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Even as Hawaii basks in the glow of native son President-elect Barack Obama, its hotel industry is beginning to feel the pinch of the global financial crisis.

High fuel prices earlier in the year, the bankruptcy filings of Aloha Airgroup Inc. and ATA Airlines Inc., which previously served the region, and the nationwide slump in consumer confidence has slammed Hawaii’s tourism industry. It welcomed 9.3% fewer visitors this year through September compared with the year-ago period, according to Hawaii’s Department of Business, Economic Development and Tourism.

Honolulu-based Outrigger Enterprises Group, which has full or partial ownership in or manages nearly 8,000 hotel rooms in Hawaii, pulled the plug recently on a $40 million renovation of the Ohana Islander Waikiki Hotel. Renovations that were to have transformed the formerly midscale 280-room hotel into an upscale destination will wind down and stop early next year, and the hotel will be mothballed until conditions improve, said David Carey, Outrigger’s chief executive. Existing retail in the property, which includes an art gallery, will remain open, he said.

“It’s an unusual decision, but these are unusual times,” Mr. Carey said. While the project is self-financed, Mr. Carey said Outrigger wants to be conservative and keep more cash on its balance sheet so it can come out of the downturn ready to snap up potential hotel bargains. “We think that at the end of this thing there are going to be some tremendous opportunities, and that some owners are going to be forced to sell at prices that are extraordinarily attractive,” he said.

A number of developers still are moving forward with plans on Oahu, which is home to more than 900,000 people and the Honolulu metropolitan area. This week, Walt Disney Co.’s Walt Disney Parks and Resorts is beginning construction on a family resort in Oahu. It is slated to include 350 hotel rooms and 480 time-share villas when it opens in 2011.

Meantime, Los Angeles-based Irongate, now developing the 38-story Trump International Hotel & Tower Waikiki, said it has construction loans in place to complete the project as planned later next year, said Jason Grosfeld, a founder of Irongate. Mr. Grosfeld said he is optimistic that the demand for the high-end units would be sustained in part by vacationers from Asia. The project’s approximately 464 hotel-condominium units were presold at an average sales price of about $1.5 million.

Honolulu’s hotel and other commercial real-estate sectors are heading into this downturn off a much loftier peak than many other markets around the U.S., as restrained supply has helped keep it in balance. Though weakening, Oahu’s average September room rate of $160.24 still was roughly 50% higher than the national level and occupancies were well above the national rate. The area’s third-quarter office vacancies were the lowest of 54 major markets surveyed by Property & Portfolio Research, a Boston real-estate research firm. Retail, apartment and warehouse vacancies also are among the top 10 lowest; however, the area’s office and retail sectors have begun to see rents dip in recent months, PPR said.

Signs of the slowing times are emerging in nearly every property sector. Median home prices have begun to slip, and the area’s jobless rate, not seasonally adjusted, rose to 4.2% in September from 2.7% in the year-earlier month, according to the Bureau of Labor Statistics. The September jobless rate for the U.S. was 6%.

The hotel market has weathered rough times before, most recently after the terrorist attacks in New York and Washington, D.C., of 2001 that kept visitors home. This time around, though, it feels different to some. It could prove more trying as the financial turmoil leaves hotel operators without the ability to extend loans or obtain lines of credit, techniques used in the past to gain some breathing room, said Joseph Toy, chief executive of Hospitality Advisors LLC, a Honolulu consulting firm that offers foreclosure services. “It’s a far more challenging environment,” Mr. Toy said.

Still, some in the Hawaii tourism sector are forging ahead to sharpen a new marketing tool: the region’s appeal to Obama-philes. John Monahan, president of the Hawaii Visitors and Convention Bureau, said his organization is working to provide visitors Web-based information on the region’s role in the president-elect’s life and at least one commercial tour operator is planning to offer an Obama-themed tour

For months, as housing values were falling for midsize ranch houses in Stockton, Calif., and Las Vegas high-rises, sales of high-end properties in financial centers like London, New York and San Francisco continued to percolate along.

But that was before last week, when turmoil in the credit markets brought down Lehman Brothers Holdings and imperiled thousands of high-paying jobs. While those rare properties priced at $20 million or more are still holding up, there are signs that the crisis is exacerbating a downturn that was already plaguing properties in the $2 million to $10 million range, a market often sought by Wall Street workers.

Since last Thursday, there have been 200 price cuts on properties listed at less than $10 million on Manhattan’s Upper East Side or Upper West Side — a 17% jump from the week before. Deanna Kory, a broker with New York-based Corcoran Group who’s handling nearly two-dozen properties priced between $2 million and $10 million, says her showings are down by about 40% in the last two weeks compared to the same time last year. A slew of new buildings set to open in the next year will only increase supply.

Brown Harris Stevens

New York’s Park Avenue: Listed on Tuesday, this $20 million, 10-room penthouse duplex once owned by Broadway playwright and director Moss Hart and actress Kitty Carlisle has already attracted interested buyers.

The impact is reaching beyond Manhattan. On Massachusetts’s North Shore, where the average sale price of luxury homes is about $3 million, Lanse L. Robb says he’s lost more than $15 million in listings and transactions in the last week. First, prospective buyers for a $4 million waterfront home canceled their showing. Then two clients spooked by the financial meltdown held off listing their houses or looking for new ones.

One buyer who was poised to put an offer on a $15.7 million. 10-acre oceanfront estate in Manchester-by-the-Sea suddenly stopped returning Mr. Robb’s calls. “I still haven’t heard back,” says Mr. Robb, of Christie’s Great Estates affiliate LandVest. “It’s total silence.”

In San Francisco, a buyer in the market for an $8 million to $10 million property told Mark Allan Levinson last week to hold off on the search because his stock portfolio had just taken a big hit. “People are still buying, but they’re not quite as bullish,” says Mr. Levinson, of Sotheby’s International Realty in San Francisco.

Corcoran

New York City’s Chelsea: This $4.7 million three-bedroom condo is typical of the midrange luxury apartments often purchased by Wall Street workers. Brokers say they expect prices in this part of the market to soften.

Last Wednesday, a New York City buyer haggling over the purchase of a $1.9 million apartment used last week’s turbulence to win an additional $100,000 discount. Arguing the situation had dramatically changed, the buyer contended that the market was headed for a steep decline. “He had lowballed the price to start with,” says Anne Snee, a broker at Corcoran. “But given what’s going on, I’m not sure that [the sellers] didn’t make the right decision.”

So far, the strongest part of the high-end market are the few “trophy” properties — penthouses and other apartments with one-of-a-kind features that rarely come up for sale. “There are always people with money. Somebody’s always on the other side of these crises,” says David Ogilvy, a broker in Greenwich, Conn., who this year sold a $30 million house — the second-most-expensive house ever sold in the area.

In New York on Tuesday, 50 people perused a 5,500-square-foot duplex penthouse on an in-demand Park Avenue block. Put on the market that very day, the 10-room cooperative apartment once owned by Broadway playwright and director Moss Hart and actress Kitty Carlisle boasts high ceilings, stunning city views and a $20 million pricetag.

According to Katherine Marshall, the broker whose family owns the unit, five prospective buyers have already returned to check out the apartment a second time.

Leighton Candler, a broker with Corcoran, says she has seen solid buyer interest in her top-shelf listings, which include a $46 million penthouse at 778 Park Ave. Previously owned by Manhattan socialite Brooke Astor, the apartment features 14 rooms, six terraces, five wood-burning fireplaces and city views.

Ms. Candler is also selling a $46.5 million penthouse at 1020 Fifth Ave., with a 40-foot grand salon and views of Central Park and the Metropolitan Museum of Art. It has been owned by the same family since it was built in 1925.

Just a few weeks ago, San Francisco saw one of its priciest listings ever, a 20,000-square-foot penthouse topping the St. Regis Residences. Encompassing two floors and featuring four terraces as well as a two-story waterfall, the still-unfinished unit has an asking price of $70 million.

So far, places like New York and San Francisco are still faring better than many other areas of the U.S., particularly areas of Southern California and Florida. “I think everyone is taking a hit,” says Suzanne Perkins of Sotheby’s in Santa Barbara, Calif., where prices have fallen 20% in the last year. “I still have buyers in the $20 million range, but they’re looking for deals and they’re looking for sellers who will negotiate.”

In the run-up to the real-estate boom, brokers sometimes slapped headline-grabbing asking prices on highly desirable homes just to drum up interest and create buzz. Now, many of the tricks brokers are using to sell properties at the high-end are the same ones used with their more modest counterparts. The first and foremost: persuading the seller to list the home at an attractive price.

In Miami, Nelson Gonzalez of Esslingler Wooten Maxwell Realtors says he recently had to tell a client who wants to put his house on the market for $25 million to $30 million that it’s really worth about half that amount. “I’m not willing to just put it on the market at the seller’s pricing. I’m putting things on the market that are priced so they will sell,” says Mr. Gonzalez.

Amid the financial crisis, agents say many buyers are also more reluctant to buy splashy properties for reasons other than the cost. “I don’t think anybody is going to be bidding for at least the next several weeks,” says Kirk Henckels of Stribling Private Brokerage. “You’d feel pretty silly walking into a cocktail party today and saying you bought an apartment today.”

Scrambling to break the grip of a worsening global credit crisis, the Federal Reserve on Thursday pumped $55 billion into the nation’s financial system.

The Federal Reserve Bank of New York’s came in two operations injecting cash into temporary reserves, a move aimed to help ease a strained financial system in danger of freezing up.

The maneuver takes place as Fed Chairman Ben Bernanke battles the worst financial crisis since the Great Depression. In the last few days, the American financial system has been badly shaken as bad bets on dodgy mortgage-backed securities claimed more Wall Street giants.

The cash infusion was designed to help ease a spike in the overnight lending rate between banks. A sharp rise in such borrowing costs makes banks reluctant to lend to each other, worsening already tight credit conditions.

Hours earlier — at 3 a.m. — the Fed in coordinated action with other central banks, stepped up action to ease the intensifying crisis that erupted just over a year ago. They banded together to flood global markets with dollars. All told, the Fed increased lines of cash to central banks by $180 billion to $247 billion.

The measures are “designed to improve liquidity conditions in global financial markets,” the Fed said in a statement. “The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.”

Working with the Fed in the coordinated action were the European Central Bank, the Swiss National Bank, the Bank of Japan, the Bank of England and the Bank of Canada.

The action comes during an especially tumultuous week. The stock market has nosedived and investors have fled to super-safe investments like Treasury securities and gold. Briefly on Wednesday investors were willing to pay more for certain Treasury securities than they expected to get back when the investments matured, a rare event.

At the start of the week Lehman Brothers, the country’s fourth-largest investment bank, filed for bankruptcy protection. A weakened Merrill Lynch, deciding it couldn’t go it alone anymore, found help in the arms of Bank of America. Insurance giant American International Group was given an $85 billion emergency loan from the Fed in a deal allowing the government to take control of the company.

So far this year, 11 federally insured banks and thrifts have failed, compared with three last year. The country’s largest thrift, Washington Mutual Inc., is faltering

For the second time this month, the U.S. government put taxpayer money on the hook to rescue a private financial company, saying the failure of the huge insurer American International Group Inc. would further disrupt markets and threaten the already fragile economy.

The Federal Reserve said Tuesday it would provide up to $85 billion in an emergency, two-year loan to rescue AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

The move was similar to government’s seizure on Sept. 7 of mortgage giants Fannie Mae and Freddie Mac, where the Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke.

Both moves were bound to raise questions about the use of taxpayer money to bail out private firms.

The Fed said it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy. Although little known off Wall Street, AIG does business with almost every financial institution in the world and insures $88 billion worth of assets including mortgages and corporate loans.

Its failure could also “lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance,” the Fed said in a statement.

The decision to help AIG reversed the government’s stance over the weekend, when it refused to use taxpayer money to bail out Lehman Brothers Holdings Inc. Lehman, which filed for bankruptcy protection Monday, collapsed under the weight of mounting losses related to its real estate holdings.

The White House said it backed the Fed’s decision Tuesday.

“These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy,” White House spokesman Tony Fratto said.

After meeting with Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke in a late-night briefing on Capitol Hill, Congressional leaders said they understood the need for the bailout.

“The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times.” said Sen. Charles Schumer, D-N.Y. “Hearing of these plans, you have to stop to catch your breath. But upon reflection, the alternatives are much worse.”

New York officials said the deal helps stave off a fiscal crisis for the state.

“Policy holders will be protected, jobs will be saved,” New York Gov. David Paterson said Tuesday night.

The Fed’s move was part of a concerted push to help calm jittery markets and investors around the world.

On Tuesday, the Fed decided to keep its key interest rate steady at 2 percent, but acknowledged stresses in financial markets have grown and hinted it stood ready to lower rates if needed.

The central bank also pumped $70 billion into the nation’s financial system to help ease credit stresses. In emergency sessions over the weekend, the Fed expanded its loan programs to Wall Street firms, part of an ongoing effort to get credit flowing more freely.

The stock market, which Monday had its worst session since the Sept. 11 attacks, recovered Tuesday after the Fed’s decision on interest rates. The Dow Jones industrials rose 141 points after losing 500 points on Monday.

AIG’s shares swung violently, though, as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent – and another 45 percent after hours.

The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn’t make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week’s collapse of the investment bank Lehman Brothers.

The worries were heightened Monday after Moody’s Investor Service and Standard and Poor’s lowered AIG’s credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance – such as banks and other financial companies – would have found themselves without protection against losses on the debt they hold.

“It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions,” said Timothy Canova, a professor of international economic law at Chapman University School of Law. “If Lehman Brother’s failure could help trigger AIG’s going down, who knows who AIG’s failure could trigger next.”

New York-based AIG operates insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said “they are solvent and have the capability to pay claims.”

The blast furnace known as the finance industry that has stoked the economies of New York and London for decades is rapidly cooling.

Both cities have relied heavily on the securities industry for jobs, taxes and a prosperity that has lifted restaurants, stores, auto sales, fashion, entertainment and a wide range of other businesses. The future of that largess is in doubt a year into the credit crunch, with the bankruptcy filing of Lehman Brothers Holdings Inc. and the sale of Merrill Lynch & Co. adding to the thousands of jobs already lost — and the likelihood that more will come.

 

Workers carted boxes Monday from the office of Lehman Brothers in the Canary Wharf district of London

At the Thomas Pink store on Wall Street, where men’s shirts can cost as much as $450, Abby Kuskin, a sales associate, said she expects business to get worse. But “maybe they’ll be buying more interview shirts,” she said.

New York developer Mario Procida is also concerned; he’s about to open a luxury condominium building overlooking Brooklyn’s Grand Army Plaza — charging an average price of $1.9 million for units. “There has to be kickback in the marketplace across the board,” he said.

Even before the weekend, the financial-services industry had shed more than 11,000 jobs in New York and 20,000 in London. Lehman has about 25,000 employees, a majority of them in London and New York. Thousands more positions are expected to be cut through the acquisition of Merrill Lynch by Bank of America Corp.

Jobs in financial services tend to be more important for the overall economy. About 5% of New York City’s jobs are in financial services, but they account for about a quarter of wages, some $60 billion in 2006, according to the New York Office of the State Comptroller. That same year, personal and corporate taxes paid by the securities industry accounted for about 10% of the city’s tax revenue.

“These are very uncertain times right now,” said Stacey Pecor, owner of the Olive and Bette’s chain of boutiques in New York, whose regular customers include many in the investment banking world. “I think the shopper’s going to look at her wardrobe and she’s going to keep everything. “

Some thought the financial industry was due for a contraction even before the credit crunch started last year. In 2006, financial services accounted for about 8.3% of the U.S. economy — higher than at any point in history — compared with 7.3% a decade ago.

The finance industry, much like the automotive industry, still may have more jobs than the economy can support. “Just how many investment bankers does the economy need?” said Thomas Philippon, a finance professor at New York University.

Some Merrill Lynch executives were no doubt asking themselves that question yesterday as they strolled through the Aston Martins, Bentleys, and Bugattis parked outside of their offices at Motorexpo, a high-end auto show with unfortunate timing. One representative for a luxury brand said he got a few “you picked an odd day” comments.

New York City Mayor Michael Bloomberg said at a news conference Monday that the city is partly cushioned from the expected blows from Wall Street thanks to growth in industries such as media, fashion, tourism and bioscience.

London’s commercial real-estate industry is more vulnerable than New York’s because it has seen more building of office space in recent years. More than eight million square feet are being built in London’s financial district. About 80% of that is considered “speculative,” meaning the developer hasn’t signed leases for it yet.

In London, Lehman leases a one-million-square-foot building in Canary Wharf and occupies 80% of that space, subleasing the rest. Lehman officials haven’t announced plans for those offices. In New York, by contrast, there are only a handful of speculative office buildings

Still, stocks of companies that own Manhattan real estate were hammered. Merrill’s biggest landlord in New York, Brookfield Properties Corp., saw its stock plummet 18% to $17.40 Monday as of 4 p.m. New York Stock Exchange composite trading.

In bankruptcy-court protection, Lehman’s leases could be canceled, leaving landlords on the hook for gobs of space as job growth contracts. If Lehman gives up three-quarters of its roughly 2.7 million square feet of office space, the New York office vacancy rate would rise from the current 8.5% to 11.5%, a level not seen since the period after the Sept. 11, 2001, attacks, according to an estimate by Peter Riguardi, the New York president for real-estate brokers Jones Lang LaSalle.

Lehman owns its headquarters at 745 Seventh Ave., near Times Square. It purchased the one-million-square-foot building after the Sept. 11 attacks, when the firm fled the area near the World Trade Center. It paid $650 million for the building, which would be a source of revenue for creditors if sold in bankruptcy.

A drop in mortgage rates that’s accelerated since the government said it would take over Fannie Mae and Freddie Mac has raised hopes that more buyers might be drawn into the housing market and help reverse the worst slump in decades.

Analysts caution, however, that the benefits of lower rates will be tempered by stricter mortgage-lending rules and a stubbornly weak economy. The average rate on a 30-year fixed-rate mortgage fell to 5.88 percent on Tuesday, according to Bankrate.com.

“The job market is a real problem, overwhelming even the lower rates,” says Mark Zandi, chief economist of Moody’s Economy.com. “When we combine the low rates with improvements in the job market, hopefully at the beginning of next year, then there will be some real benefit.”

As Greg McBride, senior financial analyst at Bankrate.com, notes: “It still takes good credit, proof of income and money for a downpayment. With the government taking over Freddie and Fannie, due to the bad loans on their books, the last thing Uncle Sam is going to do is loosen the lending standards now that the taxpayer is on the hook.”

Some mortgage brokers and bankers have seen a modest increase in calls from potential customers in the past two days. Alan Trachtman of Trachtman & Bach, a New York brokerage, says his firm has seen more inquiries from clients. But he says he’s not confident that the lower rates will motivate home buyers the way low rates normally do, given the uncertain economy.

Still, he’s hopeful. “If rates stay down and nothing else happens to oppose it, I think you’ll see a little snowballing for the housing market – just not as big and fast as it (typically is).”

Brian Koss of Mortgage Network, mortgage bankers serving the East Coast and based in Danvers, Mass., says, “We got a huge increase of calls over the past two days.” But Koss adds, “It was pretty much a given five years ago that you’d get the loan. Now, you have all these hurdles you have to go through.”

Should you act now for fear a limited offer will run out?

No, McBride says. Buying a house is like getting married, he says; you don’t marry because there’s a sale at the bridal shop.

“If you have good credit and money for a downpayment, there are some bargains,” he says. “But if you’re six months away because you need to pay down debt or build up your savings, that’s fine. Prices won’t run away from you during that time.”

With Florida awash in tens of thousands of empty or unfinished condominiums, many investors there are turning to the courts in an effort to cancel their contracts and recoup their deposits.

So far, they haven’t had much luck.

Florida East Coast Realty

Two dozen lawsuits against Miami’s Opera Tower condo were dismissed by a Florida court in August.

Condo buyers in hard-hit markets across the country have been scouring their contracts for loopholes and flaws that would allow them to back out. Investors in Florida, where many were looking to flip their condos for a quick profit in a rising market, have been particularly aggressive in using the courts. And that’s no surprise, given that the condo market there is one of the worst in the country, with average condo prices down 22% since the market peaked in 2005, according to the Florida Association of Realtors — and they’re still falling.

Yet a series of recent legal decisions in the Florida courts indicate that it won’t be as easy as buyers might hope to get out of these deals. The bottom line: Unless it’s a bona fide contract dispute, an investor’s chances of winning appear to be slim.

Last month, the U.S. District Court in Miami dismissed two dozen federal lawsuits in which buyers said they were misled by an advertising brochure promising an “Olympic style” swimming pool at Opera Tower, a high-rise condo building near downtown Miami.

Plaintiffs could not reasonably rely on the drawings or advertisements, Judge Patricia Seitz ruled. The contract clearly stated the pool was L-shaped and 2,530 square feet — smaller than Olympic size, she wrote. The developers claimed that “Olympic style” didn’t refer to the pool’s size but to the fact that it would have lanes.

The decision was a big loss for consumer rights, says Miami Beach attorney Kent Harrison Robbins, who filed the lawsuits against Opera Tower. “It gives developers wide-ranging room to promise whatever they want, as long as they change it in the written contract,” he says. “Honest developers will be outcompeted by dishonest ones.” Mr. Robbins says he plans to appeal the decision to the 11th U.S. Circuit Court of Appeals in Atlanta.

Real-estate lawyers nationally are closely monitoring the Florida lawsuits, expecting a wave of similar claims across the country as more condominium projects are completed. “The market in Florida is two years ahead of other parts of the U.S., like California or the Sunbelt states, in both the heavy downturn in prices and the lawsuits following it,” says attorney Robert M. Chasnow, a partner with Holland & Knight in Washington.

During the housing boom, Florida — like some other areas noted for tourism and retirement living — attracted hordes of speculators. By some estimates, more than half of all the deposits for Miami condos were put down by people planning to flip them for a profit without living in them, says Jack McCabe, chief executive officer of McCabe Research & Consulting in Deerfield Beach, Fla.

A Four-Year Inventory

But developers built far more condos than demand could absorb. The glutted Miami market now has close to 50,000 units — a record four years’ worth of inventory — for sale or under construction. The national condo market, by contrast, has a 12-month inventory, up from 4.7 months in 2005, according to the National Association of Realtors.

Faced with such sobering prospects, many buyers no longer want to close on their properties, as they risk steep losses when they try to sell. In some buildings, as many of 30% of condo buyers are turning to the courts in an effort to cancel their contracts. If unsuccessful, they have to either go ahead and close on a unit they no longer want or walk away and lose their deposits, which are typically between 10% and 20% of the purchase price.

In one closely watched case, Florida’s Fourth District Court of Appeal sided in June with the developers over buyers who were seeking to recover a deposit in the Marina Grande, a two-tower, 26-floor complex that overlooks the Atlantic Ocean in Palm Beach County. The plaintiffs — two individual investors who operated under the name D&T Properties — cited a clause in state law that allows buyers to cancel over material changes in the project.

But the court affirmed that the plaintiffs, who paid a $99,000 deposit for a $495,000 condo, could not cancel their contract because of rising insurance and utility costs or for minimal increases in other costs. The court said an 18% increase in costs controlled by a developer is not “material,” but did not set a standard as to what level of increase would meet that bar. Gary J. Nagel, the attorney for D&T Properties, called the decision “incorrect” and said the court failed to define what a “material” change would be.

In June, a Miami-Dade Circuit Court jury ruled against an investor named Alexandra Hiaeve, who claimed that she never received the condo documents from the owner she was buying a unit from at WCI Communities’ One Bal Harbour.

The jury said Ms. Hiaeve couldn’t prove that she never received the documents. The judge also ruled during the trial that Ms. Hiaeve had failed to establish that she had requested the condo documents in writing. Thus, the owner, Gedalia Fenster, was allowed to keep the $300,000 deposit.

A ‘Ridiculous’ Decision

Robert Zarco, the attorney representing Mr. Fenster, says that denying receipt of the documents is “very common in markets where people had been flipping and then the market turns and they want an excuse not to close.” Ms. Hiaeve declined to comment, but her business partner, Yona Kogman, says the jury’s decision was “ridiculous” and that Ms. Hiaeve hopes to appeal.

Developers are hailing these decisions. Tibor Hollo, chairman and president of Florida East Coast Realty, which is building Opera Tower, says the rulings indicate that people can’t get out of their contracts for insignificant reasons. “Some just don’t want to close in a bad market,” he says.

But attorneys who represent condo buyers say many of the complaints of contract violations are legitimate — and that the battle is not over yet. “We are going to see a number of cases where buyers are successful, primarily in areas where something substantial was altered in the project and those that were not delivered on time,” says Jared H. Beck of Beck & Lee, a law firm in Miami. “The decisions represent just a tiny sliver of the universe of grounds for buyers’ claims in the ongoing litigation war between buyers and developers.”

Demanding a Refund

Dora and Umberto Arena, of Hollywood, Fla., are among the thousands of investors who are looking to the courts for relief. When the Arenas bought their deluxe $595,000 condo in Hallandale Beach, developers urged them to move quickly to put down their $120,000 deposit. The planned 283 units at the Ocean Marine Yacht Club in Hallandale Beach sold out in only three weeks when they were offered to the public three years ago.

“We saw this beautiful 48-slip marina in their brochures, and it sounded wonderful to have a place for a boat and to live in that brand new building,” says Ms. Arena, 64.

Despite the name, the Ocean Marine Yacht Club has no marina, as the developer was unable to secure the necessary permits. “We were inundated with literature touting it as a marquee feature of the complex while the developer was failing to disclose it didn’t have the necessary permits or approvals,” Ms. Arena says.

The Arenas are suing the developer, Chicago-based Fifield Realty Corp, demanding refund of their deposit. Representatives of Fifield declined to comment directly on the pending litigation. In a written statement, the company said the litigation “may be based on people trying to get out of their contracts because of current market conditions, including changes in credit and mortgage terms.”

Ironically, the growing number of lawsuits may actually make the problem worse. A high rate of units contested in court makes buyers nervous about closing and moving into a half-empty complex, which further depresses the market, says Mr. McCabe, of McCabe Research & Consulting. That, in turn, will give buyers more incentive to sue. “Just wait. We haven’t started to see what we are going to see,” Mr. McCabe says.

WASHINGTON – Sept. 9, 2008 – Andre LeBel knew he had come home when he walked into a bar in St. Petersburg, Fla., ordered a Bloody Caesar and the bartender made it without cocking an eyebrow.

The spicy drink – a blend of vodka, Tabasco, Worcestershire sauce, and tomato and clam juices – is popular in his native Canada, but until recently it was virtually unknown elsewhere. That was before Canadians started to snap up property in the U.S., drawn by the buying power of the newly strong Canadian dollar and the depressed prices of American real estate. The largest proportion of foreign buyers of U.S. homes from May 2007 to May 2008 – 24 percent – were Canadian, double the percentage a year earlier, according to a recent report by the National Association of Realtors.

Most Canadian buyers head for the Sunbelt, with Florida accounting for a third of all of their purchases, the report said. The Realtor group estimates there were 7,200 Canadian buyers of Florida homes in the period covered by the report, more than double the 3,500 a year earlier. In some Florida resort communities, so many Quebec residents have bought second homes that French is now commonly spoken.

Mr. LeBel says there are about two dozen fellow Canadians at the Pasadena Yacht and Country Club in the St. Petersburg suburb of Gulfport, where he bought a $360,000 penthouse condo in December. He golfs regularly with Toronto friends who jet down to their second homes on weekends, and he has no trouble finding Canadians to join him at Tampa hockey games to root for visiting Canadian teams. “We’re making the area more cosmopolitan,” jokes Mr. LeBel, chief executive of SOCAN, a Canadian copyright collective.

The Canadian dollar hit a high of US$1.10 in July 2007 and is now worth about 94 cents; it was worth only 80 cents three years ago. Unlike many Americans, Canadians also feel flush from a continued strong housing market and escalating home equity. According to the Canadian Real Estate Association, overall home prices grew 11 percent in 2007 from the year before, to an average of $307,265, and they are expected to rise an additional 5.3 percent in 2008. The group says home sales have been boosted by growth in after-tax income, strong employment and short-term interest-rate cuts in Canada.

Florida has long been a popular vacation destination for Canadians. Yet they had chiefly been renters, since many were priced out of buying. Now, their tendency to buy in clusters is starting to change the character of some resort communities.

In the four years since they bought a two-bedroom condo in Hawaiian Gardens in Lauderdale Lakes, Fla., Rachel and Pierre Valois say the number of fellow French Canadians in their six-building section of the community has grown from a handful to the point where they now exceed the Americans. Mrs. Valois says community parties now include traditional foods from Quebec like homemade baguettes, pâtés and crudités, and the homeowners’ association newsletter and all community announcements are written in both French and English. “A lot of residents seldom speak English,” says Mrs. Valois, a retired supervisor for a hydroelectric company. “Some don’t speak English at all.”

That bothers Ethelreda Farnsworth, a retired fashion coordinator from Pittsburgh who has spent winters at Hawaiian Gardens since 1985. She says she no longer attends events like the annual New Year’s Eve celebration because she doesn’t speak French and doesn’t know what her neighbors are talking about. Instead, she and the remaining American residents gather for a party in her two-bedroom condo. “We feel like outsiders,” she says.

Csaba Horvath, a 45-year-old Montreal computer engineer, bought a $220,000 vacation condo in Hollywood, Fla., last winter at the urging of a French Canadian friend, who had already purchased a home in the same high-rise complex called Quadomain. After he closed on his one-bedroom unit in July and was on his first vacation there, Mr. Horvath was surprised when he got on an elevator, nodded to a fellow resident and got the reply: “Bonjour.” Mr. Horvath has since bought a second condo in the complex that he plans to rent out. “Everybody loves Canadians because we pay in cash,” he says.

Financial firms are helping drive the move. HiFX PLC, a San Francisco division of a British asset-transfer firm, held two seminars in Canada this year on how to buy U.S. houses – and drew 400 people in Calgary and 200 in Toronto. Canadians sometimes have trouble getting American loans, and U.S. banks often require them to make down payments of up to 50 percent. Sensing a market, RBC Bank, a U.S. division of Royal Bank Financial Group in Toronto, set up a program that allows Canadians to buy U.S. property worth up to $2 million with a down payment of less than 25 percent. RBC has doubled the amount of such loans it has issued over the last year, says Alain Forget, a company vice president.

After Florida, the second most popular U.S. destination for home-buying Canadians is Arizona, the Realtor report says. In Phoenix, 752 Canadians bought homes in 2007, almost double the number of the year before, according to Information Market, a data firm. For real estate agents who have seen home prices drop for more than 15 straight months, the Canadians are a godsend. Arizona’s priciest home sale this year was a $14 million mansion in Paradise Valley purchased by an Ontario attorney, Jeffrey Slopen. But Canadians of more modest means also are buying.

Agent Mark Carvalho changed his business approach last year to focus on Canadians. He launched a Web site called Canadians2Arizona.com, which includes testimonials from Canadian buyers and schedules of the Phoenix Coyote hockey team. His proportion of Canadian clients jumped to 90 percent from 10 percent, he says. Agent Mark Dziedzic calls his Web site – which shows a cactus-filled landscape under a banner of maple leaves – ArizonaforCanadians.com, and his agents are called Team Canada. The Phoenix broker, who used to be a Toronto financial planner, estimates that about half of current home shoppers in the region are Canadians.

Scott Robinson, an Ontario sales manager, just closed on a stone-and-stucco house in North Phoenix with a three-car garage, saltwater pool and sports court. He plans to use the house, which is less than two years old, as a vacation home. The owners originally asked $622,000, but it was being offered for $525,000 in a “short sale,” or below the level of the mortgage. He got it for $386,000. “For that, you’d get a fixer-upper” in a Canadian resort area, Mr. Robinson says.

Lenora Hanwell, a Calgary schoolteacher, has never been to Arizona. But she says she has spent hundreds of hours trolling the Internet for “smoking deals” on Phoenix duplexes. She plans to make an offer soon, sight unseen. “The market’s so low, you have to get in,” she says.

The federal government’s sweeping takeover of mortgage market giants Fannie Mae and Freddie Mac is expected to have positive short-term benefits to the real estate market and opens the door for the industry to shape the restructuring of the companies.

The NATIONAL ASSOCIATION OF REALTORS® commended the Treasury Department’s decision, which it said will bring much-needed stability and continued liquidity to the nation’s mortgage market.

“This demonstrates that the government is clearly committed to keeping the flow of capital uninterrupted, which is crucial to the housing sector and the economy,” NAR President Richard F. Gaylord said in a statement Monday.

Fannie and Freddie own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt.

“Fannie Mae and Freddie Mac play a vital role in the U.S. economy by making fair and affordable mortgage loans available for home buyers and owners,” Gaylord said. “Their critical mission must not be interrupted, and Sunday’s announcement goes a long way in making sure that does not happen.”

What the Plan Involves

Under the Treasury Department’s action, the two government-sponsored enterprises are placed in a government conservatorship and overseen by two government-appointed chiefs, former Merrill Lynch vice chairman Herbert Allison at Fannie Mae and former U.S. Bancorp CFO David Moffett at Freddie Mac.

Daniel Mudd, who led Fannie Mae for the last few years, and Richard Syron, his counterpart at Freddie Mac, have been relieved of their jobs.

The federal government is taking up to an 80 percent stake in the companies and will review their financial condition on a quarterly basis, injecting money into their operations as needed. The government is directing the companies to help stabilize housing markets by requiring them to increase their mortgage funding over the next year and a half.

For the long-term, the companies and their regulator, the Federal Housing Finance Agency, will begin planning for a major reorganization of their operations, away from their current 100-percent, privately owned model.

According to news reports, one of the models being discussed is something akin to a public utility, in which the government sets limits on the amount of annual return on equity to shareholders.

Positive Real Estate Impact

For the real estate industry, the short term impact is expected to be positive, says NAR Chief Economist Lawrence Yun. With the government now explicitly backing the companies’ mortgage obligations, the market for the GSE securities will be treated more like Treasurys, thereby exerting downward pressure on rates, he says.

That will help drive a positive cycle of investment as investors return to the market, further lowering rates and generating funds to lenders to expand their mortgage loan operations. That is expected to help speed up housing sales in markets across the country and help stabilize home prices.

The main down side to the federal intervention will be felt by the companies’ current shareholders, who will no longer receive dividend payments and whose holdings are diluted by the equity stake of the federal government.

Looking ahead, the directive for the companies and their regulator to start work on their long-term restructuring opens the door for NAR to help shape that process, and the association already has a process underway to do that, say NAR legislative and regulatory affairs analysts