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Current quotas will be maintained by the cartel

March 16 (Bloomberg) — OPEC agreed to maintain current production quotas, concerned that a fourth cut since September risked increasing energy costs during the worst global economy in six decades.

The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world’s crude oil, will aim to complete existing production cutbacks agreed to late last year and meet again on May 28 to review policy, Secretary-General Abdalla el-Badri said after yesterday’s meeting in Vienna.

OPEC members still need to trim about 800,000 barrels a day to comply with the record output reductions decided in December after oil slumped more than $100 a barrel from July’s record. Global inventories have started to fall, indicating the policy is working. A new cut threatened a price increase that could harm the economy, Saudi Arabian Oil Minister Ali al-Naimi said.

“They’ve decided that, in the medium term, the danger to the global economy was greater than the danger of high inventories,” David Kirsch, an analyst with Washington-based consultant PFC Energy, said in an interview in Vienna. “A rollover should be sufficient to draw down inventories to acceptable levels by the third quarter.”

The collapse in oil prices has cut costs for consumers and business, one of the few bright spots in a bleak economic picture. Finance chiefs from the 20 biggest developed and emerging economies pledged a “sustained effort” to end the recession after a weekend meeting. The International Monetary Fund predicts the first global economic contraction in six decades.

Demand Drops

Higher prices could further erode global oil demand, already forecast to fall by 1 million barrels a day in 2009. Oil futures fell after the OPEC meeting, dropping as much as $2.40 a barrel, or 5.2 percent, to $43.85 a barrel in New York. Prior to OPEC’s decision, oil prices had gained 3.7 percent this year.

“A lot of people would have been surprised by OPEC’s lack of action,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “It’s quite bearish.”

Algerian Oil Minister Chakib Khelil, who had argued for another cutback prior to the meeting, said afterwards that all OPEC members will make an “extra effort” to comply with the existing cutbacks. Oil prices will not rise a lot after yesterday’s decision, he added.

The crude oil production target for 11 OPEC members bound by quotas is 24.85 million barrels a day, while actual output from those countries averaged 25.715 million barrels a day in February, according to an OPEC report published on March 13 that cited data from secondary sources including analysts. That means the group had completed 79 percent of its promised reduction.

‘Fully Adhere’

“Now it is time to fully adhere to the cuts we agreed upon,” Qatari Oil Minister Abdullah Bin Hamad Al-Attiyah said after the meeting.

Saudi Arabia, which pumps more than twice as much oil as Iran, OPEC’s second-largest producer, is the only member to cut more output than agreed last year. Iran and Nigeria have made good on only about half of their promised reductions, according to figures OPEC released March 13. The group agreed to three cutbacks late last year totaling 4.2 million barrels a day.

The 12-nation producer group doesn’t expect a rapid recovery in prices to $75 a barrel, the level that several ministers and Saudi King Abdullah have previously said is appropriate to encourage investment in the industry.

‘Find Balance’

“The situation creates a lot of uncertainties, but we believe that by the end of the year we will find a balanced oil price,” OPEC President Jose Maria Botelho de Vasconcelos, who is also Angola’s oil minister, said at a press conference after the meeting. “We need to adhere and then in May we can look if other measures can be taken.”

OPEC’s el-Badri criticized Russia and other non-OPEC producers for failing to restrict their own output to support oil prices.

“I have not seen any action as far as production reduction is concerned,” he said in an interview. “I don’t see anything form Norway, I don’t see anything from Mexico. It’s not a free ride or a free lunch.”

The group already faces a 61 percent plunge in net oil revenue this year amid declining production and prices, according to the U.S. Energy Department, which estimates OPEC will earn $383 billion in 2009 from crude exports. Global oil demand is set to decline for a second consecutive year, the first back-to-back drop since 1983.

IEA Forecast

The Paris-based International Energy Agency last week cut its 2009 forecast for oil demand for a seventh month, and reduced supply estimates, as the global economic slump saps consumption as well as investment in new fields. Both the IEA and OPEC see demand slumping more than 1 million barrels a day this year, to about 84.5 million barrels a day.

“By meeting again in May, they can adjust targets should economic conditions deteriorate,” PFC’s Kirsch said. “The steps they’ve already taken are starting to have some effect, we’ve started to see crude inventories in the U.S. come down.”

OPEC’s May 28 meeting and an already scheduled Sept. 9 summit will both take place in Vienna, where the group’s secretariat is based. El-Badri’s term of office was extended for another three years from 2010.

Where to work ?

A few weeks ago, a Facebook status update announced that my friend—let’s call her Dorothy—had received her first unemployment check. I clicked on some pictures expecting to see tears and instead saw her drinking Red Bull and flashing her pearly whites. The photographs were presumably taken after she lost her job since, in New York, the first unemployment checks take between three weeks and two months to arrive. After I logged off, the images lingered like an unfinished equation.

With some wonder, I started seeking out stories that, in a few short strokes, fulfilled every negative stereotype associated with Generation Y, the so-called entitlement generation. They’re easy to find. One unemployed Gen Yer is living out a life dream, traveling India and paying for hostels with unemployment checks. A particularly desperate male had to actually move back into his parents’ beautiful two-story house in Connecticut and is on a weekly allowance from the state. What’s striking is that the stories are told with refreshing honesty; there appears to be no real effort to mask anything. “I was trying to find another job, but I was being very selective,” says a mid-20s male who was laid off from a job in L.A.’s music industry in early 2008 and who collected unemployment for six months. “I was, admittedly, being a pompous prick.”

The stories continued, some with genuine guilt about receiving public benefits. “I collected unemployment for two months, and I felt incredibly guilty. Is that the norm?” asks a mid-20s female elementary-school teacher living in Montana. She described a number of people who live in her mountain town who work seasonal jobs and collect unemployment the rest of the year. The guilt came up again. “I do feel guilty. I do. I heard New York has to borrow something like $100 million from the government to pay for everyone on unemployment,” says a mid-20s male who worked in telecommunications in Chicago and New York. He continued, “I was laid off in 2007, and I didn’t collect unemployment because I thought I was too good to collect it. I didn’t want to be a drain on the economy.” That was before his family lost 90 percent of their net worth with Madoff. Even now, he admits, “I haven’t even gotten the rude awakening yet.” This last story is from one of my good friends, and I asked him if I could include it. “Sure. Mention it all. Just don’t use my name. Slam us.”

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Generation Y grew up in the ’80s and ’90s; when we’re classified by academic studies and articles we are, at our best, more civic-minded, more progressive, more community-oriented, more interested in the work-life balance than the generation before us. At our worst, we’re arrogant, spoiled, and immature. Who can blame us? When the recession officially began in December 2007, everyone on the Forbes 400 list was a billionaire and “The Apprentice” was beginning its sixth season. How could there be anything but a thin awareness of real financial hardship? Go down the list of the things that occupied the cultural imagination during these decades. Start with Baby Jessica and stop when you get to Ritalin. The reality today is not ignorance or even materialism. It’s merely a potentially devastating unseriousness, like listing lying as one’s favorite activity on Facebook.

Consider the financial sector, past and present. The year the ship started to sink, 58 percent of the males in Harvard’s graduating class accepted jobs in finance and earned twice as much as graduates working in other industries. By comparison, 1980 — the birth year that roughly marks the beginning of this generation — shows an equal distribution of salary between financial and nonfinancial industries.

Although the number in the Masters of the Universe club is dwindling every day, most still have more savings than their neighbors, a piece of valuable art, a $500 tie. Some think they got a good arrangement. “So many people are getting laid off that are married with kids. I’m getting laid off because I hate my job and in the process, I get severance and I get unemployment,” says one mid-20s male who lost his job this month. “It’s crazy if you think about it, that I qualify for the same thing.”

This is not a memo against unemployment benefits for Generation Y. The unemployment program is a product of Franklin Roosevelt’s New Deal, meant to act as an automatic stabilizer to the economy and provide unemployed workers with temporary relief. As we move closer to our own Great Depression, “stabilizing” and “temporary relief” make a lot of sense. As for Gen Y, why shouldn’t we receive our fair share, as well? After all, these employees paid unemployment taxes to their employers, who paid taxes to the state. But then re-examine the original premise of unemployment insurance: to assist with basic needs. There is a surreal disconnect between the privileged unemployed and President Obama’s recent injunction to the young and suffering to endure, to rise up, because not to means: “It’s not just quitting on yourself, it’s quitting on your country.”

The U.S. Department of Labor released more dismal statistics last week. Unemployment has now hit 8.1 percent, the highest figure in a quarter-century. What’s worse, 13.8 percent of these people are under 29, up from 9 percent in December 2007. The people who have elected to return to school aren’t counted in these numbers, nor are part-timers or the students who have just graduated.

To be fair, all of Gen Y isn’t universally waiting for unemployment. There are also stories like Christine Marchuska, a name I can use. She is 28 years old and was laid off from her finance job in May 2008. It took her six months before she successfully started her own sustainable clothing line, of which 5 percent of net proceeds go to charity. It’s all relative, of course. Another entrepreneurial woman suddenly couldn’t afford yoga classes. She was so determined to get them back that she cut an ingenuous deal with the owner: She would clean the entire studio after every class she took. The owner happily agreed. Welcome to the 21st-century barter economy, a la 1935.’

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But perhaps the generation’s schizophrenic response to the economy stems from resignation about the trillion-dollar deficit, a multitrillion-dollar debt to the Chinese, and a health care system that is going to become everyone’s worst nightmare. The reality is dark, but messages are still mixed. Stop spending and pay down your credit card bill, but please spend, because there is a macroeconomic benefit to any money in the economy right now.

A labor market defines a culture, but it also works the other way around. Generation Y’s values are going to define the future labor market, the way the economy is rebuilt, our new way of life. Yes, a tornado has picked up our house full of bling, taken us from one world and deposited us in another. And yes, we’re still viewing it with Pink Floyd blasting in the background. But change is slow, and old habits die hard. The sense of urgency may not be awakened, but most turning points are made without awareness until months, years, even decades later.

Renter uprising begins

Nicholle Krause first noticed the weeds sprouting in the usually well-manicured grounds of her 320-unit apartment complex in Chandler, Ariz., in December. Soon, signs of neglect began multiplying: Garbage spilled over from the dumpsters, the water in the swimming pool turned a slimy pea green and the grounds were infested by swarms of bees — especially alarming because Krause is severely allergic to bee stings.

“I couldn’t even go outside to enjoy where I live,” said Krause, a 21-year-old office worker who pays $827 a month for a one-bedroom apartment with garage space. “I shouldn’t have to pay $800 a month to live in a … hole.”

It wasn’t until early March that Krause and other residents learned why the complex – the alluringly named Alante at the Islands — was rapidly going to seed. The property owner, Irvine, Calif.-based Bethany Holdings Group, had abandoned the complex and a dozen other large rental properties in the greater Phoenix area after defaulting on hundreds of millions of dollars in loans.

As panicked renters in Arizona began holding public meetings to explore whether they could walk away from leases, recoup security deposits or sue, it became clear that the scale of the mess was far larger than they had realized. Companies under the Bethany umbrella owned at least 60 — and possibly many more — large residential complexes across the nation, all of which are now believed to be in bankruptcy or receivership, potentially affecting tens of thousands of renters.

The Bethany Group meltdown highlights how few protections exist for renters caught in the foreclosure crisis. That’s a situation that some experts say is becoming much more common.

“People were paying attention to the single family resident market, the 100 percent, no-down loans,” said West Coast real estate investor and broker Virgil Hobbs, who is bidding on some of the distressed Bethany properties on behalf of clients. “And then beyond that wave is the commercial market, which is what you’re now seeing now.”

When commercial residential properties change hands, tenants typically don’t feel much impact. But in this case, where properties were simply abandoned, the situation was chaotic.

Threats of utility shut-offs
In one abandoned Bethany property — the 500-plus-unit Granite Bay in Phoenix — tenants were served notice by the water company on March 6 that their water would be shut off in five days because of an outstanding $64,000 bill. Alarmed residents only found out shortly before the deadline that a Las Vegas company, 707 Management Services Inc., had been appointed as receiver for the property and would see that the water remained on.

Other Bethany complexes were threatened with gas or electricity shut-offs due to non-payment of bills. And staff at many of the Phoenix area properties said they had not been paid for a month or more before courts began appointing receivers to assume control of the complexes.

The precise size of the Bethany rental empire is difficult to establish because the company owns apartment complexes both under its corporate name and numerous affiliated companies.

At least 18 related entities — limited liability corporations, or LLCs, registered in Delaware that own properties in Texas — filed for Chapter 11 bankruptcy this month, leaving open the possibility that they will reorganize and try to pay creditors.

But many other Bethany properties are now in the hands of court-appointed receivers, indicating that Bethany has essentially abandoned them. The receivers — appointed to represent creditors —are charged with preserving any remaining value of the assets, managing them during foreclosure and recovering whatever they can for lenders, typically by selling at a deep discount.

Bethany CEO Greg Garmon could not be reached for comment. Answering services at Bethany’s main line and Garmon’s office said voicemail boxes were full. The Bethany Group’s Web site no longer works, though the cached version of its introductory page still asserts that “It’s all about people and their homes.” The main office number at Alante at the Islands no longer works.

San Diego company handling 24 properties
San Diego based Trigild Inc. has been appointed receiver for 24 of the Bethany properties, including seven in the Phoenix area. Just 13 of the properties under Trigild’s supervision represent more than $500 million in loan defaults, according to Trigild President Bill Hoffman. Those cases are being handled by five different courts in Arizona, California, Colorado and Florida. Five other large properties in Phoenix are in receivership under 707 Management.

Hobbs, the real estate broker, said he approached Bethany several months ago to inquire whether the company was interested in selling some of its properties after hearing rumors that the company was in trouble. He said he was told that the company’s portfolio contained more than 80 properties. But he said the company denied it was experiencing any financial difficulty.

“We walked away scratching our heads, saying they either got their heads in the sand … or they don’t care about (thousands of) tenants,” he recalled. “Don’t tell me they are just going to let the ship sink.”

Hoffman, the president of Trigild Inc., which is now responsible for Alante at the Islands among other Bethany properties, said the appointment of receivers by the courts should be seen as good news by tenants.

“The tenants are going to be better off with us,” Hoffman promised. “They will see improvements very quickly. The properties will be clean, and functioning properly within a few days.”

As a practical matter, a receiver has a strong incentive to keep tenants happy. They are the source of a property’s cash flow, and occupancy rate is a key factor in determining value. And by the second week of March, some upkeep issues had been addressed at the Bethany complexes. The Alante swimming pool was cleaned and trash pickup resumed. Trigild also is paying former Bethany employees who stayed on in the complexes, according to Hoffman.

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But by law, Hoffman said, the receiver is not liable for security deposits from renters who signed leases before the receivership went into effect.

“There is no obligation for the receiver or the lender to give (tenants) deposits that they don’t have,” said Hoffman. If the deposits had been handed over to Trigild it would be different, he said, “but that owner (Bethany) has obviously spent that money or done something with it.”

Chances that tenants will get back the deposit are slim, said Ed Valenzuela, executive director of the Arizona Fair Housing Center.

‘Most of the time, the tenant is out of luck’
“They could go to court and sue (Bethany) for it but if the property is in foreclosure where is the money going to come from?” he said. “Most of the time, the tenant is out of luck.”

That’s especially true in Arizona.

A recent report by the National Law Center on Homelessness and Poverty ranked the state among the worst in the nation for renters living in a property that is foreclosed upon.

For example, in Arizona and at least 30 other states, there is no legal requirement to notify tenants that the property is going through foreclosure, it said. And only New Jersey and the District of Columbia explicitly preserve tenants’ rights in the lease after a foreclosure.

The report, co-sponsored by the National Low Income Housing Coalition, warned that renters affected by foreclosure are at greater risk of homelessness, and called for federal and state governments to beef up protections. Legislation to do that has been introduced in Arizona, but it has not yet been acted upon.

Until now, the biggest problem facing renters has been summary eviction following a foreclosure. But the demise of the Bethany group raises different problems, since the new owner would have a wide range of options with a commercial property.

“The real issue is who is going to take over the property and what are they going to do with it?” said Ken Volk, who runs the Arizona Tenants Advocacy and Association in Tempe and has been advising some of the Bethany renters. “These tenants, if they leave, they could be held to the lease if the new owner wants to run it as a rental. If they don’t want to, the landlord could terminate the lease and say you have to get out, very often within five days.”

Volk has been organizing residents at the Bethany complexes to press for better treatment and has helped others legally break leases — a service for which he charges a fee.

That incenses Hoffman, who argued that such activities could amount to illegal interference.

“If he’s going to advise people to break the lease I’ll have him before the judge,” he said. “He’s certainly not going to interfere in any way with our possession and control of the asset.”

A confrontation with police
Trigild called Chandler police last week to alert them to a meeting at which Volk and about 100 Alante at the Islands residents were discussing possible next steps on property adjacent to the apartment complex. According to witnesses, eight or nine officers pushed their way into the crowd to disperse it, prompting a shouting match among tenants, police, the apartment manager and Volk before the meeting broke up.

“It was intimidating,” Volk said of the confrontation. But he said he will continue working with the tenants and dismissed Trigild’s criticism that he is intervening simply to profit off the tenants’ fears.

“I might make a little,” he said. “But the motivation is to help people. It’s what I do.”

He said the primary service he provides it to help renters understand how to legally break leases.

“By and large tenants … have no clue what to do,” he said. “They figure the morality of their situation will carry them over into the legality, and it doesn’t. There are very precise legal requirements. Unless you address them very carefully, a lawyer on the other side will get in your way.”

Nicholle Krause, the Alante resident, found that out the hard way. She threatened to withhold her March rent when her complaints about the poor condition of the property were ignored. That prompted the complex manager to threaten her with eviction, which would make it harder for her to rent elsewhere. She backed down, and paid.

She then sent the manager a letter stating that she would move out in 10 days because of the landlord had not fulfilled its obligations to keep the property in livable condition. But an attorney for the company responded that her letter did not meet legal requirements for breaking the lease.

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“I want to leave … but I would need an attorney,” said Krause, explaining that even with order returning to Alante, the uncertainty of not knowing what a new owner might do with the property continues to plague her. She said she intends to move out when her lease expires in June, if not sooner. “I don’t know if the cost and the exhaustion (that it would entail) are worth it.”

As the foreclosure crisis continues to expand, many other renters around the country are likely to find themselves in the same situation as Krause.

“We have a bunch of apartment complexes around the country,” said Hoffman, the president of Trigild, Inc. “We haven’t got anywhere near the bottom. … If I look at our pipeline, it would normally be about 12 (to) 15 properties. We’re looking at a couple hundred at this stage.”