Tag Archives: market

Winn

Winnresidential Adds Apartment Portfolio in Arizona

WinnResidential, the property management arm of WinnCompanies, announced today that it has assumed management responsibilities for Highridge Costa Investors, a leading developer and asset manager, at six of their multifamily communities in the state of Arizona.

As a part of this partnership, WinnResidential will take over the property management, maintenance and leasing for all six communities. The portfolio includes Casa Bonita, a 60-unit community in Tucson; Florence Park Apartments, an 88-unit community in Florence; Quail Run Apartments, a 156-unit community in Peoria; Sonora Vista Apartments, a 65-unit community in Douglas; Valle del Sur Condominiums, a 60-unit community in Tucson; and Village Square Apartments, a 116-unit community in Phoenix.

The Arizona properties are a welcome addition to the Winn portfolio,” said Deirdre Kuring, Chief Operating Officer of WinnResidential. “We look forward to providing superior service to our new residents and our client.”

The portfolio consists of a very diverse group of properties spread throughout Arizona. The furthest West is in Peoria, Ariz. and extends all the way to the Mexican border in Douglas, Ariz. These six properties are very well-maintained assets that offer senior housing, affordable housing, market-rate housing, and some properties were designed specifically for special needs residents. Each one provides community programs and activities to create a real sense of community.

WinnResidential is a well-known and highly respected property manager across the country, and we are excited to partner with them on our Arizona portfolio,” said Michael M. Snowdon, Vice President of Asset Management at Highridge Costa Investors. “We are confident that through their quality operations practices, they will provide the best possible service to residents.”

economy

GPEC expands ‘California 50’ program

Less than a week after the Greater Phoenix Economic Council (GPEC) launched the California 50 program, the organization today announced it is expanding the program – which aims to fly 50 Golden State CEOs to the Phoenix metro region for an opportunity to tour and explore the market – to 100 California-based CEOs due to high demand.

“The response to the California 50 program has been overwhelming. We’ve heard from CEOs up and down the California coast, representing firms in the technology, medical device, financial and life sciences industries and ranging in size from 30 to 10,000 employees,” GPEC President and CEO Barry Broome said. “Clearly, the increasingly anti-business policies coming out of California, like Proposition 30, have struck a nerve with the state’s brightest and best-performing innovators. We think the Greater Phoenix region offers a clear contrast in terms of its value proposition, which is why we’ve expanded the program to 100 executives.”

Over the past two years, Arizona has implemented many business-friendly policies in an effort to attract more high-capital investment to the Grand Canyon state. Visiting CEOs will be briefed on the region’s business-friendly policies, including lower capital gains taxes and a corporate income tax rate that will go down to 4.9 percent by 2017, a $9,000 jobs tax credit, an R&D tax credit and a $630 million tax credit program for export industries.

Last week, California voters passed Proposition 30, a $6 billion tax initiative that will raise sales taxes on all Californians and income taxes on the high-performers making more than $250,000 annually. Yesterday, President Obama called for additional tax revenue to the tune of $1.6 trillion over the next decade, also on the backs of the nation’s top innovators and professionals.

To qualify for the program, applicants must be CEOs at high-tech companies or with corporate facilities with 200 or more employees, or at emerging technology companies with compelling intellectual property.

A total of 100 qualified California CEOs will receive complimentary airfare, transportation and hotel accommodations. Exclusive, one-on-one visits into the market will include an in-depth industry and market overview, CEO introductions and a regional asset tour.
Please contact GPEC’s Barbara Miller at 602.262.8632 or bmiller@gpec.org to be considered or to learn more about the program.

For more information about GPEC, visit www.gpec.org.

Enchantment Resort in Sedona - AZ Business Magazine Jan/Feb 2011

Studies Show That Every Dollar Invested In Tourism Returns At Least Double That Amount

Forests of Saguaro cacti lit by fiery red and orange sunsets, gun-toting cowboys staging shoot-outs, and the Grand Canyon’s striated walls looming over the Colorado River.

One would think these distinctly Arizona images could sell themselves. Unfortunately, Arizona’s tourism industry is learning the hard way that it takes more than just the state’s natural beauty and attractions to bring in visitors — it takes dollars.

“That’s why we need to be out there marketing Arizona, reminding people about what a great, wonderful, warm, welcoming destination we are,” says Debbie Johnson, executive director of the Arizona Tourism Alliance and president and CEO of the Arizona Hotel & Lodging Association.

The recession caused Arizona’s once vibrant tourism industry to flounder, and in 2009, the stigma related to the corporate meetings industry continued the industry’s downward spiral.

“We weren’t just feeling the pain like everybody else. We were getting hit much more significantly than the nation overall,” says Mitch Nichols, president of Nichols Tourism Group, which provides research services to the tourism industry.

Visitor spending in Arizona decreased 10.6 percent, while the nation saw a decrease of just 4.4 percent, from 2007 to 2009. Additionally, Arizona lost $780 million in potential visitor spending because its share of national travel expenditures dropped from 2005 to 2008, according to Nichols Tourism Group.

In early 2010, the state Legislature dealt the industry a one-two punch when it passed SB 1070 and redirected funds from the Arizona Office of Tourism’s (AOT) budget to the general fund.

The Legislature redirected the tourism formula fund, which is composed of 3.5 percent of the state’s bed tax, 3 percent of the state’s amusement tax, and 2 percent of the state’s restaurant tax. This redirection will take approximately $28 million away from AOT over the 2011 and 2012 fiscal years.

In November 2010, the Center for American Progress, a progressive think tank, announced more bad news for Arizona’s tourism industry. In a study, it was reported that the controversial SB 1070 bill had cost the state $141.4 million in lost spending.

However, the industry isn’t down for the count.

Led by the Arizona Tourism Alliance, the tourism industry is campaigning to reclaim the budget, which it believes will help pull Arizona out of the recession and return millions of visitors to Arizona.




Arizona Inn in Tucson

Photo: Arizona Inn




While the long-term effects of SB 1070 on the tourism industry are hard to quantify, the budget redirection is projected to cost Arizona big.

Even the most conservative estimate puts the state’s losses at $26.7 million, but “actual revenue losses could potentially be many times this amount,” according to an independent study by Elliot D. Pollack & Co.

Nichols Tourism Group estimates the state could lose as much as $1.6 billion.

“You’re not finding $14 million. You’re creating a much bigger hole that will have to be funded in the future,” Nichols says.

The redirection of money decimated AOT’s marketing budget, allowing other states to sneak in and steal Arizona’s market share. These states recently discovered the tourism industry’s power to pull a state out of the recession.

“Some of our key competitors, California in particular, got much more aggressive in terms of the resources they were spending to try and convince visitors to choose California,” Nichols says.

Arizona is becoming out of sight, out of mind, and statistics prove it, Johnson adds.

From January to August 2010, the daily rate for Arizona hotel rooms declined 4.4 percent, while the nation’s daily rate only declined by 1 percent, and California’s daily rate declined by 1.1 percent, according to Nichols Tourism Group.

“Too often there’s a mindset that people will come whether or not you advertise. And we’ve got to increasingly ensure that kind of mindset does not carry the day,” Nichols says.

To remedy the industry’s declining revenue, Arizona’s Legislature needs to be reminded of what tourism means to the state. Tourism brings in revenue that funds education and many of the public services that are necessary during recessionary times.

The return on investment for every dollar spent on tourism marketing is seven to one, out-of-state studies show, according to the Pollack study.

In addition to pulling in revenue, the tourism industry directly and indirectly employs around 300,000 Arizonans, about 10 percent of the state’s work force.

Two key pieces of Arizona’s future, the economy and the work force, depend upon tourism. If the budget is restored, and soon, Arizona can rebound to pre-recession numbers within five years, Johnson says.

“Our destination has shown … that we can come back from adversity,” Johnson says. “We saw that after 9/11. (We were) one of the top five destinations, in terms of rebounding. I think we’re going to see that again because of what we have to offer, because we do have such a strong industry here. We’re a united industry. We work together and we come together in times like this. I think you’re going to see Arizona rebound.”

AZ Business Magazine Jan/Feb 2011

Apple Banner

Apple Now Worth Over $300 Billion

As of January 3, Apple’s market capitalization passed $300 billion, making them the second most valuable company in the world (just behind Exxon Mobil).  Since the bump that put them over the $300 billion mark, Apple’s value took a slight dip with the news that Steve Jobs, CEO and public face of the company, would be going on medical leave. However, the company is holding on to its second place position for now.  Check out the infographic below for more information.

Apple Worth $300 Billion

medianpricenotfullstory

Median Price Not Full Story For Phoenix Market

The median price for resale homes in the Phoenix area has been edging up for several months. Does this signal that the market is approaching normalcy? Jay Butler, associate professor of real estate and author of the Realty Studies report from the W. P. Carey School of Business, talks about the factors affecting median price, including the still high number of foreclosure-related sales. It’s tempting to declare a market up-tilt based only on median price, he says, but because of that foreclosure activity, Phoenix is still far from a normal market. (13:09)

Sluggish Demand for Office Space in Phoenix

Sluggish Demand for Office Space in Metro Phoenix Continues

The Phoenix office market continued to feel the effects of a sluggish and wavering economy, according to Cassidy Turley BRE Commercial’s 3Q 2010 office market trends report released today.

Economic indicators remain mixed causing uncertainty as to whether our economy is headed into a “double dip” recession or a period of slow growth. The best word to describe market conditions during the third quarter is flat. Net absorption was negative for the second time this year and the overall vacancy rate increased 30 basis points to finish at an all-time high of 27.9%.

Tempe/South Chandler and 44th Street Corridor posted the largest gains in net absorption; collectively they gained more than 257,590 SF in the third quarter. Downtown North and Airport Area were the two submarkets with the largest declines in occupancy; they collectively lost 221,927 SF during the third quarter. The majority of leasing activity has been in space that is an upgrade to the tenant’s prior location, otherwise known as “flight to quality.”

This has been a trend for several quarters, as nearly all positive absorption, both the quarter and year-to-date, have come from either Class A buildings or new construction. Class A average asking rates continue
to decline as landlords compete for tenants by offering heavy concessions and discounted rates. Class A rental rates dropped nearly 2 percent in the third quarter to finish at $25.07.

With the extreme over-supply of space, overall asking rental rates will continue to soften but at a slower pace and should reach bottom within the next 12 months. Office market leasing is likely to remain flat through 2010 and improve gradually into 2011 as businesses start to add jobs and tenants take advantage of reduced rates. Landlords that have weathered the recession, remained financially strong and adjusted to current market conditions should start to see some relief as tenant demand gradually improves.

With large blocks of premium office space available, lower rental rates, a high quality of life, affordable housing and great weather, Metro Phoenix is positioned to attract companies looking to relocate or add to their current operations. These factors should improve leasing and owner occupant demand bringing some relief to the office sector.

office building

Tucson Office Market Sector Remains Consistent

Uncertain whether the market has bottomed out, buyers and tenants continue to be hesitant whether they should take advantage of attractive sale and lease opportunities.

That’s the word on the street as the 3Q Tucson office market report was released today by Picor Commercial Real Estate Services, a Cushman & Wakefield Alliance member.

For the most part, Tucson office market activity has remained fairly consistent throughout the year, with no exception in 3Q 2010. Consistency is a positive sign, however, it is still unclear whether this is a sign of more activity to come, or simply where the market is going to stay for some time.

Despite this consistency, landlords are still willing to offer attractive rental rates, concessions, and generous tenant improvement allowances. This practice will likely continue until the air of uncertainty clears. Savvy general office and medial tenants are taking advantage by locking in very attractive rental rates.

Purchase activity is still virtually nil because of the difficulty to secure commercial financing. The occasional investment sale is due to the seller’s agreement to provide short-term financing thereby enabling the buyer to weather the drought in the conventional credit market.

Valuation methods show a large difference between pricing of office and medical properties from an owner/user perspective and those evaluated from an investor perspective. Per square foot purchase prices for users still remain fairly high, while numbers for investment sales are much lower due to a market wide drop in rental rates and an increase in cap rates. These two valuation methods will likely equalize in the future, with the likely result being the reduction in per-square-foot user pricing.

Industrial market

Economic slowing persists in the Tucson industrial sector. Tenants and buyers recognize the opportunity to apply leverage in this environment, resulting in continued pressure on lease rates and sales prices. While market-wide vacancy dipped from 11.4% to 10.9% in 3Q, positive absorption is expected to be reversed before the end of 2010.

Sales activity increased in 3Q, equaling the first two quarters combined, with nearly all owner/user purchases using SBA and seller financing due to scarce availability of institutional capital at favorable terms.

Vacancy Rising in Phoenix

Vacancy Rising In Phoenix Despite Construction Pullback

Though employment growth will stimulate an increase in retail sales in 2010, the job additions will not be sufficient to prevent the vacancy rate in Phoenix from rising for the fifth consecutive year, according to the latest Retail Research market update from Marcus & Millichap.

Unlike previous years when excessive construction drove vacancy increases, lagging demand has become the anchor on the market. The pace of store closures clearly has slowed, but too few retailers have emerged to open new locations in the vacant space that has amassed. With the vacancy rate nearing its highest level in 20 years, rents continue to fall as tenants exercise the upper hand in discussions with owners.

Rents have yet to settle at a new, lower market level and may not reach their low point until late next year. The upside of reduced rents, however, has been a sharp decline in construction, as many projects simply no longer pencil for developers. After deliveries averaged 5.5 million square feet of new space each year during the past decade, a fraction of that total will come online in 2010.

Although the slowdown in construction represents a positive trend in a market with frequent overbuilding spells, the lack of properties under construction will restrain sales of new single-tenant, net-leased assets. As in other markets around the country, single-tenant properties net-leased to top-rated corporate tenants generate intense bidding when listed. In fact, cap rates for nationally branded drugstores and fast-food properties have fallen about 50 basis points since early this year to around 7 percent, with ground leases commanding even lower first-year returns.

In the multi-tenant segment, buyers have intensified searches for suitable listings, but the ongoing reduction in rents continues to present challenges to arriving at valuations upon which owners and prospective buyers can agree. Current underwriting assumes additional increases in vacancy and further rent reductions, such that cap rates must vary from 10 percent to 11 percent to generate bids. Among specific properties, those with tenants that signed leases at the peak of the market
in 2006 and 2007 invariably face the prospect of re-leasing space at substantially lower rents when leases expire.

2010 Annual Retail Forecast

Employment: Government employment will decline over the second half due to the termination of census jobs and budget constraints at the state and local levels, while private
sector employers will hire conservatively. As a result, total employment will expand 0.8 percent in 2010, or by 13,700 jobs. Last year, 116,000 positions were cut.
Construction: Developers will complete 500,000 square feet of space this year, the lowest annual total in 30 years. In 2009, approximately 2.9 million square feet came online. Planned projects total 28 million square feet, although none has a scheduled start date.
Vacancy: The vacancy rate will increase 70 basis points this year to 12.6 percent, as store closures and a lack of new demand will result in negative net absorption of 721,000 square feet. Vacancy spiked 260 basis points last year and most recently surpassed 12 percent, a level last reached in 1991.
Rents: This year, asking rents will decrease 1.3 percent to $18.11 per square foot, following a 5.5 percent dip in 2009. Effective rents will slide 2.6 percent to $15.13 per square foot, compared with a 9.1 percent drop last year.

Energy Efficiency

Green News Roundup – Energy Efficiency, Green Organizations & More

Welcome to our weekly green news roundup. This week we’ve gathered stories about energy efficiency auditing, promoting your company as a green organization and more.

Please feel free to send along any interesting stories you’d like to see in the roundup to kasia@azbigmedia.com. Also visit AZ Green Scene for informative articles about sustainability efforts in the Valley and state.

REEis Provides Independence From High Energy Costs
REEis, a local Valley company that specializes in energy efficiency auditing and contracting is hosting an Independence Day promotion in hopes to get more efficient homes on our streets. Utilizing low cost, energy efficient improvements to our homes and commercial buildings can greatly reduce energy consumption and our dependence on oil and foreign energy sources. “America’s Energy Independence Day Promotion” will be offered for one week starting June 26. REEis is also offering Arizona homeowners a $29 comprehensive energy audit if booked by July 4th. If interested please call (480) 969-7500 or visit the company’s website at: reeishome.com

Is it Energy’s Turn Now?
The New York Times Green Blog looks at the possibility of energy and climate change legislation being in the works for the government. As the financial regulation nears completion, some Democrats are hopeful that this next challenge can be met before Congress leaves town in August.

June Education Forum: Green Marketing
The Phoenix Green Chamber of Commerce is hosting their monthly education forum at Rio Salado College on Monday, June 28th at 5:30 p.m. The topic for this month’s forum is exploring best practices for promoting your company as a green organization. Learn about effective strategies to maximize your green marketing efforts and minimize impact on the environment. RSVP to the event here. For full details visit: www.arizonagreenchamber.org/Phoenix/

First U.S. offshore wind energy project faces lawsuit
Environmental groups plan to file suit in federal court against the Obama administration regarding the Cape Wind project in Nantucket Sound. The groups accuse the administration of violating the Endangered Species Act with the approval of the project. The suit states that the project, which calls for a set of 130 wind turbine generators to be installed on Nantucket Sound, would fail to protect endangered birds and whales. Yikes, don’t know how this will pan out but I hope the Obama administration finds a way to work this out amicably.

Using Personally Owned Life Insurance - AZ Business Magazine June 2010

Using Personally Owned Life Insurance (POLI) As A Sinking Fund

Affluent families and individuals, successful business owners, and those engaged in certain occupations, such as the medical or construction industry, all face similar challenges when choosing to invest: They have worked hard to accumulate wealth, and now they want to keep it.

Wealthy investors are driven by the same concerns:
Preservation: Given the choice between risky strategies or preserving what they have, most affluent investors will choose to preserve what they have.

Liquidity: Without access to your money, wealth may not be maximized.

Protection from creditors and frivolous lawsuits: The legal risk posed to affluent investors in today’s society is extraordinary.

Control: Affluent investors value the flexibility that allows them to respond to changes in their personal and business lives.

Taxes: Although we can’t be certain that taxes will go up, the odds suggest they will — perhaps significantly so. Mitigating the bite of the tax man is a top priority for wealthy investors.

To address these concerns, affluent investors and their advisers have many investments to choose from, such as IRA and Roth IRAs, equities and mutual funds, tax-advantaged bonds, annuities and personally owned life insurance (POLI), to name a few. Each of these investments has advantages and disadvantages when addressing the concerns of affluent investors. But what is POLI? To answer this question, we need to look at life insurance in an entirely different way.

Getting the most out of your investment type
What if instead of shopping for the most death benefit for our premium payment dollars, we sought out the federal minimum required death benefit in our policy to keep our insurance costs low and our investment value high? What if we created a “sinking fund” by investing in personally owned life insurance to create a tax-advantaged retirement supplement plan, and much more?

People often don’t recognize the value of permanent life insurance as an asset in their portfolios. Cash value life insurance offers much more than simple death protection.

Consider the following asset characteristics:
Qualified plan and annuity assets, in addition to being included in the taxable estate of an owner, are also subject to income in respect of decedent (IRD) at death. Seventy percent is an estimate of the combined impact of estate and IRD taxes, as well as credits given in the high net-worth decedent’s estate. The number can be higher or lower depending on the applicable marginal brackets.

Death benefits of a life insurance policy are generally received income tax-free by the owner of the policy. In order to avoid estate inclusion, the death benefit must be received outside the estate, often by designating the “B” Trust as the contingent owner and beneficiary of a policy owned by a decedent. Certain types of split dollar and loan transactions used in conjunction with an irrevocable life insurance trust (ILIT) also can be used to exclude the death benefit from estate inclusion. These techniques may involve gift tax implications, such as using a portion of the annual gift tax exclusions.

The benefits of POLI
Structured properly, POLI allow unlimited contributions, tax-deferred accumulation, tax-free redistribution, tax-free withdrawals, total liquidity, no income or estate tax at death, and the possibility of asset protection. This is an extraordinary combination of benefits.

Put simply, when structured properly the investor retains control of all the assets in a POLI account, including the right to terminate the account and withdrawal of the cash value. There is nothing “irrevocable” about a properly structured POLI contract. POLI, when properly structured, allows for nearly unlimited withdrawals after the first year at rates between 1 percent and 0 percent.

Using POLI, unlimited after-tax deposits may be made by the investor to be deployed in the equity and fixed income markets in almost any combination. An additional benefit is that in many states, the assets in POLIs are creditor protected. Asset protection against the creditors of an insurance-based contract owner is a matter of state law. Some states offer no protection for annuities life insurance cash value, some offer some protection for a portion, and others offer complete protection (check with local counsel to determine the applicability of asset protection in a given jurisdiction). Finally, assets invested in POLI are removed from the investor’s estate, while still providing the investor control of the assets.

Life insurance: A cautionary note
Of course, federal tax law definition of “life insurance” limits your ability to pay certain high levels of premiums. In addition, if the cumulative premium payments exceed certain amounts specified under the Internal Revenue Code (IRC), your policy will become a Modified Endowment Contract (MEC). If your policy is a MEC, many benefits of POLI are removed.

An “optimized” life insurance policy involves several elements. First, the contract should pass one of two tests for the definition of life insurance, thus avoiding status as a MEC under IRC 72, which generally limits the amount of cash value or contributions relative to the amount of death benefit. To exceed these limits causes distributions to be taxable. Second, in order to avoid estate inclusions, the death benefit must be owned outside the estate.

These are highly sophisticated and complex investments, and you should discuss whether a POLI is right for you with a knowledgeable team of financial, legal and tax professionals.

Arizona Business Magazine June 2010

Green News Roundup-Green Expo Conference & More

The Southwest Build-it-Green Expo & Conference was a great success in numerous ways. You might be wondering why, so let’s go over a few reasons.


  • One-Stop-Shopping: The BIG Conference showcased a wide variety of options for people looking to move their business, organization, or home in more sustainable perspective. Instead of having to hunt for each piece of a project individually, it gave participants the opportunity to get projects started and things moving in one setting.
  • Community Engagement:  Looking to become “greener?” The BIG Conference brought those who are new to the idea and those who are seasoned veterans together under one roof. This provided a great opportunity to make networking contacts, to further your education and understanding of sustainability, and to get involved in local ideas and projects. When people get involved, things start to happen.
  • Education: The impressive array of speakers and topics gave participants the ability to see some cutting edge projects, work, and innovative ideas first hand. Not only were the speakers excellent, they were readily available and happy to chat with the participants about any questions that came up. This was a “two for one” when looked at from a community engagement perspective, as well.
  • Business Development: While the recession is still a reality check, the BIG Conference illustrated that there is current opportunity within the marketplace for ideas, products, and services related to sustainability. I firmly believe that businesses and organizations tied to furthering issues related to sustainability – be it solar, water, wind, materials, et cetera – will be wildly successful in the coming years.
  • The Right Direction: Getting people excited to go green and to move in a more sustainable direction is always a great thing. The conference helps to demonstrate that being green isn’t scary or difficult. To the contrary, the BIG conference helps people understand that it’s easy, fun, and a smart idea – personally, professionally, socially, environmentally – to move towards and adopt ideas of sustainability.


 

money line

Stabilizing Asset Prices Is Key To An Economic Recovery

The declines in asset prices are sweeping around the globe like a giant tsunami tumbling everything in its wake. Equity prices are down 47 percent from their highs, commodities 53 percent and, of course, residential real estate 25 percent. Industrial production, retail sales and personal consumption expenditures are all showing losses year-over-year and do not appear to be decelerating in any meaningful way.

In the first quarter of 2009, the negative feedback loop — the lower prices go the lower they will go — is being exacerbated by the erosion of confidence and the availability of credit. If this weren’t enough, the lack of accountability and transparency in the system is further eroding investor confidence, thereby curtailing capital spending and stifling employment.

As the monetarists and fiscal policy makers rush to shore up the banking system, they have, for the most part, missed the mark. Long ago, the highly levered global economy transitioned from a banking-dominated regime to one that hides behind securitized lending. The off-bank balance sheet structures such as SIVs (structured investment vehicles), hedge funds, CDOs (collateralized debt obligations) and the like fueled the explosion in asset prices as they levered up the system exponentially. As we are finding out the hard way, no real underlying economic value was being created, other than prices would surely be higher tomorrow, which reinforced speculative non-productive behaviors.

The false promise that rising prices alone create wealth is being unmasked as the de-levering of credit and speculative excesses unwind. The plea from Congress that banks need to start lending fails to recognize that the highly leveraged off-balance sheet bank, the Shadow Bank, is dead. The credit creation in the Shadow Bank was 30- or 40-to-1, versus 10-to-1 for the banking system most of us are familiar with. It is not that the 10-to-1 folks don’t have problems; it is that they simply do not have the capital to restructure all the 30-to-1 junk that is choking the system.

It’s about the capital
Nouriel Roubini, a highly respected economist and chairman of RGE Monitor’s newsletter, has estimated that the charge-offs and write-downs may reach $3.6 trillion before this cycle bottoms out. Bloomberg Financial, which has been tracking these charge-offs, recently reported that the number has reached $1 trillion, or about one third of Roubini’s best-guess number. In October 2008, the Federal Reserve reported that the U.S. banking system had about $1.4 trillion of capital, hardly enough to deal with the massive write-downs Roubini, Goldman Sachs Group and others see on the horizon.

The obvious simple solution is to figure out how to stop asset prices from declining further. Although this has been attempted over the past many months, the seemingly uncoordinated efforts have failed. The TARP (Troubled Asset Relief Program), which explicitly gave the U.S. Treasury the authority and money to purchase assets with the intent of stabilizing prices, instead saw those monies going into the checking accounts of banks. However well-intentioned the program was, it did little to stem the tide in the deflationary spiral, leaving us deeper in debt and virtually in the same position as when the legislation was enacted.

Price stability
In order to encourage investment and spending, we must first have price stability. Asset prices do not need to rise to get the economy moving, nor should we expect that they must. The value of the enterprise over time will be clear and will be priced accordingly. The benefits of price stability encourage investors to take on risk and give lenders the confidence to lend. Rapidly rising or falling prices merely confound and confuse even the biggest risk takers among us and that, in large measure, is why we see return of principal trumping return on principal.

All is not lost, however, as interest rates are down, mortgage re-financings are up and the stock market has attempted to battle back from some very bad economic news. The first half of 2009 is proving tough going. But we are guardedly optimistic that the second half will show signs of stabilizing, laying an important foundation for recovery in 2010. The stock market has its own twisted personality, but if it can move above the October lows the more optimistic we are that better times are ahead.

Money Crunch

The Credit Crunch Is Leading Many Organizations To Outsource Asset-Intensive Legacy Processes

Market conditions are always a driving force in organizational spending, and the current environment is no exception. But in 2009, in addition to cost reduction, companies are now evaluating whether they can maximize their scarce credit availability by outsourcing capital-intensive IT functions that were traditionally “off limits” to these sorts of exercises or simply not technologically feasible.

Now, leading organizations are addressing not just the effective use of a third party expense platform, but also are evaluating the use of OPA — Other People’s Assets.

As with everything in business, outsourcing moves in cycles. In the early days of enterprise computing, when mainframes and huge computer systems were the only option and the cost to purchase was high, the only model that made sense was to outsource. However, as technology changed and developed — and as credit became more readily available — many organizations spent large amounts of capital to build and manage their IT infrastructure.

IT infrastructure comprises the data center, servers, routers, switches, firewalls and more — all of the components that make up the back end of your e-mail, CRM, ERP, Web sites, Blackberry servers, file servers, print servers, etc. IT infrastructure is core to every organization and it is not cheap, especially when you want to ensure you are doing it right.

Technology is a powerful enabler of these considerations, and nowhere can this more clearly be seen than in industry of outsourced IT infrastructure and hosted IT infrastructure. Technology has developed to a point where now the highest performance infrastructure can be allocated to multiple users. Companies such as VMware and Cisco have pioneered virtualization. This technology now allows hosting to go to the next level. No longer are hosting companies providing low-end servers and storage to their customers. With virtualization hosting, companies are now providing Fortune 100 quality infrastructure. Access to this type of technology can be a game changer, but at a minimum provides end users with the best opportunity to leverage their IT infrastructure.

Hosted infrastructure is very simply utilizing the above mentioned resources that are owned by someone else. There are multiple benefits to hosted infrastructure, including: specialization by your hosting provider (hosting is their core business), access to typically better infrastructure, newer infrastructure, higher performance, etc. And in times like these, perhaps the most relevant benefit is no capital outlay. In a time when capital is scarce, spending on only what you need and not making a major asset investment in infrastructure could be the difference between being buried in debt and fighting to the top of your market.

Emotion is perhaps the most difficult obstacle to overcome when evaluating an outsourcing decision. Wehave already touched on the fact that the job can be done internally. But another emotional aspect is tied to a person’s job, and if something isoutsourced then someone, maybe even the person doing the analysis, might put themselves out of work.Outsourcing has always been associated with people losing their jobs. But in reality, just the opposite istrue. If an organization is using capital to grow instead of building its IT infrastructure, more people will have opportunities and more jobs will be available.

Outsourcing of IT infrastructure and the use of hosted infrastructure are being utilized by nearly every large organization, and it is growing in the small and medium business sector. In the next five years, nearly every organization will benefit from outsourcing, whether it is their Web sites, e-mail, file servers, offsite storage or their entire data center. Organizations are realizing very quickly that it is more efficient to allocate their capital to grow their business than to buy servers and routers.

Mixed Use Development

Mixed-Use Developers Urged To Plan For Defect Claims Before Signing Contract

Developers of mixed-use projects can reduce the likelihood of costly construction defect litigation by anticipating risk and allocating responsibility at the time of contract. Unfortunately, developers often assume that the standard industry forms provide sufficient protection.

These forms, however, rely heavily on good faith for resolution of issues in the future. There are certain approaches developers can take to protect them, prevent construction defects and resolve issues arising from them.

Determine project function and likely defects prior to contract
The developer’s contracts with contractors and designers are best structured after the developer has arrived at a clear “big picture” understanding of how the project will function. Gaining this understanding includes consideration of regulations, financing, insurance and marketing plans specific to the development. It would behoove the developer to conduct a “what if” analysis to determine the defects most likely to result from failures in the design or construction.

Knowing how the project will function and what defects are most likely to arise places the developer in the best position to craft project-specific core objectives for negotiation of the contract.

These core objectives related to defects should include:
A clear allocation of responsibility and accountability for preventing critical defects.

A determination of comprehensive insurance and bonding requirements based on an assessment of which risks can and should be covered.
A clear statement of how disputes will be triggered and resolved during and after completion of the project.

Resolution of disputes deserves particular attention given the implications of technical issues and the possible need to involve numerous categories of potentially responsible parties. The solution will differ from project to project.

Beware of the economic loss rule
Developers sued for construction defects invariably look to the designers and contractors for indemnification. If the designer or contractor is not held financially responsible however, the developer may remain on the hook even if subcontractors are truly at fault. Subcontractors can be immune from liability for construction defects under a principle known as the “economic loss rule,” which provides that a party whose claim is based upon a financial loss caused by construction defects is only entitled to recover under contract theories against those with whom it has a direct agreement. To the extent the economic loss rule applies, it prevents the developer from suing the responsible subcontractor, unless the subcontract provides otherwise.

Developers concerned about the economic loss rule typically require in the prime contract that each subcontract include text specifically indemnifying the developer from suits for construction defects caused by the subcontractor, and names the developer as an “intended third-party beneficiary” of the subcontract with the right to directly sue the subcontractor.

Require indemnification and defense
Developers typically do not cause construction defects, and assume the insurance furnished by the designer or contractor should be the primary source of payment for all related costs, including defense costs. Yet, under the standard industry form indemnity, the primary responsible party does not provide for defense. To address this gap, developers can explicitly require a defense obligation in addition to indemnity.

Nip the issue of warranty claims in the bud
There is the potential for confusion and discord in efficiently responding to warranty claims, given there will likely be multiple parties potentially responsible for the design and construction. Developers concerned with this concept should negotiate contract provisions for a “warranty response contractor” to ensure warranty/defect claims from third-parties are responded to and accommodated promptly, with allocation of responsibility being addressed later.

If the developer envisions the project to be above average in quality of design or construction — which is normally the case in upper-end developments where quality of construction administration is considered important to minimizing defects — the contract should memorialize that expectation. Otherwise, the enforceable measure of performance could be the minimum standard, which may make it more difficult for the developer to prove a breach of the standard of care and increase the likelihood of defects due to lower performance standards. To avoid disputes, the contract should reflect any understanding that performance will exceed minimum standards.

Contractual language dealing with any or all of these concepts is only as effective as the effort given to integrate them with the other contract provisions, as well as the core objectives, so that the entire contract clearly addresses the parties’ expectations for the specific project.

Selling Businesses

Tips On Finding A Buyer For Your Company In Tough Economic Environment

Yes, the lofty business valuations supported by an overabundance of cheap debt have come and gone, but valuations are still attractive by historical standards and deals are still getting done. The companies that are achieving the highest valuations, best terms and actually getting to the closing finish line are approaching the market in a more systematic and pragmatic fashion. Even in today’s turbulent economy, it is still possible to achieve an attractive deal for your shareholders.Here are some practical tips CEOs should consider before endeavoring to sell their companies:

Strategic buyers are driving valuations
Corporate buyers are back with a vengeance after years of being at a significant competitive disadvantage relative to private equity groups flush with cheap debt and the ability to over-leverage deals to justify higher and ever higher valuations. While the market uncertainty has certainly made everyone more cautious, many companies have responsibly maintained conservative balance sheets and are actively seeking acquisition opportunities. You can expect a more thorough and lengthy diligence process, but the strategic buyers are often the most attractive and viable liquidity event available for most sale candidates in today’s market. Most sellers should now focus their efforts on well capitalized strategic buyers to achieve the most favorable outcome for shareholders.

Private equity groups are down but not out
Typically, private equity groups (PEGs) seek significant debt leverage on their equity investment to achieve higher equity returns. With the unprecedented collapse of the debt markets, there is little to no debt available for a typically structured PEG transaction. However, some PEGs specialize in full capital structure solutions, essentially underwriting their own debt for the deal. These PEGs are especially attractive in today’s market. Many of these full-capital-solution PEGs are understandably looking to capitalize on their unique advantage by acquiring companies at lower deal valuations, so they are not likely to outbid a well capitalized strategic buyer. At the same time, many traditional PEGs are still flush with cash and need to put the money to work, so they are accepting lower returns and are pursuing deals with more conservative capital structures. While PEGs are less aggressive on valuations across the board, they should still be approached by most sellers and included in any sales process intended to maximize valuation. Don’t count out the PEG world entirely, but at the moment, the smart sellers are focused more intently on well capitalized strategic buyers.

Create a competitive environment
The primary function of an investment banker is to identify all the likely potential buyers for a company, both strategic and financial, and then create a competitive environment whereby you are able to achieve the best possible transaction for your company by comparing various alternative proposals simultaneously. The best transaction usually involves numerous factors that are specific to each seller, but will generally include price, terms (cash, stock, earnouts, etc.), certainty of closure, cultural fit, and many times other qualitative factors. The sales process is part art and part science, and the experience of your investment banker is critical to achieving the optimal outcome. You should carefully evaluate the expethem, and be sure to ask for client references. Occasionally, a one-off negotiated sale can achieve an optimal outcome, but more often than not, a professional process run by an experienced investment banker will yield far superior results.

Create value with pro-forma “add-backs”
The primary valuation metric in most deals is a valuation multiple based upon earnings before interest, taxes and depreciation (EBITDA). Most buyers are willing to give credit for reasonable pro-forma “add-backs” to EBITDA. If you raise your EBITDA, the purchase price is raised correspondingly by a factor of the purchase multiple (every dollar you gain here can add $5, $6 or $7 to the purchase price). This can be a huge value creator, and can increase the valuation achieved for your company by 10 percent to 30 percent in most cases compared to relying on Generally Accepted Accounting Principles (GAAP) EBITDA. A professional investment banker is well versed in the types of issues that can effectively be positioned for “add-back” credit. These typically involve one time or unusual expenses, investments that GAAP won’t allow you to capitalize, excess salary draws (salary that should be viewed as dividends), M&A process costs, and certain legal costs, among others. This is another area where a good investment banker can add significant value to a transaction by providing good advice identifying and negotiating for these items and not leaving any economic value on the table.

Run your business and leverage your advisors
Letters of intent, or LOIs, are almost always non-binding; you don’t get your check until the deal closes. It can be a long and frustrating process managing the due diligence and documentation process, often taking between 8 to 12 weeks and hundreds of hours of time that can be a serious distraction from running your business. Make sure you have a point person on the management team to coordinate, and most importantly leverage off your legal advisors and investment bankers throughout the process. Good lawyers and investment bankers can take a good portion of this burden off your shoulders and leave you more time to run your business. This is critical. If the interim financial results of your business suffer as a result of your management team being distracted, this can sideline your deal or at the very least result in a downward renegotiation of valuation. Run your business, run your business, run your business. Nothing is more important.

Steven Lockhard TPI Composites

Steven Lockard – President And CEO, TPI Composites

When the goal is to carve out a spot on the cutting edge of green-energy technology, it helps to be in the business of making blades.

That’s the case with TPI Composites Inc., a privately held company now headquartered in Scottsdale that devotes a significant portion of its business to manufacturing massive wind-turbine blades used by such clients as Mitsubishi Power Systems and GE Energy. TPI Composites, which is also involved in the transportation and military vehicle markets, employs about 2,800 worldwide and operates facilities that house about 1.1 million square feet of manufacturing floor space in the United States, Mexico and China.

“Wind energy is our largest business,” says Steven Lockard, president and CEO. “It’s the business that is expanding at the most rapid pace.”

That expansion, which represents around 80 percent of the company’s annual sales, is indicative of an industry that has experienced unprecedented growth in recent years.

Lockard sees wind energy as a clean, reliable source of electricity and job creation, two areas addressed frequently in recent election campaigns.

“Three or four years ago when we had meetings in Washington, oftentimes we were trying to convince people that wind could become big enough to matter one day,” he says. “And that’s no longer the case.”

It matters now. In 2007, the domestic wind-energy industry expanded its power-generating capacity by 45 percent, installing 5,244 megawatts of wind power, according to the American Wind Energy Association. That accounted for about 30 percent of the nation’s new power-producing capacity and represented $9 billion injected into the economy. Through three quarters of 2008, wind power was on pace to add 7,500 megawatts by year’s end.

And when it comes to job creation, TPI Composites plays a vital role. A newly opened 316,000-square-foot manufacturing plant in Newton, Iowa, is expected to employ about 500 workers when it reaches full capacity. That is a welcomed development in a town hit hard by job losses when its Maytag Corp. plant closed down in 2007.

Although Lockard is optimistic about the long-term prospects for wind energy, he is also realistic about the short term, suggesting the industry may continue to be impacted by the capital crisis through, at least, the first part of 2009. His observations are exclusive to wind energy, an industryenjoying record gains of late, but there may be a warning here for other high-tech businesses dealing with current financial conditions.

“We would expect to see perhaps more modest growth (in 2009) … not the same degree of growth that we’ve been experiencing the last few years,” Lockard says.

www.tpicomposites.com

Luxury Home - AZ Business Magazine November 2008

Housing Crash Hurts The Valley’s Luxury Home Market

High-End Distress: The housing crash is now hurting the Valley’s luxury home market


A meticulous five-bedroom, remodeled home sits nestled in one of Paradise Valley’s most beautiful neighborhoods. But the most remarkable thing about this home is not its one-acre lot, new flooring or up-to-date kitchen. It’s the “For Sale” sign that has graced the front yard for two years.

Two years, two different realty companies and several price reductions later, the home finally is generating some energy and a contract is in the works. But, according to information from Coldwell Banker’s luxury home experts with The Walt Danley Group, that never would have happened if the price hadn’t dropped 20 percent in one year and 40 percent from the time it first went on the market.

This scenario is playing out to varying degrees throughout the Valley’s high-end home submarkets, from the Biltmore area to Paradise Valley to North Scottsdale. Real estate professionals say that while wealthy clients clearly are insulated from some of the economic hardships that face production-home buyers, they are not completely immune from them.

Inventory is high, homes are sitting on the market longer and Realtors must convince sellers to lower their expectations on price.

“What’s happening in the marketplace,” says Sandra Wilken of Sandra Wilken Luxury Properties, “is we are trying

to get our sellers to be extremely realistic on their list price. The ridiculous prices of three years ago are not going to happen.”

In 2007, Wilken says buyers in Paradise Valley purchased 133 properties worth $2 million or more. The most expensive ho

me sold for $8.8 million. This year, 62 homes have been sold in that range, with the highest fetching $7.62 million.

Information from the Arizona Regional Multiple Listing Service in two high-end zip codes, Paradise Valley’s 85253 and North Scottsdale’s 85256, shows inventory climbing through 2007 and the first half of 2008 compared to accepted offers. The average price for a property sold in Paradise Valley in September 2006 was $2.328 million. This past August it was $1.606 million.

Break it down
It is important to understand that in the luxury home market, different segments are performing in different ways.

Buyers who can afford a $2 million to $4 million home, or higher, are more insulated from current market conditions.

Tom Fisher calls them “program buyers,” successful and affluent business people who are on track to build homes that some call “family resorts.”

Fisher, owner of Fisher Custom Homes, builds houses that start at $2 million. His clients’ income or cash flow often is tied to the stock market, and while that has bred caution in their spending, in his experience it hasn’t derailed many building plans.

Walt Danley agrees there still is activity in the high-end market, but poor economic conditions fostered by sub-prime lending have, in a sense, trickled up.

Credit crunch
Credit in the form of jumbo loans, or loans for more than $417,000, has dried up as well. Several years ago, buyers could purchase a $1 million home with as little as 5 percent down, says Dean Bloxom, president of iMortgage Services in Phoenix. Some banks asked for 10 percent on $2 million.

Today, loans are available but banks want at least 20 percent down, and clear, documented evidence of someone’s assets and income — a correction that should have happened earlier, Bloxom says.

There are indications the market may pick up some velocity, says Cionne McCarthy, an agent with Russ Lyon Sotheby’s International Realty.

The Luxury Home Tour, which showcases homes in Paradise Valley and the Arcadia and Biltmore districts, recently released figures that show homes in August spent less time on the market.

From Aug. 8 to Sept. 6, homes spent an average of 151 days on the market, compared to an average of 223 days between August 2007 and August 2008.

Arizona Business Magazine November 2008

The Long View 2008

The Long View

By Melissa Bordow

In real estate, as in love, beauty is in the eye of the beholder. So when you ask major players in the Valley’s office-condominium market how attractive it is, you’ll get wildly divergent answers.

long view 2008

On one hand, brokers, bankers and economists can tell you what the numbers say: Office-condo sales have lost velocity, slowed by a struggling housing market and banks that have reined in credit to commercial and residential borrowers.

On the other hand, you have developers who know that even during slow economic times, there always is growth on the Arizona horizon. They see beauty in the Valley’s long-term prospects and say they are committed to a long-term relationship.

Growth that occurred three years ago during the freewheeling days of the housing boom, they say, has produced enough roof tops in far flung areas of the Valley to still require their services.

What happened
Four years ago, office-condos were an up-and-coming niche market, and real estate advisory firm Grubb & Ellis touted Phoenix as “the office-condo capital of the nation” in a survey of 41 cities. With plenty of property available and under construction, Phoenix was “ground zero” for office-condos, according to the survey.

Today, construction has slowed and transactions are down, figures compiled by commercial brokerage firm CB Richard Ellis show.

“It’s kind of like a bouncing ball, what goes up must come down,” says Kelley Ahrens, a director in the brokerage side of CBRE’s office-condo division. “It’s down now, but like a ball hitting cement it will bounce back up.”

According to CBRE’s figures, between 2005 and 2006, developers added 3.69 million square feet of office-condo space for a total of 10.93 million square feet.

Calculations show absorption that year was about 3.3 million square feet. By the fourth quarter of 2007, with 2.63 million more square feet added, absorption was 1.4 million square feet. By the second quarter of this year, only 360,000 square feet was added to inventory, with about 330,000 square feet sold.

Figures from commercial brokerage firm Lee & Associates show the vacancy rates are hovering around 29 percent in the East Valley and 24 percent in the West Valley. Scottsdale vacancies are at 17 percent.

“Is the market overbuilt? I would consider it overbuilt, but not grossly,” says Andrew Chaney, an associate at the firm. “You need to get that vacancy number down close to 12 (percent) or the mid teens before you get people excited to build.”

Developers and brokers say less activity is due in part to banks tightening credit and underwriting requirements.

“It’s just harder to come by capital,” Ahrens says. “Developers still believe in the office product. It’s getting someone on the financial side to believe in the product.”

Valley bankers, on the other hand, say they are willing to lend, but potential buyers must show they have a viable business plan with enough potential earnings to withstand the economic downturn.

“If I have a real good, strong buyer, I’m going to finance that office-condo,” says Kevin Kinerk, vice president of Western National Bank.

There simply is not the same demand, as many small businesses that bought office-condos were affiliated with the construction and housing industries, Kinerk says.

“The last thing they’re going to do right now is buy a piece of real estate,” he adds.

In the last six months, Kinerk says he’s approved financing for 20 office-condos, about half of what he approved in the first six months of 2007. Valley wide, transactions dropped from 410 in 2007 to 130 in the first two quarters of this year, according to CBRE figures.

Troy Toolson, vice president of Valley Capital Bank in Mesa, agrees that well-established businesses that meet due-diligence requirements should be able to get a loan. Startups, though, may have a tougher time.

“We’re really positive about office condos, particularly end-users, right now. It’s just the tough economy. People are a little gun-shy right now, but there are loans available,” Toolson says.

Bob McGee, president of Southwestern Business Financing Corporation, a nonprofit corporation that partners with banks to administer Small Business Administration loans to commercial borrowers, says conventional lenders are analyzing businesses more closely and asking for more equity, historic cash flow and cash flow to debt service.

Location, location, etc.
Office-condo developments that were strategically placed and well constructed still are luring small business owners who want to own their own space.

Sales are occurring in areas where housing is built-out, but necessary amenities have yet to reach, developers say.

“It’s a good time to be strategically aggressive,” says Terry Tobey, senior vice president of business development for UTAZ. Pinal County and Queen Creek, she says, are prime locales for office-condos designed for the professional doctor, dentist or insurance agent.

“Not everyone is in a recession,” Tobey says. “There is no recession for death and taxes and health. People still need to go to the doctor.”

And they would prefer to do so, she says, close to home.cover october 2008

The medical end of the office-condo market has held up better than most, Tobey says, and UTAZ has projects under construction across from the Banner Ironwood Hospital under construction at Combs and Gantzel roads in Queen Creek, and Mercy Gilbert off the 202 Freeway and Val Vista Drive, among others.

“We’ve always picked great locations and we are still getting people wanting to purchase,” she says.

Siting an office-condo well is the key to maintaining sales, agrees Steve Beck, a vice president at COBE Development.

COBE does extensive research on an area’s demographics,schools, hospitals, traffic patterns, freeway systems, and potential growth before building. That has helped thecompany absorb 20,210 square feetthis year, says T.J. Zaharis, vice president of sales and marketing, an increase of 50 percent from 2007.

“As the market has its ups and downs, location will always pull you through,” Beck says.

www.cbre.com
www.lee-associates.com
www.wnbank.com
www.vcbaz.com
www.swbfc.com
www.utaz.com
www.cobedevelopment.com

CyberShoppers

Attention Cyber Shoppers: Do Your Homework Before Entering The E-commerce Arena

Here’s advice for any business giving serious consideration to selling goods and services online: Before diving into electronic commerce, make sure to get your feet wet in such critical areas as marketing, networking, branding, fulfillment and customer service.

Novices can hone these skills by selling on eBay or placing products on Amazon Marketplace. But even well-established businesses must realize that an online presence involves venturing into such new territories as the blogosphere and social media.

None of this is any reason to shy away. The upside is too great. In March, Walt Disney Co. CEO Robert Iger said his company is on track to generate $1 billion in online revenue this year. Those expectations are too lofty for most, but consider recent figures from the U.S. Census Bureau: Total e-commerce sales for 2007 reached about $136.4 billion, a 19 percent increase from the year before.

Amanda Vega is a former AOL employee who now operates Amanda Vega Consulting, an integrated marketing firm currently headquartered in Phoenix. A big part of her business is Web site development and related services. She sees e-commerce as a viable option for two kinds of entrepreneurs.

“People should consider it if they think that there’s a place in the market that isn’t being serviced by someone else or isn’t being serviced adequately,” she says. “Or (it offers) a natural extension to their brick-and-mortar store to help give them a national or international presence instead of just going the traditional route and building store No. 2 and store No. 3, which can cost a lot more than doing it online.”

The nice part about operating an effective e-commerce Web site is there are more ways to make money than just selling your own products or services. One method, according to Vega, is through affiliate deals with complementary companies.

“Even if it’s, let’s say, $300 a month that you’re making somehow behind the scenes for referring to other products or vendors, it’s still more income than the business owner had coming in through the traditional door,” she says.

Mark Sharkey, the owner of Mesa-based PrecisionPros.com Network and such related companies as DynamicPros.com, which provides Web programming services, says there are a variety of opportunities for those with content-rich sites that generate frequent repeat visits.

“If there’s a reason for people to keep coming back all the time,” Sharkey says, “then those types of sites will easily generate money from selling banner advertisements or doing a link-exchange kind of setup where they get paid based on the number of people that see an advertisement on the Web site, click through and go to another Web site.

“The great thing about an e-commerce Web site is that it can make money for you 24 hours a day,” he continues. “You don’t have to be in your office for it to make money for you. You don’t have to restrict your business to the local market. You have a worldwide market that’s available to you now.”

Deciding whether to enter the e-commerce arena won’t be your biggest decision. Deciding how to go about it the right way will be. More times than not, this means involving people like Vega or Sharkey to help with such things as research, development, design and marketing.

There are many crucial elements that contribute to a successful site, and not just from a visual standpoint.

Create a user-friendly site that enhances the customer’s shopping experience. Provide good information and make it easy to navigate. Make sure the customer feels safe when placing an order and providing personal information.

“The Internet is an open forum and if we don’t encrypt that data, it’s easy to see and steal that information,” Sharkey says. “You want to make sure the Web site itself is set up or the Web server is set up to handle secure transactions.”

There’s also the issue of real-time credit card processing. If you go this route, make sure you have a reputable company processing transactions.

You need to be on a server with a fast response time or risk losing impatient visitors. And don’t forget product availability and production times. This is not the old mail-order business. No one’s willing to wait six to eight weeks. Customers expect prompt delivery. If you promise to ship within 24 hours, Vega says, customers start counting from the time of purchase, not from the time you arrive at your office the next day.

“Those are the questions that I think people don’t think about,” she says. It may be less expensive to operate an online business than a brick-and-mortar store, “but there are extra costs associated with the fact that now your business is 24/7.”

Vega points out that if you mess up, online shoppers can quickly spread the word through blogs, forums, message boards and other social-media means.

Also, there are numerous marketing considerations, some costly and others that require hard work and smart decisions. This includes optimizing your Web site for search engines through the proper use of keywords and by generating inbound links from relevant sites. It may mean creating a blog and establishing yourself as an industry expert to help drive customers to your site. You might experiment with online advertising in some of its various forms. There’s also traditional advertising and public relations.

As Vega says, “You can’t just throw the store online and say, ‘OK, go.’ ”