Some get boost from slump in economy

Bankruptcies are up. Home sales are down. Foreclosure is high. The dollar is low.

It's a good time in America - parts of it, anyway.


While the country's economic slowdown continues to claim casualties - think subprime lenders and furniture retailers - some are thriving in it.

Bankruptcy attorneys are having a business boom. Landlords are gaining renters. And European travelers are using their weighty pounds and euros to splurge on U.S. souvenirs - such as New York condos. One-third of those sold in the past 18 months went to foreign buyers, according to real estate analysts Radar Logic Inc.


"There are some industries that have a kind of automatic insurance policy" for this economy, said Albert S. Kyle, the Smith Chair Professor of Finance at the University of Maryland's Robert H. Smith School of Business.

But they're very few and very niche, he said, pointing to vulture hedge funds, which buy the cheap debt of failing firms, then require high payback prices.

"Those kinds of businesses can do quite well when times are bad," Kyle said.

Baltimore law firm Gordon Feinblatt just added a real estate restructuring group to its practice to deal with the demand. And business advisers such as Baltimore's FTI Consulting Corp., which helps troubled companies reinvent themselves, are making out particularly well. Shares in the company rose 121 percent last year and ranked as the top gainer among Maryland stocks.

Part of that gain was due to FTI's turnaround division, where revenue rose 24 percent during the third quarter of 2007 to $63 million. Residential homebuilders are calling, along with subprime lenders and the hedge funds that invested in them, said Chairman Dennis J. Shaughnessy.

And with interest-only mortgages poised to reset this year and next, he has high hopes for the company's future.

People are "going to start to cut back on their discretionary spending," Shaughnessy said. "We're going to see problems in the hospitality industry, problems in retail. Anything they can defer will be deferred. ... That's why someone like us is now seeing significant - instead of just good, steady - growth, in our restructuring [division]."

The downturn is causing growth in other areas, too.


Though the dollar is worth about half of a pound - or two-thirds of a euro - and stock indexes keep falling, gold is rising. It's trading at all-time high levels of about $900 per ounce, boosted by risk-averse investors looking for solid bets. (Adjusted for inflation, gold would have to hit about $2,300 per ounce to beat its 1980 record.)

And while realty sales sputter and homeownership declines (to 68.2 percent during the third quarter of 2007 from 69 percent a year earlier, according to the U.S. Census Bureau), the once-ailing rental market is escalating. Overextended owners are returning to renting. And would-be buyers are finding they can't get the credit they need to stop renting.

The rental market is one of the few real estate areas that was still growing in 2006, according to a report released last year by Harvard's Joint Center for Housing Studies. And rental vacancies have been on the decline since 2004, while vacancies in homes for sale are rising.

"In some of our markets, the more residential areas, we have seen somewhat more of the homeowner coming back to rent within the last year," said Pamela Martin of Southern Management Corp., which oversees about 20,000 apartments in Maryland.

The rise in foreclosures in particular has spurred many owners to become renters, said Bernard Markstein, a senior economist for the National Association of Home Builders. "Those people have to go somewhere. And they often go back into the rental market," he said.

Foreclosures are increasing nationwide as homeowners fail to keep up with ballooning mortgage payments, many of which have reset to higher interest rates.


Lenders were trying to foreclose on twice as many mortgages in Maryland in September - 9,600 - as a year earlier, according to the Mortgage Bankers Association.

And Gov. Martin O'Malley's office says the increase is even higher. Last week, he announced a legislative package that would revamp parts of the state's foreclosure process to protect homeowners, particularly those who were tricked into higher payments by unscrupulous brokers and businesses.

More foreclosures have meant more revenue for Dolan Media, which publishes professional journals and newspapers such as Maryland's The Daily Record. The company makes some of its money by running foreclosure notices and it also provides legal services, like mortgage default processing.

The boost in foreclosures led the Minneapolis business to exceed revenue expectations in its third quarter of last year and executives to raise guidance for the full year. Today, Dolan's stock is about double the August initial public offering price of $14.50.

Rising hand in hand with foreclosures are bankruptcies, which were up 41 percent during the first three quarters of 2007, according to the American Bankruptcy Institute.

Rockville furniture retailer Scan International chose that route amid sliding sales. So did Columbia subprime lender Fieldstone Mortgage Co., which filed for bankruptcy in November.


That happened to be a great month for Joel I. Sher, who serves as one of Fieldstone's bankruptcy lawyers.

Sher, the chairman of Shapiro Sher Guinot & Sandler, heads the law firm's bankruptcy and financial restructuring practice, which, he says, has picked up appreciably. "I haven't worked this hard in a while," Sher said.

Though the number of cases his firm handles hasn't grown that much, their size and scope have, which adds billable hours. According to court filings, Sher's firm charges hourly rates of about $150 for paralegal work and up to $450 for partner labor. And Fieldstone has paid the firm a $300,000 retainer for work on its bankruptcy case.

The uptick in business is direct "fallout from the mortgage crisis," Sher said. "There are ripple effects in other industries, and Maryland is such a real estate-driven economy."

Real estate makes up the largest chunk of the state's gross product, about 17 percent including rentals, according to the Bureau of Economic Analysis.

The more trouble the state endures, the better off Sher and his ilk will be. He describes it as being "pessimistically optimistic."


"I like to think that we perform a necessary service," he said. "There are businesses that need help."