BEHIND THE NEWS: Area's humdrum economy now looking pretty good

May 12, 2008

Hoosier executives aren't exactly crowing about the Indianapolis-area economy these days. But they're painting a brighter picture than you might think, especially compared with the carnage they see in what used to be the nation's hottest markets.

Here's what Simon Property Group CEO David Simon, not one to lavish idle praise, said during a February conference call with analysts: "I think the Midwest has been flat for I don't know how many years, other than Indianapolis. Indianapolis seems to be the best of the Midwest."

He picked up the theme in a conference call in late April. "God love the Midwest," he said.

Chief Financial Officer Stephen Sterrett chimed in: "We never had the boom, so we are not having the bust."

Indeed, Indianapolis'stability, which seemed boring to businesspeople when the economy was soaring, now makes it something of a safe haven.

That's not to say there hasn't been a lot of pain here. Recent momentum in adding jobs and boosting wages largely has disappeared, economic data show.

And the sagging economy, combined with the sagging housing market, is leaving many locals overextended. Foreclosure filings in the Indianapolis area climbed 36 percent in the first quarter from a year earlier, according to California-based RealtyTrac. One of every 116 households in the area received a foreclosure notice in the quarter, the 24th-worst rate among U.S. metro areas.

Even residents on solid financial footing feel less affluent, as equity in their homes shrinks. The average sale price for Indianapolis-area homes in the first quarter was $139,032, down 5 percent from the first quarter of 2006.

But a little perspective is in order. Some sizzling Sunbelt cities have taken a far harder tumble, with home prices slipping 20 percent or more in just the past 12 months.

Though Indianapolis' housing market never enjoyed the price appreciation those markets did, it's also far less susceptible to tanking. California-based mortgage insurer PMI Group Inc. last month identified Indianapolis as among the metro areas least likely to see home price declines over the next two years.

Another strength is Indianapolis' modest rate of joblessness. Though unemployment in the region rose in March to 4.8 percent, compared with 4.2 percent a year earlier, the rate remains below other major Midwestern cities and way below the laggard, Detroit, whose rate was 8.1 percent.

"In the Midwest, clearly Cleveland and Detroit lead the pack in terms of weakness," Bob Jones, CEO of Evansvillebased Old National Bancorp, said on a conference call with analysts late last month. "But then I'd say there is a Tier II weakness that exists in Indianapolis and Columbus."

Some of the sluggishness may stem as much from consumer unease as true financial strain.

That's the perception among some home builders, at least. In a conference call last month, Robert Schottenstein, CEO of Columbus, Ohio-based M/I Homes Inc., said home prices have fallen in Indianapolis because of weak demand, "which I think largely is the result of poor consumer confidence."

If he's right, that suggests better times are in the offing for builders that stick it out as others retrench, leave the market, or go out of business.

"Competition at some level makes everyone better," said Schottenstein, whose company operates in the Midwest and East. "But as markets are diminishing, and there are less horses at the trough, that's a better thing. We have no intention whatsoever to leave any of the markets we're in."

Dallas-based home builder Centex Corp. says its perseverance in Indianapolis already is paying off.

"Interestingly, Indianapolis was a very good market for us for sales, largely because there is so little competition left," CEO Timothy Eller said this month during his company's first-quarter conference call.

On target for IPO?

ExactTarget Inc., one of two Indianapolis software companies that registered last fall to go public, appears to be moving forward with plans for its $86 million offering.

Company spokesman Todd McCall said securities rules barred him from commenting. But the company's registration with the Securities and Exchange Commission remains active.

Aprimo Inc., a maker of marketing software, pulled the registration for its $50 million IPO in April, citing weak market conditions.

ExactTarget-whose software helps clients create and deliver permissionbased e-mails-rolled out plans for its IPO in December. It filed updated plans with the SEC in February and again in April.

The latest filing shows the slumping economy hasn't derailed the company's performance. In 2007, EBITDA-earnings before interest, taxes, depreciation and amortization-was $6.8 million, up from $4.7 million a year earlier.
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