CDA faces slowdown in collection

The Commonwealth Development Authority is currently faced with a dramatic slowdown in average monthly collection of loan payments mainly because of the problems raised by the high vacancy rate in apartment and commercial spaces, according to Executive Director Marylou S. Ada.

In an interview yesterday, Ms. Ada pointed out majority of CDA clients that ventured into the construction of residential and commercial structures have not been able to meet their regular monthly loan payments.

However, she promptly added that the loans released to real estate or property developers still do not fall under the non-performing category since the clients continue to issue monthly payments but at an amount lower than what was stipulated in the credit agreement.

Ms. Ada disclosed real estate and property developers that ventured into apartment and office construction businesses constitute one of the biggest groups of clients served by the development authority in recent years.

“Collection is very slow. The biggest problem that we are running into is the high vacancy rate on commercial and residential establishments due to the economic downturn,” she said.

She said a big number of establishments in the Northern Marianas, mostly Korean investors who were into small-scale businesses have closed shops and packed up due to the abrupt changes in the market demand on the islands.

Because of this, more than half of residential and commercial spaces that are for rent are currently vacant while other business owners have adjusted rates to record-low levels in order to keep themselves afloat.

Ms. Ada said this has primarily caused the sudden slowdown in average monthly collection of loan payments, coupled with the slow rally of tourism-related businesses because of dwindling visitor arrivals into the Northern Marianas.

But she assured that CDA is exploring other ways in order to prevent foreclosing properties of clients that are not able to pay their regular monthly obligation saying that foreclosure would be more costly both for the borrowers and the government lending agency.

“CDA will not foreclose or refer their files to our legal counsel for the collection of the total amount that they owe us. What they can pay us is what we will accept because that is a lot better than foreclosing their property,” she said.

The departure of too many Korean businessmen from Saipan has left apartment complexes virtually empty with vacancy rate shooting up by as high as 40 percent, according to Commonwealth Development Authority Board Chair John S. Tenorio.

Mr. Tenorio disclosed that current vacancy rate for commercial and residential apartments is on a record-high at 35 percent, creating stiffer competition among owners for the very restrained market on Saipan.

The brewing competition has been pulling down the prevailing market fees for apartment rentals to as low as $200 for a single-bedroom fully furnished flat while a people can now get a two-bedroom semi-furnished apartment for just $500.

Mr. Tenorio explained that apartment owners are pulling their prices down in order to keep their pads occupied since too long vacancy would only deteriorate the place, thereby, putting more pressure in the maintenance costs.

Despite the practically lower prices for rental, nonresident workers have preferred to live in company staff houses leaving too many apartment doors vacant.

The CDA chief noted that some guest workers who previously lived in apartments have returned to their barracks to boost their capability to save more greenback in preparation for possible non-renewal of contracts because of prevailing economic conditions.

The high vacancy rate, which cripples most of the apartment owners’ capability to pay their loans from CDA, is a major factor in the two percent jump in the agency’s delinquency rate.

Mr. Tenorio disclosed that only about 40 percent of loans approved by the Development Authority for apartment-type businesses have been paid so far.

Government records disclosed that the second largest category of loans issued by CDA was for apartments; the third largest was for fishing. At the end of 1997, CDA had a reserve for bad loans of more than $9 million, equivalent to roughly 30 percent of the outstanding loans.