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Louisiana Rehabilitation Association - Economic Recession and Construction in New Orleans

In this article, Dr. Loren C. Scott discusses the national economy recession, its impact on Louisiana, and the construction projects ahead in New Orleans. The article also addresses the credit crunch and the slow recovery in New Orleans after Hurricane Katrina.

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Louisiana Rehabilitation Association - Economic Recession and Construction in New Orleans

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  1. Louisiana Rehabilitation Association November 14, 2008 Dr. Loren C. Scott Loren C. Scott & Associates, Inc. www.lorencscottassociates.com

  2. The National Economy Recession (NOT Depression) Environment

  3. RGDP Forecasts(11/08) QuarterMoody’sConsensus 08-II 2.8% 2.8% 08-III -0.3% -0.3% 08-IV -2.2% -3.2% 09-I - 1.0% -1.7% 09-II 0.0%-0.1% 09-III 2.2% 1.4% 09-IV 3.4% 2.1% 10-I 3.8% 2.8% 10-II 4.1% 3.1% 10-III 4.7% NA 10-IV 4.8% NA

  4. Four NBER Indicators

  5. One Big Problem Drop in Private Residential Investment Spending

  6. Consumer & Lender “De-Leveraging Underway

  7. Lending standards for mortgage loanshave tightened considerably

  8. Excessive Housing Price Inflation Not Evenly Spread Across Country

  9. Metro Areas with Extreme Housing Overvaluation* * 34% overvaluation is the trigger point for a major home price correction (First quarter, 2007)

  10. Change in House Price Index

  11. IF there is a recession, why should it be short and shallow? This is arguably the most anticipated recession in history.

  12. Historical Boom/Busts(Months) • Period #Cycles Boom Bust • 1854-1919 16 27 22 • 1919-1945 6 35 18 • 1945-2001 10 57 10 • Last 25 yrs 2 106 8 • 11/82-7/90 92-month expansion • 3/91-3/00 120-month expansion (record)

  13. In the “old days” length/depth of recessions were inventory driven

  14. ACTUAL CHANGE IN INVENTORY(% INCREASING - % REDUCING)

  15. Another Big Problem The credit crunch

  16. Wall Street Bailout Plan? • Don’t like the name • Don’t like degree of federal intrusion into financial markets (insuring v owning these bad assets) • Worried about details – especially pricing • Something had to be done about the level of fear and distrust between financial institutions. • LIBOR rate (opaqueness v transparency) • 3-Month T-Bill rate • Financial institutions are different depending on where they are

  17. S&P 500 Worst Single-Day Returns • Date1-day return3-month return • 10/19/87 -20.5% 10.9% • 9/29/08 -8.8% NA • 10/26/87 -8.3% 9.6% • 10/27/97 -6.9% 10.5% • 8/31/98 -6.8% 22.8% • 1/8/88 -6.8% 10.7% • 5/28/62 -6.7% 5.9% • 10/13/89 -6.1% 1.9%

  18. S&P 500 Worst Single-Day Returns • Date1-day return3-year return • 10/19/87 -20.5% 39.0% • 9/29/08 -8.8% NA • 10/26/87 -8.3% 33.8% • 10/27/97 -6.9% 57.3% • 8/31/98 -6.8% 18.4% • 1/8/88 -6.8% 29.4% • 5/28/62 -6.7% 59.3% • 10/13/89 -6.1% 22.7%

  19. Want clear evidence of global warming?

  20. The Bad News Slow Recovery in New Orleans

  21. $20.3 Billion in Construction Ahead • Over $1 billion on bridges • $806 mm – new, 6-lane twin span over Ponchartrain • $660 mm to widen Huey P. Long Bridge • $1 billion a year next 4 years for Corps levee projects • $7.5 billion fed $s to rebuild homes • $695 mm Inner Harbor Navigational Canal surge-reduction project • Entergy Little Gypsy Retrofit: $1.55 billion • Two large refinery projects • Marathon: (from $2 billion to $3.2 bill) • Valero – Norco: $1.4 billion

  22. $20.3 Billion in Construction Ahead • Trump Tower: 842 feet tall; $200 mm (Hotel component dropped from 435 rooms to 150-225) • One River Place: 250-apartment tower - $65mm • $160 mm remake of World Trade Center (developer backed out 8/08) • Dimension Development refurb of Fairmont: $100mm • Dominion Group: $100 mm Crescent Club & Preserve • $360 mm road repairs over 5 years • Recovery School District: $685 mm capital program to repair/rebuild 28 schools. Start of $1.7 bill program • $27 million renovation of Antoine’s Restaurant

  23. $20.3 Billion in Construction Ahead • CP3 Associates: $210 mm hotel/condos at Canal Place (Go Zone period expired) • $282 mm expansion of D-Day Museum ($300 mm) • St. Tammany capital improvements program: $167 mm • $400 mm repairs and buildings – Dillard U.

  24. $20.3 Billion in Construction Ahead • Repair/renovate Jackson Baracks: $460 mm – 16 buildings repaired by 2010 federal deadline • Pinnacle: $200 mm for Boomtown (on hold) • Air Products: $200 mm hydrogen facility near Marathon • $76 mm Coast Guard Integrated Support Command Center • VA/Charity Hospital: $1.2 billion? • Jindal supports • Financing? Quarreling with FEMA over $200 mm reimbursement

  25. $20.3 Billion in Construction Ahead • Federal City Project: • $500 mm, 3 phases over 15 years, start early ’09 • 2009 -10: $110 mm • Marine Force Reserve Compound • Retain 1,600 jobs that would have been lost through BRAC • In 2011, attract 300-400 more from Kansas City • Sector New Orleans Coast Guard Regional HQ • $76 mm project – early ’09 • 300 new permanent jobs (announced Aug. ’08)

  26. State Highway Projects: ’08 – ’11Coastal Restoration Projects • Total: $545.9 mm • Veterans Highway: $81 mm • Airport RD – I10/I12/I59: 35 mm • Caminada Bay Bridge: $35 mm • I12 @ Causeway: $31.5 mm • Coastal Restoration Projects: $140 mm • $30 mm Caminada Headland Barrier • $50 mm Lake Ponchartrain hurricane protection • $50 mm West Bank hurricane protection

  27. Manufacturing: Net - Very Bad • +: Northrop Grumman • New $2.4 billion contract-Amphibious assault ship • New $285.5 mm contract – CG security cutter • Next ship-LPD 26—looks fully funded • 5,500 and stable through 2011 • +: Textron • $24 mm contract to build 6 Mexican Navy boats • +270 new jobs? • Army contract boosted $313 mm • Jobs secure through 4/2010 • Trinity Yachts: • at 900 including Gulfport • 24 custom contracts underway

  28. Manufacturing: Net Very Bad • -:?: Lockheed Martin Aerospace • 1,900 now; 1,400 in 2009; 570 by 2010! • Challenger flights end 2010 • But 23 upper stage rockets for next manned lunar & space station missions • State: New $60 mm R&D facility started • BolMar Yachts (+50 now;100 more in ’09) • Layoffs come in large waves starting 10/08 ending 9/10

  29. New Announcements • Rooms-to-Go • $45 mm distribution center: St. Tammany • 400 jobs when completed in 2009 • Monsanto Co. • $196 mm addition to Roundup plant: Luling • 30 new jobs

  30. The Great Challenge:Tourism • Convention Market • Down from • 523,761 (2004) • 181,595 (2006) • 323,838 (2007) • 373,214 (2008) • Successful occupancy rate at convention Center = 70% • 2010 = 36% (Planned in 2005-06) • 2011 = 25% (Planned in 2005-06) • 2012 = 30% • 2014 = 23%

  31. N.O. Losses • Gray & Co.: Oil & gas insurer to Hammond : -270 jobs • Oreck HQ moving to Tennessee: -60 jobs

  32. Outlook for Baton Rouge

  33. $6.5 Billion in Construction:Industrial • Shintech: $1.9 billion • ExxonMobil: $554 million (environmental) • Placid Refining: $300 mm - Finish 2010 • Westlake Chemical: $300 mm chlor-alkali in Geismar – 100 new jobs • Stupp Corp: $60 mm expansion (+200 jobs) • Cemus LLC: $280 mm @ old Kaiser site • Bercen Chemical: New $55 mm HQ in Denham Springs – 20 jobs @$90,000

  34. $6.5 Billion in Construction:Industrial • Dynamic Fuels: $150 mm in Ascension (bonds approved 6/08 contractor hired 8/08) • $178 mm new Coca Cola bottling plant: +113 jobs • Pioneer Chemicals: $142 mm expansion • Formosa Plastics: $100 mm expansion • Huntsman Corp[.: $100 mm expansion • Dupont: $66 mm expansion

  35. $6.5 Billion in Construction:Infrastructure • State Highway projects • Total: $524.9 mm • O’Neal Lane – Pete’s HWY Overpass: $100mm • I10/I12 Split – Siegen: $84 mm • MS River Bridge: $68 mm • James Audubon Bridge: $347.9 mm ($406mm??)

  36. $6.5 Billion in Construction:Commercial • Riverplace Hotel/Condominiums: $135 mm • City Plaza II Tower: $75 mm (open 1/09) • $77 mm LSU Union renovation • LSU Baseball stadium: $37 mm • Woman’s Hospital: $350 mm

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