Bank of America officials announced today the company will halt foreclosure sales in all 50 states.

The move comes less than a week after Ally Financial, which is the nation’s largest servicer of home mortgages, Bank of America and J.P. Morgan Chase all halted foreclosure proceedings in 23 states due to allegations that documents hadn’t been properly reviewed.

While the federal government looks to sort out the issue of improperly handling foreclosures, local real estate professionals believe the freeze could do more harm than good.

“This is going to really slow things down,” said Gerard Mildner, associate professor or real estate finance at Portland State University. “People are painting this issue as a sob story because people are going to lose their homes, but for the most part it’s just delaying the inevitable.”

The problem, according to local professionals, is that while foreclosure sales are stalled, the number of homeowners receiving notices of default, and entering the process of foreclosure is still adding up. This adds to what those in the industry call shadow inventory – the inventory of homes that are in the process of foreclosure but for whatever reason have yet to be foreclosed upon.

As long as the banks slowly release the foreclosures into the market, it doesn’t affect the pricing of the rest of the market. But if each bank has its supply of homes build up and then is forced to release a large number of those houses at once, the quick rise of supply could sharply drive down housing prices.

Since the allegations of improper foreclosure handling were made public, politicians, consumer advocates and civil rights organizations have come out against the lenders, asking for all foreclosure sales to be frozen. They also requested that an investigation be opened. Bank of America was the first institution to do so.

U.S. Sen. Jeff Merkley of Oregon, who is a member of the Senate Banking Committee, was the first politician to call for the freeze in a letter he wrote to U.S. Treasury Secretary Timothy Geithner and U.S. Secretary of Housing and Urban Development Shaun Donovan. In his letter, Merkley focused on Ally Financial.

“Ally Financial did not exercise proper professional standards as decisions were made about the fate of families struggling to maintain their homes,” Merkley wrote in his letter. “These reports are even more disturbing because the U.S. Government is a majority stakeholder in Ally Financial.”

The letter continues, “The recent freeze in foreclosures announced by J.P. Morgan Chase, GMCA Mortgage and Bank of America while internal investigations take place suggests that this problem may be widespread and not limited to poor management at a single company.”

But Mildner thinks Merkley is looking at the issue from the wrong angle.

“I think that’s a ballsy thing for a U.S. Senator to say,” he said. “It’s very distressing to me that he can’t see the bigger picture.

“Having that many homes in the process of foreclosure doesn’t just affect those being foreclosed on, it affects our neighborhoods as well as the rest of us who are paying our mortgages.”

When a house enters the process of foreclosure, the homeowner tends to become emotionally detached from it, according to Mildner. When this happens the home doesn’t get the improvements and maintenance it needs, which drives down prices in the entire neighborhood, he said.

While Mildner would like to see foreclosure sales continue to go through as the government conducts an investigation, Bank of America is sticking to its new policy.

According to a statement on its website, Bank of American is suspending foreclosures until an assessment of its practices are completed. Any errors are most likely technical, the financial institution said.

Lynae Forbes, vice president of broker services at the Hasson Company Realtors, agrees that the move could hurt the industry. But she also mentioned a silver lining.

“For whatever reason banks have been hesitant to finalize short sales in recent months,” Forbes said. “But in order to not backlog their foreclosures they might be willing to look at more short sales as a solution.”

While Forbes is trying to remain optimistic, she and her fellow co-workers have no idea what’s actually going to come out of this.

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When working on a recent story about transportation system development charge overlay zones, I had an interesting conversation with , an associate professor of real estate finance at Portland State University.

On the topic of light rail, Mildner informed me that constructing and maintaining a light rail in Portland is ten times more expensive than buying, operating and maintaining a bus.

“The thing that is sad is that has put so much money into light rail it is taking away from bus service,” Mildner said.

In addition to the Blue, Green, Red and Yellow lines, the city of Portland and TriMet have been planning the since 2008. The line will run from the Portland State University loop on Lincoln Street in downtown, through Macadam Avenue, over the river by OMSI and south to Milwaukie.

In order to fund the project the city has dipped into several different sources. The city will use $10 million from the North Macadam SDC overlay zone, a combined $10 million from the University and Central Eastside overlay zones, $10 million from the North Macadam Urban Renewal Area and $5 million from the City of Milwaukie.

In order to receive the substantial amount of funds it takes to construct a light rail from URAs and SDC overlay zones, the lines have to be redirected through the areas. So the city has to weigh taking the most efficient route with saving money.

In the case of the Portland to Milwaukie light rail it would seem more beneficial to cross more northward and service more inner-Southeast neighborhoods. But to get the $20 million from the various North Macadam programs, the line had to go through it. Then again it will service the South Waterfront, an up-and-coming neighborhood.

In the end Mildner said public transportation is all about value compared to cost. You always want to use transit dollars to add value service on a bang-for-buck basis, and light rail don’t really do that, he said.

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When working on a recent story about transportation system development charge overlay zones, I had an interesting conversation with , an associate professor of real estate finance at Portland State University.

On the topic of light rail, Mildner informed me that constructing and maintaining a light rail in Portland is ten times more expensive than buying, operating and maintaining a bus.

“The thing that is sad is that has put so much money into light rail it is taking away from bus service,” Mildner said.

In addition to the Blue, Green, Red and Yellow lines, the city of Portland and TriMet have been planning the since 2008. The line will run from the Portland State University loop on Lincoln Street in downtown, through Macadam Avenue, over the river by OMSI and south to Milwaukie.

In order to fund the project the city has dipped into several different sources. The city will use $10 million from the North Macadam SDC overlay zone, a combined $10 million from the University and Central Eastside overlay zones, $10 million from the North Macadam Urban Renewal Area and $5 million from the City of Milwaukie.

In order to receive the substantial amount of funds it takes to construct a light rail from URAs and SDC overlay zones, the lines have to be redirected through the areas. So the city has to weigh taking the most efficient route with saving money.

In the case of the Portland to Milwaukie light rail it would seem more beneficial to cross more northward and service more inner-Southeast neighborhoods. But to get the $20 million from the various North Macadam programs, the line had to go through it. Then again it will service the South Waterfront, an up-and-coming neighborhood.

In the end Mildner said public transportation is all about value compared to cost. You always want to use transit dollars to add value service on a bang-for-buck basis, and light rail don’t really do that, he said.

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Cities around Oregon have been waiving or reducing system development charges to help spur development during the economic downturn. Portland, meanwhile, is preparing to adopt additional SDCs for the Portland State University and Central Eastside districts.

City Council on Monday approved a one-year contract with Redmond, Wash.-based consulting firm Henderson, Young & Co. The firm will help the Portland Bureau of Transportation create two overlay zones where transportation SDCs can be added to the citywide SDC fee. The fees help pay for transportation-related projects, which in this case is Portland-to-Milwaukie light rail.

SDCs help pay for parks, sewer improvements and other systems to support new development. While SDCs can help pay for public services, they can also scare away developers.

In the past year, Molalla, The Dalles, Grants Pass, Roseburg and Gresham all have either waived or reduced certain SDCs. Even Portland has eliminated the SDC for adding a second living unit onto a residential property.

“There is definitely a fair amount of controversy surrounding SDCs,” said Gerard Mildner, an associate professor of real estate finance at Portland State University’s Center for Real Estate. “On one side they make developments more expensive, but once the SDCs are used they theoretically make the development more valuable.”

Henderson, Young & Co., which previously helped Portland develop its citywide transportation SDC and its North Macadam overlay zone, will create a project list, develop a zone map and conduct trip-rate studies to determine the new fee. The first $5 million from the overlay zones will be combined with $10 million collected from the North Macadam overlay zone and go toward the Portland-to-Milwaukie light-rail project.

Art Pearce, project manager with the Portland Bureau of Transportation, understands the controversy and implications associated with adding a SDC in this economic climate. But the end benefit will outweigh the costs, he said.

“There’s always a balancing act between generating fees and creating a fee structure that hinders possible developments,” Pearce said. “But if this is done right, which we believe it will, it will be a benefit in the long term.”

Randy Young, a senior partner at Henderson, Young & Co., added that his firm has found that waiving SDCs hasn’t spurred development.

“A lot of jurisdictions heard from the development industry as the economy slowed down that they needed a break on SDCs,” Young said. “And since those jurisdictions have given them breaks, we now have evidence that SDC charges have little to no effect on developments.

“The economic troubles of developers are a result of tight credit, a large inventory and high unemployment. It has nothing to do with the few thousand dollars for SDCs.”

Mildner is aware of the benefits of additional public transportation infrastructure, but added that he doesn’t understand why the city is pursuing an SDC overlay zone rather than creating a new urban renewal area or a business improvement district.

“Normally they would use a URA or BID to help fund a light-rail project,” he said. “I have to believe they could get more money using one of those methods because SDCs are only one-time payments.”

Mildner said adding an SDC is most likely a tactical move. The city is not only bumping into its urban renewal area limits within the city, but URAs are also losing popularity because they divert money from schools and county governments. Also, a BID requires approval from all property owners in the district, but an SDC does not, he said.

Pearce said the loop-closing streetcar project would most likely be considered a priority for funding through the SDC overlay zones. PBOT and Henderson, Young & Co. will start holding stakeholder meetings for the projects this fall. The SDC overlay zones are slated to be adopted by the end of 2011.

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Since construction on the Park Avenue West tower ground to a halt last year when the financial markets tightened up, the project has become perhaps Portland’s most visible symbol of recession: a fenced-up, 40-foot-deep hole in the ground with rusting rebar sticking out. But the project’s half-started status could end up helping it, according to some local real estate professionals.

“A lot of people paint this hole in the ground as a great tragedy. But the costs accrued on the project so far aren’t lost; they are sunk into the project,” said Gerard Mildner, associate professor of real estate finance at Portland State University.

Tom Moyer, owner of TMT Development, decided to start construction on Park Avenue West on a speculative basis, with no tenants or financing lined up. It wasn’t the first time he had taken such an approach to constructing a building in Portland. In 1997, he used his own money to start building the Fox Tower, relying on word of mouth to attract both financing and tenants. By the time the 27-story building opened in 2000, 93 percent of it was leased.

The Park Avenue West project, however, was plagued by bad timing and tightening financial markets. Law firm Stoel Rives pre-leased 11 floors, but that wasn’t enough to convince lenders to extend a loan for the project. As a result, Moyer stopped construction on Park Avenue West.

But Mildner thinks the project can still be successful, based on the makeup of the office market in Portland’s Central Business District.

“You would think First & Main being delivered would be a nail in the coffin for the Park Avenue West project,” he said of the First & Main building that recently finished construction. Several federal agencies moved from the Edith Green–Wendell Wyatt Federal Building – which is being renovated – to First & Main.

“(First & Main) doesn’t free up any space because most of it was absorbed quickly with long-term leases from various federal agencies,” Mildner said.

Mildner suspects the costs of keeping the Park Avenue West project stalled are actually low, relative to the overall cost. Other than fees associated with rental fencing and crane management, no other substantial costs are likely involved, he said.

Considering that foundation work has already started and that the permitting process has already been navigated, both the developer and the city have incentive to get this project moving again, Mildner added.

Based on state building codes, a municipality can pull the permits on a stalled project after six months if the developer doesn’t pay to have a full inspection performed on the project in that time period, said Ross Caron, spokesperson for the Bureau of Development Services. But the municipality also has the discretion to extend that time period.

“In the case of Park Avenue West, where the problem was a financing issue, BDS is willing to extend that time period as long as the developer is keeping the site safe and secure,” he said. “Both the developer and the city have an incentive to see this project through.”

The Portland Development Commission has an incentive, from an economic development standpoint, to see the project restart. But the city also has an interest in it from a financial standpoint, with the $1.3 million in property taxes that the tower is projected to bring in on an annual basis.

“The problem with Park Avenue West from our standpoint is that there is no money available to help them out,” said Shawn Uhlman, spokesperson for the PDC. The last year the project could borrow money against the South Park Blocks Urban Renewal Area was 2008.

Cities across the country are trying to come up with practical solutions for using property where construction projects are stalled. The Seattle Department of Planning and Development earlier this month announced legislation that would give developers a break on property taxes for allowing their unbuilt properties to be used as parking lots, or to house food carts or retail kiosks. Vancouver, B.C., is giving tax breaks to idle project lots turned into community gardens, dog parks or green spaces while waiting out current market conditions. But Portland hasn’t had enough halted construction projects to warrant looking into such solutions, Uhlman said.

Mildner doesn’t think the Park Avenue West site would be suitable for an alternate temporary use. And that’s not necessarily a bad thing, he said.

“The fact that we have a motivated property owner with these sunken costs isn’t the worst thing in the world,” Mildner said. “And I suspect the added costs of having the crane there and keeping the site secure is pretty trivial compared to shutting the entire thing down and losing the sunken costs.”

The stalled status of Park Avenue West could actually end up benefiting the project, according to Brian Owendoff, managing director of CB Richard Ellis‘ Portland office.

If the project were to move forward soon, it would have a significant lead on any other similar projects, and have an edge in attracting tenants. Speed of delivery is a huge advantage, Owendoff said.

And considering that the foundation has been constructed for the specific project, there is no financially feasible way to build anything else, Mildner added.

In the meantime, Vanessa Sturgeon, president of TMT Development, is providing few specifics about the future of the project.

“There are some costs adding up, so we will have to make a decision with what we want to do,” Sturgeon said. “But it’s going to take us a little more time to make that decision.”

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