some neighborhoods are holding steady and appreciating. Other neighborhoods are still seeing foreclosures and they are in the buyer’s favor.”

Understanding how to position yourself in the market can be difficult. That is why it is important to work with a Realtor who understands absorption rate, says McNeal. “That will give you bargaining power. If you understand that, you can price your home in such a way that it will sell.”

March 2009 unemployment rates: Greeley 10.2%, Fort Collins 7.7%, Loveland 5.9% Figures based on March 2009 Bureau of Labor Statistics. Windsor figures unavailable.

Northern Colorado Employment

Job losses in Colorado have been widespread throughout the state. The past year’s cuts have been most pronounced in the professional and business services sectors, with over 27,000 jobs lost, followed by almost 22,000 jobs in the construction trades, according to the Colorado Department of Labor and Employment.

There is good news for Northern Colorado, according to a report recently released by Colorado State University’s (CSU) Office of Economic Development. The report, authored by CSU associate professor of economics Martin Shields and research economist David Keyser, says despite rising unemployment, the region is still adding new jobs. The report uses information from Bureau of Labor Statistics surveys which indicate, as of July 2008, Northern Colorado’s employment totals grew about 2.3 percent from the prior year, registering faster than the state’s 1.3 percent rate from the same period.

Those statistics translate to almost 5,000 new jobs created in Northern Colorado. Based on their findings, the authors project Larimer and Weld counties will add a net of 4,200 additional jobs in 2009. For 2010, they are predicting a 2.1 percent increase in total Larimer and Weld County employment.

Good news aside, Fort Collins, Greeley, Loveland, and Windsor have all experienced some reduction in jobs and continue to look for ways to offset losses.

Fort Collins Mayor Doug Hutchinson

Fort Collins

“Job loss is not a new phenomenon for Fort Collins since the 9/11 timeframe and the tech industry crashing. That hit Fort Collins hard for several years, the high-tech in particular. It is something we’ve tried to recover from continuously,” according to Darin Atteberry, Fort Collins City Manager.

On the other hand, Atteberry says, there has been some offset. “We’ve benefited from several successful businesses and government jobs – CSU, Poudre School District, Poudre Valley Health System, the Center for Disease Control. Although we are continuing to see layoffs, I look at how we are doing relative to our peers across the nation. My mantra is when you think it’s bad in Fort Collins, look around the rest of the country.”

Fort Collins isn’t idly standing by, says Atteberry, listing their strategies for bolstering the job market and the economy in general. “First, how do we retain and help existing businesses expand. Second, how do we incubate and help grow businesses that spin off new ideas coming out of the University and from entrepreneurs. Third, how do we attract those who are looking to relocate.”

Mayor Doug Hutchinson adds, “The City’s role in economic health is to be proactive, creating an environment where businesses and entrepreneurs can succeed. Jobs are created when we support and encourage companies like the new Enterprise Rent-A-Car claim center, which will create 120 jobs initially and up to 240 in the next two years. That was the result of an 18-month-long effort that was a partnership between Northern Colorado Economic Development Corporation (NCEDC), the City, and Enterprise.”

Creating that environment means looking at what barriers exist and what the City can do to help, Atteberry says. “Since Doug has been in office, he and I have visited over 100 businesses in their work sites, checking in, and learning what we can do to help them. So when something does come up, they have that contact.”

Greeley Mayor Ed Clark

Greeley

According to Mayor Ed Clark, Greeley is focused on moving forward during this challenging economy. “We have a good city, city manager, and city employees. There are many on Council who work hard to make Greeley a better place. We struggle like other places, but we are in a better position because we’ve worked hard to be fiscally responsible. We’re not laying people off and have kept 55 jobs open. We’re trying to do more with less.”

Greeley has not experienced major job cuts, says City Manager Roy Otto. “We obviously have a large commuter population, so we’re not seeing huge losses.” But he does point to the relocation of Crop Production Services and the closing of New Frontier Bank, which left approximately 250 people unemployed.

Otto says there are some positive things in the works to offset those losses. “One of the biggest potentials is Leprino Foods and that will provide a $5 million investment in our community over a 4 to 5 year period.” The facility is expected to open in 2011 and could provide 500 jobs.

“We have a number of businesses interested in the area. One is in the energy sector with a $100 million investment and up to 250 jobs. Another, in construction building materials, is doing due diligence right now and could mean another 80 to 100 jobs.”

Bruce Biggi, Greeley’s economic development manager adds, “There are a couple of recent retention businesses that could be adding additional jobs and a couple firms with national significance thinking about expansion. We also have a firm in the animal science area that hopes to lock a major contract with a national retailer that could double their workforce.” The City is honoring confidentiality and will let those firms do the announcements, adds Biggi.

The City has partnered with Upstate Colorado Economic Development, Biggi says. “As a result of that partnership, we often do orientations with people interested in this area.”

Greeley officials are very interested in new or renewable clean energy technologies, Otto says. “We realize our strength in agriculture and agribusiness, but also recognize the growing importance of renewable energy. We want to combine the two and we’re working on a strategic plan that includes renewable energy as a sub-element.”

Loveland Mayor Gene Pielin

Loveland

“We are very focused on jobs. That has been our primary focus since I’ve been on Council and I didn’t see any reason to change that when I became Mayor,” says Gene Pielin, who is in his tenth year on City Council and his second year as Mayor.

Jobs translate into a healthy, happy community, Pielin says. “We feel if our citizens are earning a livable wage, they will be satisfied citizens. That is an oversimplification, but it is what we’re working toward.” His outlook for the future is positive. “We are very business-like in nature and feel we’re business friendly. We want to keep our primary employers here and we want them to grow.”

Rod Wensing, Loveland Assistant City Manager, says, “From a loss standpoint, there have been layoffs in the larger businesses, such as Agilent and Woodward Governor, and we’ve seen some in the smaller businesses. We’ve also had new employment both in 2008 and 2009 and have offered incentives in both years. Those have involved Colorado vNet, Ensign Power Systems, KL & A Engineering, and Jax Outdoor Gear. We also worked with Blue Ribbon Auto Body in town.”

Through those arrangements, 150 jobs were retained, Wensing says. “So far in 2009, we’ve worked with three specific companies – Lightening Hybrids, Tharp Cabinets, and Orthopaedic Center of the Rockies. With those in the hopper, we’ve retained 90 jobs and have the potential to add another 415 jobs.”

Incentives offered vary, Wensing says. “Each company is different so it may mean lower fees, or a sales tax rebate or sharing, or could be backfilling of some community expansion fees (CEFs).”

The community benefits in the long run, he adds. “In 2008, the incentives for those businesses was about $1.3 million dollars in local incentives but that leveraged $13 million in private investment which is about 10 to 1. So far in 2009, about $550,000 in local incentives from the City has leveraged private investments of about $17 million. Expansion fees of about $430,000 were deferred to a later date for the Orthopaedic Center of the Rockies and, as a result, they will invest about $12.6 million.”

For the future, Wensing says Loveland is looking at existing businesses and how the City can provide business assistance with incentives. “It’s not about giving cash to the companies but about meeting their needs in different ways to assist a particular business and, at the same time, maximize the benefit to the local community.”

Windsor Mayor John Vazquez

Windsor

Shortly after John Vazquez was elected mayor, the May 22, 2008, tornado hit Windsor. Since then, the community and the Town Board have rallied. “We’ve done amazing things. In addition to recovering, we have done well with budget and reduced our projections in light of the economic downturn. We’re fortunate because we are still seeing businesses come to Windsor. We’ve seen an increase in our total assessed value. Homes in other communities lost value, so property taxes were lost. Because we’ve had new growth and new industry coming into town, even though there was a reduction in some of the property values, we had an overall increase.”

Kelly Arnold, town manager for Windsor, says one hard hit coming is Kodak’s reduction of its workforce from 700 to 400 employees in the next six to nine months. “The flipside is that Vestas is going through their next addition phase, so that will add 150 to 200 employees. Hexcel Corporation will open its manufacturing plant by mid-June. That will add 100 new employees as they open and another 100 later on. We will have some fallout, but on the whole, Weld County is looking pretty good.”

On the small business side, says Arnold, many struggled after the tornado but seem to be bouncing back. “We’ve had some attrition in the small service sector and lost a couple of restaurants, coffee shops, and other service oriented businesses. But because of our location, we don’t anticipate any other significant economic hits,” he says. “Maybe the new norm is flat and that’s okay. One of the challenges Windsor has, as does the rest of the region, is how are we going to infill what has left in this economy. How will we fill the empty storefronts?”

The 2008 tornado wasn’t all loss for Windsor. “We almost have our own local stimulus package because of the rebuilding that’s resulted. We have several government projects, for example, rebuilding the Chimney Park ballpark facility and a $3.5 million repair and renovation to our town hall. That will cement the current town hall in its current location and make it a more sustainable location for the future. We are starting a brand new $4 million police facility in August. We look at this as an opportunity to get some of these needed local projects done while we have the revenue. The construction costs are favorable and that will lead to a local economic stimulus of our own.”

Sales and Use Taxes

Many Colorado municipalities rely on sales taxes to support general fund items. In Northern Colorado, purchases are down and, as a result, sales and use taxes have decreased. Sales tax varies from city to city, with local governing bodies setting the pace and proposed increases going to the voters. In Fort Collins, the sales tax is three percent and 2.25 percent on food. In Greeley, the sales and use tax rate is 3.46 percent. Loveland is at three percent and Windsor at 3.2 percent. In each case, at least 50 percent of the general fund relies on sales taxes and all of the municipalities have seen change. How are these local cities faring?

Fort Collins

“Comparing the first quarter of 2008 to the first quarter of 2009, we show 3.5 percent decrease,” says Mike Freeman, chief financial officer for the City of Fort Collins. “People are not buying large ticket items – vehicles, furniture, and new technology. Some areas are doing fine, for example, restaurants and grocery. It’s really the discretional spending that is down.”

Freeman expects to see increases later in the year. “Based on the trends we’ve seen and what we’re seeing nationally, I think we’ll have some improvement in the third and fourth quarter. At some point, people will start buying the large ticket items again and there will be an improvement in retail sales in general.”

For use tax, Freeman says Fort Collins is down just under 20 percent in the first quarter compared to last year. “The big factors are use tax paid on vehicles and building materials, and use tax related to development.” Sales and use taxes make up 50 percent of the general fund, he says. Overall, “we’re projecting a down year and we don’t see anything on the horizon that will change that at this point.”

Greeley

In Greeley, just under 50 percent of the total general fund revenue is sales and use tax, says Timothy Nash, finance director for the City of Greeley. “We only have two months of results for this year and that shows total sales and use at 5.09 percent below last year at this same time. It’s hard to tell if it will change, but I’m not seeing anything that would cause me to think it won’t continue that way.”

Nash says, however, that of the total decrease, retail sales tax collections in Greeley are only down 2.81percent. Building permit sales are down by 68.7 percent, the greatest part of the drop.

Loveland

In Loveland, sales tax represents 58 percent and use taxes around seven percent of the total general fund revenue, according to Renee Wheeler, assistant city manager and finance director for the City of Loveland.

“Sales and use tax combined last year through March came to $8.8 million. This year, the figure is $8.5 million. It’s just the state of the economy,” she says. “We’re lucky we’re only down that much. We’ve been tracking on the retail side about 5 percent below the previous year and about 11 percent below budget. By the end of the year, we’re projecting $3.8 million shortfall of what we budgeted for total sales and use tax.”

Loveland is prepared, however. “Of the 3.8 million shortfall in the general fund, we have $1.9 million we will get from cost saving reduction strategies and the other $1.9 million we expect to get from our undesignated fund balance.”

Projections for the future are very conservative, she says. “We are projecting no increase in 2010 and have actually thrown in 1.5 percent increase in 2011 over 2010. Then, we’re hoping that, in 2012, we’ll see a 3 percent increase.”

Windsor

Windsor has fared somewhat better than its counterparts, says director of finance Dean Moyer. “Sales tax revenues compared through the end of March, year over year, show a change up 4.75 percent over last year. It’s not as much of an increase as other years, but it’s still good. For March alone, we are up 1.43 percent over March of last year.”

“Use tax reports are not quite as happy,” Moyer says. “For the first quarter, we’re only behind $10,000 from last year. Industrial permits are keeping us close. There’s a trickle of single-family homes, but not as many as in years past.“

The sales tax hasn’t changed because it is necessity based, he says. “Ours comes from grocery stores and restaurants. For a long time we were lamenting that we didn’t have a retail complex, but now the fact that we don’t means we’re not seeing the decreases and we’re not dependent on retail. We are still strong because people still need to buy groceries and eat.”

“Use tax is harder to predict,” he says. “Even when we were doing a lot of homes and a lot of permits, it was hard to forecast what we would do each year. I don’t see the housing market picking up quickly. Industrial and commercial will depend on the economy at large.”

From trends in real estate to potential new employers, Northern Colorado has the good fortune of being somewhat isolated from the worst of the slumping national economy. City officials in Fort Collins, Loveland, Windsor and Greeley remain decidedly optimistic as we move deeper into 2009 and hint there may just be a bit of good news in the third and fourth quarters of this year.