Tag Archives: recession

light reflecting off gold bars

Don’t Count On The Current Gold Rush Lasting

The recent economic recession forced society to relook at what we consider to be financial norms. What was considered reasonable several years ago is now unjustifiable based on today’s new standard.

The comfort of having money in an actual wallet is greater than having a pricey purse to carry it in.

It is possible that the same fear that shifted people’s spending habits is what has driven the price of gold to an all-time high.

In my book, “Financial Intelligence,” I show the historical volatility of the price of gold per ounce. Ten years ago this July, gold was trading at approximately $288 per ounce. Today, gold is now trading just shy of $1,200 per ounce. That is a near 15 percent compound rate of return per year over the last 10 years, while the stock market has gained no ground.

Now that the economy is slowly stabilizing, will gold continue to be a profitable investment? Only time will tell, but history suggests that there most likely will be a decline in price. Everything in this modern economic world is cyclical and vulnerable to corrections.

I am amazed about how many people assume that because gold is a tangible asset, it does not carry any risk. Despite what the late-night infomercials say, there is risk in gold and you should consider that risk before investing in it.

In my opinion, when you start to see repetitive get rich quick TV commercials, you should begin to doubt that “investment.” Remember in the late 1990s when TV commercials were touting that through day-trading stocks you could retire in your 4′s? Or the real estate gurus that told you that you could make millions in real estate if you attended their workshops? Today you can’t watch TV without seeing some type of commercial encouraging you to buy gold.

Given the economic environment that we just experienced, it makes sense that gold appreciated in value. Gold historically has increased in value during times of great uncertainty, but the tide is slowly changing. If the global economy can avoid a double-dip recession, we may see the price of gold revert back to its historical mean.

Apart from winning the lottery, there is no such thing as a get rich quick strategy. It always takes longer that you originally hoped and there are always setbacks.

It is always a wise move to invest in an asset that you feel meets your long-term investment objective and that enhances your diversification. Don’t try to time the market or try to get in on the next big thing; you could do more damage than good.

Bottom line, if you had a crystal ball, you should have invested in gold 10 years ago. Now it may be too late.

unemployment rate was unchanged at 9.6 percent after the economy lost 54,000 jobs in August

Nation’s Unemployment Rate Holds Steady

The nation’s unemployment rate was unchanged at 9.6 percent after the economy lost 54,000 jobs in August.

The U.S. Bureau of Labor Statistics (BLS) reported today that government employment fell as a result of shedding 114,000 temporary workers hired for the Census. Private-sector payroll employment rose by 67,000.

“The August jobs report, albeit tepid, does show the economy is holding steady, despite speculation to the contrary,” says Frank Armendariz, Arizona regional director at Manpower. “This is consistent with what I’m seeing in the market, as well as what the quarterly Manpower Employment Outlook Survey (MEOS) has been reporting for the past three quarters. Our quarterly MEOS survey measures employers’ intentions to increase or decrease the number of employees in their work force during the next quarter, and we’ve seen consistent results in our Phoenix-area survey this year.”

According to the BLS, the number of jobless Americans stands at 14.9 million. The number of long-term unemployed (those who have been out of work 27 weeks or more) declined last month by 323,000 to 6.2 million. In August, 42 percent of the nation’s unemployed had not worked for 27 weeks or more.

Government employment fell by 121,000, largely due to the loss of Census 2010 workers. Total private employment continued a rising trend. The BLS reports that since its most recent low in December 2009, private-sector employment has risen by 763,000.

“The fact that we’ve seen eight straight months of private-sector job growth is very encouraging and is consistent with what I’m seeing — employers are continuing to hire each quarter, but in limited quantities, with a majority of firms holding steady with their current labor force,” Armendariz says. “This is an improvement from last year when we were seeing mass layoffs and very little hiring.”

Employment gains were seen in health care, mining and construction. The manufacturing sector lost jobs, while employment in retail trade was essentially unchanged.

“The recession brought about huge changes in the labor market in a very short period of time,” Armendariz says. “Now we’re seeing new jobs come back very slowly. At the current pace, it will take years for us to get back to pre-recession employment levels. As a result, the limited labor market growth we’re experiencing feels almost imperceptible in comparison to the free fall we took in the wrong direction last year.”

Four women hanging upside down in yoga harnesses

Yoga Studio Is “Blissful” About Expanding And Being Eco-Friendly

Expanding in a recession and going green – impossible?

Not for Blissful Yoga in Glendale.

The yoga studio is establishing three new studios in the next year while utilizing renewable materials and sustainable designs throughout the company.

“In this economy, who knew, right?” says Carrie Clark, the operations manager and a yoga instructor at Blissful Yoga.

Blissful Yoga’s owner, Rosa Rendon, says she had lots of people trying to dissuade her from expanding in the middle of a recession, but she stood her ground.

“I’m really passionate about yoga and bringing it to everyone,” Rendon says.  “I truly thought, even in this economy, I truly thought if we had something really good to offer people would embrace it.  I just went with my heart really.”

The grand opening for Blissful Yoga’s new studio at The Shops at Norterra is Sept. 1, but Rendon isn’t waiting until then to start yoga classes.  The studio is officially open and ready to work out the body and relax the spirit the first week of August, says Rendon, who owns Blissful Yoga with her husband Moises (both pictured below).

With a new studio opening next week, Clark says Blissful Yoga owes its success to the sense of community and philanthropy and a commitment to enjoying life that the yoga studio champions.

“I’m truly excited (about) the welcoming we’ve had from our communities,”  Rendon says.  “We make a point of knowing everybody’s name and welcoming everyone at the door… Even though we’re growing, still our focus is knowing everybody’s name.”

Not only does Blissful Yoga give back to the community with a monthly donation-based class for various charities, but it also tries to give back to the environment by using green products and carrying out green practices.

“(Being eco-friendly) was my first priority when I started talking about building a yoga studio,” says Rendon, whose commitment to being green stems from her desire to provide a better world for the next generation.

The original Blissful Yoga studio, located at 19420 N. 59th Ave., is floor-to-ceiling green.  The floors are made of renewable bamboo and the paint on the walls is low-emission paint, Clark says.

“Every decision (the owners) made, they took that into consideration all the way down to the towels that are in the bathroom are recycled, (and) the paper they print their schedules on is all recycled paper,” Clark says.

The three new locations, The Shops at Norterra, Scottsdale Quarter and St. Joseph’s Hospital and Medical Center, will also be “green,” Clark says.

The St. Joseph’s location came about when the hospital contracted them to teach yoga in a new studio built for Blissful Yoga in the hospital as an added benefit to employees, she says.

Blissful Yoga offers around 20 types of yoga for beginners to experts including prenatal yoga, Vinyasa, Yen and classes on a Yoga Wall.  Most of the yoga instructors are YogaWorks trained and Yoga Alliance certified.

Rendon is excited and proud that Phoenicians are embracing what Blissful Yoga has to offe

r.

Photos courtesy of Blissful Yoga. | www.blissfulyoga.net

stk32899bsr

The Future Of Shopping Centers

In the U.S. and around the world, the recession is forcing shopping center developers and retailers to re-think the design of the places where we spend our money. Some say the very nature of shopping has changed. Recently the International Council of Shopping Centers held a meeting of its North America Research Advisory Task Force in Phoenix. Mark Stapp, director of the W. P. Carey School’s Master of Real Estate Development program caught up with Michael Niemira, ICSC’s director of research, after the meeting. Listen as Stapp poses the key question. (22:06)

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

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

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

Half full

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

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

He estimates inventory at 120,000 homes statewide.

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

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

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

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

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

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

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

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

Half empty

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

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

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

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

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

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

A labor shortage?

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

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

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

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

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

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

Residents needed

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

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

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

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

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

Becoming business friendly

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

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

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

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

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

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

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

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

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

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

Arizona Business Magazine Jul/Aug 2010

Companies Continue To Turn To ASU - Az Business Magazine Jul/Aug 2010

Despite Hard Times, Companies Continue To Turn To ASU For Executive Education Offerings

You might think companies designate the development of managers and executives as a low priority as they try to weather the storm of a recession. Though it’s true many companies scale back tuition benefits and send fewer people to executive education programs, most business leaders still are keenly aware they need to develop current and future talent, especially as the economy begins to recover.

Because of the recent recession, firms had to reduce staff precisely at the time when the first wave of baby boomers — a vast reserve of knowledge and experience — is set to retire. This leaves a much smaller and less-seasoned population of Generation Xers with the responsibility to manage the incoming “boomlet” of millennials. As a result, professional development opportunities no longer are considered a “perk,” and organizations are much more purposeful in identifying future leaders among current managers, and providing them with learning and development opportunities that are cost effective and build capabilities that translate into business results.

This situation raises a number of challenges and opportunities for business schools, which over the last 20 years have expanded from their traditional role of providing companies with freshly-minted graduates to also partnering with them in the development of their existing talent pools. Like many business schools across the country, Arizona State University’s W. P. Carey School of Business assumed this new role, in part, by creating a wide range of degree and non-degree programs for working professionals.

The school’s Center for Executive and Professional Development (CEPD) provides short, non-degree courses and certificates, including customized programs. The school’s MBA program is offered in executive, evening and online formats. The school’s full-time MBA program currently is ranked in the Top 30 in the nation by U.S. News & World Report. The evening MBA program is ranked in the Top 20.

Two part-time master’s degrees also are offered to working professionals: the Master of Science in Information Management (MSIM) is a one-year evening program that prepares IT managers; and the Master in Taxation (MTAX) is a one- or two-year evening program focused on the skills needed to provide tax advice and administer tax laws.

New demands from companies continue to raise the bar on all of W. P. Carey’s programs for working professionals. In response to customer surveys, CEPD recently shifted away from offering multi-day, on-campus short courses to instead scheduling courses over multiple evenings, weekends and online. This minimizes disruption to work schedules. This August, CEPD will launch a series of online, one-week “mini-courses” in marketing, finance, accounting, information systems management, leadership and supply chain management. The courses will be taught by W. P. Carey faculty.

The center also has ramped up its ability to design and deliver custom programs, with objectives and learning materials that can be tailored to specific industry and company needs, and that can be delivered on campus, at company locations, provided entirely online or in a “blended” live/online format.

The school’s professional MBA programs also have several initiatives underway. One involves a deepened focus on leadership across all of the working professional MBA programs. That includes community leadership in concert with an increased focus in the business world on corporate social responsibility.

In addition to integrating significant, new leadership components into the coursework, students, alumni and staff from all of the W. P. Carey MBA working professional programs also recently engaged in volunteering and fundraising for various local nonprofit organizations. The school also initiated annual Student Leadership Awards, with community leadership a major criteria for nomination and selection.

The school’s two other masters programs for working professionals, MSIM and MTAX, also are aligning their programs more closely to the needs of businesses. In the MSIM program, student teams work on a year-long project with a company of their choice (which, in most cases, is their employer). They analyze the competitive forces within the company’s industry, then come up with a transformation plan involving a major IT component and leveraging all the courses they’ve had in the MSIM curriculum.

“Companies see real value in the projects,” said the program’s director, Uday Kulkarni. “Some of our past projects have been actually used by companies, since the plans make specific recommendations about technology platforms, capital and revenue budgets, human resources and project rollout.”

He also points out that the program holds an executive seminar series four times a year so “Valley leaders can speak directly to students about how they are transforming their businesses.”

Similarly, the MTAX program incorporates local practitioners as instructors and seeks to maintain a cutting-edge curriculum through a rigorous annual review process that includes input from an advisory board composed of alumni and distinguished practitioners.

In many ways, the school’s challenges in increasing the accessibility and impact of its programs for working professionals are similar to those faced by companies as they strive to better serve and expand their customer base.

Arizona Business Magazine Jul/Aug 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

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

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

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

TREO Is Working To Position The Tucson Region For Post-Recession Growth

The past year was unprecedented in the U.S. economy. As experienced nationwide, the recent credit and housing crises resulted in rapid job losses and extreme economic uncertainty. While the situation at the national and state level is critical, leaders in the Tucson region are working to take our destiny into our own hands, providing leadership in developing local tools and programs to create jobs for our citizens.

Gains experienced in 2009 were a result of our ability to react quickly and develop programs and initiatives to mitigate the effects of the worst recession in 30-plus years. Significant progress was made in addressing the work force skills gap, improving and expanding our best practices, communications to internal and external customers, and thought leadership.

In response to the economic conditions, Tucson Regional Economic Opportunities (TREO) developed a plan called Tucson: Job One. In conjunction with all our community partners, we created a proposed immediate action plan with clearly defined priorities to address strengthening the local economy, creating and maintaining jobs, and spending. This is our chance to synergize the region’s recent strategic planning efforts and priorities, demonstrating how all local economic drivers can work together to emerge stronger and with a much more diversified economy.

To address local economic conditions, in early 2008 TREO embarked on a comprehensive survey of 170 of the top local companies in an effort to gather data on those planning to hire new employees within the next year. Companies that responded to the survey reported a total of more than 2,200 open positions anticipated to be filled within the next 12 months. TREO then created a job portal on its Web site as part of the Tucson: Job One program. Available at www.treoaz.org/Tucson-Job-Portal.aspx, the job portal provides links to the career pages of a sampling of companies that reported plans to hire despite the state of the economy.

The region realizes it needs to be poised and ready when the economy improves, so TREO has instituted some programs to help facilitate readiness.

Shovel ready and fast track permitting
TREO’s Shovel Ready and Fast Track Permitting program involves the certification of shovel-ready sites for fast-track permitting and development processes. The program makes the Tucson region more competitive in attracting and expanding new, high-skilled/high-wage jobs.

Certified shovel-ready sites are parcels that are on the market for sale or lease, appropriately zoned, pre-qualified to meet local planning requirements, served by utilities, and with identified access to transportation linkages. The certification requirements are designed to ensure the ability of a firm to proceed immediately to the building permit phase and be able to receive approval of plans within 90 days.

California job development program
Arizona Sun Corridor: Open for Business is an unprecedented partnership between the Greater Phoenix Economic Council (GPEC), TREO, the Greater Yuma Economic Development Corp., and the city of Flagstaff that is designed to bring high-wage jobs and investment to the Sun Corridor, a megapolitan projected as one of the 10 U.S. markets expected to see most of the nation’s growth in the next 35 years.

The program pools resources to place a contractor in California who will be responsible for researching companies and qualifying those poised to expand operations. The contractor actively generates business development leads in targeted industries such as aerospace/defense, health care/bioscience, transportation/logistics, renewable energy, and information communications technology.

Transportation and logistics focus
TREO’s efforts in the transportation and logistics industry focus on developing and presenting a regional implementation plan that positions the Tucson region as a recognized global logistics and distribution hub. The goal is to facilitate economic growth, prosperity and opportunity for the Tucson region through the promotion of freight, transportation and logistics.

The Tucson region possesses a strong transportation infrastructure, including interstate highway, railroad and air freight connections. The convergence of Interstate 10 and Interstate 19 provides the region with connections to major east-west and north-south trade corridors. The same advantage holds for the region’s rail connections — the Union Pacific Sunset Route runs east-west through Tucson, along with the north-south connection to Mexico via Nogales. The existing Port of Tucson intermodal operation is a huge asset for the expansion of rail opportunities in Southern Arizona. Additionally, current air freight operations include integrated carriers such as Federal Express and cargo operations provided via passenger carriers. Expansion possibilities exist for air freight with the ongoing expansion of the air cargo warehouse facilities at Tucson International Airport. Recent surveys indicate more than 150 logistics-based businesses are currently serving the needs of freight movement in the region, and more than 72,000 jobs are associated with the existing manufacturing, warehouse, and transportation sectors.

Aerospace and defense industry recognized
According to economy.com, Tucson’s highly concentrated aerospace product and parts manufacturing sector has an 8.35 location quotient, a ratio calculated to compare a region’s industrial activity level to the rest of the United States. The location quotient means Tucson is 8.35 times more concentrated in the aerospace product and parts manufacturing industry than the average of all metropolitan statistical areas across the country.
In August 2009, Business Facilities magazine named Tucson No. 6 on its list of the top 10 metro areas for aerospace/defense manufacturing in its fifth annual ranking report. The ranking is primarily based on a comparison of industry sector employment and wages. Also evaluated were major projects and facility expansion/relocation activity for a region in the past 12 months, and the number of major aerospace and defense contractors headquartered in the region.

Solar heats up
Tucson is home to a growing number of companies involved in the development and production of solar technology, including several recent investments from Germany, Europe’s solar hub. In 2009, TREO conducted an economic analysis revealing that there are close to 50 companies in the region involved in solar-related activities, directly or indirectly supporting more than 2,000 jobs with a total annual economic impact of more than $400 million.

New expansions and relocations
Switzerland-based Roche bought Ventana Medical Systems in early 2008, and purchased 17.1 acres for $8.9 million to expand its campus. Ventana is now the headquarters of one of Roche’s global business units that focuses on diagnostics. Roche CEO Severin Schwan says the company plans to expand research and development laboratories at Ventana’s campus and increase staffing levels from about 750 to more than 1,000.

Tucson-based Salutaris Medical Devices, a startup medical devices firm, received $1.5 million in Series A financing by Arizona venture capital firm Translational Accelerator (TRAC). TRAC, a private, Arizona-based, $20 million bioscience venture capital group, is Arizona’s first venture fund established to target early-stage bioscience companies. TRAC investments only support firms located in Arizona or those planning to move to the state.

The Rockefeller Group Development Corporation broke ground on the first of three distribution buildings on a 21.5-acre, pad-ready approved industrial site in the Tucson Airport Commerce Center. The first building, a 113,000 square foot state-of-the-art speculative distribution building was completed and ready for occupancy in June 2009.

Schletter, a manufacturer and distributor of solar mounting systems based in Germany, chose Tucson for its first U.S.-based operations center. Schletter has operated more than 40 years in the design and manufacturing of steel and aluminum products, and rose to be the largest provider of solar mounting systems in Europe, supplying utility-sized PV-projects. Following the German lead, the Tucson facility offers everything from design and development to manufacturing of Schletter products.

Since TREO was formed in 2005, more than 40 companies have announced their relocation or expansion in the region, adding thousands of new jobs and contributing more than $1 billion in fiscal and economic impact.

Laura Shaw, senior vice president of marketing and communications for TREO contributed to this report.


Arizona Business Magazine

January 2010

Who To Watch: Roy Vallee

Roy Vallee
Chairman of the Board and CEO
Avnet

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

–Roy Vallee, Avnet

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

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

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

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

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

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

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

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

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

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

www.avnet.com


Arizona Business Magazine

January 2010

Who To Watch: Dr. Jeffrey M. Trent

Dr. Jeffrey M. Trent
President and Research Director
TGen

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

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

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

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

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

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

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

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

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

www.tgen.org


Arizona Business Magazine

January 2010

Who To Watch: John Chan

John Chan
Interim Director
Phoenix Convention Center

Despite a slumping economy, the newly expanded Phoenix Convention Center experienced a phenomenon expressed some years ago in a movie — “If you build it they will come.”

Indeed, convention delegates came in record numbers in 2009, attracted by the usual Phoenix amenities, including weather and reasonable prices. A new attraction was the convention center itself, which underwent a $600 million expansion project that was completed in December 2008, and tripled the size of meeting and exhibition space.

But John Chan, interim director of the Phoenix Convention Center, sees the recession taking a bite out of convention business in 2010. Looking ahead, Chan says the industry is moving into a tentative mode. Some groups are delaying making decisions on conventions because they don’t have a firm count on delegates. Businesses are deciding to send fewer people, and convention planners are opting against adding an extra day for a possible trip to the Grand Canyon, Chan says.

Still, Chan thinks the scheduled opening in mid-2010 of nearby CityScape, a multiuse project of restaurants and retail amenities that convention delegates always look for, and the existence of light rail service, will make Phoenix that much more desirable — even as the recession puts a crimp in business travel.

“We opened the new convention center during this down economy, and yet, during the last fiscal year we welcomed record numbers of convention delegates into the building,” Chan says. “The reason — most of the business was booked two to three years ago, while it was still under construction.”

In addition, the 1,000-room Sheraton Phoenix Downtown Hotel opened one block from the center.

“Those two events merged to set the stage for the current fiscal year,” Chan says.

Last fiscal year, which ended June 30, saw 276,000 convention delegates enter the center, compared to only 104,000 the previous year, a rousing 160 percent increase.

In a sign that the struggling economy won’t negatively impact the convention industry as much as some fear, in the first three months of the current fiscal year the center already had received 220,000 visitors. Healthy numbers were spurred by major conventions held by the Veterans of Foreign Wars and Best Western International, and a volleyball festival. Best Western held a dinner for 2,400, and earlier, the National Rifle Association staged a banquet for 6,000, the largest sit-down dinner ever in Arizona, according to Chan.

He credits the surge in attendance to the expanded convention center’s ability to provide space for groups of 10,000 to 15,000. What’s more, the design of the building enables the city to host several conventions and groups simultaneously. The Phoenix Convention Center has nearly 900,000 square feet of rentable space and a total of more than 2 million square feet. The increased size has moved Phoenix from the 69th-largest convention center in the U.S. to the top 20.

“It is definitely meeting our expectations,” says Chan, who previously served as Downtown Development Director for the city of Phoenix. “We’re able to host groups we were not able to handle before expansion, and they’re talking about coming back — getting them as part of the rotation. That speaks to good customer service and the quality of food and beverage. It has really put Phoenix on the map of the meeting/planning industry.”

www.phoenix.gov/conventioncenter

Arizona Business Magazine

January 2010

Lending Thaw

Small Businesses Are Still Waiting For Bank Lending To Thaw

We are still feeling the effects of the recession that started in fall 2007. When small business owners read financial literature, listen to pundits on television or radio, or visit with their local bankers, they still encounter conflicting information regarding the near- and long-term prospects of both the Arizona and United States economies.

Small business lending
The most common form of bank loan for small businesses is a so-called working capital loan, collateralized by accounts receivables. One issue that’s uppermost in the minds of small business owners is whether banks are still making these working capital loans. The answer is yes, but specifically to new customers. Remember, banks do not make money unless they lend money. However, in times of economic uncertainty, banks want to be prudent and avoid any potential future losses, specifically after 2007 and 2008. Banks cannot afford to lose the principal of a loan.

For example, if a banker is asked to write a $200,000 loan at a 7 percent interest rate with a three-year term, then the banker will receive approximately $22,000 in interest payments (profit) and the return of principal. If the loan goes bad, the banker not only loses the $22,000 of potential profit, but more significantly, also the $200,000 in principal. Bankers will tell you they have to be right 999 times out of 1,000 in their underwriting efforts to stay in business.

Insurance companies, mortgage companies and banks all have underwriters to evaluate risk. In most cases, the banks also employ economists to evaluate the local and national economies and set standards for the acceptance of loan proposals. In other words, it may not be your branch manager telling the borrower “no.” The loan officer’s hands may be tied by the corporate economist who does not think the recession is over, believes things will remain difficult and sees that the probability for future bankruptcies still exists — therefore, no lending activity.

The major fly in the ointment is, pure and simple, jobs. Jobs, employment and unemployment numbers tell the story. In October 2008, one year into the recession, unemployment in Arizona was at 6.2 percent. By October 2009, unemployment in Arizona was up to 9.1 percent. Two years ago, October 2007, unemployment in Arizona was just 3.9 percent.

So, if the underwriter here at your local bank, acting on guidance or instructions from the bank headquarters, says “no” to a loan application, that decision may be based on the feeling that the local economy is not improving, that there may be future layoffs, etc. Therefore, the probability that your loan may not be repaid is high, so no loan.

Local and regional banks
So, do small businesses have a better chance of obtaining a loan or a line of credit from local or regional banks than they do from the national behemoths? Small, local banks do have more freedom in underwriting and risk analysis than the larger national banks. This is true. Smaller banks also will syndicate loans with larger banks, with the local bank being the lead lender. However, while the federal government guarantees Small Business Administration loans, the loan itself still must go through the risk analysis process in order to be approved. The risk analysis still is based on changing national and local economic indicators. These indicators have been improving for six months, but very slowly and at small increments.

That said, what are the arguments for the borrowers? The federal funds rate set by the Federal Reserve was recently at .25 percent, practically an all-time low. The source of capital to banks, the Federal Reserve and corresponding Federal Reserve banks, is essentially free to the banks. Currently, the banks are sitting on $823 billion of reserve capital available for lending. This is compared to $2.4 billion a year ago. As a point of reference, the March federal stimulus bill was $790 billion. The banks have more capital than the total dollar amount of the stimulus bill.

Banks are sitting on that $823 billion because they say charge-offs — bad loans and debts — are at a point not seen since the Great Depression. The banks cite $116 billion in charge-offs year-to-date, or a 2.9 percent charge-off rate that increased to 3.4 percent in the third quarter of 2009. Banks cannot endure charge-offs. Charge-offs have put more than 100 banks out of business this year. Therefore, banks are sitting on their reserve capital in anticipation of more costly charge-offs. However, bottom line, the banks do have the capital to lend.

Banks do not make any money sitting on $800 billion. To make money, they must lend money. Eventually, and sooner rather than later, the banks have to start lending again. But the $64 or $64 billion questions are: Is this turnaround self-sustaining? Will it continue in 2010? Will the turnaround in the economy create a sufficient number of jobs to sustain the economic growth in 2010?

Alternatives
Until banks loosen their grip, small businesses do have options in obtaining money to keep their businesses not just going, but also growing.

Small business can look to leasing alternatives and trade credit from suppliers to replace the financing they would normally receive from banks. Flooring (inventory) financing, commercial credit from companies such CIT, factoring of invoices, trade, or vendor credit from suppliers all can be sources of alternative financing for small businesses.

Businesses also have reduced the levels of required financing by laying off employees, reducing salaries, cutting fixed costs, reducing profit margins — anything and everything possible to stay in business until the economic cycle turns positive.

Let’s hope the federal government’s stimulus bill and the excess in bank capital will prove sufficient to generate economic growth going forward, and open up the traditional institutional financing necessary for small business development and growth. It is time that small business owners catch a break.

George Olander, Ph.D., is a finance lecturer at the W. P. Carey School of Business at Arizona State University
wpcarey.asu.edu

Nonprofits struggling to provide services for those in need

The Charitable Challenge

The construction industry has faced more difficulties than any other in this recession. The industry lost 45,800 jobs year-over-year in September, the most of any sector in Arizona. Despite that grim number, many construction companies still are trying to give back to the community in any way they can. Hunt Construction is one of them.

When the Society of St. Vincent de Paul, a nonprofit organization dedicated to serving the poor, needed new vehicles to help with day-to-day operations, Hunt didn’t hesitate. The company essentially donated vehicles to the nonprofit by selling it two trucks for a mere $2.

“The construction industry, like so many industries in Arizona today, is facing a number of challenges. Having said that, I am just amazed at how generous they have been to us,” says Steve Zabilski, executive director of the Society of St. Vincent de Paul. “The vehicles are pickup trucks that are in great shape and we use them almost daily in our various operations”

Hunt wasn’t the only one to step up to the philanthropy plate and help the charity during these difficult economic times. Another contractor, Gilbane Building Company, made St. Vincent de Paul a beneficiary of its golf tournament this past year, resulting in a $10,000 gift.

This generosity is just one example of companies’ ongoing commitment to philanthropic efforts despite a recession that has left the world reeling from its impact.

Recession reductions
The Arizona Alliance of Nonprofits conducted a survey of member nonprofit organizations in February 2009 about the effects of the economy from the beginning of 2008. The survey also included projections for 2009. The results found that “one-half of nonprofits reported that their revenues declined in 2008, and two-thirds said they expect revenues to be down further in 2009.” This equates to about 75 percent of nonprofits working with reduced budgets this year.

“The largest decrease in donations was from foundations, which decreased an average of 26 percent. That was followed by corporate donations, which declined an average 24 percent,” says Patrick McWhortor, president of the Arizona Alliance of Nonprofits. Individual contributions decreased approximately 14 percent.

Elaine Fogel, communications chair of the Arizona chapter of fundraising professionals, echoes these sentiments.

“I think that based on both anecdotal (evidence) and statistics, we are definitely seeing a downturn in charitable giving across the board. Locally, regionally, nationally, absolutely,” Fogel says.

According to the survey, on average, revenues decreased 19 percent in 2008, and nonprofits expect that number to decrease another 18 percent this year.

Organizations such as the Sojourner Center that receive funding from the government also have seen revenues shrink.

“Our losses really came from receiving a severe cut in our government contracts,” says Connie Phillips, executive director of the Sojourner Center, which helps families in crisis. “I anticipate in the state of Arizona we will continue to see funding from the government decrease. … If we lose even more of our government funding and have to pick even more from the philanthropic community, how do we retool?”

The Piper Notebook, a magazine published three times a year by the Virginia G. Piper Charitable Trust states: “If life as a nonprofit has always been difficult in Arizona, the economic recession has further strained capacity. Nonprofits face lower revenues as government shrinks, fund endowments decline and individual contributions dip.”

Increased needs
With fewer resources but an amplified need for services, nonprofits are forced to make do with less. The recession has caused an increase in demand for a variety of services, with vital basic needs such as food and shelter high on the list.

“More than 80 percent of organizations saw demand for services grow in 2008 and 2009,” McWhortor says. “Of course, this issue is most concentrated with nonprofits who serve our most vulnerable populations — workers who have lost their jobs, homeowners facing foreclosure, homeless families and youth, people who are hungry. These issues will become more urgent in the coming months as further reductions in state funding for programs undercut the ability of nonprofits to serve the elderly, disabled and economically stressed populations.”

Merl Waschler, president and CEO of Valley of the Sun United Way (VSUW), says thousands of individuals and families are turning to VSUW and the nonprofit network for assistance. The organization’s partner agencies also are citing an increased demand in several areas, particularly food and shelter.
The nonprofits face a wrenching conundrum: Demand is higher than ever due to the poor economy, but since the economy is bad, philanthropic organizations can’t get additional funding to meet their goals and provide the community with the services it requires.

Philanthropic struggles
Just as different industries were affected by the recession in various ways, so too were philanthropic organizations. While basic-needs organizations struggle to keep up, arts organizations face their own set of challenges during this exceptionally tough year.

“We were hit as aggressively as anyone. A lot of what you see at the foundation level and/or the corporate level, some of the emergency social service needs are kind of the priority, and rightfully so,” says Seth Sulka, director of development at the Valley Youth Theatre.

Sulka says the Valley Youth Theatre saw significant drops in both ticket sales and contributions and stresses that it’s important to remember about all types of nonprofits.

“We can’t forget about the arts and expect every organization to have the resiliency to weather such a storm,” she says.

As a private nonprofit contracted by the city of Scottsdale to administer city arts and cultural projects, the Scottsdale Cultural Council also was hit by the realities of the recession. The council encompasses the Scottsdale Center for the Performing Arts, Scottsdale Museum of Contemporary Art and the Scottsdale Public Art Program. It saw an approximate 22 percent year-over-year decrease of contributed revenue (from individuals, corporations and foundations).

“Like almost every arts organization, we experienced a loss of contributed and earned revenue as a result of the recession, which also happened to coincide with the renovation of the Scottsdale Center for the Performing Arts. Because our main theater was closed for more than a year, we had already planned to operate on a reduced budget,” says William H. Banchs, president and CEO of the Scottsdale Cultural Council.

The center continues to move forward and is implementing necessary changes to weather the economic storm.

“Throughout the season, we tightened our belts and focused on our mission and programming,” he says. “We made very personal, one-on-one efforts to engage our donors, as well.”


Photos from left to right:
Intel employees serve as e-Mentors to students at Scales Technology Academy in Tempe. They help youngsters build computer and communication skills. Photo Intel Corp.

NASCAR legend Richard Petty auctioned off one of his cars for charity at last year’s Barrett-Jackson Auto Auction in Scottsdale. Photo: Barrett-Jackson Auction Company.

Legal Aide

Key Legal Considerations And Strategies Businesses Should Consider In An Economic Downturn

Virtually all Arizona businesses, but disproportionately small and medium-sized enterprises, have been significantly impacted by the recession. The current financial climate has and will undoubtedly continue to have countless business ramifications. Often overlooked, however, are the legal considerations that should be proactively evaluated by companies in a challenging economic environment. Legal strategies should be employed not only to manage present challenges, but also to take advantage of opportunities that present themselves in this ever-evolving business landscape. It is important to carefully consider the key legal variables in play.

Here are a few:

1. Renegotiate contracts
Unfortunately, parties oftentimes neglect to consider the details of their contractual relationships until such time as they are presented with challenges. It is therefore a good practice to closely scrutinize and reevaluate one’s contracts in advance of problems arising, and with an eye toward possibly negotiating more favorable terms. It is essential that businesses look to all of their contractual relationships and incorporate contractual provisions that allow for flexibility during fluctuating economic times and properly allocate business risks, including the protection of payment streams, dealings with vendors and clients, termination provisions, and dispute-resolution mechanisms.

2. Employment policies and procedures
Perhaps the area that presents the greatest challenge for small and medium-sized businesses concerns the legal aspects of employment. Particularly in economically challenging times, companies need to be aware of the potential for employment litigation. Companies should regularly ensure that employment policies are updated and consistent with their operations and the regulatory environment, and should be attuned to the potential impact of their employment-related decisions.

3. Corporate documentation
Reviewing and maintaining the proper business entity and structure for your business is vital to securing proper limited-liability protections, mitigating exposure associated with business and employment disputes, and ensuring the most advantageous tax treatment. Many factors influence the choice of a particular entity, including the number of owners, the source of capitalization, employee and immigration needs, management structure, the size of the organization, taxes, and personal asset protection. Limited-liability protection is particularly important in economically challenging times, when the number of disputes rises dramatically. Businesses should be extraordinarily prudent and diligent in the management and oversight of their corporate formalities to preserve the benefits of their entity status.

4. Intellectual property protection
Patents, trademarks, trade secrets and copyrights are species of intellectual property that can and should be protected under state, federal and international law, as applicable. The use and effectiveness of covenants not-to-compete and confidentiality agreements should also be evaluated. It is critical to assess intellectual property regulations and enforcement mechanisms on a regular basis before engaging in any activity that may jeopardize your business’ intellectual property rights.

5. Pursuing litigation
The prospect of business litigation should be approached with the goal of creating optimum value for the business. Businesses should be cognizant of the significant expense associated with litigation, the time horizon associated with the pursuit of claims through the judicial system, and the prospects, if any, of ultimately collecting on a favorable settlement or judgment. Litigants and their counsel should be acutely aware of the costs and benefits associated with pursuing and defending civil claims. The question should be asked: What is the value proposition in each alternative approach to resolving a dispute?

6. Consider bankruptcy alternatives
Bankruptcy can sometimes provide relief for a struggling enterprise. There are various strategies that can provide a “fresh start” for a business that has been impacted by this economy. A bankruptcy expert can assist in evaluating the utilization of bankruptcy to determine the best course of action. Alternatives to bankruptcy do exist, i.e. “work-outs” with lenders, and these options should also be fully explored in advance of filing for bankruptcy protection.

7. Dispute resolution
It is imperative to plan in advance to manage disputes that may arise in the course of business. Absent a contractual designation by the parties of a governing set of laws, forum or dispute resolution process, there may be uncertainty as to how, when and where disputes will be resolved. This uncertainty can translate into resources being unnecessarily expended. Parties should, at the very least, make efforts to agree in advance to a choice of law and forum to manage disputes, including the use of arbitration and/or mediation to provide for resolution. Businesses should be cautioned not to rush to agree to arbitration, however. In many instances, litigation in the judicial system may be a better option.

8. Identify a lawyer
It is important to seek the assistance of legal counsel who has a keen understanding of how to best structure your business or to help you in confronting your business’ challenges. The lawyer should have the ability to call upon a network of advisors who can provide particularized knowledge of the issues that confront your business, whether the goal is strategic planning or dispute resolution.

Recessionary economic conditions provide for challenges, as well as opportunities. The costs to those businesses that fail to adequately consider the legal ramifications of their actions in this environment can be substantial. These legal issues are best navigated and managed through proper planning, which will in turn maximize your business’ ability to capitalize on available opportunities.

Olivier A. Beabeau, a senior associate at Galbut & Galbut, contributed to this report. He can be reached at obeabeau@galbutlaw.com.

man standing in front of a chandeleier

CEO Series: Curt Waisath

Curt Waisath
President and CEO, Gold Canyon

How did Gold Canyon get started?
We started Gold Canyon because my wife wanted to stay home with our kids. And I’m a CPA, so I could tell her exactly how much she had to make in order for us to survive financially. That was back in 1995. … We always loved fragrances in our home, but we were always disappointed when you’d go into a store and smell a candle and it’d smell great and you’d bring it home and light it — and no fragrance. Our other pet peeve was when you would light a candle and it would burn right down the middle. So we said, ‘We’re going to create a candle that will throw fragrance through your whole house and will burn even and clean from top to bottom.’ We thought, ‘Hey, that’s easy. It’s just wax and fragrance.’ Well, two years later we finally figured it out. … About that same time we adopted our second child and he was from New Mexico and we went to pick him up. On the way home we were discussing the pros and cons of starting this little candle business and on that trip we decided, ‘Yep, we’re going to do it.’ So I went back to work on Monday and said, ‘Hey, we have a brand new baby boy and I need to give you my two weeks notice.’ I don’t know what we were thinking; a brand new baby and no income. We really, really believed in our product and knew we had something special.

How has the recession affected your business?
We definitely felt it with the recession. I don’t think we felt it as badly as, possibly, the rest of the world. But we felt it. We provide a great opportunity for individuals (demonstrators) to actually make money. In a recessionary time like this, where people are struggling and can use $200 or $500 a month, it makes all the difference to their family. We have that opportunity for them to do that. And so we’re starting to see more and more people join the business and start selling for us.

What are some of the strategies your company has employed to meet the economic challenges brought on by the recession?
Our strategy has changed a little bit during this economy. We really focused on obtaining new customers into our business, for and on behalf of our demonstrators. So we’ve done a lot of marketing out in the world, whether it’s Internet or advertising or different promotions to draw new customers into the business. We believe we have the world’s finest product, but the world is not running to us. And we keep saying, why is the world not running to us? And we believe it’s because they don’t know about us. So our focus during this time has been to really let people know more about Gold Canyon.

With so many people losing their jobs, the number of entrepreneurs in this country has grown. What advice do you have for these new entrepreneurs?
If I had to give advice to an entrepreneur, I would have to say believe in your product. Whatever you’re doing, you have to believe in it wholeheartedly. And then I would suggest them jumping in with both feet. I think so many entrepreneurs say, ‘I’m going to do this on the side and when it takes off I’ll quit my job.’ I just think it’s very difficult for a business to take off without you working it full time. I think that was one of our successes. We jumped in, new baby and no income, but with both feet and we had to make it work and it did.

What signs, if any, do you see that the economy is improving?
We had a great June and a strong July. Some of the figures we look at in our business is the average party size. Our partysize for both June and July was up over the prior year. That’s a big indicator for us. Our average fundraiser size is up over prior year for both those months, as well as our average Internet order. All those are really key indicators that started kicking in for us in June andJuly.

What are the keys to being a successful leader in a startup company?
I think the key to success to leading a small group really is understanding the people that you are working with. We always hear people are your greatest asset — and they truly are. It takes a leader that can understand and can motivate and inspire people to want to come to work. It’s different for us as an entrepreneur that owns the business … we live and breathe it and are empowered by that. A lot of times co-workers don’t have that — it’s a job. And they are inspired by other things, whether it’s money or their outside adventures with their family. So how do you get a co-worker to say, I want to go to work and I want to make Gold Canyon better? That’s what I look for in a leader that can come into a small organization like us and inspire people to want to own their world and make it better.

    Vital Stats



  • Started Gold Canyon with his wife, Karen, in 1997
  • Worked as an accountant for seven years at Henry & Horne.
  • Holds a bachelor’s degree in accounting from the University of Utah and a Masters in taxation from Weber State University
  • Board of directors for the National Candle Association and the Direct Sales Association Vice president for the Prayer Child Foundation
  • www.goldcanyon.com
Students/employees succeed post-recession

New Program At Thunderbird Aims To Help Students And Employees Succeed Post-Recession

Lately, the national and international media have been reporting that the economy is recovering. The chatter is that many of the key indicators (other than unemployment) are starting to predict that we may be just a quarter or two from the “light” at the end of the tunnel.

That light, however, could be snuffed by yet another crisis — a crisis in sustainable leadership. The loss in human potential caused by the high demands and increased stress related to reductions in human resources and development of remaining talent could be catastrophic for businesses.

Sure, many of the cost reductions in companies and organizations have had a positive impact on margins and liquidity, but will this be sustainable? Many executives have shared their doubts about whether the changes and strategies they put in place during this recession will make their organization more capable of reaching their future targets. Even worse, they question their own energy and capacity to continue to try to keep up, let alone get ahead.

This is the crisis at the end of the tunnel. There will be many opportunities that emerge from the post-recession economy. Unfortunately, too many leaders and organizations still will be in survival mode because they are numb, tired, foggy and lack the passion to really capitalize. In short, they won’t have the gas in their tank to use the knowledge they have to bring their business back to the level it should be.

The last year has been a time of less. Less people, less investment in the people remaining, less optimism, less outward focus (on the customers and the opportunities) and less training. Unfortunately, it also has led to a lack of high-performance behaviors. In order to see the light at the end of the tunnel businesses and organizations must change the paradigm to one of MORE. More energy, more passion, more productivity, more preparation, more focus and more design.

The Thunderbird School of Global Management recognizes this missing link in the executive world. This is why it is collaborating with Tignum to incorporate sustainable high performance training into the school’s own work force and educational experiences. The aim is to ensure its employees, graduates and executive education clients not only garner the business and cultural skills needed to run sustainable organizations, but also the personal capacity to maintain their own long-term performance and competitive edge.

Sustainable high performance training was first introduced to Thunderbird’s faculty and staff during a kickoff event on Aug. 18. Later that month, similar presentations were made to new full-time students. Thunderbird now is integrating the program into campus life through follow-up workshops and an on-campus communication campaign. School officials say the goal is to help participants overcome habits that lead to burnout by building a solid foundation that can sustain high performance throughout their careers.

Thunderbird and Tignum also are working to develop a sustainable high performance program for corporate clients who come to the school for executive education.

“Incorporating sustainable personal leadership training with Thunderbird’s No. 1-ranked global business education furthers the school’s mission to produce global leaders who make a lasting impact in the world by creating sustainable value for their companies and communities,” Thunderbird President Ángel Cabrera said in a statement. “In order for individuals to create lasting value, it is imperative they be equipped with strong global business skills combined with a socially responsible and global mindset and the capacity for their own sustainable high performance.”

The fact is, the knowledge, skills and strategies that have gotten businesses to this point will no longer be sufficient to achieve long-term goals in the future if companies do not invest in the sustainability of their people.

Recently there was a special issue of the Harvard Business Review called Leadership in the New World. The name of this issue alone explicitly implies that what we knew in the “old” world won’t work in the future. The habits that you’ve used to be successful in the past won’t be enough to ensure your success in the future.

The New World will require energized, responsive, agile, creative and attentive leaders. It will require that they energize and inspire others so they can meet their customers’ desires and stay two steps ahead of the growing and gainingcompetition. This will require new personal habits to increase their energy, resilience, brain performance and capacity. In the past, too many executives saw these things as a “nice to have,” but now these things are a “strategic must.” Your own personal energy and resilience are your foundation upon which all of your performance is built.

Sustainable high performance is a condition where you are highly motivated, your self-esteem is strong, your excitement to handle challenges is evident and your physical energy is abundant. People perceive you as present,grounded, responsive and focused. You implement sound judgment and innovative solutions, maximizing your impact on your team, company, brand and the world. Sustainable high performance is showing up consistently with your best game on.


Are Green Jobs Recession Proof

Are Green Jobs Recession-Proof?

The recession has been grim. Every time you read more depressing statistics relating to the world’s economic woes it’s almost impossible to see anything positive. However, there is some news that points to a brighter future. In a previous post I wrote about green jobs leading to a good future and it seems that may in fact be the case.

Newsweek put out a list of ten recession-proof jobs (as recession-proof as you can get these days I guess) and sustainability-related jobs took four spots!

One of them was solar energy, here’s what Newsweek wrote:
“With 80 percent of oil industry employees facing retirement in the next decade, now’s the time for America to invest in renewable energy… And, aside from replenishing the oil and gas industry with younger workers, green energy (including nuclear) will see strong growth and increased employment rates, especially under an administration focused on clean energy initiatives.”

Wind energy was next on the list. According to a 2006 study released by the Renewable Energy Policy Project cited in the Newsweek article, researchers found that 2,000 businesses in Michigan could use wind turbine technology as an employment alternative for ailing auto workers. It went on to state that “as that industry declines, nearly 34,000 new jobs could be created by simply reorienting workers from their current manufacturing jobs to those focused on creating renewable energy for the state.”

Overall green business was also on the list with a continuing demand for eco-oriented project managers, attorneys, engineers, etc.

Energy efficiency was also listed as a recession-proof job, citing the need to fill green jobs that technology has created. As developments of these new technologies continue to flourish, more and more employees will be needed to see these projects through.

I guess it’s safe to say that jobs in the sustainability field are ones that will help us in riding out this recession and moving forward. To me, it’s just another example of why ‘green’ is indeed the way to go.

www.newsweek.com

paid stamp

Business Owners Should Weigh Legal Concerns When Considering Furloughs

Call it what you want — the best of both worlds or making the best out of a bad situation — but many employees confronted with the choice of losing a valued job or agreeing to a reduction in hours or wages, choose the latter. As the conventional wisdom goes, the employees are just happy to be working.

Many employees taking unpaid, mandatory furloughs are tightening their belts and then spending their free time working around their homes and apartments, taking a much needed rest or spending one-on-one time with their families.

Employers are also looking at the bright side of furloughs and turning to them in lieu of layoffs. Furloughs can be structured in many different ways, but the basic furlough requires employees to take a mandatory, unpaid break from work for a specified amount of time. The benefits of work furloughs are many:

  • The company reduces labor costs.
  • The company saves utility and other operational costs (depending on the scheduling of the furlough).
  • The majority of a company’s employees, along with their skills and institutional knowledge, remain in place, thereby saving the company the substantial costs of recruiting, hiring and re-training new employees when the work picks back up.
  • The company remains agile because it can adjust the furloughs to meet changing market demands.
  • The company may preserve employee morale and company culture.

However, the risks are also many. Because of the complexity of the laws and the many business and legal considerations that come with furloughs, employers should consult closely with their counsel before implementing a furlough program. The following is a broad overview of some of the legal risks to be considered.

Wage and hour claims — Furlough programs must be designed by first considering whether an employee is exempt or non-exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. Under the FLSA, these categories of employee must be treated differently with respect to furloughs.

Considerations for non-exempt (hourly) employees — There are fewer FLSA complications when implementing furloughs for employees who are paid based solely on the hours worked. If an employee is paid at an hourly rate for the hours she works, and she works fewer hours, her pay is automatically reduced. It doesn’t matter whether the hours are reduced across the board, for one day a week or for an entire week. So long as the applicable minimum wage and overtime provisions are followed, there are few complications to consider — at least in theory.

It is critical in this situation, though, that all managers be reminded that hourly workers must be paid for all time “suffered or permitted” to be worked, using the language of the FLSA. Sometimes furloughs are chosen because there is less work to be done. Other times, the workloads are not reduced, but the furlough is simply an effort to reduce labor costs. In those situations, managers may feel increased pressure to produce the same amount of work in less time. If employers are not careful, managers may ask subordinates to work “off the clock” — a classic FLSA violation that could lead to substantial damages and government scrutiny, not to mention employee morale and other cultural problems.

Another problem can occur when a great deal of overflow work is directed to the lowest-paid exempt workers to avoid overtime pay. Whether a position is exempted from the FLSA is determined on the basis of job duties, not on titles, so it is quite possible a low-level manager suddenly overburdened with leftover work and making the same (or less) money as before, might take a closer look at whether he is improperly classified as exempt and should actually be paid overtime. If his job duties have changed significantly because of the furloughs and he is now doing a higher percentage of manual labor and exercising less and less independent judgment and discretion, he may be right.

FLSA considerations for exempt employees — To maintain an exemption from federal minimum wage and overtime rules, exempt employees must be paid a minimum of $455 per week, along with other additional requirements in relation to their job duties. With certain exceptions, an employee’s salary cannot be reduced for the quantity or quality of his daily work. That typically means that if the employee works any part of the work day, for FLSA purposes he is entitled to his full week’s salary. This requirement presents a problem for furlough programs that are randomly scheduled for less than a week’s time or that allow exempt employees to work part of the week, such as a program that allows an employee to work Monday through Thursday, but asks her not to work on Friday and subsequently reduces her pay by 20 percent.

While it is not impossible to create a compliant furlough program that allows for scheduling flexibility, one of the safest courses of action from an FLSA perspective is to require exempt workers to take weeklong unpaid furloughs. Even with this course, though, there are dangers. Work done remotely still constitutes “work,” so exempt employees should be prohibited during their furlough week from drafting documents, participating in conference calls or from checking or responding to e-mails, Blackberry devices or voice messages. If an employee is so important that she must be on a conference call on Wednesday at 10 a.m. during her furlough week, then the safest course is to either reschedule her unpaid furlough or reconsider whether she should be on the furlough list in the first place.

Another option is to make a long-term prospective change to exempt employees’ salaries. For example, if an exempt employee was making $1,000 a week, her salary could be prospectively reduced on a going-forward basis to $800 a week. So long as the decrease does not make the weekly salary fall below the minimum of $455 per week, this option could be a viable alternative for some employers.

To maintain morale and prevent the risk of losing or alienating key employees, some employers have coupled long-term prospective salary decreases with a comparable increase in paid time off. So, for example, the employee now making 20 percent less in pay, may be given a 20 percent increase in paid time off to compensate. That paid time off might be required to be taken at certain times, or employees may be given flexibility in their scheduling.

This option, if properly executed, has the same effect as a furlough because employees are working less and receiving less income.

This scenario allows the exempt employee to work part of the week, and still receive his full pay for the entire workweek, albeit at a reduced rate. In contrast, in the earlier example, the employee worked part of the week but was not paid for the entire work week, which runs afoul of the FLSA.

Other legal concerns include:
Workplace injuries — When work hours have decreased but workloads have not, employees might rush to complete projects and meet customer deadlines. This can lead to accidents and increased worker’s compensation, FMLA or even disability claims, especially in industries that rely on manual labor.

Express contract claims
— Companies cannot afford to overlook the negotiated contracts they may have with some employees, especially key employees. If furlough requests alter the terms of those contracts, the employer could end up paying damages instead of saving labor costs. Naturally, if a company’s work force is unionized, the collective bargaining agreement must be followed.

Implied contract claims
— Hopefully, all employers already know their employee handbooks may be considered enforceable contracts. Most handbooks that have been reviewed by legal counsel include disclaimers stating the handbook is not a contract and the policies can be unilaterally changed by the employer at any time, with or without notice. Regardless, before making a furlough decision, employers would be wise to review the sections of their current and past handbooks that deal specifically with any of the proposed changes — particularly changes in hours and compensation — to determine whether there is any problematic language.

Employers should also review employee offer letters, which sometimes include language that could be read to imply a contract for a guaranteed salary or schedule.

Notice
— Some states have laws requiring employers to notify employees before significantly reducing their hours or salary. Arizona is not among them, but employers with operations in multiple states should ensure they are in compliance with these notice provisions.

Though some recent economic indicators predict the recession has bottomed out, the need for corporate cost cutting is likely to continue for some time. It is easy to decide to scale down the company picnic, but implementing a furlough program is much more complicated. Companies must be sure to work closely with counsel to ensure their programs meet both their business needs and are compliant with the law. While employees might be doing their best to take job changes in stride, some employees may just decide to spend their furloughs researching their employment law rights.


Man looking up in front of a colorful painting

CEO Series: Brad Casper

Brad Casper
CEO, Henkel Consumer Goods (The Dial Corporation)

Consumers have been cutting back sharply on their purchases as a result of the recession. How has that affected Henkel Consumer Goods’ overall operations, such as vendor relationships, supply chain management, marketing, research and development, etc., and how has the company responded to those challenges?
The challenges have been significant in the past year. It hasn’t materially affected our relationships, but it has forced us to be much more nimble with both with our vendors who supply us, as well as our retail customers who we sell to. You cannot take things for granted in this environment, particularly with our retail customers. One day you think you have the merchandising support, you think they have their back behind you, only to find out that someone has come in and maybe taken your ad space or taken your display space. So that’s forced our organization to be very reactive, to be very sharp with our price points, because value during this recession has been really the operative word. Fortunately, we have a number of great brands that have done very well during this recession, like Purex laundry detergent, Dial bar soaps and body washes, even Right Guard and Renuzit have done excellent. We’re growing share in all of those businesses.

What signs is Henkel Consumer Goods seeing that the recession is abating?
We follow the consumer confidence data very, very closely, and we saw — just in February and March — just as we saw the Dow Jones start to pick up, we saw the consumer confidence (and) you can do a pretty strong correlation analysis between consumer confidence and (the purchase) of consumer goods. Now, they’re still looking for deals. The consumer is still looking for value and bargains, but we are seeing our market sizes that were more discretionary, like air fresheners, a year ago were declining, are (now) starting to grow slightly.

So those categories that I think consumers would classify as “I want, but I don’t need,” we’re starting to see purchases come back in those areas that are wants.

What are some sustainability initiatives Henkel Consumer Goods is undertaking both in its operations and its products?
Henkel has a rich heritage and history in sustainability initiatives. This isn’t something we do just because of the recession; it’s something we do every day. Even starting with the building that we are in, this is going to be a LEED-certified building. We’ve only been open eight or nine months, but we designed this with sustainability in mind. Within our organization we created a kind of self-promoting area we call Eco-mmitment. It was a campaign we kicked off internally because with thought that in order to be a sustainable company (we needed to have) sustainable employees. Eco-mmitment was an internal grassroots effort to create awareness of more sustainable practices that we have here in our offices, as well as in our homes. So we’ve rolled that out, so that all of our employees are a little bit more aware of that.

But when it comes to our innovations, we have a number of sustainability initiatives that are in fact being very successful in the market. More than two years ago we launched Purex Natural Elements — it’s a natural detergent — and it became a $100 million business within a year and we didn’t even have to advertise. It sold itself off the shelf with its natural surfactants. … Again, Henkel’s history in this goes back 40 years. Before most people in this country were talking about sustainability, Henkel was practicing it. And so we (Dial), kind of as the little sister who’s been part of Henkel for five years, we’re adopting these behaviors pretty rapidly.

You worked to make sure Henkel Consumer Goods remained in the Valley. Why was that so important?
It all begins with people. First and foremost, a company can be an accumulation of brands and buildings, but at the end of the day what makes it special are the people. And moving this from the Valley, whether it was just from the East Valley to the West Valley, there’s the risk that we would lose some of our valued employees. Add to that, if you were to take it out of Scottsdale-Phoenix altogether, the probability that we lose the majority of our intellectual property — that would have stood between us. Moreover, when I was offered this job, I was looking forward to moving to Scottsdale, and when I got here I didn’t want to move, I wanted to keep us here!

What skills do C-level executives need in order to succeed in a multinational, consumer products company such as Henkel Consumer Goods?
I think it begins with having a really strong strategic mind and framework. You really have to understand the markets in which you compete, where and how your competition is likely to try to defeat you, and then, kind of like a sports coach, you have to try to figure out how you navigate vis-à-vis them. So you have to understand your own strengths, weaknesses, opportunities and threats.

Business is about people … and therefore you have to learn how to tap those resources that you have. You surround yourself with the best people, but you have to motivate them … and that’s true both of a domestic company, as well as a multinational.

I think when you get into multinationals, we’re working across borders, we’re working across time zones. I’ve been on conference calls earlier this morning with our parent company in Germany as early as 7 a.m. You have to learn to work in a diverse environment, you have to be tolerant of differences, you have to try to leverage those differences to make you stronger. Sometimes that may mean being tolerant of what you thought might have sounded like rude or very straightforward behavior, and it just might be the cultural differences at play there.

Interpersonal effectiveness at the C-level is so critically important, and it’s not just because you’re a multinational; you’d fail, probably, if you weren’t effective in those areas.

    Vital Stats



  • Named president and CEO of The Dial Corporation (Henkel Consumer Goods) in April 2005.
  • Joined Henkel from Church & Dwight, where he served as president, personal care, since 2002.
  • Spent 16 years at Procter & Gamble.
  • Member of the Greater Phoenix Leadership Council and a board member of the Greater Phoenix Economic Council.
  • Holds a bachelor’s degree in science degree from Virginia Tech University.
  • www.henkelna.com
An End in Sight

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Vest sees the national recession receding in the third quarter.

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

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

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

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

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

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

hospital bed and xray

For Medical Building Owners, Are Lease Workouts Worth The Work?

The market is stormier these days. Many of the lease rates presented by medical building owners today would previously have been considered anomalies, but they’re now more of a trend. Nonetheless, some medical buildings have stayed afloat maintaining their asking rates successfully. So is it worth it to seek to propose or consider a modification to an existing lease within a medical building? The answer at first is simple — it depends.

As with any investment, having and understanding one’s basis of using applicable data to support a position is imperative. Because of the looming distress in the financial markets, many notes are being sold that are secured by well-performing investment properties. However, even if a subject property owner is making timely payments on its mortgage, that doesn’t mean the note-seller is weathering the economic storm as soundly. In some cases, a note discounted by a troubled lender may translate into double-digit returns for the new note-owner. Logically in such cases, lease modification requests should be approved by the owner of the building, because of the superior return on the original note to the new note owner. Nonetheless, any loan modification allowing for additional flexibility is ultimately between the owner and current note holder, and not the tenant.

The aforementioned factors are part of today’s property investment philosophy, and consequently the nature of tomorrow’s tenancy. Even so, there are medical buildings out there today that may be considered “gems,” just as there were similar “gems” in previous recessions. This begs the question for owners and tenants alike — “Is my medical building a gem in this recession?” This answer will often dictate the likelihood of one’s success in the renegotiation or a workout of a lease.

Basis Breakdown
How does one know if their building is a gem? First off, it is important to have a basis for understanding the market and how the medical building fits within that market. What classification is the building? On what standard is this classification based — BOMA (Building Owners and Management Association) or just a general opinion of the owner? Secondly, it is important to compare similarly classified buildings, their locations and amenities. For instance, in comparing two similar buildings, one may offer superior signage, visibility and may have a higher rental rate, even though they both may be Class B properties. Overall, it is important to understand that building classification does play an important role, yet it doesn’t always dictate the rental rate.

Additionally, it is difficult for a tenant to support an argument for a lower rate if only general evidence is supplied to the owner, such as hearing something about the economy on the news, or using a building rate from a completely different class of building, or even a building from a completely different submarket. Sometimes poor business/practice performance may be the only supporting evidence in justifying the request for lease modification. However, it is important for tenants to understand their liabilities relating to guarantees, current business income, personal income, etc. That being said, the owner will be likely to seek evidence of such hardship before even considering a workout.

As a building owner, it is important to understand the nature of the tenant’s request. Probing questions may be asked and supporting evidence sought.If the building is a “gem,” maybe it is better off to let the tenant default under the agreement in order to replace the current tenant with a new tenant that presents less risk. However, if the building is not a “gem” per se, it may be better to take a closer look at what the tenant is proposing and attempt to understand the basis for his or her request.

Even though the economy is in flux, it is always important to seek an edge. It is important to seek and analyze trends in the economy and how they relate to your lease(s). Being a good steward to your investment and/or business is always important, regardless of the market conditions. Recessions come and go, but the persevering have a much better chance of reaching their goals.