Financial thoughts

The city of St. Louis is giving a $4.7 million property tax break to the owner of one of downtown’s tallest office towers, One AT&T Center.

The local holding company, affiliated with one of the nation’s largest real estate trusts, convinced the city assessor that the building is worth far less than its purchase price in 2006 because AT&T, its lone tenant, now fills only half its office space.

MB St. Louis LLC is the owner of record for the property, which was acquired for $204.9 million by Minto Holdings Inc., of Florida and Inland American Real Estate Trust, of Oak Brook, Ill.

Inland American, according to its most recent annual report, posted annual revenues last year of $1.3 billion and holds interests in nearly 1,000 properties, including hotels, office towers and retail complexes across the country. Inland reported last month that a subsidiary paid $22.6 million for the Hilton hotel at 400 Olive Street in downtown St. Louis as part of a $393.1 million deal for five hotels in Atlanta, San Francisco, Austin, and Lexington, Ky.

Inland’s affiliate, MB St. Louis, convinced St. Louis assessor Ed Bushmeyer that the AT&T tower is now worth just $135 million – about $70 million less than what it sold for in 2006.

Jerome Wallach, an attorney for MB St. Louis, argues that the building’s value plummeted because AT&T has slashed the size of its workforce there, and low occupancy cuts the building’s market value. The owner would have difficulty selling the half-full building for an attractive price when AT&T’s lease expires in 2017, he added.

But the building is not for sale now, Wallach acknowledged, nor has MB St. Louis given AT&T any rent breaks on the property because of its diminished presence. Wallach argues the rent shouldn’t factor into assessed value, which should be based on what it might sell for now in its half-full state.

Bushmeyer initially contended that occupancy levels have no effect on the structure’s value — because AT&T leases the entire 1.2 million-square-foot building, regardless of the space filled. But Bushmeyer ultimately bought the landlord’s argument that the relatively short period left on the lease, along with potential renovations needed to accommodate multiple tenants, justified the lower assessment.

The matter was resolved in a settlement approved by the State Tax Commission on March 27. The owner first appealed the assessor’s valuation to the city’s Board of Equalization, which lowered the building’s 2010 assessment to match its December 2006 purchase price, $204.9 million. MB St. Louis then appealed that ruling to the State Tax Commission on line pay day loans.

Before the state commission could issue a decision, the owner and the city assessor reached an agreement that dropped the building’s 2010 value to $155 million. The agreement also lowers the 2011 and 2012 values to $135 million from the city’s original assessment of $191.5 million.

The result is three years of tax cuts, totaling $4.7 million.

Since 2007, the annual property tax bill has been about $5.5 million, city records show. The portion of taxes MB St. Louis paid under protest in previous years will be refunded from an escrow account, Bushmeyer said.

Completed in 1986, the 44-story tower is downtown’s third-tallest structure, trailing only the 630-foot Arch and — by five feet — the 593-foot Metropolitan Square building on Broadway.

An AT&T spokesman said employment at the company’s three-building downtown complex, including the tower, is slightly less than 4,500. As recently as 2009, the complex had nearly 5,700 workers.

Another factor in the building’s lowered value is its design as a single-tenant headquarters, the owner argued. Most downtown office towers were built for multiple tenants. A new owner of the AT&T tower would likely face an expensive and time-consuming renovation to accommodate multiple tenants.

“The assessor’s office relied on sales and rental transactions involving multi-tenant buildings downtown, such as Met Square,” in its initial property assessment, Wallach said. “AT&T is used as a single-tenant building. It was, in my opinion, an apples and oranges comparison.”

The tower’s lowered assessment will mean that city public schools and other tax-supported entities will take a slight hit, Bushmeyer acknowledged. But he noted that while citywide reassessments in 2009 and 2011 produced generally lower property values — and lower tax bills — state law allows some taxing districts to raise rates to make up lost revenue.

The AT&T case illustrates the nationwide decline of real estate values during the recession, Bushmeyer said.

“I expect that, as the economy improves, we will see valuations increase,” he said.

Jim Mosby, senior managing director in St. Louis of Cassidy Turley, said Thursday that challenges to assessed valuations have been widespread over the past four years because of general declines in the value of commercial real estate.

“At some time, the market takes over, no matter what you have in your building,” he said.

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Italy’s government has presented details of its contentious labor market reform, saying it contains costs for companies as well as introducing flexibility for hiring and firing employees and new opportunities for young workers.

Premier Mario Monti and Labor Minister Elsa Fornero outlined the proposed legislation Wednesday after winning backing from three major parties. Monti said he expected that, in light of such support, Parliament would approve the reform package “as quickly as possible.”

Fornero acknowledged the difficulty Italians may have in accepting the changes, particularly the contentious issue of making it easier to fire workers. But she said: “The world has changed, and we have to try to adapt to a changed world.”

She said planned to travel across Italy to explain the changes to Italians and unions.

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The Real Estate Council of Ontario is feeling the heat from Toronto

The founder of BATS Global Markets says the U.S. exchange that withdrew its public offering on Friday after an embarrassing computer glitch should pursue a “credible” IPO plan in the second quarter.

Dave Cummings, who founded the BATS exchange and was its CEO till 2007, said in an email sent Sunday to people in the industry that it was a “freak one-time event,” because the computer program needed for an IPO was new. He said such bugs can easily be fixed, but recommended that all bonus plans at BATS should be suspended since “mistakes cost money.”

A BATS’ spokesman said Cummings’ opinions are his own and the company has “absolutely no comment” on the email.

Cummings sits on the board of BATS and is the owner of electronic trading firm Tradebot Systems and technology investment firm Tradebot Ventures. He also owns a stake in BATS.

On Thursday BATS’ initial public offering of its own stock priced at $16, the low end of what the company had originally predicted.

Shortly after starting to trade on Friday, the share price plunged to just pennies because of technical issues, according to the exchange. Trading in the stock was halted cash till payday. By late afternoon, BATS withdrew its public offering and said it had no plans to refile its IPO. All trades made were to be canceled.

The botched IPO was a blow not only to the exchange, but to its own plans for the IPO business. In February, BATS offered free listings to companies with shares that traded a certain amount each day, hoping to draw IPOs away from Nasdaq and the NYSE.

BATS, whose motto is “Making Markets Better,” strove to define itself as a tech-savvy exchange and said companies would benefit from its “world-class customer support and technology.”

Cummings said in his email that the software bug that led to the glitch would likely take less than a week to fix. He said that the company now needed a plan to move forward.

“BATS management should develop a plan to go public in the second quarter, if possible,” said Cummings. “This might seem tough, but I believe it is the only way to move past the issue.”

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Falkland Islanders are so accustomed to making do with what they’ve got that many still heat their homes with peat stoves, grow their own vegetables, repair their Land Rovers themselves and raise chickens for their soft-boiled eggs.

But now they’ve struck oil offshore _ potentially vast stores of it. Billions of dollars in taxes and royalties could soon flow their way, creating an entirely unfamiliar challenge: the prospect of sudden and tremendous wealth.

If the first strike alone can attract the major investment needed to start producing crude, this closely knit community of 3,000 people mostly descended from sheep farmers, soldiers and sailors could find themselves richer than sheiks.

They’ll rival the bankers of Liechtenstein and Lamborghini drivers of Qatar as the wealthiest people in the world.

Far from celebrating the millions of dollars that oil exploration is already pumping into their treasury, however, most islanders seem far more concerned about the troubles that rapid change might bring.

They like their way of life just like it is: tranquil, surrounded by nature and nearly crime-free.

“The important word here is ‘potential’ _ bolded and underlined several times. I’m potentially a lottery winner,” said Stephen Luxton, the government’s mineral resources director. “Don’t get me wrong: everybody’s excited about it, but we’re not going to spend money we don’t have.”

The reluctance comes from experience. Daunting political, technical, financial and environmental questions have kept the oil from flowing for years.

For one thing, Argentina still claims the “Islas Malvinas” despite nearly 180 years of British control and a failed occupation 30 years ago. President Cristina Fernandez is trying to use diplomatic and economic power to force Britain into sovereignty talks ahead of the April 2 anniversary of the 1982 invasion. Her Foreign Minister Hector Timerman said Thursday that Argentina will pursue “administrative, civil and criminal” penalties against the islands’ “illegal” oil industry.

With neighbors like these, islanders hope Big Oil money will enable them to fund their own defense and gain leverage in global trade.

“Oil means security for us. If we go back to being sheep farmers again, would the U.K.government stick up for us as much? I’d like to think so, but maybe not,” said Dan Fowler, a biologist born during the 1982 Argentine occupation.

Most islanders were tenant farmers who struggled to make a living on wool during their first 150 years as Britain’s colonial subjects.

But now they are a self-governing British Overseas Territory, deciding for themselves how to tax and spend. And they will surpass Arab oil barons in per-capita wealth if they get even a fraction of the $10.5 billion in taxes and royalties some industry analysts predict will flow from the Sea Lion field, discovered north of the islands last year by Rockhopper Exploration PLC.

While Rockhopper seeks a $2 billion partner to move toward producing the crude, Borders & Southern Petroleum and Falkland Oil and Gas Ltd. are drilling two exploratory wells each this year in much deeper water south of the islands.

It’s high-risk, high-reward, costing them $1.3 million a day with less than a 25 percent chance of success. But a big strike could prompt a rush to join what might be one of the world’s last new sources of fossil fuels in an era of peak oil.

The southern basin could hold ten times more than the Sea Lion field’s estimated 450 million barrels, with a potential payoff soaring above $100 billion, according to Edison Investment Research, a London-based financial analysis firm that published an optimistic “Falkland oils” report last month.

“It’s a game-changer for the Falklands,” said John Foster, a British board member of the Falkland Islands Company, the islands’ largest private employer and a minority shareholder in Falkland Oil and Gas.

The money could go a long way in the rocky, wind-swept islands, where just a few gravel roads connect remote settlements to Stanley, the only town.

They need a permanent port for bigger oil, fisheries and cruise ships, and hotels and paved roads so visitors can stay long enough to see historic sites and wildlife. Expanded drilling will require a dedicated fresh water system, and economic growth will require more windmills for the wind energy that already provides a third of the islands’ electricity.

Creature comforts might attract ambitious newcomers, creating a more sustainable and diverse economy. A bigger hospital could mean less travel to Chile or London for advanced care. More restaurants and a movie theater in Stanley would be welcome, and people naturally would like more money in their pockets.

But any windfalls will go straight into a sovereign wealth fund, islanders say. They don’t plan to pay themselves dividends, and joke that no one should expect their ubiquitous Land Rovers to become gold-plated.

“It’s not ‘way-hay, party-time!’ We’re certainly thinking about the future,” said Gavin Short, one of eight legislators. “We’re not going to turn into a society where we all sit at home with our seven maids and gardener and watch the telly. We’re all brought up to work.”

Veterinarian Zoe Luxton, a distant cousin of Stephen’s, has more fundamental concerns.

“Can this place survive it?” she asked. “Everything we’re saying we’re here for _ not locking your doors, the freedom, the tranquility _ can it survive so much money?”

The islanders are hiring experts to negotiate with major oil companies and plan for change, and examining how other small islands handled sudden wealth. Looking north of Scotland, they believe the Shetlands used oil royalties wisely to fund a vibrant economy, but that the Faroe Islands allowed oil to take over.

No one wants another Nauru, the Pacific “phosphate island” whose sudden mining wealth tripled the population, briefly making them the world’s richest per-capita, but destroyed their way of life. Nauru’s money disappeared through swindles and bad investments as the ground beneath them was shipped away. In less than a generation, the phosphate was gone, they had forgotten how to fish, and had to take in Australian inmates for income.

“They’re broke, they’ve had it,” Short said. “We’ve got only one shot at this and we’ve got to get it right. So we’ll go out and hire the best expertise money can buy.”

To attract investors, the Falklands promise some of the world’s lowest royalties _ 9 percent of the oil’s value sold as crude, combining with taxes for a one-third take. Taxes and royalties top 40 percent in the U.S. Gulf of Mexico, 50 percent in Brazil, 70 percent in Norway and 80 percent in Malaysia, according to the Edison report.

Any royalties would still add up to far more than the current revenues of $40 million, mostly from fishing and oil industry fees.

Engineering and environmental challenges still abound in the frigid and stormy southern seas. The petroleum found so far is waxy when cold, so must be heated while shipped. Any major spill where penguins, whales, seals and other birds and marine mammals are drawn to unspoiled coasts could make Falklands oil a bad bet.

“The political fallout from any environmental damage would be toxic,” Edison’s otherwise bullish report noted.

Falkland Islands Company chairman David Huff, another British investor, said “you can’t eliminate risk, it’s a part of life.”

But islanders have mixed feelings.

“You’ve got to be worried about it, haven’t you? A couple of missing safety checks and human errors and you’ve got a major blowout for days,” said Fowler, who hopes to make a career of studying wildlife in the islands. “On the other hand, where there is oil, there is more money to invest in environmental conservation.”

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China’s premier suggested Wednesday the rise of the yuan against the dollar has ended, possibly fueling tensions with the U.S. amid complaints the tightly controlled currency is undervalued and distorts trade.

Frictions over China’s currency are acute at a time when governments are trying to boost exports and avert a new global slowdown. Washington and other nations complain an undervalued yuan gives China’s exporters an unfair price advantage and wipes out jobs abroad.

Premier Wen Jiabao, speaking at a wide-ranging, three-hour news conference at the end of China’s legislative session, said the yuan has gained 30 percent in real terms since 2005 and has moved up and down since September in Hong Kong trading of nondeliverable forward contracts. Such contracts track the movement of currencies that are not freely traded, and are settled in dollars or other hard currencies.

“That shows that the renminbi exchange rate may possibly have reached an equilibrium exchange rate,” said Wen, the country’s top economic official.

Wen pledged to create a more flexible, market-based exchange rate system.

“We welcome greater elasticity of the renminbi exchange rate,” he said.

Wen’s comments are likely to frustrate critics including American lawmakers who are pressing for higher tariffs on Chinese goods.

China’s normally huge trade surplus plunged to a rare $31.5 billion deficit in February. Some commentators took it as a sign the yuan has reached a fair exchange rate. But others said it was a one-time event, noting China often has a trade deficit early each year as factories restock after the Lunar New Year holiday.

On Tuesday, the United States, the European Union and Japan opened a new front in trade disputes with Beijing when they filed complaints with the World Trade Organization challenging its controls on rare earths mining and exports. U.S. President Barack Obama accused Beijing, a WTO member, of going against free-trade rules it promised to follow.

Wen did not mention that case at Wednesday’s news conference but appealed for closer cooperation with Washington to resolve “difficulties and frictions.” He gave no indication of possible concessions on complaints about market barriers and other disputes.

Wen called for U.S.-Chinese collaboration in clean energy, environmental protection, aviation and other technology fields.

The premier also said China plans to invest in U.S. infrastructure _ a possibility first raised in November by the chairman of Beijing’s sovereign wealth fund cash advance today. Wen gave no timetable or possible targets for investment.

“China will make investment in infrastructure construction in the United States, and that will help contribute to the generation of local jobs,” Wen said.

Turning to the domestic economy, Wen announced no new reforms but promised more steps to achieve previously announced goals of making China’s economy cleaner and more efficient after three decades of rapid growth driven by low-cost labor.

Growth slowed to a still-robust 8.9 percent in the final quarter of 2011 after Beijing clamped down on credit and investment to steer the expansion to a more sustainable level from 2010’s double-digit rate. The government lowered its growth target this year to 7.5 percent from the 8 percent level in place since 2005.

“We hope China’s growth will no longer come at the cost of resource consumption and environmental pollution,” the premier said in nationally televised comments.

The World Bank and Beijing’s own researchers say the economy requires sweeping change to curtail the dominance of state companies and promote consumer spending to reduce reliance on exports. They say that if leaders fail to act, they might see growth stall, trapping China’s people at middle income levels.

Leaders appear to be postponing basic changes until a once-a-decade leadership succession is completed this year _ a delay some analysts say might increase the cost and difficulty of rebalancing the economy.

Wen said lending and construction curbs that have started to cool surging housing prices will remain in place despite complaints they might worsen an economic slowdown. Construction and real estate sales are key drivers of China’s growth.

The housing price surge was driven in part by the flood of stimulus spending and bank lending after the 2008 global crisis. Prices eased slightly in the second half of 2011 but are well above levels of recent years.

“Home prices in China are far from coming back to a reasonable level, so we must not slacken our efforts in regulation of the housing sector,” Wen said. “Otherwise, past gains will be lost and there will be chaos in the housing sector.”

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Cambridge police on Friday arrested two people ahead of a speech by Dominique Strauss-Kahn, the former International Monetary Fund chief whose career collapsed after he was charged with sexual assault.

Cambridgeshire Constabulary spokeswoman Sarah Redman said a man and a woman, both in their early 20s, were arrested on suspicion of vandalizing the university’s debating society building with messages critical of the 62-year-old French politician.

The Cambridge News website displayed photos showing the walls of The Cambridge Union Society defaced with messages including “DSK GO AWAY” and “WOMEN DESERVE BETTER.”

Strauss-Kahn was scheduled to speak at the society later Friday despite protesters’ calls for the event to be canceled.

Strauss-Kahn resigned as head of the IMF after allegations last May that he sexually assaulted New York hotel maid Nafissatou Diallo. Prosecutors later dropped criminal charges against Strauss-Kahn, but Diallo has brought a civil case against him.

Her lawyer, Douglas Wigdor, was scheduled to speak on Diallo’s behalf at a rival event Friday.

A statement posted Friday on the debating union’s website states that the invitation was made before Strauss-Kahn’s controversial departure from the IMF.

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The biggest inflows into India

Americans spent $50.96 billion on their pets in 2011.

That’s an all-time high and the first time in history more than $50 billion has gone to the dogs, cats, canaries, guppies and the like, the American Pet Products Association said in a report issued Thursday.

Food and vet costs accounted for about 65 percent of the spending. But it was a service category — one that includes grooming, boarding, pet hotels, pet-sitting and day care — that grew more than any other, surging 7.9 percent from $3.51 billion in 2010 to $3.79 billion in 2011.

APPA President Bob Vetere said 2012 should be another banner year for services, predicting it would grow 8.4 percent to an estimated $4.11 billion in 2012.

Owners are taking care of their pets, said Dr. Jessica Vogelsang, a San Diego veterinarian and author of pawcurious.com. “They are planning ahead. When they go on vacation, they want to make sure their pets are well cared for,” she said.

Spending in 2011 was up 5.3 percent from 2010, when it totaled $48.35 billion, Vetere said. He estimated 2012 sales would total $53 billion.

In 2011, people spent $19.85 billion on food, $13.41 billion on vet care, $11.77 billion on supplies and over-the-counter medicines, $3.79 billion on other services and $2.14 billion on live animal purchases.

In 2010, they spent $18.76 billion on food, $13.01 billion on vet care, $10.94 billion on supplies and over-the-counter medicines, $3.51 billion on other services and $2.13 billion on live animal purchases.

Food sales did slow, Vetere said, even though the 5.8 percent growth exceeded projections of 4.1 percent growth.

APPA numbers indicate that animal sales and adoptions are flattening out and the number of people who switched over to high-end food products is topping out.

Pet ownership is becoming less of an impulse decision, Vogelsang said. “I am seeing a lot of people saying, ‘This isn’t the time for us.’ People are more interested in pets than ever before but they are taking their time, once they make the commitment, to do it right.”

“I don’t think this is a bad thing. I am proud of the owners,” she said.

Pet insurance is another area that is expected to grow briskly, Vetere said. Included in the veterinary care category, insurance was estimated to be $450 million in 2011 and expected to grow to more than $500 million in 2012.

The pet industry is also a major attraction for entrepreneurs and investors looking for creative and innovative products, Vetere said.

Vogelsang believes the trend is toward “very specific items geared to the specific needs of pets. We are seeing a lot of puzzle feeders for dogs — not just toys but ones that are geared toward the mental needs of the animal. Then there are bionic toys for destructive chewers, a lot of very niche items,” she said.

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Dallas Federal Reserve Bank President Richard Fisher said on Thursday U.S. economic conditions were improving and repeated his view that further easing from the U.S. central bank was not needed.

“The tone is a lot better. It’s not brilliant; we don’t have enough new hiring taking place, (but we’re) definitely moving in the right direction,” Fisher told CNBC television.

“Given the improvement in the data that we’ve seen, things are getting better, not worse. I don’t see any need personally for QE3 here,” he said, referring to the possibility of a third round of central bond buying, or quantitative easing.

The Fed has held overnight interest rates near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related bonds.

After the central bank’s last policy meeting on January 24-25, Chairman Ben Bernanke said policymakers were still debating whether further bond purchases might be warranted.

At that meeting the Fed also said it expected to keep rates “exceptionally low” at least through late 2014, a statement that Fisher cautioned against viewing as an iron-clad promise.

“The intention, as I view it, of the committee is to make sure that we adjust to the real economy, and as new data comes in, more anecdotal evidence on top of that is confirming what the data says, then we will adjust. The question is when,” he said,

“I happen to be a little more optimistic about economic movement here” than some others on the Fed’s policy-setting panel, said Fisher, who is not currently a voter on the committee.

The Dallas Fed chief said he had told his colleagues at the January meeting that the central bank’s post-meeting statement might be unduly dour, given what he was hearing from corporate executives around the nation.

“At the last meeting … I warned that I thought the statement was talking down the economy,” he said.

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