Bond Program Expanded To Aid Contractors

(NAPSI)-There’s good news for small construction or supply companies that require a completion bond–also known as a surety bond–to bid on a project.

As part of the American Recovery and Reinvestment Act, the Small Business Administration (SBA) can temporarily guarantee bonds on contracts of up to $5 million for small businesses that might not otherwise be able to obtain such bonds.

A surety bond guarantees a company will fulfill an obligation to another party–such as work to be done or goods to be delivered under a contract. In the event the company does not fulfill the contract, the bond is supposed to cover the other party’s losses.

For more than 30 years, the SBA’s Surety Bond Guarantee program has helped small and emerging contractors who have the knowledge and skills necessary for success but lack the combination of experience and financial strength to obtain bonds through regular commercial channels.

The SBA guarantees bid, performance, ancillary and payment bonds issued by surety companies to small and emerging contractors and reimburses the surety a percentage of loss if the contractor defaults.

The agency does not directly bond a contractor. Instead, the contractor chooses a bonding agent, and the SBA reimburses the bond writer between 70 percent and 90 percent of the costs incurred if a contractor defaults.

This government guarantee allows sureties to write bonds for contractors who would not otherwise meet their minimum standards–thus providing small and underserved contractors with contracting opportunities for which they would not otherwise qualify.

In addition to meeting the bonding company’s qualifications, a business must qualify as a small business. This means a company must meet the SBA’s definition of a small business.

The SBA has also implemented another provision of the Recovery Act that would allow it, in some cases, to guarantee bonds in contracts of up to $10 million.

For more information, visit http://www.sba.gov/financialassistance/borrowers/surety/index.htm or call (800) U-ASK-SBA.

“It’s a much more difficult question,” said Shiloh Ballard, who, on behalf of the Silicon Valley Leadership Group, shepherded the two-year effort alongside the Santa Clara County Cities Association. “How do you determine whether an applicant has met green building requirements?”

The guidelines adopted by all 15 cities do not mandate green building standards, but they do set the process in motion by requiring all municipal buildings to achieve Leadership in Energy and Environmental Design, or LEED, standards. For commercial buildings there are LEED guidelines for commercial buildings and builders are required to fill out “green” checklists to become educated about the process.

Green building is not a hard sell in the environmentally conscious Bay Area. But another reason to adopt the same set of standards countywide is that it’s better for builders if all cities follow the same consistent guidelines.

“We hear that having different flavors of green standards is not helpful,” said Joe Horwedel, head of San Jose’s Planning Department. “We adopted LEED for commercial and Build It Green criteria for residential and decided not to come up with our own San Jose standards.”

Whereas policymakers are comfortable with the idea of adopting green building standards, they are wary of pushing the building industry too far. As Ballard pointed out, there is a “lot of trepidation” on the part of builders.

“The entitlement process is already complicated enough,” she said. “Now we’re overlaying another set of rules that staff is not necessarily trained to do. We advocated that cities be flexible and understanding.”

Verification controversy

Many, but not all, cities support independent verification of a structure’s green building features.

Breene Kerr, a Los Altos Hills councilman and environmental consultant, has created a Web site featuring a central database illustrating each city’s requirements. As a green point rater, certified by Build It Green, he’s a believer in third-party verification.

“I object to watering down (the requirements) and letting the homeowner or builder check it off,” Kerr said.

Yet those who support submitting certification to the U. S. Green Building Council, which created the LEED guidelines, know it can take months for the council to process the documents and issue the coveted certificate. The backlog is reportedly into the thousands. That plays havoc if a city decides to require LEED certification before issuing an occupancy permit.

“There is tension between different folks,” Ballard said.

But if cities decide their planning departments must verify, they must have the resources to train staff, tough during an era of extreme budget cuts. Horwedel said he still has some funds for training, but recently lost half of his environmentally trained staff during three rounds of layoffs this year.

The third option — allowing builders to check a list — was dismissed by Ballard as akin to “the fox guarding the henhouse.”

Carrot over stick

Tony Mirenda, president of TBI Construction Inc., said he believes builders would be more likely to support incentives to build green than they would mandates. He supports requiring a minimum level of green features, but to encourage builders to aim higher, offer a carrot, he said.

“It is very interesting to see that nearly all of the cities offer no sort of incentive,” he said in an e-mail.

Ballard agrees that such suggestions are worth exploring, adding that now that everyone is moving in the “same direction,” it’s time to “raise the bar.”

In the meantime, she is working to expand the project to all cities in San Mateo County and eventually to the entire Bay Area. Yet she is realistic about the actual impact of everyone’s efforts given the fact that building is currently at a standstill.

“Even if all the cities adopt (the next phase) tomorrow — that’s great, but there’s very little to evaluate,” she said. “There’s not a whole lot of building going on.”

Green building by the numbers:

• 40 percent: Amount of all carbon dioxide emissions in the country from buildings, according to the Environmental Protection Agency

• 2 percent: Extra cost to builders to incorporate environmental standards, or about $3 to $5 a square foot

• 20 percent: Amount saved in operating costs over the life cycle of the building

It was the lowest sales pace since April and followed months of steadier sales boosted by the tax break that was set to expire on Nov. 30.

Buyers would have had to sign a contract on a new home by early October at the latest in order to receive the original tax credit, which was ultimately extended until June and expanded to include repeat buyers.

New home sales are recorded when a contract is signed, not at closing, as existing-home sales are. On Tuesday, the National Association of Realtors reported that resales popped 7.4% in November as buyers rushed to complete sales ahead of the deadline.

“The housing recovery is far from becoming self-sustaining,” wrote Anna Piretti, an economist for BNP Paribas. “The current rebound remains very much dependent on government support.”

November’s sales were far weaker than the 421,000 expected by economists surveyed by MarketWatch. See our complete economic calendar and consensus forecast.

October’s sales pace was revised lower to 400,000 from the 430,000 earlier reported.

Sales were down 9% compared with last November. Through the first 11 months of 2009, 349,000 homes had been sold, down 24% from the same period a year ago.

Government statisticians have low confidence in the monthly report, which is subject to large revisions and large sampling and other statistical errors. In most months, the government isn’t sure whether sales rose or fell. The standard error in November, for instance, was plus or minus 11%. Read the full government report.

The government says it can take up to five months to establish a new trend in sales. Over the past five months, sales have been on a 395,000 seasonally adjusted annual pace, down slightly from 404,000 in the five months ending in October.

Home builders continued to slash their inventories of unsold homes. The number of unsold homes dropped 2.1% to 235,000, the lowest in 38 years. The number of homes for sale that are under construction or not yet started fell to a record low.

Builders have cut back on production of new homes, but still face stiff competition from unsold existing homes as foreclosures continue to mount up.

At the November sales pace, it would take 7.9 months to sell the inventory, up from 7.2 months in October.

Once a home is completed, it’s taking 13.6 months to sell it, a reflection of the mismatch between the more expensive homes in the inventory and the lower priced homes that have been selling.

Very expensive homes did sell better in November, however, with the market share of homes costing more than $750,000 rising to 5% from 2% in October. Forty-five percent of sales were for less than $200,000 and 76% were for less than $300,000.

The median sales price of a new home sold in November was $217,400, down 1.9% in the past year.

Sales fell in three of four regions, led by a 21% drop in the South to a 19-year low. Sales fell 9% in the West and 3% in the Northwest. Sales increased 21% in the Midwest.

In a separate report, the Commerce Department said income from wages and salaries rose a seasonally adjusted 0.3% in November, pushing total income growth to 0.4%. Real spending increased 0.2% in November. See full story on the income and spending data.

Also, consumer sentiment improved slightly in December, but consumers are still anxious about their own finances, according to the University of Michigan/Reuters survey released Wednesday. See Economic Report on consumer sentiment.

Rex Nutting is Washington bureau chief of MarketWatch.

While we at the California High-Speed Rail Authority don’t second-guess the will of the voters the way Jon Coupal seems to – instead we make it our mission to carry out the will of the voters – we actually agree with the position of the taxpayer advocate who doesn’t want a single cent of the taxpayers’ dollars wasted. We want to ensure that the $9 billion voters decided to put toward the construction of a high-speed rail system is not wasted and is used to its fullest effect. And in fact we have a plan to grow that $9 billion into the $42.6 billion needed to construct the project.

So, in that light, let us run through a number of reasons we think taxpayers would be pleased at the approach taken by the High-Speed Rail Authority.

First, investment in infrastructure is good for our economy. Without a doubt, putting money into brick-and-mortar construction creates jobs and spurs economic stimulus. In the case the of the high-speed train project, a conservative estimate shows we’d create 600,000 construction related job-years over the life of the project’s construction and 450,000 permanent jobs thereafter. The benefits of $43 billion pumped into our economy cannot be overstated.

Which brings me to the second point: it should be noted that California will put up only 25 percent of the cost of this project, but will reap 100 percent of the benefits. One hundred percent of the jobs, 100 percent of the assets, 100 percent of the environmental benefits will be in California, despite the state having put up only 25 percent of the capital. Any business person or taxpayer advocate would say this is a good deal for the state.

Third, our state needs additional modes of transportation to maintain our economy. It’s vital to our continued economic strength, and in order to keep our economy humming over the next two decades as our state’s population swells by a third to 50 million residents, we must be able to move goods and people throughout the state more efficiently than we are able to today. That means more roads, or it means more airports, or it means alternative modes of transportation. High-speed rail is the most cost-effective mode of transportation to construct and maintain, and it will carry enough people such that it will reduce the need to add lane-miles to freeways or departure gates and runways to airports.

Here’s something else that we know Jon Coupal would be laudatory of: the high-speed rail project’s business plan calls for a reliance on contractors, rather than on state public employees. Now, that makes good sense for our project, as it will move through several phases that require expertise in certain areas only for a finite period of time; it makes more sense to hire environmental planners only for the environmental planning phase rather than bringing them on as state staff and then being forced to find work for them after the environmental planning for the project is complete, for example. But it also means the state is getting a better bargain for its dollar. Contract language and risk management mechanisms ensure that taxpayers are getting what they asked for, on schedule, and for a better deal than if the state itself was managing the project.

Lastly, unlike highways or airport runways or any other mode of transportation, the high-speed rail system will pay for itself and require no government subsidy for its operation. Whether that means a ticket to ride it from San Francisco to Los Angeles will cost $50 or $150, we’ve shown that the system will produce a profit. The actual price of a ticket won’t be decided for several years (heck! we don’t even have a single shovel in the ground yet, much less a ticketing operation!) but under a number of scenarios we can see that the system will generate revenue, just as high-speed rail systems do around the world. We can’t understand why the Howard Jarvis Taxpayers Association wouldn’t be applauding that.

What’s more – and contrary to Jon Coupal’s assertion – tremendous momentum is building for high-speed rail in California. Voters last November said yes to high-speed rail, then two months later we got a president who strongly supports high-speed rail to the degree he included $8 billion for its development in the American Recovery and Reinvestment Act and advocated for a continuing appropriation for its construction. Congress has put its support behind high-speed rail construction. Private companies and other countries that have high-speed rail have been beating down California’s door to be part of our project – because they know it will be successful and they know it will generate revenue.

At the High-Speed Rail Authority, we’re keeping our sights focused on carrying out the will of the voters of California – and that means creating jobs and improving our state by responsibly and transparently building a desperately needed transportation alternative.

Tom Barr is no stranger to developing homes in northeast Springfield.

Barr developed the 100-lot Pearson Meadows subdivision in 2004, where all lots were sold in about 18 months.

The success of that development led Barr to spearhead a second subdivision in the same area – the 155-lot Pearson Park.

Barr’s latest project, however, is not moving as smoothly as his previous efforts.

Construction begins on four speculative homes – those without buyers in place – at the site next month.

But the lackluster economy and banks’ reluctance to make loans – especially for spec building – mean Barr is expecting a much slower build-out in Pearson Park, where lots start at $39,000.

“Where we were able to sell 100 lots in a year and a half before, the number of lots sold per year now will be a lot less – we’ll be lucky to build and sell 20 houses a year,” said Barr, who is developing Pearson Park with Brian Willaby of Richland Homes.

“The challenge is that the banks aren’t making construction loans to a lot of the people they dealt with in the past, and the demand is down for new construction and developed lots,” Barr added.

Barr is not alone. Several developers have started new subdivisions in southwest Missouri in the last year, and nearly all say they face the same issues: slow demand for new homes, lack of lender support and market uncertainty.

“I don’t think we’ll see building where it was a few years ago,” said Branson Realtor Gary Coder with Gary Coder Properties.

Coder is the listing agent for Jay Sneed’s 101-lot Pinnacle Shores subdivision near Kimberling City.

There are 92 lots ranging from $45,000 to $250,000 still available in the Pinnacle Shores development.

Waiting on banks

While buyer uncertainty still plagues the market – interest in the development is “hit and miss” from day to day – tighter lending makes the situation more precarious, Coder said.

“Our banks down here won’t loan anything for spec homes,” he said. “If it’s a custom construction loan, that’s one thing, but with spec homes, I don’t know if there’s a banker down here that will even talk about it.”

Bankers view custom homes more favorably because they are built to the specifications of an identified buyer.

Bob Hammerschmidt, Springfield region president for Commerce Bank, agreed that banks have tightened lending practices, especially on speculative projects. He said the change is due to a combination of lack of available liquidity – most banks have loan-to-deposit ratios of more than 100 percent, meaning money is scarce – and lender concerns about market stability.

“On a lot of speculative building loans, there hasn’t been enough equity, and that’s getting more scrutiny now,” Hammerschmidt said. “I think lenders are considering not only probable scenarios but the worst case, and they’re worrying about the builders’ staying power to weather what will probably be two more years of economic downturn.”

Fast change needed

Developer Jack Stinson hopes that, regardless of whether it comes from banks or from increased customer demand, the market turns soon. Stinson is in the early stages of developing Kelby Creek in Nixa. No lots have been sold in the 109-lot development, where lot prices range from $39,900 to $69,900, because the developer is awaiting approval of the final plat.

Stinson said in addition to banks loosening their hold on their money, the market needs to finish cleaning out its existing inventory.

“We have a lot of inventory sitting around that banks have taken back, that builders are getting rid of at a discount, and (new homes) can’t compete with that,” Stinson said. “But once that inventory gets eaten up, it creates a chain reaction. The people in those $150,000 homes will move up and buy something a little nicer. But you have to get rid of the excess inventory first.”

But once existing inventory is culled, Coder is concerned that restrictive lending practices will hamper builders’ efforts to meet market needs when the economy improves.

“The second this thing does turn – and I see it rounding the bend right now, because there’s more confidence (among) buyers than there was in January – we’re going to have a shortage because there’s been no spec homes put on the books in six to eight months,” he said.

The building’s owners, leasing agents and architects said Wednesday that they are literally taking environmental sustainability to new heights with a $350 million retrofit of the 1970s-era modernist building — and the turbines are only the tip of the transformation. The plan, to begin immediately, aims to reduce electricity use in the tower by 80 percent over five years through upgrades in the glass exterior, internal lighting, heating, cooling and elevator systems — and its own green power generation.

In such a huge tower, with 4.5 million square feet of office and retail space, 16,000 windows and 104 elevators, the project is bound to be one of the most substantial green renovations ever tried on one site, planners said. The Sears Tower is significantly larger than the 102-story, 2.6-million-square-foot Empire State Building, for instance, which is also undergoing renovation to reduce energy consumption.

“If we can take care of one building that size, it has a huge impact on society,” said Adrian Smith, an architect whose firm designed the Sears Tower renovation. “It is a village in and of itself.”

Buildings are among the world’s largest contributors of greenhouse gas emissions. After the retrofit, energy savings at the Sears Tower, which is to be renamed the Willis Tower this summer, would be equal to 150,000 barrels of oil a year, officials said. The savings are expected to help redeem some of the project’s cost, which is to be financed through private equity investment, grants, debt financing and government funds.

The Sears Tower plans to open a first-floor center to educate the public about the redesign, and hopes to serve as a model for other aging skyscrapers around the world, officials said.