Author Archives: Tom Ellis

Tom Ellis

About Tom Ellis

Tom Ellis is a professional writer with nearly 40 years of experience. Ellis began his writing career as a reporter for the Springfield Daily News in Springfield, Mo. He also was city editor of the Scottsdale Daily Progress in Scottsdale, Ariz., and news editor of Today Newspapers, a chain of weekly papers that covered metropolitan Phoenix. He began freelancing in 1997. Ellis is a graduate of the University of Missouri’s School of Journalism in Columbia, Mo.

Hoover Dam Construction, 1933-1936 - AZ Business Magazine May/June 2011

Building Achievements Turned Arizona From Frontier Outpost To Thriving Haven

In 1912, when it became the nation’s 48th state, Arizona was a challenging place to live. It was sparsely populated with small communities scattered hither and yon. Travel between towns was grueling. The lower desert was unbearably hot in the summer, and water was scarce and unreliable.

Arizona would have had a dim future if it hadn’t engineered a reliable water supply, says Marshall Trimble, Arizona’s official state historian. In 1902, when President Theodore Roosevelt signed the National Reclamation Act, Phoenix was an agricultural community that suffered through wild swings between drought and a flooding Salt River, Trimble says. Farmers and ranchers banded together as the Salt River Valley Water Users’ Association to lobby for federal funding for the legislation’s first water reclamation project — construction of Roosevelt Dam northeast of Phoenix to tame the Salt and store water in Roosevelt Lake for future use.

This was the beginning of what would become Salt River Project (SRP), one of Arizona’s major utilities, and Trimble pegs the dedication of Roosevelt Dam in 1911 as the first step toward a modern Arizona. Today, SRP operates seven dams on the Salt and Verde rivers and delivers more than 1 million acre feet of water annually to Central Arizona.

But as Phoenix became increasingly urbanized, SRP’s 13,000-square-mile watershed couldn’t keep up with demand, and Arizona’s most populated areas were drawing more water out of the ground than was being replenished. As early as 1946, Arizonans began to hear about the need for delivery of Colorado River water to the Phoenix and Tucson population centers via a 336-mile canal called the Central Arizona Project. Construction of the CAP began in 1973 at Lake Havasu, and 20 years and $4 billion later, it was completed south of Tucson. The CAP delivers an average 1.5 million acre-feet of water annually to municipal, agricultural and Native American users in Maricopa, Pima and Pinal counties, where 80 percent of Arizonans live today.

“Without the CAP, we wouldn’t have the population we have today,” says Pam Pickard, president of the CAP board of directors. “We wouldn’t have our economic base. We wouldn’t have the industry we have.”

But the CAP wouldn’t have been possible without another milestone that occurred nearly 60 years earlier — Hoover Dam and its reservoir, Lake Mead, 30 miles southeast of Las Vegas. Hoover Dam, constructed between 1933 and 1936, tamed the Colorado, which Trimble says was even more erratic than the Salt. The dam created reliable water supplies for Arizona’s Colorado River Valley and, eventually, Central and Southern Arizona via the CAP.

Electricity

Electrical power generation in Arizona significantly preceded statehood and provided the “juice” for future development. Another major utility, Arizona Public Service (APS), traces its roots to 1886 in Phoenix. Electricity also came to Tucson in the 1880s, but the forerunner of today’s Tucson Electric Power (TEP) didn’t come about until 1892. SRP began delivering power to an expanding customer base in the 1920s, and created the Salt River Project Agricultural Improvement and Power District in 1937 to operate the utility’s power generation and distribution system.

Statistics from these utilities bear witness to Arizona’s escalating hunger for electricity. TEP had 300 customers in 1903. That grew to 16,000 in 1932; 112,600 in 1970; and more than 400,000 today. TEP generating capacity jumped from 648,000 kilowatts in 1970 to 2,229 megawatts today.

Mergers led to the creation of APS in 1952. At that time, APS served 114,000 power customers with a 324-megawatt capacity. Today, APS serves 1.1 million customers in 11 of the state’s 15 counties with a 6,293-megawatt capability. APS also helped bring nuclear power generation to Arizona. APS operates and owns 29.1 percent of the Palo Verde Nuclear Generating Station located about 50 miles west of Phoenix. The largest nuclear power plant in the U.S., Palo Verde’s three units are capable of producing nearly 4,000 megawatts of electricity.

SRP’s electricity customer base grew to 7,684 in 1940; 169,773 in 1970; and 942,024 by the end of 2010. Another measuring rod — peak power demand — reached an all-time high at SRP in 2006 at 6,590 megawatts.

War, Manufacturing and Refrigeration

According to Trimble, the real turning point for Arizona industry came about in less than a decade during the mid-20th century. After America’s entry into World War II in December 1941, Luke Air Force Base in Glendale and Williams Air Force Base in Mesa became major training facilities for war pilots. Manufacturing for the war also contributed to Arizona’s economy, which continued to grow, Trimble says.

Then two critical milestones occurred closely together, say Trimble and another close observer of Arizona’s history, Grady Gammage Jr.

“There was a lot of home construction in Arizona after the war,” Trimble says. “GIs were moving here to start a new life. Many of them had trained in Arizona and liked the weather.”

Except perhaps for those summer temperatures, and they became less of a problem when affordable air conditioning became available in 1950, Trimble says.

Trimble points to 1950 as the year Arizona moved from a pioneer outpost to a modern state, thanks to refrigeration and a growing population that embraced it. Gammage, who is author of “Phoenix in Perspective: Reflections On Developing the Desert,” says window refrigeration units first appeared in Arizona in 1948. Two years later, Arizona led the nation in the number of window air conditioning units sold. By 1960, there was more central air conditioning in Arizona homes than window units, Gammage says.

“Refrigeration did a couple of things,” Gammage notes. “First, it was one of the critical building blocks that allowed people to move here. Second, it transformed Arizonans’ lifestyles.”

Master-Planned Communities

Arizona is home to countless master-planned residential communities, but the first one — Maryvale — opened in 1955 in West Phoenix as the post-war years exerted their influence. Its developer, John F. Long, wanted to plan and build a community where young people could buy an affordable home, raise a family and work, all in the same area. He named the development after his wife, Mary, and its influence is felt to this day.

Maryvale Billboard, Arizona Business Magazine May/June 2011

Photo: John F. Long Properties

“Because Maryvale was a master-planned community and because John did affordable housing, the master plan included a lot of parks, school sites and shopping areas,” says Jim Miller, director of real estate for John F. Long Properties. “It really was where people could live and work. If you lived in Maryvale, you weren’t more than three-quarters of a mile from a park or school. That forced a lot of other builders to adopt the same type of philosophy.”

The first homes sold for as little as $7,400, with a $52-a-month mortgage. The first week the models went on the market, 24,000 people stopped by to take a look. Long built 24,000 homes in Maryvale and by the mid-1990s, he and other developers had mostly finished the community.

Retirement Communities

A year before Maryvale opened, Ben Schleifer introduced a different lifestyle to an older demographic. In 1954, Schleifer opened Youngtown in West Phoenix, the first age-restricted retirement community in the nation, according to research by Melanie Sturgeon, director of the state’s History and Archives Division. No one younger than 50 could live there. By 1963, Youngtown had 1,700 residents and Arizona was on its way to becoming a retirement mecca.

But it was builder Del E. Webb and his construction companies that firmly established the concept of active, age-restricted adult retirement in Arizona with the opening of Sun City on Jan. 1, 1960, next to Youngtown and along Grand Avenue. According to Sturgeon’s research and a magazine observing Sun City’s 50th anniversary, about 100,000 people showed up the first three days to see the golf course, recreation center, swimming pool, shopping center and five model homes. Traffic was backed up for miles. The first homes sold for between $8,500 and $11,750. Sun City had 7,500 residents by 1964 and 42,000 by 1977, the same year Webb decided the community was big enough and he began construction on Sun City West.
Today, Arizona boasts many retirement communities.

Transportation

Two milestones that occurred decades apart cemented Phoenix’s future as Arizona’s population and economic hub.
In 1935, the city bought Sky Harbor International Airport for $100,000. Today, that investment is responsible for a $90 million daily economic impact. Sky Harbor also helped Central Arizona thrive.

Construction Interstate 17, Arizona Business Magazine May/June 2011

Photo: Arizona Department of Transportation

“As much as anywhere in the U.S., Phoenix is a creature of good air connections,” Gammage says. “There is no good rail service (in Arizona). There are no real transportation corridors. Sky Harbor has had a huge impact.”

The other milestone occurred 50 years later when the Maricopa Association of Governments approved a $6.5 billion regional freeway plan for Phoenix and voters approved a 20-year, one-half cent sales tax to fund it. By 2008, the Arizona Department of Transportation had completed the construction and Phoenix boasted 137 miles of loop freeways that linked the metro area.
The loop freeways have had a significant impact on shaping Phoenix and, ultimately, Arizona, says Dennis Smith, MAG executive director.

“The loop freeways resulted in a distribution of job centers around the Valley,” Smith says. “That allows every part of the Valley to achieve its dream and have employment closer to where the homes are. That distributes the wealth throughout the Valley.”

Smith says the freeways also extended the Valley’s reach to Yavapai, Pinal and Pima counties, creating a megapolitan area known as the Sun Corridor.

 

Arizona Business Magazine May/June 2011

Many Arizona Small Businesses And Banks Say A Federal Loan Program Isn’t Needed - AZ Business Magazine Nov/Dec 2010

Many Arizona Small Businesses And Banks Say A Federal Loan Program Isn’t Needed

President Barack Obama has signed a bill that aims to increase small business lending. But it’s not exactly popular among Arizona’s small companies and community banks. They question whether a multibillion-dollar loan fund created by the legislation will achieve its goal.

The Small Business Jobs and Credit Act of 2010 will establish a $30 billion Small Business Lending Fund within the U.S. Treasury. The Treasury will use that money to purchase preferred shares in small- to medium-size banks that voluntarily participate in the program, injecting new capital that the banks would be encouraged to lend to small businesses. The more loans the banks make, the lower the dividend rate they pay the Treasury.

“As a small business owner, I am allergic to government intervention,” says Charlie O’Dowd, president of Westcap Solar, a Tucson company that sells and installs solar photovoltaic and solar hot-water systems. “I don’t think that this legislation is going to be any more effective than the TARP (Troubled Asset Relief Program) legislation. In this economy, it’s not that there isn’t money to be borrowed. It’s qualifying for the loan that’s the problem.”

The new law also gives John P. Lewis a bad taste in his mouth. Lewis is president and CEO of Southern Arizona Community Bank in Tucson, and a member of the FDIC’s Advisory Committee On Community Banking.

“Last January, the committee had a robust discussion (on the legislation),” Lewis says. “The committee said, ‘We don’t want to be a part of this.’ Community banks don’t need the additional capital. I have more money than I know what to do with. I need qualified borrowers.”

O’Dowd and Lewis describe a situation that is frustrating for both and that neither believes government policy will resolve. O’Dowd says small businesses’ sales are slow, impacting their ability to qualify for loans. Lewis says his loan demand is flat because there are fewer qualified borrowers.

The Arizona Small Business Association points to a wary small business community that’s in no mood to take on more debt. Earlier in the recession, small businesses tried in vain to obtain bank loans, but now they are in survival mode, says Donna Davis, the association’s CEO.

“Bank loans are not at the top of their list now,” Davis says. “Some businesses have lending fatigue. They just gave up (trying to get loans). Now they are focused on lack of sales. If sales don’t pick up, if work doesn’t pick up, they won’t seek credit. If they can boost sales and profits, then they can justify hiring and expanding.”

One outside observer sees a triumvirate of doubt that the legislation will not mitigate. Dennis Hoffman, professor of economics at Arizona State University’s W. P. Carey School of Business, says this recession has caused consumers, businesses and banks to lose their confidence. Lacking the good credit risk they saw five years ago, banks have “pulled in their oars,” Hoffman says. Creditworthy businesses fret so much over the economy, they don’t even apply for loans. Recession-scarred consumers remain stingy.

“We need to climb this wall of worry to get out of this morass,” Hoffman says. “This is a market-based, private-sector issue that will have to work itself out.”

Gail Grace, president and CEO of Sunrise Bank of Arizona headquartered in Phoenix, doesn’t sense much support for the legislation among Arizona’s banks, and wonders how many community banks would be able to participate.

“Community banks in Arizona are stressed and many may not even qualify for this program,” Grace says. “You will still have to have a fairly healthy bank to qualify for this.”

Not everyone has a dim view of the law. Robert Blaney, Arizona’s Small Business Administration district director, notes that the law will increase the SBA’s loan guarantee from 75 percent to 90 percent, easing banks’ risk on those loans. The law also will lower fees and raise the SBA’s maximum loan amount from $2 million to $5 million. There are thousands of small business owners nationwide that were waiting for the lending bill to become law, Blaney says.

One of those is Benefits By Design, a Tempe company that sets up health benefit plans for small businesses. The company’s president, Kristine Kassel, says there is a need for loans and it would be helpful if just two community banks expanded their small business lending. She adds that any amount of new credit that can be extended to small businesses is a good thing.

Banks interested in acquiring low-cost capital might be attracted to the Treasury fund and they might be enticed by the built-in incentives to direct new-found capital into small business lending, says Dan Stewart, Arizona market president for Mutual of Omaha.

But then he echoes what others say: “The (law) doesn’t encourage banks to take on more credit risk, so qualified borrowers are the key.”

    By the Numbers
    The Small Business Jobs and Credit Act of 2010



  • Establishes a $30 billion Small Business Lending Fund within the U.S. Treasury
  • Treasury will use money to purchase preferred shares in small- to medium-size banks that voluntarily participate in the program
  • SBA’s loan guarantee would increase from 75 percent to 90 percent
  • The SBA’s maximum loan amount would increase from $2 million to $5 million

Arizona Business Magazine Nov/Dec 2010

The State’s Economic Forecast For The Rest Of The Year - AZ Business Magazine Jul/Aug 2010

The State’s Economic Forecast For The Rest Of The Year Calls For An Agonizingly Slow Recovery

Ready to heave a sigh of relief over Arizona’s economy? Go ahead — but don’t get carried away. Some observers expect the second half of this year will bring positive signs that the economy is recovering, turning the dial toward even stronger growth in 2011 and 2012. Others aren’t so sure the state’s recession is in the rear-view mirror yet, and that a quick rebound is in the cards. Two of Arizona’s leading economists, Marshall Vest and Lee McPheters, disagree on how this year will shake out and how quickly a full recovery will be reached.

Half full

Vest, an economist at the University of Arizona’s Eller College of Management, believes Arizona’s economy hit bottom at the end of 2009. He forecasts retail sales will increase 5 percent this year and 10 percent in 2011. Home builders are buying back land they sold a few years ago and preparing for new construction. The housing market is improving “fairly rapidly,” with sales of existing homes up and housing prices stabilizing.

“Housing prices will continue to move up because they are well-below trend,” Vest says. “New-home permits are off the bottom, but I don’t see a whole lot of upward potential until we have absorbed all the vacant houses.”

He estimates inventory at 120,000 homes statewide.

As for that other troublesome spot in the economy, jobs, unemployment dropped to 9.5 percent in April, and may already have peaked.

“I think we’ll see slow improvement in the number of unemployed,” Vest says. “But it probably will be two or three years before we get the (unemployment) rate below 6 percent.”

He expects the hospitality industry, wholesale trade, and the professional and business services sector to show employment gains the second half of this year. New jobs will attract more people to Arizona and Vest predicts the state’s population will grow by 2.5 percent in 2012.

“I don’t expect to see the 4 and 4.5 percent growth from the last expansion because the population base is so large now,” Vest says. “But a 2.5 percent increase is a lot of people.”

Although he says it will take years to repair the damage, Vest sees better days ahead, with the economy in full recovery by 2013.

“This year simply sets the stage for much stronger and broad-based growth in 2011,” he notes. “We should see some significant growth in most sectors of the economy in 2011 and 2012. The areas growing fastest likely will be professional and business services, trade, hospitality, health care and residential construction.”

However, commercial real estate and the public sector will continue to be a drag on the economy, according to Vest.

“Tax revenues lag at least a year behind an economy that is recovering,” he says. “It will be at least a year, maybe two or three, before state and local government regains its footing.”

Half empty

McPheters, research professor of economics at the W.P. Carey School of Business at Arizona State University, thinks Arizona’s recession is still in play as measured by employment. Reaching 2.7 million jobs, the peak of employment in 2007, indicates a full recovery, McPheters says. More jobs may be lost this year — perhaps 24,000 — and 2010 could close out with 2.4 million people employed.

“So 2010 is another recession year,” he notes.

McPheters sees recovery in three to four years. Full recovery could come in 2013 if Arizona averages 3.7 percent job growth between now and then, McPheters says. Three percent job growth means recovery in 2014.

Arizona’s economy likely will creak along at its trough through the second half of the year but “2011 should be a year when home prices, population and jobs show modest improvement,” McPheters says.

He forecasts a gain of 48,000 jobs next year, a 2 percent increase over 2010. Population should grow 1.8 percent, a nudge of 0.3 percent. Homebuilders will take out 17,800 single-family housing permits this year and 28,480 next year, but “you would expect Arizona to generate 40,000 to 50,000 permits in a ‘normal year,’ ” McPheters says. “The housing recovery really hasn’t unfolded the way I thought it would.”

He won’t forecast retail sales until he has more data in hand.

A labor shortage?

Dennis Hoffman, professor of economics at the W.P. Carey School of Business, sees more questions than answers in Arizona’s immediate future.

“If you look at any kind of model about Arizona, you see significant growth coming in 2011 and 2012,” Hoffman says. “But that is nothing more than a reflection of history. The question is, are the dynamics that drove (economic) bounces in the past in place this time? This one may be different.”

Arizona’s rapid-paced recoveries from prior recessions “were fueled by the immediate availability of an abundant supply of undocumented cheap labor,” Hoffman says. “With Arizona’s attitude toward undocumented laborers, it’s pretty clear that abundant undocumented workers may be a headwind for us.”

With much of their assets tied up in real estate, Arizonans suffered “wealth erosion of massive proportions” as home prices slid 40 percent to 60 percent, Hoffman adds. Personal spending cratered and tax revenues plunged. Hoffman says the country’s household wealth fell 3 percent from December 1928 to December 1929 during the Great Depression. National wealth deteriorated 17 percent from December 2007 to December 2008 during the current recession, and Arizona was at least twice that bad, he notes.

“If we could regain consumer confidence and begin consuming close to historical norms, you’re talking between $14 billion and $16 billion in taxable spending,” Hoffman says. “That would do a lot to cure the ills of our very wounded economy.”

Arizona must become a magnet for new residents again, according to Hoffman, because in-migration fuels tax receipts as new arrivals buy homes, cars, furniture and other goods and services.

Residents needed

Indeed, economist Elliott Pollack, CEO of Elliott D. Pollack & Company, says Arizona will recover only if more people relocate to the state.

“We won’t need another square foot of housing, we won’t need another square foot of office space if people don’t move here,” Pollack says. “I expected population inflows to slow, but I never dreamed it would come to a screeching halt.”

Arizona’s total population growth (in-migration, plus births, minus deaths) was 3.1 percent in 2007 and 0.8 percent in 2009, Pollack says, noting that population will pick up slowly over the next four or five years.

He adds that Arizona’s recovery will be gradual and painful because the national recovery will be sluggish.

“Consumers are not nearly as able to spend as they have coming out of past recessions because they have to pay down debt and increase savings,” Pollack says. “That is not something they had to do in past recoveries.”

Becoming business friendly

Don Cardon, director of the Arizona Department of Commerce, sees “significant things happening in invisible areas.” He is bullish on the re-emergence of investment capital in Arizona this year.

“I am sincerely positive about what’s anticipated for the third and fourth quarters,” Cardon says. “I think we will see a re-engagement of capital streams, a softening of the ability of large investors to be interested in Arizona industry.”

Large investors will “beta test” the state and then secondary investors will decide they “have been out of the water way too long,” Cardon says. He sees Arizona businesses gaining traction over the next year. He also believes new capital will flow to energy-related industries, particularly renewable energy, the technology sector, small business and entrepreneurial ventures.

Last year, Gov. Jan Brewer appointed a commerce advisory council to identify an economic development model for the state and, following the group’s recommendations, has proposed scrapping the Commerce Department and replacing it with a so-called public-private commerce authority. Cardon says the authority would give Arizona a vital ingredient for improving the economy — focus.

“(The authority) has received unparalleled favor across party lines and in all sectors of business because it represents a sense of focus,” Cardon says. “We’re saying that at the state level, we haven’t been focused and we lost our connection with legislative support and confidence.”

Once necessary laws are passed to establish the authority, it “will create a tool for the private sector to say, ‘I understand this. We can count on them.’ We will go from an intangible entity to something that is specific and highly energized,” Cardon says.

The authority will emphasize energy and business attraction, retention and expansion, he says.

A boost to Arizona’s competitive position is critical to an economic recovery, and a statewide economic development program backed by a supportive tax policy is overdue, says Barry Broome, president and CEO of the Greater Phoenix Economic Council. In the meantime, he believes Arizona’s economy will bounce back “quicker than people realize, that it will be strong and that it will result in a faster rate of job recovery than economists are projecting for Phoenix and Arizona.”

Over the next year and a half, Broome says, Arizona will develop a full-fledged, renewable-energy cluster and transform itself into a solar energy hub; health care will experience a strong expansion with emphasis on information technology and telemedicine; and the aerospace market will hold its own. In addition, Broome expects an uptick in regional headquarter activity.

www.azcommerce.com | www.ebr.eller.arizona.edu |www.elliottpollack.com | www.gpec.org | www.wpcarey.asu.edu

Arizona Business Magazine Jul/Aug 2010

black and white photo of a truck with the bed full of trash

IFMA Members Reach Out To The Community

Facility managers are busy people. They’re constantly on the go. But they’re not so harried that they don’t have time to help others. IFMA’s Greater Phoenix Chapter has a history of working with charitable organizations to make life better for those in need. It also conducts projects that directly reach out to people and help keep Phoenix clean.

Ron Zardus, a retired Motorola facility manager, is chairman of the chapter’s community outreach committee that coordinates all community involvement. Word-of-mouth publicity plays a large role in local organizations’ awareness of IFMA’s efforts. Charities contact Zardus directly asking for help, and he also keeps in touch with various agencies to talk about their day-to-day needs.

Several organizations receive aid from the chapter, including H.O.P.E. Mission in Apache Junction, which serves pregnant and unwed mothers; and Sunshine Acres Children’s Home in Mesa for 5- to 14-year-olds in crisis. In Phoenix, IFMA lends a hand to Maggie’s Place, which serves homeless and pregnant mothers 18 and older; Homeward Bound, which reaches out to homeless and domestically abused families; Sojourner Center, which provides services for domestic abuse victims; and Missionaries of Charity, which serves the homeless and unemployed.

Help comes in the form of excess materials that are donated to the charity, including furniture, equipment and carpeting. Some items are purchased and passed along. For example, Zardus is always on the prowl for used vacuum cleaners that he buys, repairs and donates. Chapter members and contractors from Zardus’ extensive list of contacts also donate their time and expertise for such projects as roof installations and painting.

“My main aim is to help eight to 10 charities,” Zardus says. “We want to help with their day-do-day activities and also want to show them how we can help with their long-range plans.”

Twice he has arranged for the full committee to meet with a charity so everyone can get to know each other, and he plans to do more meetings this year. Zardus starts each year with about $4,000 in chapter money, and says he has yet to be turned down when he requests additional funding several months later.

Quarterly, IFMA cleans up a one-mile stretch of 52nd Street between Thomas and McDowell roads. The most recent cleanup occurred on Feb. 6.

“When we first started the street cleanup several years ago, we took two pickup loads of trash back to the dumpsters,” says Lee Cowan, chapter secretary and construction and engineering services manager at General Dynamics C4 Systems in Scottsdale. “Since then, the street has been significantly improved in its appearance and image. The results have gone further than our chapter. It has influenced several in the neighborhood to be more proactive in helping keep the street clean.”

Some residents leave the comfort of their homes to help IFMA members remove trash on 52nd Street.

“I was amazed when at one location, the occupants of the residence came out and assisted in cleaning up tree limbs by their fence,” Cowan says. “Talk about peer pressure.”

Zardus and Cowan say IFMA takes particular pride in its annual Christmas food drive for needy families. Food cards are distributed to a group of families each year. Last December, nuns from Missionaries of Charity helped Zardus identify five families that would receive $125 food cards they could present at Bashas’ and Food City supermarkets. Zardus and Cowan delivered the cards personally. Tears flowed. One woman told them the card would feed her family for an entire week.

“This made a tremendous impact on the recipients and their appreciation was very evident,” Cowan says. “Words alone cannot describe the conditions that these families were living in and going through. These folks were in dire straits, and it made me stop and think just how lucky we are to have good homes and jobs. The nuns that met with (Zardus) and me said these were the poorest of the poor that they were working with in the area. It really touched my heart to see the thanks and appreciation of the families receiving the cards.”

Who To Watch: Roy Vallee

Roy Vallee
Chairman of the Board and CEO
Avnet

“..we are seeing a bounce-back in IT spending.”

–Roy Vallee, Avnet

Although it believes its performance was pretty good under the circumstances, Phoenix-based Avnet Inc. chalks up 2009 as a harsh year. Now, Avnet is focused on an improving economy and the business it will bring.

Serving more than 100,000 customers in 70 countries, Avnet is one of the world’s largest technology distributors, linking end-user clients with more than 300 software developers and electronic component and computer product manufacturers.

“It’s fair to say we have been severely impacted by the global recession,” says Roy Vallee, chairman and CEO of the Fortune 500 company. “Sales (for calendar year 2009) will be down by a double-digit percentage and earnings per share will be down substantially more than that, probably by roughly 40 percent. It has, in fact, been a tough year.”

Avnet’s revenue for its July-to-June 2009 fiscal year declined 9.6 percent from fiscal 2008, to $16.23 billion.
Globally, Vallee says purchasing of information-technology (IT) equipment dropped “precipitously” in 2009 by 5 percent or 6 percent.

“There were only two years in history when IT spending was negative and that was 2001 and 2002,” he adds. “So there was a big cutback by businesses on IT in 2009.”

Because of the nature of the electronics supply chain, business spending on electronic components deteriorated more rapidly than IT. But Avnet held to its strategy of focusing on value-based management and return on capital, rather than earnings per share. As sales declined, it reduced investment in inventory and accounts receivable and generated $1.4 billion in cash flow from operations.

It also continued a tradition of acquisition, thus expanding its market. Avnet negotiated a controlling interest in Vanda Group in China, and acquired Abacus Group in the United Kingdom and Nippon Denso Industry Co. in Japan. It also formed a joint venture in Turkey with Sanko Holding Group. In India, it purchased a small firm to launch an IT distribution company.

Now Vallee thinks “we are past the trough.” The accordion-like behavior of the electronics supply chain is responding to the reviving global economy. What was once squeezed is now expanding. Vallee says IT spending is showing signs of improvement and that “components spending is increasing at a rapid rate.” That already is showing up in Avnet’s financials for fiscal 2010. And Vallee is hopeful that Avnet’s October-through-December second quarter revenue will top the same period a year ago.

“IT spending will grow in 2010, probably in the mid-single digits,” he says. “There is pent-up demand. Companies that needed to spend on IT put it off because they were uncertain about where the economy was headed. They were also uncertain about where they would get the money. But you can only delay that kind of spending so long. Now that the economy is turning and capital is more available, we are seeing a bounce-back in IT spending.”

That spending also is a result of renewed focus on business growth that follows a couple of years of emphasis on cash, balance sheets, profit and loss, Vallee notes.

www.avnet.com


Arizona Business Magazine

January 2010

Who To Watch: Dr. Jeffrey M. Trent

Dr. Jeffrey M. Trent
President and Research Director
TGen

Since it was founded in 2002, the Translational Genomics Research Institute (TGen) has been helping people with neurological disorders and such diseases as cancer and diabetes through business spin-offs and commercialization of its research. Today, TGen’s president and scientific director, Dr. Jeffrey M. Trent, believes this Phoenix nonprofit has built an “underlying bioscience engine” in Arizona.

In fact, with TGen helping to attract and retain a knowledge-based work force, Arizona’s bioscience-research sector has held its own during the recession and even expanded. “As far as jobs are concerned, bioscience is still an area that shows growth in Arizona,” Trent says. That doesn’t mean the recession did not affect the bioscience sector as a whole.

“The area that has fallen the furthest is venture capital to seed new company formation,” Trent says. “There is no question Arizona has been behind the curve in venture capital for biomedical science.”

Last year, TGen announced the formation of its 10th business, but Trent says the organization must “look around the world for funding for these companies.” This is a national problem, he adds, but he is optimistic it will improve this year. Philanthropic donations for bioscience research also slowed during the economic downturn, but Trent already sees a return of that type of funding and is hopeful it will continue to gather momentum this year.
Still, TGen has managed to prosper.

“In less than three years, we doubled our economic impact, doubled employment and increased commercial activities 375 percent,” Trent says. “The biomedical sector and nonprofits are being hit as hard as anyone (by the recession), but we were able to not only maintain, but also to grow the last two or three years.”

In an independent analysis, Tripp Umbach, a Pittsburgh research firm, concluded that TGen generates an annual economic impact of $77.4 million, including spin-off businesses and commercialization. TGen’s economic clout is expected to reach $321.3 million annually by 2025, according to Tripp Umbach. Again, including business formation and commercialization in its calculations, Tripp Umbach reported that TGen produced $5.7 million in state taxes, created 461 full-time jobs and generated $14.07 for every dollar invested by the state in 2008.

In addition to federal funding and donations, and grants from businesses, foundations and individuals, TGen receives $5.5 million a year from state tobacco taxes. In 2025, the state’s return on investment is expected to reach $58.42 per dollar invested, tax revenues are estimated to climb to $27.4 million, and TGen is expected to generate more than 4,000 jobs when business and commercialization activities are factored in.

TGen reached several milestones last year, but from Trent’s point of view, the standout was its affiliation with the Van Andel Research Institute, a global organization headquartered in Grand Rapids, Mich.

“This affiliation brings a remarkably complementary scientific skill set under one roof,” Trent says. “Van Andel is basically a discovery engine and TGen gets to capture that and move it to a new test or treatment for patients. We are constantly renewing information that we can pull toward the patient.”

www.tgen.org


Arizona Business Magazine

January 2010

Who To Watch: John Chadwick

John Chadwick
President, Southwest Area
Pulte Homes

John Chadwick knows there have been better days in Arizona’s home-construction industry. Last year was a challenging time for homebuilders and he believes this year will test their mettle, as well. But he’s convinced that builders with sufficient resources will find opportunities as the state’s residential real estate sector begins to crawl out of a deep hole.

Chadwick is Southwest area president for Pulte Homes, the largest homebuilder in the nation and one of the largest in Phoenix and Tucson. Looking back on 2009, he references well-documented woes – deteriorating consumer confidence and job losses that sapped demand for housing and sparked an increase in foreclosures. Noting the impact of the real estate slowdown on the industry’s families, Chadwick says, “the contraction has led to painful and necessary reductions in our work force the past year.”

Looking for a toehold in a rocky economy, homebuilders are constantly assessing consumer needs and making adjustments in designs and floor plans and price, Chadwick says.

“Despite difficulties in market conditions, Pulte still performs at or near the top of the industry,” Chadwick says. “That’s because our strategy remained the same – providing high-quality products, providing buyers with affordable housing options and maintaining a strong commitment to customer satisfaction. Those are the things that make the greatest difference in the long term – a willingness to stick to strategies.”

Another key factor in Pulte’s survival and its increasing market share is its diversified lines of business.  Pulte acquired Phoenix-based Del Webb in 2001, and last summer paid more than $1 billion for Centex Homes.

“Centex targets the first-time home buyer,” Chadwick says. “Pulte is targeted to the first-time move-up and move-up buyer. Del Webb delivers lifestyle communities principally to the active-adult buyer.”

There is hope for homebuilders with strong financial backing, Chadwick says. Thus the Centex acquisition and Pulte’s purchase last year of the 480-lot Rancho del Lago in Vail, southeast of Tucson. It now is a Del Webb active-adult community.

“There will be more to come.” Chadwick notes, adding that he is optimistic about the outlook for Arizona’s residential market.

“On a competitive basis, the Southwest – and that includes Phoenix and Tucson – has returned to affordability,” Chadwick says. “Price declines in housing have positioned Phoenix and Tucson for long-term growth relative to other Western states. They have a great quality of life and strong employment prospects and that makes those markets attractive on a long-term basis. Clearly, we are still in a challenging market environment, but I am encouraged by some signs that a recovery is in sight.”

Those signs include stabilizing prices, an increase in existing-home sales, demand for appropriately priced homes in good locations, a slowdown in foreclosures and a welcome reduction in inventory, he says.

“There is far less new-home inventory in the market and that is a great indicator of an improving supply-and-demand environment,” Chadwick says. “For builders with the resources, yes, 2010 will bring new opportunities to them.”

www.pulte.com

Arizona Business Magazine

January 2010

An End in Sight

Hit Harder Than The Rest Of The Nation, The Valley’s Economy Is Starting To Show Faint Signs Of Recovery

Don’t dust off that party hat just yet, but there are early signs that the worst recession in the Valley’s history is easing its stranglehold on the economy. To be sure, as fall approaches and the recession’s two-year mark looms in December, Phoenix residents and businesses still struggle with plenty of economic problems. But economists and business leaders see hopeful signs.

Conventional wisdom says the housing market will pull the Valley out of the recession, after having led it down that path in the first place. Lee McPheters, economics professor at the W.P. Carey School of Business at Arizona State University, sees that milestone unfolding right now. The Greater Phoenix Blue Chip Real Estate Consensus Panel estimates 8,260 single-family housing permits will be issued this year, McPheters says. That’s down dramatically from the 57,360 issued in 2004, but McPheters says the forecast also calls for 12,600 permits in 2010, establishing 2009 as the bottom for that economic indicator.

New-home sales may have hit their low point the first half of this year and sales of existing homes, or re-sales, are bouncing back, according to McPheters.

“We are on track here to have easily over 75,000 re-sales for 2009, and it could be closer to 100,000 because there’s lots of inventory out there,” McPheters says. “At least half of that is bank-owned foreclosures but, nonetheless, re-sales are quite robust.”

There were 110,000 re-sales in 2005 during the Valley’s housing boom.

“New permits and sales of new homes seem to have bottomed out and re-sales have been going up,” McPheters says. “Those seem to be pretty strong trends, but still at a low level.”

What McPheters is saying is that good news in the housing sector alone does not constitute an overall recovery.
“There is nothing in the makeup of the Phoenix economy at all that would provide the stimulus for any independent recovery,” McPheters says.

Metropolitan Phoenix is still plagued by continuing job losses, declining personal income, decimated retail sales, declining home prices, home foreclosures, weak commercial real estate construction and more. The shrinking labor force likely won’t bottom out until the second half of next year after recording a historic three-year stretch of job losses — 2008, 2009 and 2010.

“By the time all the job losses have been recorded, Phoenix will have several hundred thousand fewer workers, and it probably will be 2011 before there is any kind of vigorous recovery in retail sales,” McPheters says.

In the meantime, 96 percent of the economists in the national Blue Chip Economic Indicators newsletter expect the national recession will end in the fourth quarter of this year. McPheters sees the national downturn drawing to a close with a modest turnaround and he thinks Phoenix will follow suit.

“Nationally, at the end of 2009, we will stop talking contraction and start talking about indicators that are more positive,” McPheters says. “Then there will be a period of slow growth. Phoenix probably will follow that, but remember that we have been harder hit than the rest of the country.”

Still, there is more to the Valley’s economy than statistics. Local business leaders are encouraged by what they see.

“From my perspective, we have seen a dramatic increase in headquarters activity,” says Barry Broome, president and CEO of the Greater Phoenix Economic Council.

Businesses primarily from the Northwest and California and, to some extent, Boston and New York, are either researching the Valley or making definitive plans to move their headquarters here, he says. Broome expects 10 to 15 headquarters to relocate to Arizona over the next 18 months and Phoenix will land some of them.

Broome also sees “new, sophisticated capital” moving into the Phoenix market. Investors are deploying the money now and plans are being written up for commercial real estate and science and technology projects, he says. Existing companies poised for growth are attracting capital infusions, Broome adds.

“This is not the cheap Las Vegas capital coming into the Valley where they buy it, zone it and flip it,” Broome says. “Now we’re seeing private equity firms that have 50 to 100 years of reputation in the U.S. and the world that didn’t get burned in this downturn. They are coming out of the Northeast markets, which we have not seen before.”

Bruce Coomer, executive director of the Arizona Association for Economic Development, is amazed at how busy city and county economic development departments are in the Valley and around the state.

“I don’t think there are any in Metro Phoenix cities that are not extremely busy,” Coomer says. “They are telling me that they are having trouble keeping up with the work.”

Although cities are likely conducting outreach programs, Coomer believes staffers are scrambling mainly because companies are approaching them.

Economic developers, Coomer says, “have got some big deals in the wings. That tells me companies, site selectors and developers know that sooner or later the recovery is going to come and they all want to position themselves. They want all their ducks in a row and all their due diligence done so they can pull the trigger and be on the front lines in a short period of time.”

Richard Hubbard, president and CEO of Valley Partnership, sees two encouraging signs within the business community.

“Commercial development companies have come face to face with the difficult decisions they have to make, be that layoffs, stopping projects or filing for bankruptcy,” Hubbard says. “A lot of those decisions are being made.”

Hubbard also is pleased with decisions made by sources of capital.

“Lending companies — whether that’s banks, private institutions or individuals — who have taken back property through foreclosure are starting to bring that property to market at reasonable prices,” Hubbard says. “They’re cutting their losses and deciding they can’t hold onto the property anymore. That will allow these companies to move forward.”

Hubbard says he also is encouraged that the housing market is well into the process of working its way out of the recession.

“The home-building industry has been suffering for a long time and they made their tough decisions a year ago,” Hubbard says. “Now it’s time for the commercial industry to follow suit.”

The Arizona economy and Tucson, Southern Arizona’s economic engine, continue to suffer from the same maladies as Greater Phoenix, says Marshall Vest, an economist at the University of Arizona’s Eller College of Management. Vest sees no hopeful signs of a statewide recovery for the time being. The only positive for Tucson is that its housing boom was not as strong as Phoenix, and its economy was not dragged down as far as the Valley’s, he says.

Vest sees the national recession receding in the third quarter.

“Arizona and Tucson will lag behind the nation by at least a quarter or two,” Vest says. “So Arizona should bottom out by the end of the year or the first quarter of next year and start its recovery at that time.”

The first sign of a statewide recovery will be a peak in the number of initial unemployment insurance claims, followed by stabilization of the labor market and then an uptick in retail sales, Vest says.

Flagstaff dominates the Northern Arizona economy. Marc Chopin, dean of the W.A.

Franke College of Business at Northern Arizona University, says the city has been logging double-digit declines for sales tax revenues and bed, board and beverage tax receipts. Building permits for single-family homes and additions and alterations to existing homes also have been declining, he says.

“I don’t expect things will turn around for some time,” Chopin says. “Construction, I expect, won’t recover for some time. About a quarter of the homes in Flagstaff are second homes. Until there’s a recovery under way in Phoenix, from which many of our second-home owners come, the second-home market in Flagstaff is unlikely to recover.”

www.aaed.com
www.cba.nau.edu
www.ebr.eller.arizona.edu
www.gpec.org
www.valleypartnership.org
wpcarey.asu.edu

chart increase, AZ NASDAQ listed companies

An Analyst’s Look At How Arizona’s Nasdaq-Listed Companies Are Faring This Recession

Arizona has 52 Nasdaq-listed companies and the performance of those with the most capitalization during this economic downturn has been fairly good.

In early June, Stephen Taddie, managing member of Stellar Capital Management in Phoenix, reviewed the top 10 Arizona Nasdaq companies using Thomson Analytics as his data source. Those companies comprise nearly all the capitalization for Arizona Nasdaq-listed firms. They are Apollo Group, First Solar, Microchip Technology, PetSmart, ON Semiconductor, P.F. Chang’s, Amkor Technology, Mobile Mini, JDA Software and TASER International.

There was positive news concerning stock performance and internal company performance for the group as a whole.

Looking at stock performance for the three-month period from April 5 through June 5, Taddie found that “90 percent of the Arizona companies outperformed their peer group as a national comparison and all by a significant margin.”

Taddie next looked at stock prices for the year to date through May 31. While the Standard & Poor’s 500 stock index was approximately even for that period, seven of the top 10 Arizona companies outperformed the index by a fairly wide margin, Taddie says. Those that did not tracked the index closely, he adds. The seven companies were First Solar, Microchip Technology, PetSmart, ON Semiconductor, P.F. Chang’s, Amkor Technology and JDA Software.

“Apollo Group, the largest of the top 10 as measured by market capitalization, fared better than the rest through the first quarter of 2009, but was surpassed by the others as investor confidence rose significantly in April and May, encouraging investors to look past the current economic data and the financial statements of smaller, less capitalized companies to the earnings potential many of these companies will have in a more stable environment,” Taddie says.

Taddie also reviewed a compilation of analysts’ estimates for internal company performance for 2009. As a group — not as individual companies — analysts estimate revenue for the top 10 will be flat this year, up just .49 percent, but that it will grow 13.5 percent in 2010.

“Over the last six months, we saw many analysts lengthen the duration of the downturn but also decrease its severity,” Taddie says. “If we break it down quarter by quarter, the data reflect a fairly dismal first half of 2009, followed by a fairly decent last half of 2009.”

Estimates for next year’s revenue vary widely, Taddie says, because it is difficult to measure the impact of federal stimulus packages and significant cost-cutting measures in many industries.

“A significant capital-expenditure decline has frozen budgets,” says Taddie, who also is a member of the Western Blue Chip Forecast panel for the W.P. Carey School of Business at Arizona State University. “One firm’s cost reduction is another’s revenue shortfall and that has been trickling down the supply chain.”

Taddie says the data paint a picture in which Arizona firms, like many other companies across the country, are trying to preserve shareholder value by more closely aligning capital expenditures with expected revenue growth, or the lack thereof.

“Typically, the larger the company, the more apt they are to take a bet and invest into a downturn, so when the tide turns, they capture more market share,” Taddie says. “The smaller the company, the less apt they are to do that because they can’t take that risk.”

Managing expenses and growth in an environment where revenue expectations are “jumping all over the place” is a challenge, Taddie says.

“References to this period will show up in economics and business-management textbooks for quite some time,” he says. “The data is showing that the Arizona top 10 are faring at least as well as other companies and, when compared to stock-price performance so far this year, better.”

Super-Powered Small Businesses

In This Recession, Small Business Survival Skills are Proving Invaluable

Tattoo Manufacturing Inc., in Tucson is a well-kept secret of success. This company with 95 employees bills itself as the world’s largest manufacturer of temporary tattoos. Indeed, it produces 6 million tattoos a day and has captured more than 90 percent of the temporary-tattoo market in the U.S.

Joyce Sinclair founded the company in 1985, serving fewer than 10 customers out of her garage. She eventually moved into the 40,000-square-foot building the company occupies today. Business exploded four years ago after Sinclair’s father, Jerry Nathanson, signed on and the daughter-father team ramped up production to include both retail-sold tattoos and custom tattoos purchased for promotional purposes by such customers as corporations, nonprofit organizations, sports teams and toy companies.

Steve Tooker and Grayhawk Capital in Scottsdale purchased Tattoo Manufacturing last year, and Tooker was named president and CEO. Although Tattoo Manufacturing produces a variety of specialty items, Tooker says 90 percent of the firm’s business is temporary tattoos. Half are sold at the retail level to Wal-Mart, Walgreens, Toys R Us and other chains. The other half is the custom tattoo side of the business, with more than 60,000 corporate customers. Twenty-five percent of the tattoo business is overseas for customers in 30 countries.

Tattoo Manufacturing had between $2 million and $3 million in sales in 2004. Tooker says sales will exceed $20 million this year, and he expects 25 percent annual sales growth for the next several years. Daily tattoo production likely will reach 7 million this year, and Tooker says that will translate into more hiring and the purchase of additional production equipment.

In this recession, companies like Tattoo Manufacturing are turning on its head the notion in business that bigger is better. Unlike the 800-pound gorillas of Corporate America, smaller companies avoided over-leveraging themselves before the economy tanked, mainly because they stuck to using the resources they had on hand.

“A big business is a legal entity and all its resources are whatever is in its pocket. A small business has the ability to rely on resources that a big business may not have. For example, managing the debt structure in a big business is mind-boggling,” says Bruce Hodgman, deputy director of the U.S. Small Business Administration in Phoenix. “On the other hand, a small business owner can draw on savings or dispose of a personal asset in order to lend to his company. These personal resources can be substantial and they can be quickly moved into the business. I think there is a lot of that happening.”

Small business success stories in the midst of this recession come as no surprise to Donna Davis, chief executive officer of the Arizona Small Business Association. She says many of her organization’s 3,400 members are keeping their businesses profitable.

“A good portion of them are hanging in there,” she says. “They are putting much more emphasis on watching unnecessary expenses. They are getting out and networking and outreaching. I’m really hopeful of what I have been witnessing.”

Nextrio is another Tucson success story. An information technology and computer network consulting company, Nextrio started in 2002 during the last recession and provides IT services for small and medium-sized businesses throughout Southern Arizona.

“We maintain computers, servers, networks, netbooks, cell phones and telephones — just about anything that has a plug,” says managing partner Cristie Street. The company also recommends, purchases, installs and configures hardware and software.

Nextrio started with three employees. By 2004, the staff had grown to six and Nextrio purchased the 9,000-square-foot building it shares with its investors. Today, the company has 20 employees. It started with one customer and now has more than 700. The customer base doubled and tripled the last four years after Nextrio invested in business-management software that allowed employees to “work on the business instead of in the business,” Street says.

Revenue has consistently grown between 25 percent and 50 percent annually since Nextrio opened. For the last two years, Nextrio has slowly restructured to create a diverse mix of income, according to Street. For example, 25 percent of the company’s business now comes from managed services in which customers lock in a fixed fee for ongoing IT support. Customers know what their IT expenses will be, and Nextrio knows it will have steady monthly income, Street says.

Income for 2009 is more uncertain because of the recession.

“If our revenue was an hour glass and you flipped it upside down, that would show the change in where our revenue comes from,” Street says.

Hardware sales, previously 40 percent of Nextrio’s business, have plunged as customers opt to squeeze more years out of their existing equipment. Now, service revenues are climbing as Nextrio devotes more time to maintenance, which Street says is more profitable than hardware sales. The company also has seen an uptick in business from bankruptcy litigation, which involves separating data, copying data and itemizing equipment at firms going out of business.

Street attributes Nextrio’s success to its ability to adapt quickly to changing market conditions and keeping employees apprised of the company’s financial condition. She also points to Nextrio’s entrepreneurial culture.

“We have a sense of all being in it together and accountable for each other,” Street says. “You don’t get that in large companies. We know we are all lucky to be working together, and we hold everybody accountable for pulling their fair share.”

Nextrio’s experience is a good example of how small businesses can alter direction and strategies quickly, allowing them to respond rapidly to changes in the marketplace.

“The secret to small businesses successfully riding out a recession is flexibility,” Hodgman says. “Small business owners have the ability to quickly adapt to a situation. A small business owner can gather key employees or family members in a matter of weeks and make a decision.”

Mary Schnack Media Services in Sedona is truly a small business. Owner Mary Schnack has only two employees. Yet, unlike some larger firms, the company’s revenues are growing. Schnack Media Services is a full-service public relations consulting company. A separate division, Communication Bridges, sends Schnack around the world to give presentations on communication topics for small businesses, corporations and nonprofits. Schnack started her public relations business in 1992 in Los Angeles, then moved it to Sedona in 1996, where it occupies the ground floor of her home.

Schnack says public relations revenue dipped a few years ago, then rebounded, with 2008 income doubling over 2007. She attributes the resurgence to a lowering of her fees and hiring full-time help.

“Having full-time employees really made a difference,” Schnack says. “It allowed me to really go out after new business more effectively.”

But the main reason is her customers’ appreciation of the expertise she offers.

“Through this downturn, I don’t see people cutting PR like they have before,” Schnack says. “There is a lot of publicity out there about why now is the time to crank up your PR. There isn’t a lot I have to say. Now people are approaching me.”

Schnack expects 2009 revenue to increase at least 50 percent.

“I think we can keep going on the uphill route,” Schnack says.

She expects small businesses will drive the economy’s recovery.

“Small business is what will bring us out of this recession,” Schnack says. “It will not be the corporations. It’s the small businesses that have fueled my growth.”

BestBill, a Phoenix company that uses technology to relieve its customers of the time-consuming task of generating and delivering invoices, has caught the attention of the SBA, and is its Best Business of the Year for Arizona for 2009.

Dan and Susan Haugland started the company out of their garage in 1999 to help medium- to large-sized businesses improve their cash flow.

“We don’t collect the money,” says CEO Dan Haugland. “We help our customers get their cash faster by taking data they provide to us, generating invoices from that data and delivering them either online or through the mail. We also can generate online payments from the consumer back to our customer.”

Growth has been the touchstone at BestBill since it opened. After occupying space at other locations, BestBill built its own 26,000-square-foot facility and occupied it in 2006. The company grew from 10 employees in 2003 to 33 in 2008. When the Hauglands first started, they generated 5,000 paper invoices a month. In 2008, they produced more than 34 million paper and online invoices, and they expect a 30 percent increase in billing transactions in 2009. BestBill opened for business with three customers. That number has grown to 130 nationwide in such industries as health care, utilities, manufacturing, transportation and property management.

Revenue increased 120 percent from 2005 to 2008. In 2008, gross income jumped 25 percent over the prior year, and the Hauglands expect a 30 percent increase in revenue this year. Net income doubled from 2005 to 2008.

BestBill has not been immune to the recession, however. The Hauglands note that their 2008 net income was flat and they have reduced staffing to 24 as they streamline to better confront the economic downturn. Still, they say they are on the path to continued growth and plan to open a second office in the Midwest in the fourth quarter of this year.

BestBill is a high-performing company because it does not waiver from its core business, Dan Haugland says. Susan Haugland, who is president of the company, attributes BestBill’s success to an emphasis on value.

“Not only do we feel that value, integrity and commitment matter, but we really value the client relationship,” she says. “I think that really matters — having solid client relationships. Those clients are happy to refer us to other clients.”

www.bestbill.com
www.communicationbridges.com
www.nextrio.com
www.prworks.ms
www.tattoosales.com

merger

The Wave Of Bank Mergers Has Changed The State’s Financial-Services Landscape

The banking industry has plenty of troubles, but in Arizona, the least of its problems is the aftermath of recent mergers. Bankers and industry observers say the state’s financial-services landscape hasn’t significantly changed because of the consolidations. Other than the usual branch closings and potential employee layoffs, they don’t see a big shakeup looming. One expert, however, wonders if continuing mergers nationally will lead to a banking system dominated by giant institutions that no one can afford to have fail.

There have been five bank mergers in Arizona since last summer. JPMorgan Chase & Co. acquired Washington Mutual, Wells Fargo & Company acquired Wachovia Bank and National Bank of Arizona absorbed Silver State Bank branches in Arizona. Mutual of Omaha entered the local market with its acquisition of First National Bank of Arizona, and US Bank acquired Downey Savings & Loan branches in Arizona.

“If you take a look at Phoenix and compare it to other communities, we have a large number of financial institutions,” says Lynne Herndon, Phoenix city president of BBVA Compass, formerly Compass Bank. “If you paint it with a broad brush, while there have been a significant number of mergers, this does not necessarily have the impact one might think.”

The impact would have been much greater in a smaller market, where the number of financial institutions dropped precipitously, Herndon says. But the mergers have generated a few ripples.

Herndon and Doug Hile, chairman and CEO of Meridian Bank, note that the elimination of a handful of players perpetuates the return to more traditional lending standards recently prompted by Arizona’s real estate meltdown and the ensuing recession. Hile also sees a higher concentration of retail deposits flowing into larger banks and shrinking market share for smaller banks.

“Most of the smaller banks are not in a position, or even have an opportunity, to acquire those deposits,” Hile says.

Dwindling market share is somewhat detrimental to community banks because it means Arizona’s large banks are just getting bigger, he notes.

While large banks rule the retail banking realm, community banks are the backbone of commercial banking and likely will remain so, Hile says.

“Business customers often want to have contact with the decision makers at their bank and that’s how small banks operate,” Hile says. “In that regard, the (small) banks that are healthy will have an opportunity to acquire new commercial customers.”

Alex Wilson, senior lecturer at the Eller College of Management at the University of Arizona, has a different point of view. “Your number of choices in commercial banking is disappearing,” Wilson says. “And creativity is lost as it becomes more corporatized.”

Wilson laments two potential outcomes of bank mergers — the weakening of a sense of community and the loss of institutional knowledge when middle and senior management are laid off. “

Well-run big banks know enough to try to reinstate that as quickly as they can,” Wilson says. “Badly run big banks lose that.”

Customers more concerned about fees, interest rates and having a variety of banking products to choose from are assured that competition is alive and well despite the mergers.

“There are still plenty of banks in Arizona and there is still plenty of competition,” says Marshall Vest, an economist at the Eller College of Management. “I don’t think we’re at the point where we have just one or two major players that will dictate fees and rates.”

Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, agrees: “We have a lot of competition. We always have. This is a very popular place for banking.”

Mergers probably have strengthened Arizona’s banking industry, Rotellini adds. “The banks that remain are healthy because of the merger-and-consolidation process and are a testament to our federally insured banking system,” Rotellini says. “Banks that were not healthy were acquired by healthier banks and that was done without any disruption in business.”

But as Wilson watches mergers roll out coast-to-coast, he wonders about the ultimate outcome. “

We’re probably heading for a world of three super national banks and probably a handful of little community niche banks,” Wilson says. “The good-sized regional banks are disappearing from the spectrum very quickly. As a result, (Bank of America) will be there, Wells (Fargo) apparently will be there and there will be Citi (Citigroup). I don’t know who will be left standing. The only ones left may be those little community banks.”

Citigroup, a global behemoth with multiple lines of business in financial services, is struggling and Wilson points to it as an example of the kind of risk that comes with an ever-expanding corporate waistline.

“In normal times, I would say (getting bigger) deepens the balance sheet and creates more international presence,” Wilson says. “But in the face of what is happening … I’m not sure you can make that statement. If one of these biggies falls, the ground is going to shake severely. Bigger is more efficient, but it is not necessarily better.”

| www.azdfi.gov | www.compassbank.com | www.ebr.eller.arizona.edu | www.meridianbank.com |

Arizona Businesses Succeeding

Arizona Businesses That Are Succeeding Despite The Recession Offer Lessons And Hope

Economists are the uncomfortable bearers of bad news. In recent weeks, they have been unhappily explaining that these are dark days indeed for Arizona’s business community.

But don’t tell that to businesspeople who have uplifting stories to tell amid the downdraft of Arizona’s recession.

While it’s true that Arizona’s economy is out for the count, many businesses are hardly on the ropes. They are succeeding, each in their own way.

But first, a look at that pesky economy.

It’s surprising some businesses are doing well because the experts are hard pressed to find any corner of Arizona’s economy that is untouched by the recession.

“I wish I had something positive to say,” says Tim James, a professor of economics at the W.P. Carey School of Business at Arizona State University. “It’s quite difficult to see any sector doing well … What could possibly happen to make things worse than they are? I can’t think of anything.”

James does point to one exception — discount stores such as Wal-Mart, Costco and Sam’s Club that sell the necessities of daily living. They are prospering, but “nobody will be immune to any of this at the end, as even the Wal-Marts will suffer,” James says.

Also apologetic is Marshall Vest, an economist at the University of Arizona’s Eller College of Management. Asked if there is any sector of the state’s business community that is well positioned and poised to take advantage of the recession, Vest responds, “The short answer is I don’t know. Most industries are feeling the effects of the recession.”

Yes, it’s tough out there. But there are success stories and those businesses offer lessons on how others can ride out this rough economy.

When Robert Meyer joined Phoenix Children’s Hospital in 2002 as president and CEO, the nonprofit medical center for acutely ill pediatric patients was juggling several urgent problems. Arizona was in a recession, a shrinking investment portfolio had eroded the hospital’s capital base, cash reserves were dangerously low and the organization was facing a $46 million loss for the year while incurring the cost of moving from its location within another Phoenix hospital to its own free-standing building at 19th Street and Thomas Road. Meyer, who had been through five prior recessions in health care, focused on two areas — internal operations and strategic planning — and took steps that got the hospital back on its feet.

The hospital had no internal billing-and-collection procedures, no budgeting system and a few outsourcing contracts that were axed because they offered little value in Meyer’s eyes.

“We developed our own patient accounting department, which yielded tremendous improvement in our ability to bill and collect money,” Meyer says. “We started a budgeting system. The hospital had done a lot of outsourcing with a lot of companies and some of them were terminated.”

Meyer wanted a short, simple strategic plan that covered 18 months to two years — as compared to hospitals’ standard five years — and looked outside the health care industry for a sound planning tool. He found it at The One Page Business Plan Company in Berkeley, Calif. Soon, each of the hospital’s major programs had a one-page plan within a relatively brief strategic plan, and progress was tracked online against milestones.

The payoff came as early as 2003, when the hospital generated $3 million in net income. With its books in the black, the hospital took steps in 2004 to cement future success by implementing several new clinical programs. Profits grew to $49 million in 2007.

In today’s recession, Phoenix Children’s Hospital’s primary business offers opportunities for new growth. Meyer says the number of children in the Valley is expected to increase from 900,000 in 2003 to between 1.5 million and 1.7 million in 2025. To meet the needs of its growing patient base, the hospital began rolling out a $588 million main campus expansion in 2008 — only six years after nearly succumbing to financial ruin.

Paragon Space Development Corporation, a small aerospace engineering and technology development firm in Tucson, is succeeding in tough times because most of its business comes from NASA.

“We’re a little bit out of the consumer economy’s ebb and flow,” says Taber MacCallum, CEO and chairman of the board. “What we are going to feel is the federal government’s response to the recession, not so much the recession itself.”

He expects his company’s work with NASA will continue. But things weren’t so rosy during the last downturn. Founded in 1993, Paragon initially booked more commercial than government work and was hit hard by the 2002 recession. It began playing out a variety of business what-ifs to help it prepare for bad times, and business has grown 30 percent to 50 percent annually the last three years.

“You’ve got to create your business model and then run good-and-bad scenarios and make sure you don’t cut so deep that you can’t respond to the recovery,” MacCallum says. “We call them down-and-out and milk-and-honey scenarios. You can do that with a small retail shop and you can do that with a large industry.”

Taber recommends taking advantage of opportunities that arise when other businesses downsize or close.

“This economy has presented a tremendous opportunity for us,” he says. “We’ve been able to pick up new employees and manufacturing equipment from other companies that have had to sell.”

There is also a beacon of hope in the rubble of Arizona’s mortgage industry. On Q Financial, a Scottsdale-based mortgage banking company, is growing as it serves buyers of condos and single-family homes and arranges residential property refinancing. In 2008, it opened new offices in Phoenix, San Diego and Seattle, and its Valley staff grew from 20 in 2007 to 50. In business since 2005, On Q zeroes in on what it can control, says John Bergman, president and owner.

“Every day, month and quarter, we focus on improving things internally that we can control,” Bergman says. “We can’t control the market.”

On Q strives to hire talented operations staff and constantly troubleshoots internal systems, processes and timelines. Business owners must have a firm grip on their financial performance, Bergman says.

“Every month, have financials reported to you in a manner you can use,” he says. “Look at them. You can always adapt and change according to what’s going on.”

On Q also pays close attention to customer service and market share. “We are really aggressive in offering great products to the consumer, and we negotiate for good pricing for our clients,” Bergman says. “No matter what the market does, there is always an opportunity to take a bigger piece of the pie.” Bergman says it’s critical to keep employees energized.

“Let them know that the tougher things get, the better things are when they turn around,” he says. “So you want to focus on the positives in your industry.”

Reeling financial markets commonly create a phenomenon known as the flight to quality — money moves from the stock market to the safety of bank accounts and certificates of deposit. Such is the case with the current recession, and Northern Trust Bank has seen a resulting increase in deposits and new banking relationships, which in turn has generated increased lending.

“We have, in many respects, been in a very nice situation when there has been a flight to quality in the banking business,” says David Highmark, chairman and CEO of Northern Trust’s Arizona bank. “The flip side during this liquidity crisis is that our loan volume is two to three times our normal amounts. Our earnings will be very strong, because today we are collecting so many new relationships that will materialize into new earnings down the road.”

Highmark emphasizes the importance of successful companies staying focused on their core business, a theme also repeated by Paragon and On Q Financial. Northern Trust’s primary business is lending to and managing assets for wealthy individuals and companies.

“We have never wavered from that core business,” Highmark says. “If there is a formula to survive in bad times, in our case — and I think in general in all industries — it is sticking to your knitting. Don’t vary from your core business.”

Financial Institutions Receive Bailout

Financial Institutions In Arizona Are Expected To Receive Bailout Money

While most of Arizona’s state-chartered banks were mulling over their options for federal assistance late last year, Uncle Sam was injecting billions of dollars of new capital into national banking companies with Arizona subsidiaries. The question is whether any of that money from the Department of the Treasury’s $700 billion Troubled Asset Relief Program (TARP) will find its way here.

Although there were a couple of exceptions, nationally chartered banks with Arizona operations didn’t know whether portions of their capital infusions would be earmarked for deployment in Arizona, and they may not know until sometime during the first quarter. The capital comes in the form of federal purchases of senior preferred shares. The Treasury set aside $250 billion for the program.

The Treasury purchased $200 million of shares in Seattle-based Washington Federal Inc., the parent company of Washington Federal Savings. John Pirtle, senior vice president and Phoenix division manager for Washington Federal, estimates the thrift’s Arizona operations will receive about $20 million and use it for mortgage lending.

Western Alliance Bancorporation in Las Vegas, owner of Alliance Bank of Arizona, received $140 million from the Treasury. James Lundy, chief executive officer of the Arizona bank, expects his parent company to share the new capital.

“I would expect we’ll get somewhere between $8 million and $12 million,” Lundy says. “That would be a good estimate. We are well capitalized now, but we do have plans to continue our growth trajectory, which has been pretty strong.”

Alliance Bank would use the capital to “support a bigger balance sheet, so we can gather more deposits to make more loans,” Lundy says. “Banks like ours are the ones making loans to small and mid-size businesses. Despite the economic issues Arizona is facing, we have strong loan demand from borrowers we think are very creditworthy.”

Ten million dollars in new capital can be leveraged to generate $100 million in new loans, Lundy says.

The Treasury purchased $1.715 billion of stock in Milwaukee-based Marshall & Illsley Corporation.

“All the funds are going to be used throughout the franchise,” says Dennis Jones, chairman and president of M&I’s Arizona region. “It’s not a matter of allocating a certain amount of it for Arizona.”

Chicago-based Northern Trust Corporation, parent company of Northern Trust Bank, received a $1.576 billion capital infusion. David Highmark, chairman and chief executive officer of the Arizona subsidiary, says he expects enough of the capital will flow to his bank to allow it to keep growing. Northern Trust Bank’s loan volume is two to three times its normal level.

“If our loan volume continues to grow as it has, we will get a portion of that money allocated to us,” Highmark says.

The parent company is classified as well capitalized, “but we knew, based on our growth, that we would ultimately need more capital. This was a timely opportunity for us,” Highmark notes.

Zions Bancorporation in Salt Lake City, owner of National Bank of Arizona, received $1.4 billion from the Treasury. Keith Maio, president and chief executive officer of the Arizona bank, says he expects his bank will receive some of the capital, but the amount has not been determined. Maio says the funds will be used to bolster the bank’s capital ratios to keep it actively lending, targeting small to medium-size businesses.

Other Treasury stock purchases of nationally chartered banks with Arizona subsidiaries break down as follows:
JPMorgan Chase & Co., New York — $25 billion.
Bank of America, Charlotte, N.C. — $25 billion.
Wells Fargo & Company, San Francisco — $25 billion.
U.S. Bancorp, Minneapolis, owner of U.S. Bank — $6.599 billion.
Comerica Incorporated, Dallas, owner of Comerica Bank — $2.25 billion.
Mutual of Omaha in Omaha, Neb., which acquired First National Bank of Arizona, did not apply for TARP funding.

The Treasury gave publicly traded banks the first opportunity to receive capital infusions, with a Nov. 14 deadline to apply for stock purchases. It issued capital-infusion guidelines later for privately held banks, which had until Dec. 8 to apply. According to the Arizona Bankers Association, most of Arizona’s 33 state-chartered banks are privately held and had not applied to the Treasury while they weighed their options as their deadline neared. Jack Hudock with the Arizona Department of Financial Institutions said eight state-chartered banks or bank holding companies had applied, but he could not identify them and did not know the status of their applications.

Meridian Bank of Arizona, a privately held, nationally chartered bank owned by Marquette Financial Companies in Minneapolis, applied for a federal stock purchase and was awaiting a decision from the Treasury concerning how much capital it might receive. Doug Hile, president and CEO of Meridian, is not happy that publicly traded banks had first shot at a capital infusion. He does not mince his words in his displeasure over how the government treated privately held banks.

“From a public policy perspective, it’s not fair to small banks that have opted not to go public with their stock,” Hile says. “We are up in arms about it. This is harming Main Street banking by not allowing them to participate on an equal basis.”

Jeff Roberts Opus West

Jeff Roberts – Vice President Of Real Estate Development At Opus West

About 10 years after its Phoenix headquarters opened in 1979, Opus West came up against a major recession in the Valley. It survived that test and is weathering today’s economic downturn with the same tactics.

A division of the Minneapolis-based Opus Group real estate development company, Opus West is going head-to-head with Arizona’s moribund economy with its corporate structure, diverse product base and a development philosophy that has served it well.

“We are vertically integrated and that allows us to react quickly in good times and bad,” says Jeff Roberts, vice president of real estate development.

Opus West has in-house property management, construction, design and development services. Presently, the company’s design-build staff is opening new revenue streams by offering its services to outside clients, such as corporations and governments.

The company still looks for opportunities and is more likely to find them within its broad line of products — retail, industrial, office and residential, including condos, apartments and senior housing.

As part of its approach to development, Opus West does not hinder its flexibility with a sizeable property portfolio and keeps its land inventory low, Roberts says.

“In the late ’80s and early ’90s (recession), many companies accumulated a large portfolio and were much more affected, while we had built our buildings and sold them for a profit,” he says. “That makes us much less subject to market cycles.”

In these tough times, Opus West is again focused on finishing existing projects to get new tenants moved in, taking care of existing tenants and keeping the door open to build-to-suit projects for tenants that are willing to commit, Roberts says. Projects on its plate include the 263,000-square-foot mixed-use Tempe Gateway building in downtown Tempe and the 170,000-square-foot Mill Crossing shopping center in Chandler.

One bit of good news Roberts sees in today’s economy is a “reasonably strong amount of large tenant activity” as companies move for economic reasons or to take advantage of a down market and upgrade to nicer space. Roberts expects little new construction in 2009.

“I don’t look at it as a year where there will be any major projects,” he says. “It will be a year of people working through leasing up what they’ve got and, hopefully, a year we hit bottom and see things heading back up. The big question is whether the economy picks up enough where we can get some significant net absorption.”

Roberts has more than 17 years of real estate experience in eight different cities. Prior to joining Opus West, he was an asset manager for Beta West in Denver. Roberts holds a bachelor of science degree in real estate from Arizona State University.

www.opuscorp.com

working to revive customer trust

Arizona Banks Work To Revive Consumer Confidence After Market Upheavals

Bank failures are in the headlines and that has raised questions for Arizona consumers.  As a result, many of the state’s banks have drawn up their own plans of action to keep customers informed and confident.

“In a period of financial distress and instability, the more banks do to indicate the strength of their portfolios — the fact that they are not tainted by a lot of very risky debt, that the balance sheet does not have a lot of assets that are suspect — the better off they are going to appear,” says Herbert M. Kaufman, professor of finance at the W.P. Cary School of Business at Arizona State University. “It makes some sense for banks that are strong to emphasize that.”

In addition to other bank failures around the country, federal regulators closed First National Bank of Arizona in July, and Nevada-based Silver State Bank in early September. First National is now owned by Mutual of Omaha, and Silver State offices in Arizona reopened as National Bank of Arizona branches. In late September, federal regulators seized Seattle-based Washington Mutual and struck a deal to sell the savings and loan’s operations to J.P. Morgan Chase & Co. WaMu and Chase have branches in Arizona.

Consumer confidence in the country’s financial system has weakened, but Capitol Bancorp has not seen a strong response to Arizona bank failures, says John S. Lewis, the company’s president of bank performance. Capitol Bancorp has 10 community banks in Glendale, Mesa, Phoenix, Scottsdale, Tucson and Yuma.

“There is an underlying concern out there, but we’ve not seen any panic,” says Lewis, who is located in Phoenix.

Concerning the tumultuous first three weeks of September, Wells Fargo Bank’s Gerrit van Huisstede says some customers went to branches with questions about financial industry news.

“The recent news and developments have sparked considerable interest and concern from our customers. Some have asked about their investments, others about FDIC insurance and the safety of their deposits,” says Huisstede, regional president for Wells Fargo’s Desert Mountain Region encompassing Arizona, New Mexico and Nevada. “We’re working with each customer to provide the information that meets their individual needs.”

Banks have options to provide as much federal deposit insurance as possible, including the Certificate of Deposit Account Registry Service operated by Promontory Interfinancial Network in Arlington, Va. CDARS disperses deposits at participating banks into different individual CDs of up to $100,000 each, up to a maximum covered amount of $50 million.

Capitol Bancorp is educating its line employees on FDIC insurance and the status of their individual banks.

“The worst thing bank employees can do when asked if a customer’s deposits are insured is say, ‘I don’t know,’ ” Lewis says.

Wells Fargo builds confidence by “really getting to know our customers, then providing them with the right advice and financial products,” Huisstede says. The bank is reaching out to customers to tell them “they are working with one of the best capitalized large U.S. bank holding companies in the country.”

Education and information are the key to consumer confidence, says Tanya Wheeless, president and chief executive officer of the Arizona Bankers Association.

“Most of the community bankers are being proactive with their customers,” she adds. “Some send letters to customers providing information. For others, maybe it’s statement stuffers providing information. And they’re being available to answer questions. We’ve also seen all our banks put time into training their employees to answer customer questions.”

Meanwhile, Kaufman at ASU emphasizes that American banks are safe.

“The banking system is, right now, one of the stronger positions in the economy, especially the larger banks,” he says. “If anything, consumers are feeling positive about banks as compared to other alternatives.”

As it has responded to crisis situations in the nation’s financial system, the federal government has taken on a role of lender of last resort, and that should be comforting to bank customers, says Marshall Vest, an economist at the University of Arizona’s Eller College of Management.

“Not only does it insure your accounts at banks, the government also has stepped in to provide a backstop for money market mutual funds and it has taken extraordinary and unprecedented measures to fight off the freezing of credit markets,” Vest says. “That offers a great deal of comfort, knowing that the Federal Reserve and the Treasury are there doing their jobs. If they were doing nothing, then we would all be scrambling to pull money out of the bank. There’s no need for that.”

Arizona Is Losing Economic Grounds To Other Southwestern States, 2008

Arizona Is Losing Economic Grounds To Other Southwestern States

Back of the Pack

Arizona is losing economic ground to other Southwestern states

By Tom Ellis

It’s no secret — Arizona’s economy has stumbled. Even so, it must still be a shining star of the Southwest, right? Well, no. Two leading Arizona economists have rather unflattering comments about Arizona’s economy as it stacks up against other Southwestern states.

“Arizona is not only one of the weaker states in the Southwest, it is one of the weaker states in the country right now,” says Lee McPheters, economics professor at the W.P. Carey School of Business at Arizona State University.

According to Marshall Vest, an economist at the University of Arizona’s Eller College of Management, Arizona has the dubious distinction of leading the nation into recession.

“Normally, the Arizona economy lags behind,” Vest says. “The national economy enters recession and then a few months later, the Arizona economy also tops out. But this time around, it looks like the nation’s economy peaked in December of last year while Arizona peaked in August. We are leading.”

But Arizona may not be alone. Vest says it’s possible Nevada’s economy crested a couple months before Arizona. Thus, two Southwestern states likely are marching the U.S. into recession, he says. In comparison, other states in the Southwest — such as Colorado, New Mexico and Utah — are doing relatively better. Texas is doing quite well, the economists say.

McPheters and Vest blame the weak Arizona and Nevada economies on housing.

“The states that have suffered the most were the states where the housing bubble got inflated the most,” Vest says. “The run-up in housing prices started in California and then moved east to Las Vegas, then Phoenix, then Tucson and it kept going east.”

In Nevada and Arizona, the construction sector and other related industries were dragged down after housing popped, Vest says. However, Colorado and Utah were not as affected by the depressed housing market, and Texas had no housing bubble at all, he notes.

According to the U.S. Department of Commerce’s Bureau of Economic Analysis, Arizona ranked 51st among all states and the District of Columbia for per capita income growth in 2007. Nevada was 48th, Colorado 46th, New Mexico 25th, Texas 16th and Utah seventh.

The Western Blue Chip Economic Forecast, published by ASU’s school of business, tracks economic activity in 12 Western states. According to the May edition, Nevada ranked 11th for wage-and-salary employment growth in 2007. Arizona was 10th, New Mexico ninth, Colorado seventh, Texas third and Utah first.

And it gets worse.

“Arizona retail sales have been very surprisingly weak. That’s all you can say about it,” McPheters says.

Retail sales were significantly stronger in 2007 in Colorado, Utah and Texas. However, Nevada, Arizona and Utah led Southwestern states in population growth last year.

According to contributing writers for the Blue Chip, Colorado is in better shape than it was in the last recession, and Texas may be better positioned than any other state to weather the current economic downturn.

Economic development experts are more upbeat about Arizona’s economic standings in the Southwest, and they praise the efforts of various organizations to stimulate business growth.

“I think Arizona stacks up pretty well,” says Barry Broome, president of the Greater Phoenix Economic Council. “We have dramatically improved our competitive position the last two to three years. California is the technology giant. Utah and Colorado have built technology corridors. But if you look at momentum, Arizona is stronger than the other Southwestern states.”

Broome commends Arizona’s commitment to public infrastructure, but he says it needs to attract more capital and diversify beyond its dependency on construction.

Arizona’s economy is more volatile and cyclical than other Southwestern states because it is driven by population growth, housing and construction, says Laura Shaw, senior vice president of corporate and community affairs for Tucson Regional Economic Opportunities (TREO). However, she says Southern Arizona is growing its bioscience sector along with Phoenix, and TREO has a long-term economic development strategy that focuses on educational excellence, livable communities, collaboration between public and private sectors, high-skill and high-wage jobs, and urban development.July Cover 2008

Bruce Coomer, executive director of the Arizona Association for Economic Development, says economic development will play a critical role in Arizona’s eventual recovery. With that in mind, he worries about how the state Legislature is addressing Arizona’s budget deficit.

“To solve that, they are cutting programs here, there and everywhere, and some of them being considered are economic development programs,” Coomer says. “Those are the programs that could be a vehicle to help Arizona end the downturn early, because the engine to bringing back a solid, thriving economy is high-wage jobs.”

According to Coomer, the Arizona Department of Commerce’s business attraction group may be dissolved, and some legislators want to eliminate the department entirely.

“(The department does) an excellent job, but they are underfunded and understaffed,” he says. “Doing away with the department would be a huge mistake.”

www.aaed.com
ebr.eller.arizona.edu
www.gpec.org
www.treoaz.org
wpcarey.asu.edu


AZ Business Magazine July 2008 |
Cov1

Cover Story – Subprime Shake Out

Subprime Shake Out

Will a house of cards trump Arizona’s economy?

 

Fallout from the subprime mortgage lending mess is roiling Wall Street and roughing up the national economy. But in Arizona, at least so far, experts say its impact has been mostly psychological. “There is a perspective that we are in a crisis due to foreclosures of subprime mortgages and this is leading to gloom and doom, if not total doomsday,” says Lee McPheters, economics professor at the W.P. Carey School of Business at Arizona State University. “The numbers simply don’t back that up.”

subprime_shake_out

McPheters says as of Sept. 30, according to the most recent numbers available from the Mortgage Bankers Association, Arizona was well below the national rate for seriously delinquent subprime mortgages (delinquent 90 days or in foreclosure). Arizona’s rate was 7.47 percent compared to 11.38 percent nationally.

“Arizona is not among the troubled states,” McPheters says. “However, there are troubled areas, particularly newly developed communities such as Maricopa, where there are many foreclosed properties for sale and prices have been affected.”

John Finnegan with Colliers International says there is an emotional aspect to subprime.

“The psychological effect subprime is having on our market is more damaging than the problem itself,” Finnegan says.

Homebuyers see eye-popping foreclosure headlines and then discover home prices aren’t as low as they expect, Finnegan says. Confused, they wait.

“I’ve heard subprime has knocked out 20 to 25 percent of the buying pool for homes,” Finnegan notes.

Although home construction and sales have dramatically slowed and prices are falling, Arizona’s housing market is relatively strong.

“It’s doing what it’s supposed to be doing, which is correcting itself,” Finnegan says.

Arizona last endured a significant housing downturn in the late 1980s and early 1990s, but experts say that was a true real estate depression. Today, the residential real estate sector is returning to a normal pace after years of hyperactivity, they say.

Larry Seay with Meritage Homes says most Arizonans with subprime mortgages can qualify for traditional mortgages and also can afford higher interest rates that kick in when lower introductory rates expire.

Subprime psychology also trickled into the commercial real estate market. Last summer, investors in Arizona commercial real estate were rattled by residential subprime problems nationally and pulled back from the market. Lenders tightened their credit standards and offers to buy property dropped by half, says Bob Young with CB Richard Ellis.

“We’re seeing some investors returning to the marketplace because they sense things are settling down,” Young says. He expects investor activity will pick up this year.

But there’s more than psychology at play. The dampened housing market has impacted office leasing and industrial space absorption in Phoenix. Relaxed mortgage lending standards were availed to borrowers of all types, and lenders have tightened their criteria, says Joe Biondo of Sunwest Mortgage. Now, Arizona’s mortgage brokers and title companies are consolidating or closing as loans default and business slows, he says.

“There has been a lot of office space leased by those companies over the years and we’re hearing that a good portion of it is coming back to the marketplace or being subleased,” says Rick Danis with Grubb & Ellis/BRE Commercial.

Most of the Valley’s leased industrial space is occupied by companies with ties to residential construction and Danis says that by third quarter 2007, industrial space absorption dropped by more than half from a record 7.8 million square feet in 2005. Housing is a catalyst for retail development and Danis says retail construction will slow.

However, Paul Boyle with Grubb & Ellis expects the commercial real estate market to do well this year.

“We may not be as vibrant as we have been in the past, but I look for things in commercial to continue to stay active,” he says.

But Arizona’s economy is cooling faster than expected, McPheters concedes. He cites four factors — the slow housing market; a loss of 20,000 residential construction jobs from third quarter 2006 to third quarter 2007; significantly declining consumer spending, particularly in areas that depend on a strong housing market; and the fact that Arizona is not benefiting from a national export boom fueled by the weak dollar.

“Arizona is no longer a top 10 growth state,” McPheters says.

Possibly making matters worse is the toll the subprime collapse is having on other parts of the nation. Arizona is accustomed to, indeed dependent on, having a large number of people move here from other states. McPheters says the inflow of new residents to Arizona could slow and have a negative impact on Arizona’s economy if people living in states with serious housing market slumps can’t sell their homes. If they can’t sell their homes, they probably won’t move to Arizona as planned. That’s one less potential buyer to help reduce the glut of homes in the Arizona market and one less person living, working and spending money in the state.

But, there are bright spots.

The state’s population is still growing and unemployment is lower than the national average. Arizona ranks first nationally in growth of personal-services jobs, second in tourism-related jobs and fourth in retail and wholesale trade jobs. Nonresidential construction remains strong. The state’s banking sector is weathering subprime, as well.

Tanya Wheeless, president of the Arizona Bankers Association, says Arizona banks are “healthy and certainly not near crisis.”

Arizona Business Magazine February 2008More good news: Arizona State Treasurer Dean Martin says the state government has no investments in subprime mortgages. Plus, Arizona’s economy is diversified with wealthy retirees and service, high-tech, health care, manufacturing, communications and knowledge-oriented employment. Nevertheless,McPheters says there is a “specter of recession and a cloud of uncertainty” about the state’s economy.

“Arizona would not be immune to a national recession,” McPheters says. “If there is a national recession, theeconomic outlooks for Arizona would have to be recalibrated.”

www.brephoenix.com
www.cbre.com/phoenix
www.colliers.com
www.meritagehomes.com
www.thesunwestgroup.com

 

 

AZ Business Magazine February 2008 | Next: Baby Bust
Mr. Gadget

Technology Changes The Meeting Planning Industry

Mr. Gadget

Technology changes the meeting planning industry

 

Webcasting. Green-screen photography. Video e-mail. Seamless projection. Gobos. Video curtains. Not long ago, this kind of technology would not have been in a meeting and event planner’s bag of tricks. But they are today as technology makes ever-greater inroads into the industry. How members of the Arizona Sunbelt Chapter of Meeting Professionals International use technology depends upon each company’s expertise.

 

Mr. GadgetMerestone in Scottsdale specializes in audio-visuals. A whole arsenal of gadgets is at the disposal of Merestone president Camille Hill and account executive Lynne Wellish, CMP, who also serves as chairwoman of the MPI job bank committee. “To make your point in the meeting, you have to use the biggest, fastest, smartest and most colorful tools you can get your hands on,” Hill says. “You have to stand out.” Merestone uses glass gobos to project images on screens, walls or the side of a building. The company can make an entire room look like it’s in the tropics. Merestone uses seamless projection in which multiple video projectors blend images together into one image on a huge horizontal screen. The company also uses lasers, confetti cannons, music and sound effects.

Going Gobos
Pictured below:
Merestone uses glass gobos to project images on walls or the side of a building.

Gobos

 

Sonoran Communications in Phoenix specializes in creating visual experiences that encourage people to attend the meeting again next year. Its specialty is video for screens. “Clients pay for video screens, so why leave them empty?” asks Neil Schneider, owner of Sonoran Communications and chairman of the MPI public relations committee. “Why not have something playing on them? Having a blank screen is taboo. People are used to multiple screens of information now, so you can show things during lunch and breaks.” Schneider also digitally records a meeting or event and dubs it onto DVDs for people to take home.

Schneider says the MPI chapter recently used a new technology—video e-mail—to promote its Sept. 14 trade show at Arizona Cardinals Stadium. Chapter President Kathi Overkamp, CMP, was digitally recorded in front of a green screen as she gave her pitch for the event. A slide show was dropped in after she was recorded and the video was e-mailed to chapter members.

Mark Anderson, an account executive with Southwest Scenic Group in Tempe who is active on several MPI committees, sees an uptick in requests for meeting Webcasts. It started two years ago and became increasingly popular over the past year. “It’s always been there in the way of studio-type work, but especially now with HDTV and higher-end digital recording,” Anderson says. “This is used for instructional meetings and what we call ‘rah-rah’ sales meetings. People access the meeting either live or later.” Over the next few years, Anderson expects requests for even smaller presentations that meeting attendees can view at their leisure on the company Web site. “Some of these videos are supplements to the meeting,” he says. “For example, a video of a breakout session that some people were not able to attend—they can watch it later.”

Video curtains are available but the technology is in its infancy, according to Anderson. The curtain is a mass of LED lights (light emitting diodes) that looks like a video screen. It’s lightweight, portable and big. Lighting in general is becoming easier to program, saving operating and setup time, Anderson notes.

Superhero Productions with offices in Chandler, Phoenix and Scottsdale, specializes in the “wow factor,” says agent Randy Breen, an MPI board member. “Superhero got its name from that fact that we are here to save the day and, through technology, provide the wow factor for meetings and events,” Breen says. Images of a meeting–graphics, photos, logos–are made available on memory sticks, MP3 players and digital photo frames.

AZ Business Magazine October November 2006Green-screen technology allows on-the-spot photography with a variety of digital backdrops. Powerful, lightweight LEDs allow total lighting of an event so everyone can see, while small, powerful audio speakers can be strategically placed to make sure the entire audience can hear a speaker, Breen says.

Event planning has become less costly thanks to technology and that’s a real plus for clients on a tight budget, MPI members say. But there is a downside. As technology becomes increasingly easy to use, some clients think they can do the whiz-bang stuff themselves. “People think they are more techno savvy than they actually are,” Wellish says. “We manage people doing their own PowerPoint presentations. We help them determine what to project on stage with lights. This is something that has never happened to us before.”

www.merestone.com
www.sonorancommunications.com
www.southwestscenic.com
www.superheropro.com

 

Arizona Business Magazine Oct/Nov 2006

busy tomorrow for Meeting Planners

Meeting Planners an Industry On A Roll

Meeting planners an industry on a roll

Only a few years ago, professional meeting planners in Arizona were struggling through a post-9/ll slump in business. Those days are now history. But don’t get the impression meeting planners are breathing a sigh of relief. Members of the Arizona Sunbelt Chapter of Meeting Professionals International are much too busy for that. The number of meetings and events in Arizona is in a sharp rebound as the state’s economy hums along again and planners who once had nothing but time on their hands, can’t get enough of it today.

“It’s such a turnaround from three years ago,” says Bonnie Brant, national sales manager for Doubletree Guest Suites Phoenix near Sky Harbor International Airport. “We’re so busy and it’s a nice kind of busy. People are traveling again, rooms are filled, planners have a broader selection of events and venues. It’s great.” Brant, a chapter board member and 2006 Mentor of the Year, says the Doubletree steadily booked meetings and events all summer.

Michael Barnhart, CMP, a chapter member and national sales manager for Pointe South Mountain Resort in south Phoenix, is happy to be scrambling again. “The economy is definitely back and it’s nice to have demand again. I like being busy. It beats the alternative.” Planners say that business from associations remained steady during the lean years while corporate meetings nosedived. Now corporate business is back and planners are helping with incentive meetings for top producers, sales meetings, new product launches, board retreats and departmental brainstorm sessions. Because of its proximity to the airport, the Doubletree’s weekends are devoted primarily to military reunions for veterans who served in World War II, the Korean War, the Vietnam War and the Gulf War.

Some resorts and hotelsMichael Barnhart - meeting planners are funneling money back into their properties to attract more visitors. For example, Brant says the Doubletree refurbished all public areas in 2004 and also enhanced its meeting space, installing new lighting and soundproofing and softening the colors. “Repeat business is key and if you’re not providing renovations and high-tech features and good service, you are not going to be one of the ballplayers,” she says. But the good times also bring challenges. Planners are coming to grips with a time crunch they call compression. Clients struggle with their own lack of time and that trickles down to planners who now have a substantially tighter turnaround to do their jobs compared to previous years. “Usually, what we planned a year out, we are now planning 90 days out,” says Katherine Christensen, CMP, president and owner of Katherine Christensen & Associates and PRA Destination Management in Chandler. Sometimes, there is virtually no lead time, says Christensen, a past chapter president. “They call on Tuesday, asking me to plan an event for Friday.”

Planners who book hotel rooms are bumping up against higher rates as fewer rooms are available and the law of supply and demand flexes its muscle. Christensen sees it as a seller’s market in which booking terms are less negotiable. Part of the problem is that three major Valley resorts–Marriott Mountain Shadows, Doubletree La Posada and Radisson Scottsdale–closed in 2004 and 2005, Barnhart says. “Supply has dipped,” he notes. “With the economy coming back, we’ve got that pent-up demand from corporate America. Their national and regional meetings are in full force. Rates have gone up as much as 10 percent for February through March. Rates are just now getting back to where they were before 9/11.” Meeting planners at one Scottsdale corporation face the same problems with rates and space availability as they organize 60 to 80 events a year for their company. Courtney Aguilar and Shannon Urfer, each a marketing manager of events at eFunds Corporation and chapter member, say their greatest challenge is getting executives to understand that rates are higher and that space is hard to come by. Urfer, who serves on the chapter’s membership, fund-raising and holiday party committees, says from her experience, rates have climbed 20 to 30 percent over the past few years. “When we started looking for the 2007 location for our annual global sales kickoff, almost all the properties we looked at were sold out,” Aguilar says. “We booked both our 2007 and 2008 kickoffs in February of this year.”

Christensen has noticed a significant change in the kind of corporate people her company works with. Increasingly, she works more with procurement departments and less with internal event planners. The bottom line has become more important than the relationship, she says. “The deliverability of our services has not changed,” Christensen says. “What has changed is how we prepare our proposals and that is becoming more line-itemed. That’s fine, but as they pick apart the event to save money, they pick apart the ambience. We will do all that. Just don’t come back to me and say this is not what I originally described in my proposal.”

But since it’s better to be busy than not, planners are taking it all in stride. Christensen attended a MPI retreat over the summer and the busy times was a topic of discussion. “No one really has an answer as to how they are doing it; they’re just doing it,” she says. “We are all glad to see the business.”

Urfer sees meeting and event planners taking on an increasingly important role in the years ahead. “Meeting planners will become more integral and valued as people look to them not as order takers, but as someone who can provide direction,” she says. Brant believes the profession will have a bright future in metropolitan Phoenix. “We’ve got a new convention center coming in. Light rail is coming in. We will have the Super Bowl in 2008. It’s just a great place to be a meeting and event planner.”

www.azmpi.org
www.webeventplanner.com/doubletreeguestsuitesphoenix
www.efunds.com
www.kc-a.com
www.pra.com
www.arizonagrandresort.com

ABOUT MPI
Established in 1972, Meeting Professionals International (MPI) is the largest association for the meetings profession with more than 20,000 members in 68 chapters and clubs across the USA, Canada, Europe and other countries throughout the world. As the global authority and resource for the $122.3 billion meetings and events industry, MPI empowers meeting professionals to increase their strategic organizational value through education and networking opportunities. Its strategic plan, Pathways to Excellence, is designed to elevate the role of meetings in business via: creating professional development levels to evolve member careers to positions of strategic understanding and influence; influencing executives about the value of meetings; and ensuring MPI is the premier marketplace for planners and suppliers. More information can be found by going to www.mpiweb.org. Active since 1979, the Arizona Sunbelt Chapter is MPI’s 15th largest chapter in the world. The organization is comprised of over 460 members throughout the state of Arizona, representing a mix of corporate, association and independent planners as well as suppliers who provide a variety of products and/or services to the meeting and hospitality industry.The local chapter offers its members educational, networking, community volunteer, industry certification and professional growth opportunities throughout the year. For more information, contact Executive Director, Joanne Winter, at (602) 277-1494 or visit the chapter website at www.azmpi.org for up-to-date information on events and programs.

Arizona Business Magazine Oct/Nov 2006

Public Policy

Hispanic Chamber Takes On Key Issues

Matters of Public Policy

Hispanic chamber takes
on key issues

 

From immigration reform to healthcare affordability, the Arizona Hispanic Chamber of Commerce is once again wading into the turbulent waters of public policy and its already tackling big issues. The chamber’s public policy committee became active again last September and its 25 members have been busy the past several months educating themselves on state and federal issues.

public_policy“As an arm of an organization that represents primarily small Hispanic businesses, the committee explores issues that affect chamber members on a daily basis and their ability to grow and thrive,” says Jessica Pacheco, committee chairwoman and chamber board member and treasurer. “Not all Hispanic small businesses view these issues the same. We have a lot of debate and dialogue.”

Immigration Reform
So far, the Hispanic chamber has let other chambers take the lead on immigration reform, but Pacheco says her committee has its opinions on one facet of this issue—penalties for employers who hire undocumented workers. The committee has no problem with employer sanctions as a concept but opposes them as a “stand-alone issue” outside the context of comprehensive immigration reform. In June, Gov. Janet Napolitano vetoed a House immigration bill that included employer penalties. Its membership favors comprehensive immigration reform and the Hispanic chamber prefers that Congress address this issue, Pacheco says. “I can’t imagine a more difficult business environment than with each state having its own immigration laws.”

Procurement Opportunities
This fall, the chamber plans to help Arizona launch a “disparity study” to demonstrate how the state awards contracts for goods and services. It wants small business to garner a more equitable share of state procurement dollars, possibly an additional 10 percent. The chamber teamed with a variety of organizations to raise funds to pay for the study. The U.S. Department of Transportation is expected to provide $450,000 and a like amount must be raised locally through a public-private partnership, according to Pacheco. The first meeting with local donors was slated for June 14.

Federal Estate Tax
“There is a misconception that the federal estate tax affects very wealthy Americans, but if you look at the structure of the tax, it really hurts small businesses, especially Hispanic small businesses where 90 percent of them are inherited by family,” Pacheco says. The chamber believes the tax should be eliminated and committee members are communicating with Arizona’s congressional delegation.

Healthcare Affordability
Every small business grapples with the cost of providing health insurance, Pacheco says. “We would like to see a reduction in the cost of health insurance plans offered in the small group market. We also want to increase the number of workers in small business that have health insurance.”

Tax Relief
AZ Business MagazineThe chamber supports tax relief for small business. It favors reduction in dividend and capital gains taxes and supports accelerated depreciation for equipment and software. “Software depreciation is critical because small businesses often have to purchase very expensive software for accounting and networking,” Pacheco says.

Access to Capital
The Small Business Administration provides considerable capital for small businesses and the chamber is keenly interested that the SBA continuing to receive adequate funding. “The SBA has been a great partner and we want to be sure our membership knows what is out there and available to them,” Pacheco says.

 

www.azhcc.com

 

Arizona Business Magazine Aug/Sept 2006

 

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