Tag Archives: February 2010

Cameron2head

Cameron Carter Named Partner at Rose Law Group

Cameron CarterArizona’s largest female owned law firm is proud to announce the appointment of Real Estate and Transactional Attorney Cameron Carter as the firm’s new partner at Rose Law Group pc (RLG).

Carter, who specializes in Real Estate Transactions, Acquisition, Due Diligence, Real Estate Finance, Development/Redevelopment, Land Use/Entitlements and Development Agreements, first joined RLG as a law clerk in 2006 while finishing law degree at the Sandra Day O’Connor College of Law at Arizona State University.

After passing the Arizona State Bar, Carter began practicing Real Estate law assisting clients with numerous acquisitions and depositions of the purchase and sale of land, multifamily and commercial properties.

Since 2007, Carter has also been advising clients on Development Impact Fees, Commercial Leasing, Closings, Investments, Landlord/Tenant, Tax Liens, Trustee’s Sale/Foreclosure, Construction, Municipal Law, Renewable Energy, Business Transactions and Community Associations.

He’s represented farmers, investors, developers, local and national home builders, REITs, charter schools, landlords and non-profit corporations in a variety of real estate transactions and other real estate and business matters.

“This has been a long time goal of mine to be a partner at Rose Law Group,” said Carter. “I enjoy helping clients add value by tackling complex real estate and development issues.  I’m thrilled to continue helping founder Jordan Rose implement her vision for providing exceptional service to our clients.”

While at Rose Law, Carter has worked to solve a number of issues involving development impact fees, building permits, eminent domain, right of way acquisition, rezoning cases, and use permits. Carter also works on a variety of election law matters including initiative and referendum, political committees, candidate qualification and campaign finance issues.

Jordan Rose founded Rose Law Group in 2000 and the firm quickly developed the reputation as being of one Arizona’s most innovative firms in the state.  Since its inception, Attorneys Court Rich and Ryan Hurley have also become partners.

Rose said Carter’s unique background of serving as a commercial construction manager at Jokake Construction, and holding a real estate broker’s license allows him to provide solid legal advice and makes great real estate business sense.

“I have seen a lot of great real estate attorneys, but never have I met one with the extensive real life real estate business background of Cameron Carter,” said RLG founder Jordan Rose.  “Cameron lives real estate and has a rare gift. He is both precise in transactional work, and a great land use and zoning attorney.  From the moment he walked in our doors 7 ½ years ago, I knew he was the future of Rose Law Group.  We are really blessed to have Cameron as a partner.”

As part of the new appointment, Carter will also head the Transactional Real Estate Department and with the upturn in the economy, Carter welcomes the challenge.

“The economy is rebounding, and we have to continue helping clients increase values, getting deals closed, recognizing risk, mitigating risks, and just exceeding their expectations on every acquisition,” said Carter.

Carter is a Cactus High School graduate and a fifth generation Arizonan. He feels strongly about serving the community. He has worked as a volunteer leader with the Boy Scouts of America and currently serves on the Board of Directors of the McCormick Ranch Property Owner’s Association, but his most important job is serving as a husband and father of four children.

 

KrispyKreme

SRS Real Estate Partners Sells Building at The Park in Chandler to Krispy Kreme

SRS Real Estate Partners announced the sale of a 53,492-square-foot shopping center outparcel which includes a 3,504-square-foot former bank building located at the southwest corner of Chandler Boulevard and Alma School Road in Chandler, Ariz.

Alan Houston and Jeff Alba with SRS Real Estate Partners represented the seller, Grossman/Robson Associates in the transaction.  Andy Kroot with Velocity Retail represented the buyer, Hot Glazed Enchantment, Inc.

Kroot announced Krispy Kreme Doughnuts purchased the former Washington Mutual Bank building at the southwest corner of Chandler Boulevard and Alma School Road in Chandler. The transaction closed escrow on August 26, 2013 with Andy Kroot of Velocity Retail Group, LLC representing the buyer – Hot Glazed Enchantment, Inc., a New Mexico corporation and SRS Real Estate Partners representing the seller – Grossman/Robson Associates. The building was +/-3,504 SF on 1.23 acres of land and sold for $837,500.

“We are pleased to be able to help Krispy Kreme expand their presence and product offering in the greater Phoenix area,” said Kroot, “and we are continuing to look for sites (for sale or for lease) in the 1,500 to 3,500 square-feet range on freestanding locations or end caps with drive-thru.”

At the moment, Krispy Kreme has four stores open in the greater Phoenix area; the Mesa factory at Superstition Springs Boulevard/US 60 Freeway, 7055 E. Shea Blvd., Scottsdale AZ, 1984 W. Main St., Mesa, and 3201 W. Indian School Rd., Phoenix, with other stores in the works. Krispy Kreme was founded in 1937 in Winston-Salem, NC, and is well known for its signature hot Original Glazed® doughnut. There are 649 Krispy Kreme locations in 21 countries around the world.

Mel Sauder, President And CEO Of Microblend, Wants To Bring Paint Into The 21st Century

Mel Sauder
Microblend
Title: President and CEO
Est: 1998 | www.microblendtechnologies.com

“We plan to bring the painting industry into the 21st century like cell phones did for communications and digital cameras did for picture taking.  We plan to improve the painting experience like Starbucks did for coffee.” – Mel Sauder, President and CEO of Microblend

There’s more to Microblend than just a bucket of paint. A lot more as a matter of fact. Although founder Danny McClain died after a protracted illness, his legacy lives on through his revolutionary way of making paint.

The company makes, installs, supplies and supports the Automated Paint Machine (APM), which uses six liquid components to get customers exactly the color and type of paint they need. The APM saves retailers from purchasing hundreds of different cans, because they only need to use the six liquid components that are delivered directly to the point of sale or production.

“This was the ‘Holy Grail’ of the paint industry to be able to create all these paints at the point of sale or production instead of in factories 1,000 miles away,” says David Philbrook, vice president of training and development at Microblend. “We can now create the full line of architectural paints in virtually any color in the spectrum, match any competitor color and offer our own color palette.”

The process is also greener than traditional paint production because it uses fewer raw materials, less energy during production, comes in reusable pails and more. The company’s efforts at sustainability were recognized during the annual Governor’s Celebration of Innovation when it was named one of the Green Innovators of the Year.

But the road to success hasn’t been an easy one and Microblend has surpassed numerous challenges to get to where it is today.

“Our single greatest challenge has been gaining market acceptance,” says Mel Sauder, CEO of Microblend. “We are a small company and we intend to change the paint industry the way digital photography changed the photo industry landscape and cell phones altered the communication industry.”

Microblend’s revolutionary way of making paint proved a hurdle and a blessing on the company’s path to success. Since the industry hadn’t seen a “major change since the introduction of water-based paint (latex) decades ago” Microblend’s revolutionary, and in Sauder’s own words, “disruptive innovation” wasn’t immediately welcomed by industry peers.

However, it’s this rogue mentality that set Microblend apart and has been integral in pushing the company to success. The Gilbert-based company’s products are currently featured in a few Costco, Home Depot and Sears locations, along with independent paint dealers. Still warming up to residential users, Microblend already is a hit with paint contractors who use it to work on major projects.

“The system is so efficient and so small it offers tons of advantages to non-traditional retailers,” Philbrook says. “We feel this is the future of paint. We are comfortable and confident that retailers will take the green advantage.”

Despite the economic climate, Microblend’s system is catching on judging by the 60 percent to 70 percent revenue increase Sauder is anticipating for 2009. Sales in mass market locations increased significantly over the previous year, and Sauder hopes that with more distribution in the future, sales will continue to grow.

“Don’t underestimate the effort, sacrifice and time it will take to achieve success,” he says. “And I believe most importantly, long-term success is dependent on an everyday trust/integrity, commitment to customers, vendors and staff alike.”


Arizona Business Magazine

February 2010

Sharon Harper, president and CEO, Plaza Companies - AZ Business Magazine February 2010

CEO Series: Sharon Harper

CEO Series: Sharon Harper


Sharon Harper
President and CEO, Plaza Companies


Assess the current state of commercial real estate development in the Valley.
The commercial office sector is being impacted significantly. Vacancies are on the rise, rental rates are going down. In addition to all those statistics there is also kind of a shadow vacancy factor in place, in that companies are downsizing and subleasing their space or not occupying that space. And so all of that does have impact. There’s been negative absorption for some seven quarters in our region and probably more to come. So it has forced the industry to do a number of things. First and foremost, there’s no new construction really underway, so that’s going to have some impact. Secondly, building and business owners have had to adjust the way that they do business, and certainly in the case of Plaza Companies we have so that we can maintain a competitive edge for our buildings, for our tenants, for our investors. An example of this is that we are very focused on maintaining our buildings; we want them to be in excellent condition. We want to make sure that we are doing everything we can to make our buildings competitive. We’re working with our tenants, making sure that the buildings are clean and safe and accessible and beautiful and wayfinding is well-organized, and doing what we can to enhance their businesses. We are an owner and a property manager who is so hands-on, really thinking about the tenant, how their business is doing, how they are faring, as well as how we are performing for our investors and our owners and the facility itself. That makes a difference. There’s a concerted focus and effort and it’s my thought with our company we go above and beyond in every way we can, and it’s made a difference. Our buildings are doing quite well because of it.

What do you foresee for commercial real estate in 2010?
I think 2010 is going to be another year of flat rates, if not a reduction in rental rates. I think there will be increased vacancies. I think that a number of building owners are having difficulties with their financing and with their loans. As these shorter-term loans come due, it’s going to have an impact on the marketplace. And finally and most important in this marketplace is the owner’s ability to provide tenant improvement dollars to attract a tenant. Many owners cannot do that. And so tenants are, I think for the first time in my history in this industry, tenants are looking to the credibility and the substance of the building owner. Can they keep the buildings up? Can they provide the tenant improvements? Can they keep the promises? Can they keep the lights on? Tenants care about that. And that’s very important right now, more so than ever … and the second part of it is that some substantial companies have had problems performing on their loans and on their buildings and that’s been very unnerving for tenants. They want to know that there are building owners and managers that have credibility, integrity and are going to see the project through, and that gives a competitive advantage and we’ve certainly seen that here at Plaza.
Plaza Companies specializes in health care construction.

What difference did that make during the recession when compared to other commercial real estate developers?
Plaza Companies actually is focused on three specific areas of business. One is medical office/health care, the other is seniors housing and the third is bioscience and biotechnology. And it was in 2005, in a company retreat with the top leaders here at Plaza, that we made a concerted effort to broaden the base of where we are involved in business. We wanted to have certain unique sectors that are related to one another, yet provide it a bit of diversification for us. In addition to that, on our service lines we have grown our facilities’ property-asset management divisions, our leasing department, and our construction division. So we have diversification at that line, as well. And I can tell you that diversification has made a significant difference, and I am most appreciative that several years ago, when no one would have projected what is going on now, our company set the stage for sustainability during these difficult times. And that has made a difference.
Secondly, the sectors that we are involved in have ridden the storm a little bit better than others. They’re very dependent upon demographics, and not just the growth of demographics but aging, as well, and also the whole notion of innovation, research and science. All of that ties together and these are growth, with a small ‘g,’ industries right now.

What strategies did Plaza Companies implement to ride out the recession and how is it repositioning itself for the recovery?

Once again, we readjusted and repositioned our company in 2005, and started to grow foundationally a diversification program and that has paid off significantly for the company. I think that our strategy has stayed the same, our focus is the same; we’ve never deviated from the core principles of our business. But we’ve all worked harder in this company, as well. People are stepping up in all of the divisions here at Plaza Companies, doing what they can because it is more difficult and it is harder to achieve the same goal than it was just a couple of years ago. And so we’re focused, we’re diligent, we’re careful, we’re all working harder, and we are in sync here jointly with the management and all of the employees of the company.

What skills do C-level executives in commercial real estate development need to acquire or cultivate in order to succeed in these difficult times?
I think the traits that a CEO needs to have in difficult times are the very same traits in all times. I think that it’s important to have a vision and to be able to articulate that vision and to inspire and excite people that are going to help carry that vision out, and that’s really what I’ve tried to do here at Plaza. And it’s not just me, but it’s other senior managers here at Plaza.We understand what we’re trying to accomplish. We are so committed to carry through and being accountable for what we commit to do, and we need to be inspired and we need to inspire others to do that.And we also need to be very realistic about the realities of the world, and we have to have high expectations for performance and for people. And more so than ever, the core values of the company need to be part and parcel to everything that we do.

Vital Stats

  • Co-founded the company in 1982 with Dr. Harold Gries
  • Recipient of the 2007 Sandra Day and John O’Connor Award for outstanding community service
  • Is a member of the board of trustees of the Virginia G. Piper Charitable Trust, the board of directors of the Arizona Community Foundation and the Banner Health Foundation, and past chairman of the Greater Phoenix Economic Council (GPEC)
  • Served on the finance committee of Arizona Sen. John McCain’s 2008 presidential campaign
  • Received a Bachelor’s of Arts in Journalism from Creighton University in Omaha
  • www.theplazaco.com

 

Arizona Business Magazine February 2010

Valuations For Financial Institutions Are Falling — And Presenting New Opportunities For Estate Planning

“Strange,” “Nothing like it before,” “Astonishing” are a few ways to describe what has transpired in the financial institution industry over the last several months. As liquidity and asset concerns for financial institutions have become magnified, national economic trends have exacerbated the situation.

Despite all of this gloomy news there is at least one silver lining: If you own stock in a financial institution and need to do some estate planning, now is a great time to consider gifting some of those shares to family members or other beneficiaries. While gifting has many advantages, one of the most important benefits is the removal of assets from your estate and lowering your future estate tax.

Valuations of shares in financial institutions (and many other privately held businesses) are likely to be lower than in recent years due to many factors.

Some of the external factors include the uncertainty and volatility of the public stock markets, the effects and duration of the current economic downturn, the potential estate tax law changes that will occur with a new administration in the White House, and U.S. Treasury programs that are still being finalized from the financial-system bailout.

Each financial institution is unique and specific facts will dictate whether a substantial decline in value exists for each institution. The following are some noteworthy items that should apply when determining the value of any financial institution in today’s environment.

Liquidity and capital concerns may lead to financial institutions tightening their distribution policies to ensure capital levels are maintained.

Distribution policies can significantly impact the value of an entity. If lower distribution levels are expected to be maintained for a significant period of time, lower values for an entity can be substantiated.

There have been 139 bank failures since July 1, 2008, according to the FDIC’s Web site. As many as 115 of those bank failures have occurred in 2009. To put this in perspective, from 2001 through 2007, there were only 24 bank failures. This trend suggests that problems are more prevalent with financial institutions than in the past and that earnings expectations for future years may be lower than in recent years. Lower future earnings generally equate to lower valuations of stock prices.

The ability to achieve recent historical earning levels for financial institutions may prove to be difficult. According to the FDIC’s quarterly banking profile for the fourth quarter of 2008, annual net income for all financial institutions was at its lowest level since 1989, and return on assets for the industry (0.08 percent) has not been this low since 1987. During the second quarter of 2009, the FDIC noted that more than one in four institutions was unprofitable and industry assets declined by $238 billion. With future earnings unlikely to mirror recent historical earnings (prior to 2008), valuations for shares in financial institutions should be lower.

Many valuations of privately held financial institutions rely on publicly traded information as benchmarks for establishing values. While the markets have rebounded since early 2009, the publicly held banks are still trading at considerably lower levels. Specifically, a review of publicly traded banks in Yahoo! Finance’s Pacific and Southwest Regional Banks category indicates the average price-to-book value for the 184 publicly traded banks was 0.70 as of October 31, 2009. This is considerably lower than price-to-book ratios prior to 2008, and will likely impact buyers of private financial institutions leading to lower valuations.

The private marketplace is another source of information that appraisers rely upon when determining the value of financial institutions. The amount of activity in mergers and acquisitions of private financial institutions in the Southwestern U.S. significantly dropped during 2008 and 2009. Of the 20 transactions in 2008, only five were announced in the second half of 2008. Like the publicly traded banks, private banks in the Southwest also have seen a decline in the average price-to-book multiple above 30 percent from 2007.

Moving shares at lower values seems counter intuitive, but the tax advantages may be beneficial in planning your estate. With the current potential for lower stock valuations of financial institutions, owners may be able to gift more shares for the same dollar amount than they would have been able to gift in the past. These conditions should reduce the applicable gift tax and/or unified credit that would be used in connection with a gift. While the timing may be right for gifting shares of stock in your financial institution, be sure to visit with your financial advisers to determine when gifting is the best option for you.


Arizona Business Magazine

February 2010

GPEC Profile: Candace Wiest, President And CEO Of West Valley National Bank

Candace Wiest
President and CEO, West Valley National Bank

Even before West Valley National Bank opened its doors on Dec. 23, 2006, a decision was made to join the Greater Phoenix Economic Council. Becoming an active member of GPEC made good business sense.

“What I like about GPEC is its economic development focus,” says Candace Wiest, president and CEO of the community bank. “It goes to the heart of what community banks do. I’m a firm believer in the saying that a rising tide lifts all ships.”

One of the first benefits Wiest saw for her bank was how GPEC helped attract the Cancer Treatment Centers of America to the West Valley. The nation’s fourth Cancer Treatment Centers of America, located in Goodyear, opened on Dec. 29, 2008, bringing with it quality care for cancer patients and 200 high-paying jobs. But there’s more.

“It certainly helped with some of the housing issues in the West Valley, created a lot of options in terms of health care, and gave the area national recognition,” Wiest says. “I couldn’t bank the hospital itself, maybe, but I certainly can be the banker for a lot of the people out there.”

GPEC efforts benefit the Greater Phoenix’s economy on a macro level, Wiest says, as well as on a micro level helping its individual members.

She enjoys serving on GPEC Next, which is an advisory group through which some of the newer ideas flow before being submitted to GPEC’s board of directors. She applauds GPEC’s role in supporting solar energy, which produces a benefit for her bank.

“I certainly cannot finance any big solar companies,” Wiest says, “but we have launched a program to finance construction for businesses that want to convert to solar.”

The solid relationship between West Valley National Bank and GPEC is ongoing. Wiest is on the board of the Cancer Treatment Centers of America, maintaining a link between the cancer facility and GPEC; and she is a trustee of New Hampshire’s Franklin Pierce University, named after the 14th U.S. president. The university already holds some classes in Goodyear and is considering an expansion, Wiest says, adding that GPEC is playing a role in that project.

Wiest says GPEC has done wonders to enhance the Valley’s image. While serving a pair of three-year terms as a director of the Federal Reserve Bank of San Francisco, she heard numerous negative comments about the Phoenix area.

“GPEC has helped to debunk some of those myths,” Wiest says.

www.wvnb.net


Arizona Business Magazine

February 2010

GPEC Profile: Mike Tully, President And CEO Of AAA Arizona

Mike Tully
President and CEO, AAA Arizona

As president and CEO of AAA Arizona, Mike Tully has a keen interest in getting the state back on the road to prosperity. That probably explains why for the past seven years Tully, who joined AAA Arizona in 1998 as chief financial officer, has been a member of the Greater Phoenix Economic Council’s Finance Committee.

“GPEC’s role in our community is critical,” Tully says. “Attracting high-quality jobs to our state improves our health and economic performance, and makes the state a more attractive place for residents, as well as people moving to our beautiful state. As a membership organization representing nearly 800,000 people, AAA has a vested interest in the livelihood of Arizona.”

In addition to Tully’s position on the Finance Committee, AAA Arizona has a representative on the GPEC board of directors. That’s just part of the relationship.

“From a business perspective, we have used GPEC as a resource when we evaluated expansion opportunities, moving a large portion of our California operations to Arizona,” Tully says. “GPEC was invaluable in our ultimate decision, which resulted in nearly 800 new jobs being brought to our state.”
GPEC’s mission to create a competitive, vibrant, diverse and self-sustaining regional economy is critical to all of Arizona’s industries, Tully says.

“Ensuring that Arizona continues to improve the diversity of high-paying quality jobs is more obvious than ever, as seen by our recent recession,” he says. “Our precipitous decline as the No. 1 job growth state to No. 50 is symptomatic of our lack of industry diversity.”

Tully has been instrumental in driving the tremendous growth of AAA over the past decade, including expansion of its membership, financial services, insurance and travel operations. Prior to joining AAA, Tully owned an export finance company that arranged structured trade finance transactions for exporters throughout the United States.

The AAA executive has deep Arizona roots, having earned his Bachelor of Science degree in finance in 1987, and a master’s in business administration in 1991, both from Arizona State University. In 2007, he graduated from the advanced management program at Harvard Business School. Tully also holds a CPA certification.

As for travel trends in Arizona, Tully says the future remains murky.

“Our short-term forecast is flat, although shorter trips and drive trips continue to be popular,” he says. “While business travel is picking up in many areas of the country, it has yet to rebound in the Southwest.”

Likewise, international travel to Arizona continues to be weak, which hurts even more because international travelers generally spend four to five times the amount of money as domestic visitors.

www.aaaaz.com

Arizona Business Magazine

February 2010

GPEC Profile: Craig Robb, Executive Vice President And Director Of Finance And Administration, National Bank Of Arizona

Craig Robb
Executive vice president and director of finance and administration, National Bank of Arizona

With a 17-year career in land development prior to joining National Bank of Arizona seven years ago, Craig Robb was a natural to become an active member of the Greater Phoenix Economic Council.

Robb, executive vice president and director of finance and administration for the bank, is in his first year on the GPEC board of directors. He also serves on the GPEC Next Committee, which reviews possible projects and initiatives before forwarding them to the board.

But it was his two-plus years on GPEC’s Community Development Committee that enabled him to draw extensively from his combined experience in real estate and banking. Comprised primarily of real estate brokers and developers, with some bankers, the panel focused on shovel-ready projects as the construction industry’s fortunes plunged.

One of the areas his committee worked on involves sustainability and LEED certification.

“GPEC maintains a strong effort to identify programs and buildings that are more attractive to potential companies coming into the Phoenix area,” Robb says. “It’s an effort to match companies to a building that is LEED certified and sustainable, whether it’s office or industrial. That’s very attractive to a company that might be interested in relocating here.”

The bank’s relationship with GPEC is a two-way street.

“We are glad to be a contributor to GPEC, which is absolutely the right organization for promoting Greater Phoenix,” Robb says, “especially how difficult it is now, with the competition we face in a national and global economy. On a reciprocal basis, we have benefited. GPEC has given us a greater interest in sustainability.”

The bank, which celebrated its 25th anniversary in 2009, decided to upgrade some of its nearly 80 branches that were facing energy challenges.

“We started our own effort to see what we could do to create a more sustainable platform for our own buildings,” Robb says.

About the same time in late 2008, Robb, through a GPEC event, met the CEO of Solar City.

“That blossomed forward, and we ended up with a $1.5 million installation at our Biltmore location, improving our energy efficiency,” he says. “In addition, the bank has committed $25 million to provide a lease program that allows individuals to lease solar equipment for their homes.

“We made our contribution to GPEC, and as a result here is a relationship that has blossomed into well over a $50 million investment related to solar.”

www.nbarizona.com


Arizona Business Magazine

February 2010

GPEC Profile: Steve Cowman, CEO Of Stirling Energy Systems Inc.

Steve Cowman
CEO, Stirling Energy Systems Inc. (SES)

With more than a hint of an Irish brogue, Steve Cowman sounds like he has found a home in what he calls the solar capital of the Southwest.

The CEO of Stirling Energy Systems Inc. (SES) is enthused about the prospects for an expanding solar energy industry, the strategic access to his market that Phoenix provides, and the proactive reputation of the Greater Phoenix Economic Council. SES is a pioneer in the design and development of Concentrated Solar Power solutions.

Cowman joined the company in May 2008, after having worked for General Electric for 10 years, including eight in the United States. He’s been living in the U.S., mostly on the East Coast, for 12 of the past 20 years.

Barely a year after taking the helm of Stirling, and choosing Phoenix for its corporate headquarters, Cowman joined GPEC and sits on the economic development organization’s executive committee. Though a relative newcomer to the Valley, Cowman, who has a background in semiconductor engineering, had a longtime involvement with Intel, Motorola and Arizona State University.

With Stirling targeting markets in Nevada, New Mexico, California, Texas, and of course, Arizona, Cowman says of Phoenix, “I liked the location and the infrastructure.”

While Cowman was working in Dublin, GPEC dispatched a representative to his company to reinforce the story about what Phoenix offers.

“I was impressed with the people and with the vision they have to reverse the trend of losing engineering and manufacturing-intensive businesses in the Valley,” Cowman says. “I like GPEC, and I want to stay here and grow here.”

Cowman applauds the efforts of GPEC to attract more solar energy businesses.

“A number of companies are looking to relocate their design or manufacturing operations to the Phoenix area,” he says. “The larger solar infrastructure we build in the Valley, the better it is for companies like Stirling. It improves the gene pool we can all draw from and helps with collaborative programs.”
In addition to marketing and promoting the Phoenix area from coast to coast, GPEC also gets into what Cowan refers to the “hard stuff,” pushing legislation that helps the solar industry.

On the lost manufacturing jobs, Cowman says, “These jobs are not going overseas. A lot of them are going to places like Nevada and New Mexico.
Arizona has some catching up to do, and GPEC is doing that. GPEC is trying to make the Valley look more attractive, and state officials need to wake up to the reality that we have a competitive disadvantage.”

www.stirlingenergy.com

Arizona Business Magazine

February 2010

Q&A With Michael Bidwell, Chairman Of GPEC, President Of The Arizona Cardinals

Michael Bidwill
Chairman, GPEC
President, Arizona Cardinals

Why did you opt for a second term as GPEC chairman?

It is an honor to serve a second year as chairman of GPEC. The organization is doing meaningful work, and I wanted to help build upon that work. I think it’s also important to provide consistency in leadership, particularly during times like this. Over the last year, GPEC has made impactful contributions to Arizona’s economy, including our work on the renewable energy incentive program (SB1403). We have much more to do and serving another year as chairman will allow me to continue to work closely with the governor, Legislature and business community on vital economic development issues.

You have been GPEC’s chairman during one of the worst economic downturns the Valley has seen in decades. What lessons have you taken from this experience and what have you learned about the business community?
Our state was unprepared for the slowdown in the economy and the ramifications are going to be sobering in 2010 for those not following the state budget cuts. It is clear that the business community needs to lead the effort to diversify our industry base. And it is equally clear that we have many talented, passionate business community members who are ready to step forward and provide new leadership. Like in football, we need a game plan and players on the field to execute it.

Economists say the recession has made Arizona more affordable again, and thus more attractive to relocating companies. Do you agree with this assessment, and how is GPEC making sure the Valley maximizes its competitiveness?
I believe it is one factor, but not significant enough to be a game changer. Arizona needs to understand that we compete for business expansion and relocation with our Mountain West competitor states. Decision makers who decide where these projects (and jobs) are located factor many things: an educated work force, cost of and access to capital, business operating environment and an ability to attract and retain talent. Housing costs play a role, but our competition has a leg up on Arizona in many of the other areas. We need to stress to our elected officials that we need a game plan to recover from this downturn and diversify our economic base.

GPEC has targeted the renewable energy industry as a source of new business opportunities. How do Arizona’s efforts to attract green companies compare with those of other states? How would you assess any progress the state has made?

With the passage of SB1403 last session, we are well positioned to land new solar and renewable energy companies. But Corporate America is going green too and looking for green or LEED-certified buildings. Arizona needs to develop new programs to bring our commercial buildings to LEED certification. There is no doubt this will help in our effort to land new projects.

What are some of the goals and initiatives GPEC is taking on this year and how will it go about achieving those goals?

We have several efforts. First, we are providing analysis to the Legislature on how rewriting the state’s Enterprise Zone legislation will stimulate job creation and fill some of the empty commercial space. Second, we have renewed our focus on marketing Greater Phoenix with an emphasis on positive business news and opportunity. We’ve created a new Web site called opportunitygreaterphoenix.com that showcases the region and unique opportunities businesses and people have here. Next, we are organizing executive missions to Washington, D.C., and New York, where we’ll meet with leaders who can help influence positive economic activity for Arizona. And of course, we’ll continue to work hard to bring solar and renewable energy companies to Arizona under the new incentive legislation passed last summer. It will be a busy year and we are committed to doing all we can to improve the Valley’s economy and bring jobs to this region.

www.azcardinals.com


Arizona Business Magazine

February 2010

ATA Profile: Jim Prueter, Senior Vice President of AAA Arizona

Jim Prueter
Senior Vice President, AAA Arizona
www.aaaaz.com

As senior vice president of AAA Arizona, Jim Prueter is part of a company that provides automotive, insurance and travel services to nearly 800,000 Arizona members. He’s no stranger to AAA, having worked as vice president of AAA Mid Atlantic in Philadelphia, and as executive vice president of AAA Chicago Motor Club. But he didn’t get his first taste of the travel industry side of the company until 1998, when he arrived in Arizona.

In his current post, he is responsible for heading up the largest leisure travel agency in Arizona, AAA Travel Agency. In addition, he is the publisher of AAA’s member magazine, Highroads Magazine. With a subscription of nearly half a million, the magazine is the largest in the state. In his various professional affiliations and as current chair of Arizona Tourism Alliance’s board of directors, Prueter recognizes the importance of tourism advocacy efforts.

“It is vitally important that the Arizona travel industry has a voice that is heard by our elected officials, the business community at large and the public. Tourism has a huge economic impact on our state, that is largely unknown, that must be heard,” Prueter says.

The ATA, Prueter says, is a driving force in spreading the message about the enormous impact the travel industry has on the state’s economy.

“The ATA serves as a catalyst and voice for the Arizona tourism industry dedicated to providing advocacy and generating awareness of the industry by providing education and leadership to the industry,” says Prueter. “Over 37 million domestic and international overnight travelers visited our state in 2008, spending some $18.5 billion. That equates to more than $51 million pumped directly into our economy every day. It is the only industry that brings prosperity to all 15 Arizona counties.”

He adds that taxes paid by visitors have a direct and measurable benefit on Arizonans, generating $2.6 billion in local, state and federal tax revenues in 2008.

“The point is, out-of-state visitors spend money that benefits businesses far beyond traditional travel entities. The purchases travelers to Arizona make generate taxes that create tax revenue that fund jobs and public programs, such as police, firefighters, teachers, road projects and convention centers,” Prueter says.

The dismal economy certainly put a strain on the industry, as did the faltering state budget and bad press regarding corporate meetings (Meetings account for more than 70 percent of resort revenues in the state).

To counter this, Prueter encourages individuals to join organizations such as the ATA, the Arizona Hotel and Lodging Association, the Arizona Restaurant Association, local convention and visitors bureaus and other industry organizations. His goal is to continue to work with the ATA on advocating tourism to all industries. With events such as the Unity Dinner and the Governor’s Conference on Tourism, the ATA will continue its efforts on behalf of travel and tourism in Arizona.

Getting the industry back on track will take some time, but Prueter offers this advice: “Don’t sit on the sidelines wringing your hands … Let them know what the economic impact of the Arizona tourism industry means to their business and the positive impacts travel has to the benefit of all Arizonans.”


Arizona Business Magazine

February 2010

ATA Profile: Deborah Ostreicher, Deputy Aviation Director At Sky Harbor International Airport

Deborah Ostreicher
Deputy Aviation Director, Sky Harbor International Airport
www.skyharbor.com

As deputy aviation director of Sky Harbor International Airport, Deborah Ostreicher has a hands-on grasp of the travel industry. A typical day at the airport includes more than 1,200 aircrafts arriving and departing and more than 100,000 passengers coming and going. It’s no surprise that Sky Harbor is one of the 10 busiest airports in the world and has a $90 million daily economic impact.

Ostreicher’s professional background is in international business and marketing. She lived in Europe and the Middle East for about 10 years before coming to Phoenix. Although the travel industry always interested her, it wasn’t until 1996 that she became a travel professional. She joined Sky Harbor as the air service development manager, working to recruit airlines to Phoenix. The industry has certainly seen its share of changes since Ostreicher entered the scene.

“When I joined the industry, it was booming like crazy. With the economic downturn and post 9/11 era, things are certainly slower; and so is the cash flow that was once available for promotions and marketing,” Ostreicher says.

Yet Ostreicher sees her roles at Sky Harbor and as an executive committee member of the Arizona Tourism Alliance’s board of directors going hand in hand.

“As the area’s main airport and one of the largest in the entire Western region of the U.S., our role is to provide data and support to the efforts of the alliance,” she says. “Working together is critical, since a huge number of tourists come to Arizona by air and a large part of the airport’s business is the leisure market.”

Sky Harbor was not immune to the detrimental economic climate. Yet, the airport fared better than many others across the country.

“There has been an overall decrease (in passengers) of about 10 percent in 2009, but this is significantly better than many airports across the country. It’s important to keep in perspective that, rather than about 100,000 passengers a day, now we have about 90,000 per day,” Ostreicher says.

The demanding pace of keeping up with security changes, coupled with economic difficulties, is an ongoing challenge for the airport. Yet, it’s a challenge that Ostreicher is confident Sky Harbor can and will overcome. The recently announced Sky Train is one major project in the pipeline that is sure to bring growth and development to the airport.

“The Sky Train is by far the biggest project that will serve tourists, as well as the local community,” she says. “This will be ready for use by 2013, making it much easier for people to travel to, through and from the airport well into the future.”

Ostreicher recognizes the need to advocate the long-term benefits that a strong and vital tourism industry will have on the state. Though things may be difficult now, she says it’s still wise to invest in an industry that will be integral in Arizona’s economic recovery.

“The demand for tourism and air travel will undoubtedly bounce back,” she says. “But we can’t wait for that to happen to construct services necessary to serve this rebound. We have to do it now; and if you come to Sky Harbor, you’ll see that at America’s Friendliest Airport we are working to serve not only today’s customers, but tomorrow’s.”


Arizona Business Magazine

February 2010

Q&A With Debbie Johnson, Executive Director Of The Arizona Tourism Alliance

Debbie Johnson
Executive Director, Arizona Tourism Alliance

Debbie Johnson, executive director of the Arizona Tourism Alliance, is a major force in the Valley and state’s tourism and hospitality industry. She also serves as president and CEO of the Arizona Hotel & Lodging Association and the Valley Hotel and Resort Association. Johnson also represents the tourism industry by serving with the following organizations: American Hotel & Lodging Association; Arizona Film and Television Commission; the Governor’s Tourism Advisory Council; International Society of Hotel Association Executives; Arizona Sports & Tourism Authority; Civic Plaza Task Force; and the Phoenix Tourism and Hospitality Advisory Board. In 2003, she was named the Arizona Tourism Champion of the Year at the Arizona Governor’s Conference on Tourism, and in 2006, she was given the Phoenix Visitor Industry Champion Award by the Greater Phoenix Convention & Visitors Bureau.

How badly did the recession affect the state’s tourism and hospitality industry, and could it have been worse?
The tourism industry was particularly hard hit in 2009 by several factors, including the recession, the negative perception of travel and meetings, the fear of the H1N1 virus, and some misplaced political rhetoric. While our industry suffered unprecedented occupancy and revenue losses, I’m sure it could have been worse, although I shudder to think of what that would have meant to so many of our residents who rely on tourism for their livelihoods.
What we learned this year was the importance of the meetings industry to our state. Group and business travel accounts for more than 70 percent of revenue for most of our larger properties, and when we saw mass cancellations in that market due to fear of negative media coverage and public perceptions, it resulted in tens of millions of dollars missing from our state, city and county budgets. We’re still feeling those effects today as the Legislature grapples with how to deal with the deficit because of less than expected tax revenues.

What do you foresee for 2010?
We’re hearing mixed messaging as far as what the tourism industry can expect in 2010. While we anticipate having another challenging year, we are optimistic that the worst is behind us, and feel that we’ll make some inroads toward recovery.

What initiatives is the Arizona Tourism Alliance taking to help strengthen the state’s tourism and hospitality industry?

The Arizona Tourism Alliance’s most important roles are to advocate, educate and unite our industry. Bringing the industry together through annual events and monthly updates is key to keeping our members engaged and informed, and educating elected officials on the value of tourism revenues is an ongoing process that requires constant attention. With the current crisis that our state budget is in, tourism’s return on investment ($8 returned to the state budget for every $1 spent on tourism marketing) provides a positive and short-term solution toward lowering our deficit; so it’s critical for us to provide that positive message.

You are involved with several other tourism and hospitality organizations here in the Valley. How have all of those groups been working together to ride out the recession and prepare for recovery?

The Arizona Tourism Alliance, Arizona Hotel & Lodging Association, Valley Hotel & Resort Association and Southern Arizona Lodging and Resort Association have always been strong partners, but 2009 was the year that truly brought our industry and all of our advocacy organizations together. With all challenges come opportunities, and the bright spot of 2009 was that it united our members in the resolve that we’re all in this together. We have emerged from this crisis as a stronger and more resilient industry. And the theory that a vibrant Arizona tourism industry equals a healthy Arizona economy is undeniable.

www.aztourismalliance.org | www.vhra.net | www.azhla.com


Arizona Business Magazine

February 2010

ATA Profile: Mark Grenoble

Mark Grenoble
President, Enchantment Group
www.enchantmentgroup.com

Not many professionals can say they grew up in their industry. Mark Grenoble is one of the few who can. He has worked in some capacity in the tourism industry since he was a teenager, and aside from a few years in real estate, he has never left the industry.

From humble beginnings as a hotel banquet waiter, Grenoble has risen to the ranks of president of the Scottsdale-based Enchantment Group, a company that provides spa and resort property development and luxury hotel management services. He founded the firm with senior executives of Enchantment Resort and Mii amo, a destination spa that has been ranked No. 1 in the world by Travel & Leisure. Yet, Grenoble doesn’t think his story is very unique.

“There are so many stories just like mine; started at 15, 16, 17 and have grown up in the business, have a passion for it and enjoy it,” he says. “I like the resort side of the hotel business even better. Everyone wants to be there. The business is fun in general. Most people in this business are very passionate about what they do.”

That passion has helped Grenoble etch out a successful career in an industry that has undergone many changes during his 25 years and counting. All his hard work and dedication has not gone unnoticed. Last year, Grenoble was named the Tourism Champion of the Year at the Arizona Governor’s Conference on Tourism.

Though he thoroughly enjoys the industry and his role within it, Grenoble is very frank about the future. Recent challenges have plagued this industry and Grenoble’s role in the Arizona Tourism Alliance is to educate the public on the value of tourism.

“Our leadership in the industry needs to be active and advocate. We need to educate business leaders and elected officials on the value,” he says. “We’re a major industry in the U.S. and the state. Millions are employed nationwide. It’s an industry that is an economic driver; it’s a career path and we need to educate people on the value of it.”

Tourism is a huge part of the state’s economy, especially in smaller, rural communities. Sedona is one example. The city does not have a property tax because tourism funds services for the town.

“Tourism drives the economy for the town and real estate values. It adds a quality of life. Sedona has a population between 10,000 and 15,000 people. All the activities, art galleries, etc. — as a resident you would never be able to do that without the tourism aspect of it,” Grenoble says.

One positive thing that has occurred as a result of this downturn, he adds, is that communities, and even some elected officials, are willing to invest in tourism dollars. They have begun to understand the value of it and the long-term benefit of the cities and the state as a whole.

Grenoble also was instrumental in adding a communications position to the Arizona Hotel & Lodging Association, a move that proved itself to be an excellent resource during last year’s trying times. The position bridged the gap between the industry and the public, and helped communicate the value of tourism.

“We’re trying to engage the public, elected officials and our membership, all the constituents of the tourism industry. We need to understand what we’re doing as an industry,” Grenoble says.

One way that Grenoble hopes to accomplish this is to include outside industries in tourism advocacy. The goals and missions for all industries is to bring economic stability to the state, and the best way to do so is to recognize the value of each industry and work together.

“We’re all intertwined, and that’s why we need to build alliances and bridges with those outside industries,” he says.

Another cause that Grenoble thinks could be helpful in aiding the tourism and travel industry in its recovery is a regulated school calendar that doesn’t begin until after Labor Day.

“It’s had a very positive uptick in taxes for states that have mandated school start after Labor Day,” Grenoble says.

He is currently lobbying supporters for this, but he remains focused on the main goal of tourism helping lead the state out of the economic downturn.

“I think the state has a lot going for it and I see the lights at the end of the tunnel,” Grenoble says.


Arizona Business Magazine

February 2010

A Solid Health Management Program Can Be A Good Investment For Any Company

Many population health management programs face closer scrutiny when a company is faced with difficult budget decisions during a tough economy. But health and health care costs are a strategic priority for every business whether they acknowledge it or not — and most readily do.

In times of economic downturn, companies might want to consider increasing their spending on health and wellness initiatives. Why? Because in an economic downturn, maximizing productivity and reducing costs are more important than ever.

The true cost of poor health includes indirect costs, as well as the more obvious direct cost of medical claims. The more bad health habits or risks employees have, the lower their productivity; and health risks directly equate to higher health care costs, both direct and indirect. A number of medical conditions, if left unmanaged or poorly managed, become catastrophic, ending in hospitalization and reduced functioning, thereby reducing productivity. Lastly, health and wellness programming is a relatively low cost and important item. It decreases disease, but also influences whether employees like their jobs and feel cared about by an employer, which in turn affects productivity and absenteeism.

There are some key preventive measures a company can take that help keep people from slipping into a high risk, high-cost category. First, know what the most common or costly conditions are in your population and offer programs targeted to help your people manage these conditions. Encourage the local medical community to be an active partner with innovative management tools and strategies. Also increase the employees’ stake in the equation, but not regressively. Again, making disease management easy and affordable will likely save money. Lastly, look for quality in the medical care your employees get. Help your employees find quality care for catastrophic, high-cost conditions, and make helpful, quality information easy to access. There are now a number of good Web-based sources of quality medical information, such as the Centers for Disease Control and Prevention (CDC), National Library of Medicine, and mayoclinic.com.

When prioritizing program elements during tough economic times, companies can minimize downstream health costs and productivity impacts if they focus on initiatives that prevent the onset of high-cost, productivity-lowering diseases such as diabetes. In most health promotion and disease prevention programs, we know there is a three-to-one return on your investment, and you get the pay back in one to two years.

For mild conditions such as high blood pressure, high cholesterol, and Type 2 diabetes, company policies should make it easy to treat these conditions, and encourage medication and behavioral approaches. Make common medicines cheap to the end user, and encourage regular use of prescribed medications. Back it up with multimodal messages throughout the year. Make talking to a human easy when people have questions about their condition or medications with telephonic coaches, disease management professionals, group classes, or an onsite nurse.

Online personal health managers are a new consumer tool that will likely play a key role in helping people take their medications and manage their conditions. Using an online personal health manager also forms a bridge to doctors, and can give personalized day-to-day support and guidance to people via the Internet.

Keep healthy people healthy to prevent downward risk migration that can make health costs jump, and engage as many of your employees as possible in something positive. The first step is to get their attention. A health assessment tool provides a teachable moment and a jumping off point for engaging people in the wellness options you may offer.

Tracking data can often represent a significant time and dollar investment that may be difficult to keep up with during lean budget times. But the old adage of you can’t manage what you don’t measure is true in population health management. Maintaining a database of health status and trends is critical for making informed decisions on what interventions will have the most impact for your particular population. It also helps you justify the expenditure by showing whether you’re making a difference over time.

Use a health assessment as your baseline data set. It allows immediate feedback to the individual and gives group data for needs assessment and program development. It allows tracking of change over time, an early warning system and modeling of pay back from various program options. And it’s low cost, especially the online versions.

When faced with difficult budget decisions, if you are contemplating cuts to your health and wellness programming, stop and think about the downstream implications. Preserving these programs not only will help you keep your bottom line healthy, but also may improve your employees’ health, productivity and morale.

Arizona Business Magazine

February 2010

First Job: Steven G. Zylstra, President And CEO Of Arizona Technology Council

Steven G. Zylstra
President and CEO, Arizona Technology Council

Describe your very first job and what lessons you learned from it.
I picked blueberries at Pottegetter’s Blueberry Farm in Allendale, Mich., with my parents when I was about 10 years old. It was hard work for a 10-year-old, but I learned that with hard work you could earn good money and buy the things you wanted in life. I earned enough money to buy an eight-transistor radio. The first song I remember listening to on my transistor radio was “I’m Henry VIII, I Am” by Herman’s Hermits, which was popular at the time.

I had dozens of jobs as a kid: topping onions, cutting celery, weeding pickles, butchering chickens, cleaning exotic bird cages, shoveling snow, inspecting eggs, selling seeds, delivering Grit newspaper, bus boy. I was a truck driver in my late teens. All of these opportunities taught me the value of hard work and ultimately helped me realize I could do more with a good education.

Describe your first job in your industry and what you learned from it.
My first job out of college was as a design engineer at the Ford Motor Co. in Dearborn, Mich. I had the opportunity to participate in a two-year graduate training program at Ford that was originated by Henry Ford. I had eight, three-month stints across the company in areas such as development, engine engineering, the Dearborn stamping and assembly plants at the Rouge, and body engineering. I even did a stint in product planning and had an office next to William Clay Ford Jr., the future chairman and CEO of Ford.

I learned the value of going above and beyond and trying to always exceed expectations. As a consequence of positive performance reviews while in the program, our vice president of advanced vehicle development recommended me for positions at Ford Aerospace and Communications Corp. in California at the time things got rough in the auto industry in the early ‘80s. That led me to spend the next 20 years of my career in the aerospace and defense industry.

What were your salaries at both of these jobs?
Picking blueberries in 1964 paid 5 cents a pound. In my first job at Ford in 1978, I made $18,000 a year — more than my Dad, who grew up on a farm and attended school through eighth-grade had earned in any year prior to that.

Who is your biggest mentor and what role did they play?
I never really had a mentor per se, just role models. My father was a role model. He is still the hardest-working person I have known. I got my work ethic from my Dad. I had a high school girlfriend whose father was a role model. Beyond that, what pushes me is an internal drive to excel at whatever I do.

What advice would you give to a person just entering your industry?
After getting a great education, do what you love. People are always better at things they enjoy doing. I have always enjoyed going to work. I find it rewarding, invigorating. Always be honest and ethical. Don’t ever accept mediocre; pursue excellence. Always exceed everyone’s expectations — yourboss’, your colleagues’, your customers’, everyone. It will serve you well. Have fun!

If you weren’t doing this, what would you be doing instead?
I have always wanted to own a Harley-Davidson dealership (maybe a good retirement gig!). While often a lonely place, I like the challenges and rewards of having the top leadership position in an organization. I would enjoy serving as the CEO of many things, especially private companies, not-for-profits and trade associations. I would love to be a golf pro on the tour … if only I had the skill.


Arizona Business Magazine

February 2010

Old favorite Steamers has new owners and some new tricks

It’s always fun to visit a new restaurant, but every once in a while it’s just as entertaining to revisit an old favorite — especially one that’s just received a revitalizing jolt in the arm. So is the case with Steamers.

A long-time occupant of the upper level of the Biltmore Fashion Park, Steamers is now under new ownership. Doug Czufin and Bruce Lazarus, who also own the adjacent restaurant Sam’s Café, acquired Steamers late last year and set about changing the menu and freshening the décor.

Change is good, but not if it alienates customers. Fortunately, Steamers should have no problem keeping old customers while still attracting new ones. The Steamers dining room still has its yacht-clubby feel with dark woods and brass accents. The biggest change to the décor can be seen in the bar area, which now has a more modern and streamlined look to appeal to the happy hour crowd of professionals from nearby office complexes.

Another change is the food. Czufin, who also serves as corporate chef, has infused Steamers’ traditional seafood fare with lighter options. One of those new options Steamers is promoting are the lobster lettuce cups, a crispy leaf of lettuce filled with lobster meat, avocado and vegetable slaw. They can be purchased as a lunch menu item or as a dinner appetizer. Other delicious appetizers to choose from include a tuna tartar stack made with yellow fin tuna tossed in a ginger soy sauce and stacked with tomatoes, wasabi guacamole and tossed greens; and the jumbo crab cake concocted from Maryland-style and sweet jumbo crabmeat, baked and served with crème fraiche.

For dinner, you can pick traditional seafood dishes served in new ways. For example, the Chilean sea bass is steamed and topped with a ginger-soy sauce, and it sits on a bed of fresh spinach and white, sticky rice. Sole menuiere consists of a cut of sole lightly dusted, sautéed and placed atop a generous pool of lemon-caper butter sauce.

Some dishes are better left alone, and Steamers knows when to do that too. The restaurant offers a selection of crab legs, but the best bang for your buck — both quantitatively and qualitatively — are the ruby red jumbo Alaska king crab legs. Big, meaty and tasty, I tried not to think about what monster-sized crabs the legs came from.

Knowing that dessert is the crowning glory of any good meal, the new Steamers hasn’t skimped on the sweet treats. The must-haves include a chocolate s’more soufflé made with rich chocolate, a hint of Grand Marnier and served warm with a marshmallow crust; the thick and flavorful crème brûlée with fresh fruit; and the pleasingly sweet and tart Key Lime pie.

So if you haven’t gone to Steamers lately, plan a return visit. And if you’ve never gone to Steamers, make it a point to add it to your list of favorite restaurants.

If You Go:
Steamers (Out of Business)
2576 E. Camelback Road, Phoenix
(602) 956-3631
www.steamersgenuineseafood.com

 

Arizona Business Magazine

February 2010

The State’s Tourism Industry Puts A Face To Those Hurt By The Corporate Meetings Backlash

The image the word tourism often brings to mind is of fun, sun, and beautiful destinations and resorts. But with the industry under siege last year, those who work in the sector here in Arizona decided it was time to give tourism a new face — that of a relative, a friend, a neighbor, someone you know, even you.

In 2009, the tourism industry across the nation was hit by the recession and the fevered backlash against corporations that had received billions of dollars in taxpayer bailout money. To those in tourism, this became know as the “AIG effect,” so-called because the foundering insurance giant went ahead with lavish retreats after getting an initial $85 billion bailout in September 2008 under the federal government’s Troubled Asset Relief Program (TARP). The Valley became connected to the controversy when ABC News reported in November 2008 that AIG had spent more than $340,000 on an event at an area resort. AIG countered that the event was not a corporate retreat, but rather a conference for independent financial advisers. But the damage was done.

“For us, to be in a destination that just happens to be lovely, that just happens to have nice weather, that happens to have those beautiful structures that are really good at providing a great amount of business opportunities inside them in the form of meetings — we got really hit,” says Rachel Sacco, president and CEO of the Scottsdale Convention and Visitors Bureau.

The result was plunging occupancy rates, declining tax revenues, curtailed employee hours and even layoffs at Valley resorts and hotels.

In an effort to diffuse the hostility, the U.S. Tourism Association began a Face of Tourism media campaign to spotlight the people who were directly hurt by corporations canceling all manner of events — the millions who work in the tourism and hospitality industry. Over the past summer, the various players in the state’s tourism industry, including the Arizona Tourism Alliance, joined forces to launch the Face of Arizona Tourism campaign.

“The Face of Arizona Tourism campaign was really about trying to make sure that there is an understanding of how personal this industry is,” Sacco says. “ … it’s people at all different levels that are doing work that is meaningful and important, and frankly is their livelihood. I think the campaign was really successful to see that there is a face, that I might even know that face, and I might even be that face.”

The person selected to embody the Face of Arizona Tourism campaign is Mia Yates, a banquet server at the Westin Kierland Resort & Spa in Scottsdale.

“My story is this is my full-time job, working in the banquet department at the Westin, and I’m a single mom with three children.” Yates says. “When businesses stopped coming to Arizona, and more specifically the Westin, my hours were affected. They don’t need me to work, so I don’t work, I’m unable to hold onto my health benefits that allow my children to go to the doctors. I guess the Westin felt that I had a story. I was pretty close to the average working bear.”

Yates acknowledges that the Westin weathered the worst of the downturn better than other resorts, and she credits the efforts of management to look after its employees.

“They opened up positions around the resort and allowed us to cross train to help us keep our hours,” she says. “We only had to do that during the summer months, and pretty much we’ve been back up to nice hours in the banquet department.”

Bruce Lange, managing director of the Westin Kierland, says getting out Yates’ story — and all the others she symbolizes — was critical in short-circuiting the AIG effect.

“I’m absolutely certain we reacquainted our elected officials with where the rhetoric was hurting our economy, specifically if you know that one out of every eight people in the nation is engaged in the industry called tourism,” Lange says. “We are able to put the faces of the Mia Yates of the world and say, ‘Here’s your victim. Your intended victim may be the CEOs of those organizations, but here is where it’s really coming home to roost.’ I’m absolutely certain it’s had a positive impact.”

As a result of the recession and the AIG effect, Lange says the Westin Kierland’s business was off 25 percent in 2009 as compared to 2008. But the numbers only tell part of the story.

“If I tell you that our business is off 25 percent and we send, from a tax revenue standpoint, to state and local government $12,000 a day, is that impactful?” Lange asks. “Or is it more impactful for me to say that our average employment is about 1,000 people and if we’re down 25 percent we have 25 percent fewer folks? I think where the rubber meets the road is the human aspect much more so than the statistical aspect.”

Sacco adds that it’s important to educate the public as a whole about how hard times in the tourism industry have a far-reaching effect.

“The impact tourism had of losing hundreds of millions of dollars in our community gets back to the Face of Tourism, because when you start losing money and business, it hurts that face of tourism, it hurts the small business that isn’t getting all of the trickle-down impact, it hurts all the galleries that have closed,” she says. “It didn’t just hurt people in the tourism industry.”

www.scottsdalecvb.com | www.kierlandresort.com


Arizona Business Magazine

February 2010

ATA Is Promoting The Message That Tourism Will Bolster The State’s Economic Recovery

Tourism is not an expense — it’s an investment.

That’s not an official slogan for advocates of Arizona’s tourism and hospitality industry, but it is a message they are working hard to imprint in the public consciousness as legislators eye further cuts to the state’s budget. As in past budget crises, funding for marketing the state’s tourism and hospitality industry is vulnerable once again.

“Too often, public officials wrap up tourism with the other cost sectors rather than looking at it as an economic engine that can help bring new spending, support new jobs, support incremental tax revenues,” says Mitch Nichols, president of the Nichols Tourism Group and treasurer of the Arizona Tourism Alliance.

Nichols says the ATA is developing an advocacy program to better explain the role tourism can play in the state’s economic recovery.

“Tourism helps Arizona’s economy on two levels. One is its role as a base industry where it can bring new spending which will support new jobs and new taxes. So it’s role as a base industry is really critical,” he says. “The other element with tourism is its role across the state. A couple of years ago when the state did an economic development plan and looked at the various clusters, they looked at tourism as the common denominator. It was the only base industry that has applications in all 15 Arizona counties.”

According to a report prepared last year by the Portland, Ore.-based economic and marketing research firm Dean Runyan Associates for the Arizona Office of Tourism, the total direct and secondary impact of the Arizona travel industry in 2008 was 310,000 jobs and $10.2 billion in earnings.

The report also found that in 2008, direct travel spending was associated with $1.4 billion in state and local tax revenues and $1.2 billion in federal tax revenues. That was the equivalent of $1,080 per household in Arizona.

In other findings:
Total direct travel spending in Arizona in 2008 was $18.5 billion, a 3.2 percent decrease over 2007.
Travel-related employment, earnings and tax receipts declined in 2008.
The collapse of the housing market and recessions in Southern California and Arizona contributed to the travel decline.

Nichols warns that while it may seem easy to cut state funding for tourism marketing, the result could be long-term damage to the industry and the derailing of a fragile economic recovery. The effects could be even more troubling as competitor states such as California hold firm despite their own economic difficulties.

“There are other states that do see the full potential of tourism,” Nichols says. “California doubled its tourism budget up to $50 million a few years ago. The state is maintaining that budget despite cuts.”

Quite a lot is at stake, according to Nichols. Citing the Dean Runyan study, Nichols says U.S. leisure and business travel spending is expected to increase 4.5 percent and 5 percent in 2010 respectively. That has the potential to create 90,000 new jobs nationwide.

Nichols says Arizona needs to step up — not back — if it wants to bring a portion of those jobs and tax revenues to the state. In order for Arizona to compete against California and Nevada, the state needs to aggressively market at both a state and regional level.

Nichols points to Flagstaff as an example of how substantial the ROI on marketing tourism can be for a community. Last spring, as the economy continued in freefall, the Flagstaff City Council acted on a recommendation by the city manager to provide a $250,000 tourism “stimulus.” The money went toward marketing Flagstaff during its traditionally slow months of May and June.

The effect on Flagstaff’s tourism industry was positive and immediate, says Heather Ainardi, director of the Flagstaff Convention & Visitors Bureau.

Ainardi says Flagstaff’s hospitality tax collections dropped almost 10 percent in March, compared to 15 percent for the state. In April, when the city began its tourism marketing push primarily in the Valley and Southern California, hospitality tax revenues fell just 1.5 percent for Flagstaff, compared 11 percent for the state. In May, Flagstaff’s hospitality tax revenues were flat and dropped 7 percent in June.

“So, although we were still down, we were doing well compared to the state. Where everybody else was seeing double-digit declines (in tax revenue), we were either flat or saw small declines. Our occupancy actually went up in May and June,” Ainardi says. “I think people look at marketing and don’t understand the return. It’s not something where you can put in a quarter and a dollar comes out. It truly is something where you put in a quarter and you see an across-the-board impact.”

According to a study the city conducted with the Arizona Office of Tourism, the tourism and hospitality industry has a $501 million annual impact on Flagstaff and creates 5,400 jobs every year.

And Ainardi and other tourism supporters in Flagstaff are on a mission to educate residents about how those tourism dollars affect their lives.

“We really promote that revenues from that tax don’t just go toward marketing,” she says. “They actually go toward parks and recreation, they go toward public beautification, economic development and the arts and sciences. In Flagstaff, we have a system developed where we can help people understand that the 47 miles of urban trails that they utilize on a daily basis are built and maintained through tourism dollars.”

As a member of ATA, the Flagstaff CVB has worked closely with the group in its efforts to save funding for the Arizona Office of Tourism. Ainardi says her organization plans to continue its partnership with ATA to further the alliance’s advocacy mission.

“Tourism is amazingly important and it’s been one of the traditional backbones of some of our economies,” she says. “It’s not everyone’s favorite industry, but it is one that continues to grow and benefit our communities.”

www.nicholstourismgrp.com | www.flagstaffarizona.org


Arizona Business Magazine

February 2010

GPEC Launches A New Website To Promote The Greater Phoenix Story

At a time when traditional newspapers are struggling or even vanishing, the Greater Phoenix Economic Council has launched a new Web site designed to provide information that offers a complete picture of what is going on in the Valley.

One of the goals behind the formation of OGP — opportunitygreaterphoenix.com — is to offset some of the negative news coverage that continues to plague Arizona. Barry Broome, GPEC president and CEO, says community leaders agreed on the concept of establishing a communications initiative that focuses on the brand of the Greater Phoenix market.

“We’re more transactional,” Broome says. “A lot of great attributes about our market don’t necessarily get conveyed in a transactional exchange. Our reputation is tied to a lot of things that go well beyond building work force availability and the cost of a transaction.”

Working with the Maricopa Partnership of Art, the Greater Phoenix Chamber of Commerce, and the Phoenix Convention & Visitors Bureau, GPEC maintains the Web site that enables people in Arizona and elsewhere to read stories about Arizona they might not see anywhere else.

“You can find the kind of in-depth stories not necessarily always available in a typical news environment,” Broome says. “Hopefully, it will become a social media phenomenon. Our goal is to complement blog activity and news activity in the market, and really tell our story. It’s more of a communications initiative than a Web site.”

Events of the past two years spurred the creation of Opportunity Greater Phoenix. There was concern that mainstream media were not defining Greater Phoenix in a fair and equitable way. Those events Broome mentions include the immigration debate, the housing market collapse, the impact on Arizona from the banking crisis and issues related to a state budget bleeding red ink.

GPEC Chairman Michael Bidwill and Vice Chair William Pepicello obtained funds from the private sector to launch the site. A Web publisher and a part-time reporter were brought onboard. Discussions about OGP began Oct. 1. Eight weeks later, the site was up and running.

The OGP site is designed to inform and influence the conversation about all things related to business, employment, and the economy in Greater Phoenix. It provides accurate coverage of news, trends and analysis relevant to the local economy, along with resources such as database searches, lists, links and summaries on work force, quality of life, and overall competitiveness. It will be particularly helpful, Broome says, when GPEC embarks on economic development trips to New York City and Washington, D.C. Interested parties can go to a single site and get a broad base of stories about the Greater Phoenix market, he says.

Commenting on the emergence of blogs, Broome says, “There’s not a lot of peer review to a blog. As communications becomes more organic and viral, we think it’s important that the market has an organic and viral communication device that will allow readers who are intrigued about our market an intense reading and learning experience.”

So where and how will the site get its information?

“We will be reconstituting information from mainstream media, and producing a lot of fresh new stories of our own,” Broome says. “We expect to write at least five new major stories a week. We’ll have features on CEOs, a community news site, profiles on individuals, and there may be an interactive opportunity to interface with an expert on the economy. The content will be fresh and compelling, but it won’t all be originally generated.”

As an example, Broome notes that Nobel Prize winner Lee Hartwell left the Fred Hutchinson Cancer Research Center in Seattle, where he was executive director, to establish and co-direct the Center for Sustainable Health at Arizona State University’s Biodesign Institute.

“That’s a big deal,” Broome says. “There’s a lot more to that story. What will be the focus of his research? It’s important to the region’s reputation that the story gets told in a more comprehensive and robust way.”

Another example of a story waiting to be told involves a dynamic young woman who graduated from ASU and launched a wireless company in Chandler.She might not be a candidate for a major news story by a major news outlet, but she’s young, which addresses the notion that Greater Phoenix is a retirement community, and she’s talented, which more accurately describes ASU as a first-class institution and not a party school, Broome says.

“That story won’t be in the New York Times,” he adds. “They write about our housing troubles. And The Washington Post writes about our budget problems.”

Opportunity Greater Phoenix is more than a news source. OGP is a resource, Broome says.

“Businesses looking to relocate or expand into Greater Phoenix will find information about the work force, quality of life, policies and legislation that impact decisions,” he says. “And those looking to visit or live in the Valley will find useful information on employment, neighborhoods and arts and culture.”

opportunitygreaterphoenix.com


Arizona Business Magazine

February 2010

The Valley’s Health Care Industry Held Its Own During The Recession And Looks Toward Expansion In The Recovery

In an economic downturn that has plunged Arizona into its worst financial crisis in decades, one sector of the state’s economy that remains vibrant and growing is the health care industry. Consider recent developments driven primarily by population growth: the Creighton University partnership with St. Joseph’s Hospital and Medical Center; the newly opened Cardon Children’s Medical Center, a Banner Health facility in Mesa; the M.D. Anderson Cancer Center scheduled to open in Gilbert in late 2011; and a major expansion of Phoenix Children’s Hospital.

The academic affiliation between Omaha-based Creighton and St. Joseph’s will bring nearly 30 percent of Creighton’s medical students to Phoenix for two years of clinical studies. Since 2005, Creighton has sent relatively few medical school students to St. Joseph’s for one-month rotations. Under the new agreement, 42, third-year Creighton students will arrive at St. Joseph’s in 2012 and in 2013, for a total of 84 students on the new campus, to be known as the Creighton University School of Medicine at St. Joseph’s Hospital and Medical Center. Creighton will provide an associate dean and several administrative support staff, but faculty instructors will be St. Joseph’s doctors and other medical personnel.

Linda Hunt, service area president of Catholic Healthcare West Arizona, president of St. Joseph’s and chair of the Greater Phoenix Economic Council’s Healthcare Leadership Council, says the goal is to retain many of the students in Arizona for residency and eventually have them set up practices here.

“We’re a large population and when you compare us to the rest of the country we have to import our physicians,” Hunt says. “We need the capacity to educate and to care for more of the population.”

The Cardon Children’s Medical Center, which opened Nov. 9, provides comprehensive pediatric care for children. The facility has 248 beds and works with 225 physicians. Top specialties include cancer, neurology, emergency services, surgery, and a level-III neonatal intensive care unit.

“Children often need special help coping with acute and chronic illness,” says Peter Fine, Banner Health president and CEO. “We know Cardon Children’s Medical Center will make a difference in the lives of countless children and their families. Its opening will offer a new option for outstanding pediatric care that is clearly needed by the Valley’s growing population.”

Meanwhile, the University of Texas M. D. Anderson Cancer Center joined forces with Banner Health on Dec. 1, launching construction of a facility intended to deliver an unprecedented level of cancer care to patients in Arizona. Along with treating cancer patients, M. D. Anderson, based in Houston, also offers access to therapeutic clinical research exploring novel treatments.

Fine calls the relationship with M.D. Anderson “a major milestone in the vision of our two organizations to provide access to a new level of cancer care in Arizona.”

The $107 million, 76-bed center will be a 120,000 square foot, three-story building focusing on outpatient services, including physician clinics, medical imaging, radiation oncology, infusion therapy and many support services. Inpatients will be treated on two floors inside Banner Gateway Medical Center.

“M.D. Anderson is not and will not be something similar to what exists in the Phoenix market today,” Fine says. “We are bringing the No. 1 cancer center in the country to Arizona and to have them run it as closely as is possible. There will be significant amounts of automation tying in all their clinicians in this marketplace to clinicians in their Houston campus. For research purposes, protocol purposes, they will in essence be one clinical business on two campuses.”

In 2008, Phoenix Children’s Hospital broke ground on a $588-million expansion that includes an 11-story patient tower scheduled for completion by 2012. As of December 2009, Phase I marked its halfway point, was on-budget and on-schedule. The project will increase the number of its licensed beds to 626 from 345.

Bob Meyer, president and CEO of Phoenix Children’s Hospital, says research indicates Maricopa County has more than 1 million children today and by 2025, an additional 500,000 to 700,000 youngsters will be living in the Greater Phoenix area.

“If you believe those numbers,” Meyer says, “deficits in pediatric capacity are astounding. Estimates are that we will be short 800 pediatric beds by 2025, and short about 400 pediatric specialists.”

Another key reason for the expansion, Meyer says, is that the existing hospital building, which was built in the late 1960s, does not have the floor-to-ceiling height to accommodate today’s newer technology.

Dr. William Crist, vice president of health affairs at the University of Arizona, says the ongoing expansion projects in Greater Phoenix really are thoughtful plans for growth and development of service for a city that’s expanding markedly — even though that growth has leveled off because of the recession.

Crist cites the aging baby boomer generation as the reason for an increasing need in expanded adult medical care.

“Potentially, most cancer occurs in older individuals,” Crist says. “The aging of our population is made possible by advances in health care. It keeps you alive long enough to develop chronic illnesses.”

www.creighton.edu | www.stjosephs-phx.org | www.bannerhealth.com | www.mdanderson.org | www.phoenixchildrens.com | www.arizona.edu


Arizona Business Magazine

February 2010

Nonprofits Need To Be Prepared When Asking Law Firms For Pro Bono Assistance

In these tough economic times, nonprofit organizations are increasingly being relied upon for services, even as contributions continue to drop. Doing more with less has become the norm. In this lean environment, what happens if a nonprofit organization hits a legal road bump that could require hours of work from an attorney or law firm?

If they are lucky, nonprofit directors have planned for this contingency. In reality, however, legal issues sometimes catch nonprofit managers off guard, unprepared and lacking sufficient funds to cover legal expenses. And, finding an attorney or a law firm that provides pro bono legal work can be a challenge. Here are some steps nonprofits can take when seeking pro bono counsel.

Research is key

Ellis Carter, an attorney with Fennemore Craig, suggests doing research.

“The nonprofit should find out whether the firm has a policy regarding accepting pro bono work,” says Carter, whose practice focuses on advising nonprofits, charities and other tax-exempt organizations with respect to corporate, tax and regulatory issues.

Many times, larger firms have policies, liaisons or committees that screen pro bono projects, she adds. The screening ensures that the firm has the appropriate resources and expertise within its practice to provide the legal work required for the project.

“Be cautious about asking a lawyer or a firm to give pro bono advice in an area that they do not ordinarily practice in,” Carter says.

It might be rewarding for an attorney to give back to the community through pro bono assistance, but in complex matters facing nonprofit organizations, such as federal tax laws or state law constraints, it is important that the attorney providing assistance understands these laws, Carter notes.

Be prepared
While some firms have pro bono committees, other firms work through established programs such as the Volunteer Lawyers Program or other community organizations, says Rachel Lewis, marketing coordinator for Bryan Cave.

Demand for pro bono services has increased during this economic downturn, making it especially important for nonprofits to be prepared when seeking pro bono representation, Lewis adds.

“Bryan Cave has seen an even greater need for pro bono and has encouraged its lawyers to expand their commitment,” she says.

That means attorneys providing pro bono services will need to have a clear picture of what types of pro bono services organizations need and how best to allocate resources in order to meet those needs.

Carter recommends that if a nonprofit organization is planning to approach a law firm to request pro bono legal services, it should be prepared to provide articles of incorporation, bylaws, financial statements, the organization’s IRS determination letter, the organization’s most recently filed Form 990, and a compelling story regarding how pro bono services will help the organization impact the community.

“Obtaining pro bono counsel directly from a law firm to which the organization has no prior connection can be a challenge,” Carter says. “Frequently, law firms take on pro bono cases for nonprofits because one of the firm’s lawyers or clients has a connection to the organization.”

She suggests contacting community programs such as the Volunteer Lawyers Program as a first step toward finding pro bono legal assistance.

Volunteering is encouraged

Don’t be discouraged when seeking pro bono legal counsel. Law firms and even sole practitioners are committed to helping when they can. It is even encouraged.

“We have a special obligation to make our professional skills and other resources available to those who cannot afford to pay for legal services,” Lewis says.

Both Fennemore Craig and Bryan Cave encourage their attorneys to give back to the community through pro bono work.

In Arizona, philanthropic training starts in law school through service learning. The Sandra Day O’Connor College of Law at Arizona State University encourages students to help those who cannot afford legal services, says Kristine Reich, director of pro bono programs and student life at the law school. Reich coordinates more than two dozen pro bono programs and facilitates community outreach efforts.

Programs such the Advocacy Program Against Domestic Violence (APADV) and Wills for Heroes are just two of the pro bono efforts at the law school.

Students volunteering for APADV visit women in domestic violence shelters and, on an informal basis, answer any legal questions they may have, says Michelle Guina, a second-year law student at ASU and one of the program coordinators.

“The chance to have a legal education is such a privilege,” Guina says. “Pro bono opportunities in law school give you the chance to use what you’ve been given to give back to the community early in your legal career.”

www.fclaw.com | www.bryancave.com | www.law.asu.edu | www.vlpmaricopa.org


Arizona Business Magazine

February 2010

IT Leaders Are Taking On A New Role As Companies Gear Up For Recovery

Who should CEOs increasingly turn to when they need to formulate modern business strategies that can generate new service revenues, cut across organizational boundaries, reduce costs, enhance productivity — and reach out to customers anywhere in order to deliver anything?

There’s a strategy Dream Team that likely exists right under CEOs’ noses. It’s a team primed to deal with what is being frequently called the emerging “freedom economy.”

Leaders in the areas of services marketing, IT and supply chain management comprise this new Dream Team, although they’re all often so busy they don’t have much time to have a meeting of the minds. But it is high time for CEOs to empower this team and engage their talents as new strategies are being formulated.

It’s pretty obvious to most product-oriented companies that services are an increasingly important revenue stream, so their services marketing leaders have to be front and center with their customer-centric focus. And it’s commonsense that agile and cost-effective supply chain leadership is a key to profitability, so new deployment and delivery issues related to goods and services should be placed in their trustworthy hands. But putting an IT leader on the dream team? Why now?

IT has been going through some major changes lately. IT leaders’ pain points already have generated calloused understandings of what it takes to deliver service (both internally and externally), leverage interorganizational relationships (some of them off-shore), reduce costs, improve the organization’s productivity and get information to where it needs to be to support company agents and customers before, during and after a product sale or a service encounter.

What most people don’t know is that the very systems and applications IT leaders are managing are undergoing significant change. Computing cycles are becoming virtualized, which means raw computation horsepower is now being outsourced. Even data is being managed and massaged in outsourced clouds. And the software itself is becoming service-oriented, meaning that applications are becoming compositions of interleaved executions — some internal to the organization and some running externally that are being out-tasked at the blink of an eye.

The new cell phone mantra — “I’ve got an app for that” — has become a rallying cry for what internal and external customers of IT capabilities expect today, and IT leaders are rapidly learning to respond. IT leaders are accustomed to managing relationships where the choice to switch, engage, disengage and negotiate are time dependent and customer-driven; i.e., they understand the emerging freedom economy.

The environment for IT leaders has changed so much that many now describe their role as serving as a “conductor.” This conjures images of a person standing on a podium waving a baton to orchestrate an ensemble of various instruments to deliver a classical masterpiece. It’s similar, but for the IT leader, the instrumentation has different levels of granularity. For example, an entire division’s IT operations might be outsourced or just one code component might be out-tasked. The conductor’s baton must be able to address broad and sweeping changes and relationships — and still be able to focus on even the smallest atom of syncopated execution. With this complexity, the IT leader role has emerged as one where partnerships are in a constant state of flux, governance processes must be correspondingly agile, and high levels of service must be maintained.

Calling on a Dream Team of leaders from services marketing, supply chain management and IT may not be all that new to many organizations that have been figuring out ways to cut costs to deal with today’s economy. But calling on the same team to help a company emerge successfully in the new market climate characterized by the freedom economy will be a long term make-or-break fact of organizational life.

Consider that latest app you just downloaded to your iPhone or Droid; you’re defining its context for value based on when you want it and where you are using it. You expect an excellent service encounter that will put a smile on your face when your app does its thing, and you expect the freedom to deal with a provider that in reality may be a complex chain of organizational collaborations. And another thing; You expect the execution of that app to be conducted in such a manner that the response is instantaneous, while the intricacies are hidden so you can delight in what the service does for you right now.

Underneath the marketing and chain management that is required to bring you that delight, there’s an IT conductor who has orchestrated the capability to jam out the behind-the-scenes core. That leader is sort of like the unsung hero of the Dream Team, but it’s an essential role that must be revered in order to engage in the harsh realities of the freedom economy.


Arizona Business Magazine

February 2010

The Worst May Be Past, But The Valley’s Housing Troubles Are Far From Over

When the final tally is concluded and the numbers checked and double-checked, the surprising result will show an almost record year for Phoenix-metro home purchases in 2009. That should produce a sigh of relief to the many who sense the Valley’s residential market has hit bottom and it’s time to look ahead to recovery.

Not so fast, interject the naysayers. There are so many problems that still need to be overcome, the local housing market could end up bouncing along the bottom of the cycle for years, if not suffer a secondary bout of recession.

The sticking points deflating the recovery bubble are numerous: more Americans falling behind on mortgage payments, intractable unemployment, a shadow inventory of homes and another wave of exotic adjustable-rate mortgages coming due over the next two years. All that could overwhelm the strong gains seen in the housing market in 2009.

The residential housing resale market in Phoenix has experienced a substantial uptick, reports RL Brown, who publishes the RL Brown Housing Reports. In October 2009, resales totaled 8,167 units as compared to 5,697 units for the same month the year before — a 43 percent increase in resale activity.

“At 8,000 homes a month, that comes wonderfully close to the important 100,000-unit-a-year market, which the Phoenix market first crossed back in 2004, when 112,000 units were sold,” Brown says. “That number took a surprisingly long time to attain, with resales at 75,000 in 2002 and 87,000 in 2003, and then just as difficult to maintain. In 2006, resales fell to 90,000 units and by 2007 hit 58,000 units.

“We are selling inventory above historical levels,” Brown avers. “That’s a demonstration of recovery.”

However, Jay Butler, an associate professor of real estate at Arizona State University, unearths some underlying problems in all that activity, in particular the fact that the resale of foreclosed properties, which had been running at about 60 percent of the resales, is what’s boosting the market.

In that hot-hot-hot October 2009, 30 percent of the recorded sales activity was foreclosures and another 30 percent to 35 percent was due to investors or lenders selling REO (bank-owned real estate) property back into the marketplace, which indicates that more than 60 percent of the resales were due to failed mortgages. When asked what the historical level of resales due to foreclosure activity was, Butler answered 3 percent to 5 percent.

The Buyers
Still, with all those homes being bought, whether they were foreclosed upon, new or simply the result of a straightforward transaction between a healthy seller and healthy buyer, the important point is the inventory of homes for sale was heading in the right direction in October.

“Unfortunately, there’s a negative interpretation to that phenomenon as well. Probably a third of all resale units being purchased are by investors,” explains Elliot Pollack, founder of the economic consulting firm Elliott D. Pollack & Co. “And investors tend to purchase homes they can fix up and resell. In fact, about 50 percent of all fix-up homes are bought by investors as compared to 25 percent of all move-in homes. Many of those homes bought by investors will come back into the marketplace.”

The other large group that has been buying up single-family properties has been the first-time homebuyers lured into the market by affordability, low interest rates and the Obama administration’s $8,000 tax credit. The target of this demographic group, in a sense, is not much different from the investor hordes — cheap homes. Since inventory in this category has been whittled down, that leaves an inventory of more expensive properties.

With the lower tier of homes moving to new buyers and investors, in a normal market this trend line would eventually result in average home prices increasing as home purchasers start moving up to bigger, more expensive homes. The trouble is, the Phoenix residential market remains wildly out of sync.

Earlier in 2009, Pollack predicted the Valley would end the year with an extraordinary number of vacant properties, perhaps totaling 50,000. By November, Pollack was quickly re-tabulating, and now expects 80,000 vacant properties, or about 9.8 percent of the market. Historically, vacant homes only made up 2.3 percent of the market.

“This is a big, continuing supply of properties,” Pollack says.

“Phoenix is still a long way from getting back to a market that is structurally normal.” – Jay Butler, Arizona State University

Bad Options
That number could get even bigger in 2010 due to resets on adjustable-rate mortgages.

Earlier in the last decade, during the heyday of exotic mortgages, one of the more popular loans was the Option-ARM, which initially offered the borrower four monthly payment options all with low teaser rates that would eventually reset. The borrower generally made payments less than the accruing interest, which resulted in negative amortization, or the unpaid portion of the interest added to the principal balance.

Most of these loans were written in 2005 and 2006, with five-year resets. Starting this year and going into next year, these mortgages will reset with higher rates and at a range unaffordable to most holders of Option-ARMs.

Securitzed Option-ARMS (about 70 percent of all Option-ARMs are securitized) total $189 billion, and of that $134 billion will be recast in 2010 and 2011, reports Alla Sirotic a senior managing director at Fitch Ratings.

“This is a product that will see one of the highest default rates,” she adds.

And Butler maintains: “This will be another subprime-type trampling of the mortgage market. Some people say this is where a lot of the foreclosures are. Some say it won’t be as big an issue because a lot of people will be able to refinance. It depends on what they reset to and interest rates are low right now.”


Arizona Business Magazine

February 2010