Activity in Texas factories during the month of November showed signs of growth, according to a new survey from the Federal Reserve Bank of Dallas.

The production index turned positive for the first time since July of 2008, the Fed said. Other areas that moved into positive territory this month include capacity utilization, shipments, new orders and an increased rate of orders, according to the report.

The Fed says the business activity index also improved in November, while price pressures were still “mixed.”

According to the report, producers are still seeing rising costs associated with raw materials and expect going forward that price increases on raw materials will continue for at least the next six months.

MIAMI – Like many home owners, hotels are starting to drown in debt.

They have been enticing travelers all year with sweet deals: credits for in-house spas and restaurants, up to 50 percent off five-star rooms, even free nights.

But all that discounting hasn't stopped occupancy from dropping an average of 10 percent. The result? Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt.

The rising defaults paint a grim picture for an industry with increasingly more rooms than guests, and more hotels still opening every day. It's a problem that could get worse before it gets better, with demand expected to remain weak and ambitious new projects planned before the meltdown worsening the room glut.

The oversupply means room rates should stay low for at least another year, good news for consumers but not so great for hotel owners and the banks that lent them the cash to build or buy.

The rise in delinquencies is sharp. Five times more hotel loans are behind on payments this year than in 2008, according to mortgage data firm Trepp LLC, which tracks those traded by investors. In October, 8.7 percent were distressed, compared with 1.5 percent last year.

That's almost double the 4.8 percent rate for commercial property and the 4.5 percent rate for stores.

"Right now is an absolutely horrible time to be in the hotel business," said Ben Thypin, senior market analyst for market research firm Real Capital Analytics.

What happens when a hotel loan goes bad? Banks are much less willing to seize them than houses because running a hotel requires know-how. But some hotel owners are just handing back the keys where property values have plummeted.

In most cases, it is investment funds falling behind on payments, not major hotel companies. They generally don't own much property, instead franchising brands and earning a percentage of sales.

Most of the 1,231 U.S. hotels and casinos with troubled financing are remaining open. So, in the short term at least, consumers can expect to see deals on room rates for at least another year. Executives at STR Global, the hotel research firm, expect demand to rise 1.6 percent in 2010, but average rates to drop 3.4 percent.

Not in the 20 years the firm has collected hotel data has supply and demand been so far apart — not even in the early 1990s recession or after Sept. 11, 2001.

In July, even the posh California resort where American International Group employees vacationed after the company got bailout funds — inciting a wave of populist rancor — was taken over by a lender. Franchisor Starwood Hotels & Resorts Worldwide Inc. is still operating the St. Regis Monarch Beach, but such upscale resorts are still struggling without Wall Street business.

Extended Stay Hotels LLC filed for Chapter 11 bankruptcy protection in June, with $7.6 billion in debt across 681 residence hotels that also depend on business travelers. And Red Roof Inn Inc. defaulted in June on $361.4 million in loans on 131 properties.

Most of the distressed debt is on new or newly renovated high-end resorts built from 2005 to 2007 on dreams of corporate meetings and cocktail hours. Luxury projects approved before the recession are still opening this year and in 2010 — including three Ritz-Carltons.

And even more new hotels are on the way. Because outside investors have to secure the loans and take the biggest risk, hotel chains intend to keep growing — even at the high end.

Starwood is adding 45 luxury and upscale hotels to its U.S. portfolio this year, and about 23 in 2010. InterContinental Hotels and Resorts is signing a contract every day to add to its more than 4,300 properties, the world's largest by room count, said Jim Abrahamson, the British company's leader in the Americas. This year, 335 of the company's new hotels are in the U.S.

Starwood CEO Frits van Paasschen brushes off critics, saying "rumors of luxury's demise are greatly exaggerated."

"As you look back on the excesses of the 1980s, 'The Bonfire of the Vanities,' the run-up in prosperity around the Internet boom — even going to Pompeii and seeing the way people were being pampered 2,000 years ago," he said. "I think luxury, taking care of yourself, taking care of your family and those around you is so fundamental to the human experience."

By Corbett B. Daly

WASHINGTON (Reuters) - U.S. commercial real estate activity in the third quarter rose for the first time in more than two years but is still sharply down from a year earlier, a real estate trade group said on Thursday.

The National Association of Realtors said its Commercial Leading Indicator for brokerage activity index rose 0.9 percent from the prior quarter's fifteen-year low to 102.4, the first rise since the second quarter of 2007. Still, the index is 11.1 percent below the 115.3 reading in the third quarter of last year.

NAR chief economist Lawrence Yun said gains in industrial production, durable goods shipments and retail sales contributed to the modest recovery in the past quarter.

Yun said that the outlook for commercial real estate remains uncertain.

"Credit availability needs to significantly rebound for any hope of a meaningful commercial recover in 2010," Yun said.

The realtors said they expected vacancy rates for office space to rise to 18.5 percent in the third quarter of next years, up from 16.9 percent in third quarter 2009.

Separately, the Mortage Bankers Association said delinquency rates of mortgages on one-to-four unit residential properties in the United States rose to 9.64 percent in the third quarter of 2009, the highest on records going back to 1972.

The realtors expect vacancy rates on one-to-four unit residential properties to rise to 7.9 percent in the second quarter of next year. Multi-family vacany rates were 7.3 percent in the third quarter.

DALLAS MORNING NEWS

Tuesday, November 24, 2009

By BRENDAN CASE and STEVE BROWN / The Dallas Morning News

The Texas economy threw off mixed signals in October, with expanding payrolls but a rising unemployment rate.

Employers boosted payrolls by a preliminary count of 41,700 jobs last month – a significant piece of good economic news after a year of nearly uninterrupted monthly job losses.

But the unemployment rate edged up to 8.3 percent from 8.2 percent in September, the Texas Workforce Commission said Friday.

The state has lost more than 300,000 jobs over the last year, and Waco economist Ray Perryman described the October report as a "pleasant surprise." He warned, though, that it's too early to say the positive number marks the beginning of sustained job growth.

"It is certainly too early to call this number a trend," he said. "I do not think we are yet at a point where we can count on job growth every month, but we should begin to see an overall pattern of gradual increase with more up months than down."

How could the jobless rate rise when the economy added jobs?

Payroll employment and the unemployment rate tend to track each other over time, with the jobless rate typically going down when job creation increases.

But the two indicators are based on separate surveys, and it's not uncommon for them to move in seemingly contradictory directions in a particular month.

Moreover, if employers continue to add jobs, more people could come back into the labor force to look for work. That could cause the unemployment rate to rise even while the economy is recovering.

In October, job gainers included education and health services, where employers added 14,900 positions, and professional and business services, up 10,800 jobs. Employers added 4,500 jobs in financial activities.

Employers cut only 200 manufacturing jobs in October, after slicing much more deeply earlier in the year. But the construction industry shed another 9,400 jobs last month.

Texas was not the only state to add jobs in October – in fact, two of the nation's most economically troubled states also posted employment gains. Michigan picked up 38,600 jobs, while California added 25,700, according to the U.S. Bureau of Labor Statistics.