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Economic MID-YEAR REPORT Outlook
Groundbreaking ceremonies were held July 1 for Shimadzu Aircraft Equipment USA’s new headquarters at 3645 Lakewood Blvd. at Douglas Park in Long Beach. The firm, part of Shimadzu Precision Instruments, Inc., is relocating from Torrance and hopes to move into its 58,796-squarefoot, two-story concrete tilt-up building in December. The new facility will include office and manufacturing interior improvements, process plating lines, process plating treatment, as well as on and off site work. In addition to Shimadzu Precision Instruments, the project team includes Oltmans Construction as the general contractor, DRA Architects and Robert A. Vezzuto Consulting as the owner’s representative. Pictured from left are: James Wu, project manager, Oltmans Construction Co.; Larry Lukanish: senior vice president of Sares-Regis Group; Todd Taugner: principal with The Klabin Company; Yutaka Nakamura, president of Shimadzu Precision Instruments, Inc.; Yasuhiro Yamanaka, president, Asahi Kinzoku; Kiyotaka Ihara, president of Shimadzu Aircraft Equipment USA; Carrie Hoshino, principal/architect with DRA Architects; and Vezzuto, who serves as construction manager. For more information, see Page 18-B. (Photograph by the Business Journal’s Thomas McConville)
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ECONOMIC OUTLOOK MID-YEAR REPORT July 8-21, 2014
Long Beach Business Journal 3-B
“From luxury rental towers to the adaptive reuse of old office buildings, at least eight new multi-family projects are planned or underway downtown, totaling more than 1,100 new rental units,” writes Staff Writer Samantha Mehlinger in her update on the residential real estate industry. (Photograph by the Business Journal’s Thomas McConville)
Despite First Quarter GDP Slump, Economic Outlook Is ‘Decent’ ■ By SAMANTHA MEHLINGER Staff Writer he federal government’s late June announcement that national gross domestic product (GDP) decreased 2.9 percent in the first quarter of the year put a damper on what had until then been a positive narrative for economic growth this year. National and regional economic analysts admitted the news was disappointing, but expressed optimism about the economy’s well-being in coming months. “There seems to be more and more good news on the economy just about everywhere except that GDP number, which really was due to some very temporary factors,” said Mark Vitner, senior economist for Wells Fargo. Steven Cochrane, managing director of Moody’s Analytics, said many of the economic factors that caused the dip in GDP were “one time events.” Accounting for about half of the drop in GDP were decreased national exports in the first quarter, Vitner said. This 8.9 percent decrease was partially caused by the Chinese New Year coming earlier than last year, he said. To get ahead of the holiday, shippers exported products in the last quarter of 2013, which they would have normally shipped in the first quarter. He noted this had a direct impact on Southern California ports, where a high percentage of container traffic travels to and from China. Cochrane pointed out that bad winter weather on the East Coast was likely to
T
blame for “tepid” consumer spending, which only grew by 1 percent in the first quarter. Vitner noted the weather also caused many businesses to temporarily close. Corporate profits decreased $198.3 billion in the first quarter, according to the U.S. Bureau of Economic Analysis. Because major factors playing into the decrease in GDP were anomalies, not trends, Vitner and Cochrane projected GDP should grow in the coming months. “For the second half of the year we still think we could be in the 3 percent range, which would be pretty strong,” Cochrane said of estimated GDP growth. Robert Kleinhenz, chief economist with the Los Angeles Economic Development Corporation (LAEDC) Kyser Center for
Economic Research, projected a 2.5 percent increase in GDP this year. “It seems to us that the economy is gradually building momentum and that we are likely to see growth somewhere between 2.5 to 3 percent through the rest of the year,” Vitner said. “Despite the alarming decline in GDP in the first quarter of the year, which caused many people concern about the national economy, the fact of the matter is other national indicators show strength,” Kleinhenz said. A positive indicator for the national and regional economies is job growth. “The U.S. economy has now regained, at least numerically, all the jobs that were lost in the recession,” Vitner said. While nationwide the
country has recovered the number of jobs lost in the recession, some states, including California, are still playing catch up. “California should regain all the jobs that it lost in the recession next month,” he added. Los Angeles County’s job growth continues to pace the state’s, Kleinhenz said. The state had an unemployment rate of 7.6 percent in May, while the county had an 8.2 percent unemployment rate. The prerecession average for unemployment in L.A. County was 8 percent, Kleinhenz said, but a more ideal rate would be 7.5 percent. He expected the county to reach that unemployment rate in the next 12 to 18 months. If California meets that goal, it would have taken six years post-recession for unem(Please Continue To Next Page)
Inside Economic Outlook Mid-Year Report
4 Health Care 6 Financial Services 7 International Trade 10 Oil & Gas 12 Technology/Communications 13 Utilities 14 Retail 15 Real Estate Published July 8, 2014, by the Long Beach Business Journal, 2599 E. 28th St., Suite 212, Signal Hill, CA 90755. The full publication is available online at no cost at www.lbbusinessjournal.com. 562/9881222 • e-mail: info@lbbj.com. Reproduction in whole or in part is not permitted without written approval of the publisher. The Long Beach Business Journal is a publication of South Coast Publishing, Inc., incorporated in the State of California in July 1985.
Los Angeles Economic Development Corporation’s Economist Kimberly Ritter-Martinez and Chief Economist Robert Kleinhenz, Ph.D., believe the economic outlook for the remainder of the year is positive, and that the economy “is gradually building momentum.” They expect broadbased job growth to continue across Los Angeles County industries. (Photograph by the Business Journal’s Thomas McConville)
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ECONOMIC OUTLOOK MID-YEAR REPORT 4-B Long Beach Business Journal ployment to decrease to a healthier level. “That is the longest recovery time in the post-World War II era,” he said. In Long Beach, unemployment was 8.8 percent in May, down from 10.2 percent a year ago and 12.2 percent in 2012, Kleinhenz said. The jobs outlook for the remainder of the year, like that of the nation and greater L.A. region, is positive overall, judging by comments from Cochrane, Kleinhenz and Vitner. “Not only did we have strong job growth, but the gains were very broad based,” Vitner said. The economists all anticipated continued job growth across most industries throughout the year. Kleinhenz said L.A. County should experience a 2 percent job increase. “The strength of the Long Beach economy should be similar to the county’s, in that we will see job gains in health care . . . transportation and warehousing, and tourismrelated leisure and hospitality,” Kleinhenz said, noting that these industries have been steadily adding jobs in L.A. County. The health care industry is a major employer in Long Beach, with MemorialCare Health System’s three hospitals, Molina Healthcare, St. Mary Medical Center, Molina Healthcare and Lakewood Regional Medical Center supporting thousands of jobs directly and indirectly. Leaders within the local health care industry told the Business Journal they might continue hiring this year and beyond as more Long Beach-area residents gain access to healthcare through the Affordable Care Act.
July 8-21, 2014
Thomas Salerno, president and CEO of Dignity Health St. Mary Medical Center, visits one of the hospital’s cardiac operating rooms. The hospital, which employs about 2,000 people directly and indirectly, is celebrating its 90th anniversary this year. (Photograph by the Business Journal’s Thomas McConville)
Another strong industry for jobs in Long Beach and L.A. is the leisure and hospitality sector, which consists of mostly lower paying entry-level positions. This industry was the first to recover all the jobs it lost in the recession, Kleinhenz said. According to the state Employment Development Department (EDD), the leisure and hospitality industry led job gains again in May, adding 7,900 jobs to Los Angeles County since April. Professional and business services jobs should also continue growing, Kleinhenz said. His colleague, LAEDC Economist
Kimberly Ritter-Martinez, said growth in this field includes jobs in accounting, law, architecture, software development and engineering. A June report from the EDD stated this sector gained 23,500 jobs from May of last year to the same month this year. While the construction industry has also been adding local jobs, Ritter-Martinez said the industry has been growing at a slower rate than others. “Even though we have seen a lot of growth recently in construction employment, it is still well below pre-recession levels. We just haven’t seen industrial or commercial real estate come back as far as new construction goes,” she explained. The good news is pent-up demand for new housing should create more construction employment in the coming months, Kleinhenz said. Because many post-recession households are being formed by young professionals, it is likely developers may choose to invest in rental developments, he explained. Many multi-family developments – all with units for rent – are underway across Downtown Long Beach, with more than 1,100 apartment and loft units planned. Cochrane noted housing construction is beneficial to more than just the construction industry because it requires many types of goods. Other indicators of potential positive economic growth in the second half of the year are that household and corporate balance sheets are “very healthy” and “the banking sector has largely emerged from all of its issues in that banks are very well capitalized right now,” Cochrane said. Despite a generally positive outlook for growth this year, the national and regional economies are not immune to uncertainties at home and abroad. Overseas, European economies, with the exception of the United Kingdom and Germany, continue to struggle, which may impact exports, Cochrane said. He pointed out this may be more relevant to the Northeastern U.S., through which most European exports are routed. Vitner said the Chinese economy might be growing slower than economists expected this year. Cochrane also observed uncertainty within China. “Particularly if the housing market were to falter in China, it would cause the larger economy to stumble and we could see a slowing of global
trade,” he said, explaining China may have a housing bubble due to overbuilding. Additionally, conflict in Iraq may impact fuel prices if oil resources are impacted, Vitner and Cochrane noted. A local issue to watch is the negotiations process between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association, which represents port businesses employing ILWU workers. If ILWU workers were to strike and the San Pedro Bay Ports shut down, the economy would suffer, Kleinhenz said. “It could have a ripple effect through not just the goods movement segment of the economy, but the retail segment of the economy and elsewhere,” he explained. Considering all these factors, the outlook for the economy this year is “decent,” Kleinhenz said. “Maybe it is not extraordinary. But it is decent,” he said.
Health Care ■ By SAMANTHA MEHLINGER Staff Writer ith four hospitals and several W health plan providers located within Long Beach, the local health care industry supports thousands of jobs and many more patients. Local health care leaders expressed optimism about the remainder of the economic year and beyond, projecting stable finances, growing participation in health plans and investments in new facilities and technologies to serve a growing patient population. Local hospitals, including the three MemorialCare Health Systems’ hospitals (Long Beach Memorial Medical Center, Miller Children’s & Women’s Hospital Long Beach and Community Hospital Long Beach) and St. Mary Medical Center both expect to remain on solid financial footing this year. “We will be on budget,” Diana Hendel, CEO of MemorialCare’s Long Beach hospitals, told the Business Journal. “We are stable from a financial perspective. We are in a position to continue maintaining the number of jobs we currently have and potentially adding jobs,” she added. Roughly 6,000 people work at
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ECONOMIC OUTLOOK MID-YEAR REPORT July 8-21, 2014 MemorialCare’s hospitals, plus 2,500 independent physicians who derive their incomes from working at MemorialCare facilities, she said. Between 2,000 and 3,000 independent contractors also depend on the hospitals for their livelihoods. MemorialCare’s Seaside Health Plan, which primarily focuses on Medi-Cal and Medicare patients and launched in Long Beach last September, now has about 15,000 members, Hendel said. She projected enrollment to increase by 6,000 to 10,000 more members over the next year. The outlook for St. Mary Medical Center is positive, and the hospital should remain “in the black” this year, said CEO Thomas Salerno. Nearly 1,400 people are employed by the hospital, with an additional 600 independent physicians who work there. Molina Healthcare, a health insurance plan provider with an extensive real estate footprint in Long Beach, should continue to have a positive year, according to John Molina, CFO. The Fortune 500 company employs about 2,500 full-time employees in Long Beach. “When we add in part-time [employees] and consultants, the number goes up to about 3,300,” he added. Kaiser Permanente, another regional health care employer, has several local facilities, including a large medical center in Carson and another in Harbor City to serve the South Bay and Long Beach. Kaiser Permanente South Bay Medical Center Executive Director Lesley Wille, RN, said via e-mail that Kaiser employs about 3,400 staff and 460 physicians in the South Bay and Long Beach. Kaiser has about 202,000 patient members in Long Beach and the South Bay, and “membership growth has been on target for this year,” Wille said. Molina, Salerno and Wille all said their organizations would evaluate staffing needs as enrollment and patient bases grow – which they all anticipate to continue in coming months thanks to the individual coverage mandate of the Affordable Care Act (ACA, or “Obamacare”) going into effect this year. “What we are seeing in terms of growth from Obamacare in Southern California is much stronger than we originally had thought, and I think that is going to drive, certainly for providers, more paying patients,” Molina said. He pointed out that enrollment in Covered California, the state’s health insurance exchange for the ACA, is not a big part of Molina’s business, but overall Covered California should impact the greater health care industry. A steadily increasing number of people with health care means hospitals are going to be reimbursed for care more frequently, Salerno said. “We are starting to see more insured patients through our emergency room. Financially, that is very positive for us,” he said. Salerno observed that Obamacare has been a positive influence in the local community because it has enabled more people to become insured. “A large portion of Long Beach – as many as 34 percent – are uninsured, according to a 2011 study by the UCLA Center for Health Policy Research,” he noted. “Throughout Los Angeles County, Kaiser Permanente enrollment through Covered California exceeded projections – which is a great thing,” Wille said. “Over the next 10 years, affordability will be the
Long Beach Business Journal 5-B dominant force for change in the health care market. To address this affordability challenge, we’re transforming the way that we deliver care – leveraging technology and the skill of our caregivers, continually improving efficiency, while increasing the engagement of our members,” she added. While the Affordable Care Act has positive aspects, the new policy is also causing an “unprecedented transformation of our health care delivery system,” which is creating some uncertainties, Hendel said. “There is a lot of volatility from a revenue perspective because the model for reimbursement is rapidly changing from fee for service, where there is payment for diagnosis and treatment and healing, and much more focus on . . . [having] providers take
responsibility of prevention and wellness for patients, which is really a wonderful thing,” she said. “But that transformation is quite complex,” she added. Additionally, “There is still a lot of confusion amongst the newly insured and the providers in knowing [from] whom and where they are supposed to access care,” Hendel explained. “Collectively providers, insurers and patients are working together to clarify, but that creates some efficiency challenges and confusion.” Wille echoed Hendel’s thoughts. “It is critical that patients, providers, insurance plans and employers all work hard to understand the changing dynamics of the health care landscape and continue to adapt to these changes quickly,” she said.
Investing In Facilities And Technology MemorialCare, Molina Healthcare, St. Mary Medical Center and Kaiser Permanente all have near-term plans to invest in new facilities and technology to better serve their communities. MemorialCare has many infrastructure projects planned and underway, with about $80 million budgeted for capital improvements for equipment, refurbishments and facility upgrades, Hendel said. Two new projects are for pediatric care. “This fall, we will be announcing a location for a 60,000- to 80,000-square-foot outpatient pediatric specialty medical village,” Hendel said. The new facility is (Please Continue To Next Page)
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ECONOMIC OUTLOOK MID-YEAR REPORT 6-B Long Beach Business Journal
July 8-21, 2014 In order to “reflect the full level of care the hospital provides,” Miller Children’s Hospital Long Beach has been renamed Miller Children’s & Women’s Hospital Long Beach, according to a statement issued in June. “We offer a comprehensive level of care for women, children and the entire family,” said Suzie Reinsvold, chief operating officer, of the renamed hospital. She added, “Miller Children’s Hospital Long Beach has always provided superior care for expectant mothers and high-risk newborns alongside the quality treatment it has provided for children. It is important that our name accurately reflects who we are and the full service we provide to the entire family.” (Photograph by the Business Journal’s Thomas McConville)
going to be located within the Long Beach Memorial Medical Center and Miller Children’s campus, she added. As part of efforts to expand inpatient and outpatient mental health services, “We are evaluating an adolescent psychiatric facility at Community Hospital, and will hopefully have announcements about that before the end of the calendar year,” Hendel said. In May, Long Beach Memorial Medical Center opened a new facility for a minimally invasive heart valve replacement surgery available at only around 290 sites nationwide. The surgery is approved by the Food and Drug Administration for patients who are deemed high-risk for traditional open chest surgery. MemorialCare also continues investing in technology, purchasing a new PET/CT scanner and a new magnetic resonance imaging machine, Hendel said. These machines help diagnose internal physiological issues. The hospital system is also installing an electronic medical record system at Community Hospital in October, she said. Molina’s Millworks project, the rehabilitation and reuse of the Meeker-Baker and Press Telegram buildings into new office space, received its certificate of occupancy on June 28, according to Michelle Molina, managing partner of Millworks. “We predict another 800 [Molina] employees will be moving in to the Meeker-Baker [building] over the course of the summer, bringing our occupancy to around 1,200,” she said. The project is complete four months ahead of schedule, she added. Molina Healthcare recently partnered with College Health Enterprises after the organization bought Pacific Hospital of Long Beach, and now offers acute care services at the facility, which was renamed College Medical Center, John Molina said. “It gives us another avenue to help take care of patients,” he noted. St. Mary Medical Center is reinvesting in its emergency department, according to Salerno. “The community is large enough to require we expand our emergency services,” he explained. “The expansion will begin in 2015. Then we will be able to provide better access, more beds, larger waiting areas and more processing areas,” he said. Kaiser Permanente is “nearing completion of a new North Hospital at the South
Bay Medical Center in Harbor City, which serves our Long Beach members,” Wille said. “Scheduled to open in February 2015, the new hospital will feature all private patient rooms, on-demand meal service, a state of the art diagnostic imaging suite and much more,” she stated. Wille continued, “In addition to new facilities, we’re looking at the role technology can play in improving access to care.” Through www.kp.org, Kaiser’s website, members may directly communicate with their physicians, “look up lab results, refill prescriptions, schedule appointments and more,” she explained. Kaiser Permanente is also piloting phone and video conferencing technologies for members. Although the implementation of the Affordable Care Act may be causing some uncertainties, all health care leaders reached by the Business Journal continue to grow their services and maintain strong employment and financial footing. Hendel observed, “In the greater Long Beach area, we have a wealth of terrific health care agencies . . . For the region, the future of health care bodes well.”
Financial Services
added that investor complacency mixed with higher stock valuations, however, would increase market volatility “across the board.” When asked what primary concerns his clients have, Barr explained that with more working adults approaching retirement, some worry about outliving their retirement savings. “We’re spending our time right now trying to build those portfolios to produce income. More and more people are retiring. It’s something like 10,000 people a day for 19 years,” Barr said. Describing his client’s concerns, Blake Christian, a certified public accountant with Long Beach-based firm Holthouse Carlin & Van Trigt, said in an e-mail that people are still skittish when it comes to the economy. “Even with some positive indicators (e.g. banks desiring to lend, increase in new housing starts, home price increases, lower unemployment, etc.) there is a bit of mistrust in the numbers and concern with both domestic and foreign economic and military issues,” Christian wrote, adding that business owners in California also continue to wrestle with zoning and regulatory issues that slow expansion efforts.
Rod Banks is executive vice president for City National Bank’s commercial banking services. He said the bank has experienced “steady growth” and opened five new branches in 2013. (Photograph by City National Bank)
“Generally they feel optimistic, but are likely to continue to be cautious for the foreseeable future.” Banking experts contacted by the Business Journal reported a bright outlook for the rest of 2014 with tangible growth evidenced by branch office openings. Rod Banks, executive vice president of City National Bank’s commercial banking services, said the institution added five new offices in 2013. “[At] City National, we’ve had steady growth, and we find ourselves now the 23rd largest commercial bank and we’re growing,” Banks said. Attributing City National’s continued success to the markets in which it operates, Banks said California has kept up with a faster rate of economic improvement over other markets across the county. “All in all we think California has certainly been keeping up . . . [and] the pace of unemployment has been improving faster in the California market than it has in the rest of the country,” said Banks, adding that while low interest rates have been frustrating, he expects them to rise in the near future. “Rates today have not risen frankly as fast as we had hoped or thought they would. You look at the 10-year: it’s still trending around 2.6 percent. I think a lot of people felt it might be closer to 3 [percent] by now, but it hasn’t moved. We do think they’re going to rise and the Fed is likely to end their bond buying by the fall or certainly the first part of next year,” Banks said. Ben Alvarado, Orange County and Long Beach community banking president at Wells Fargo, attributed his bank’s continued growth to a focus on customer service.
■ By BRANDON FERGUSON Staff Writer s the economy continues to A rebound, financial professionals’ clients have lingering concerns about the future. That’s according to members of the financial services community who recently discussed the economic outlook with the Business Journal. Though indicators such as recent drops in unemployment signal economic improvement, hiring remains soft and, as widely reported two weeks ago, the U.S. Bureau of Economic Analysis adjusted its first quarter estimate to reflect a 2.9 percent drop in Gross Domestic Product (GDP) – 1.9 percent more than initially estimated. But despite some setbacks, financial experts paint a largely promising picture of the future. “I believe we will see stronger global growth led by the United States; I also think interest rates could be higher,” said Travis Barr, senior financial advisor at Merrill Lynch’s Long Beach office. He
Ben Alvarado is Wells Fargo’s president for the Orange County Coastal Community Bank. He is pictured here at the Wells Fargo branch at 12830 Seal Beach Blvd. in Seal Beach. Ranked number 29 on the Fortune 500, San Francisco-based Wells Fargo has 9,000 branches and 12,500 ATMs. (Photograph by the Business Journal’s Thomas McConville)
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ECONOMIC OUTLOOK MID-YEAR REPORT July 8-21, 2014 “We’re going to mirror the industry. Things are steadily growing; things are improving. I think Wells Fargo will keep pace with that and maybe outpace it a bit,” Alvarado said. He added that the company plans to open new branches in Huntington Beach and Long Beach this year. In addition to new brick and mortar operations, Alvarado said the bank’s online presence is also growing. “We want to be wherever the client is, so that means they’re online in mobile banking. We’ve got great online tools available for our customers, and we are seeing a lot of interest and growth in those tools,” Alvarado said. Though he declined to predict future interest rates, he expressed optimism about where the economy is headed. “I think we’re seeing healthy growth in the economy; we’re seeing a lot of positive trends, and so the outlook in the near- to mid-term is looking to stay in line with that,” Alvarado said. Michael Miller, president and CEO of International City Bank, explained to the Business Journal that based on his bank’s strategic plan, which considers factors such as interest rates and the overall growth of the economy and generally looks two years ahead, continued growth is in the cards. “We’re looking at, year over year, about 20 percent growth,” Miller said. He added that in recent years the bank has experienced more growth in core deposits as opposed to higher interest accounts such as CDs. “If you look at our balance sheet on the deposit
Long Beach Business Journal 7-B side, there hasn’t not been significant growth there, but it’s been more beneficial to the bank because it’s more core related.” When asked for his thoughts on the future of interest rates, Miller said he didn’t expect a dramatic rise, at least in the near term, but added that based on client feedback, profits are on the rise. “By and large the feedback that we’re getting is that things are improving. Revenues and profitability are picking up, it’s not a dramatic increase by any stretch, but I think overall, [according to] our client base, systematically year over year, things are getting better.” But while interest rates currently remain low, insurance rates, and specifically workers’ compensation rates, are increasing. “In terms of expected claims, the indications are that claims are rising. Not rapidly, but ticking up pretty much in general in keeping with the pace of the economy,” said Steven Weisbart, senior vice president of the Insurance Information Institute. “It depends on what type of insurance you’re talking about. Anything connected with medical care, which would include liability coverage and workers’ comp, those claims would tend to be increasing a little faster than the general inflation rate.” Kelly Williams, who owns Long Beachbased Kelly Williams Insurance, told the Business Journal that higher workers’ comp rates are tied to increases in healthcare costs as well as California’s complex legislative structure.
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“The costs of medical care in general have gone up so when people get injured, the claims are higher. We also have a lot of laws in California that allow disability and other things, a lot of stuff makes the claims a lot higher than they would be in another state.” Williams said the increase in workers’ comp prices over the last year was difficult to pinpoint and largely depends on the type of business involved in a claim. “[Workers’ comp claims] took a 20 percent rate increase it seems like in the last year. I’d say it [won’t] go up that much next year, but I would say we’re still looking at a 10 percent rate increase,” Williams said. ■
International Trade ■ By SAMANTHA MEHLINGER Staff Writer conomists agree that as long as the Longshore and E International Warehouse Union (ILWU) does not go on a prolonged strike and instead comes to an agreement with the Pacific Maritime Association (PMA) – the negotiating party representing businesses employing ILWU (Please Continue To Next Page)
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ECONOMIC OUTLOOK MID-YEAR REPORT 8-B Long Beach Business Journal workers – then the San Pedro Bay Ports’ container traffic outlook through the end of 2014 is positive. “Assuming there is no strike, looking at the trends we have seen so far this year and stretching back, this should be a good year for the ports and more generally for transportation, warehousing and the goods movement industry,” said Robert Kleinhenz, chief economist for the Los Angeles Economic Development Center. A representative from PMA told the Business Journal contract negotiations with ILWU should extend into mid-July, which he said is typical. A statement released by PMA on July 1 said both PMA and the ILWU “understand the strategic importance of the ports to the local, regional and U.S. economies, and are mindful of the need to finalize a new coastwide contract as soon as possible to ensure continuing confidence in the West Coast ports and avoid any disruption to the jobs and commerce they support.” John Husing, principal with Irvine-based Economics & Politics, Inc., said there is no sign of an impending strike. “When there was an interruption [of work at the ports] back in 2002, we saw a lot of trade diversion as a consequence,” Husing recalled. “It looks like the West Coast ILWU does not really want to do anything to harm the [current] competitive situation. That is really important,” he noted. Barring a strike, Kleinhenz projected a 5.5 percent increase in total container traffic through the San Pedro Bay Ports, which includes both the Port of Los Angeles
July 8-21, 2014
Los Angeles Economic Development Corporation Chief Economist Robert Kleinhenz, Ph.D., is projecting a 5.5 percent increase in container traffic through the San Pedro Bay ports – unless there is a strike by the International Longshore and Warehouse Union. (Photograph by the Business Journal’s Thomas McConville)
(POLA) and Port of Long Beach (POLB), in 2014 compared with 2013’s total traffic. Husing stated the outlook for cargo traffic “looks pretty good” through the remainder of the year. Most container traffic through the San
Pedro ports is in imported goods. Husing expected this imported traffic to increase due to domestic demand for holiday goods in the upcoming winter season. He did not expect exported container traffic to increase dramatically, but said exports
should “continue moseying along the way they have.” Through May, the POLA has experienced an 8.2 percent increase in cargo traffic from the same period last year, according to Mike DiBernardo, the port’s director of business development. He projected a cargo traffic increase between 2 to 4 percent during the next six months. “This is tracking a little bit higher than we budgeted for, so it is definitely positive,” he said of container traffic at the POLA. The Los Angeles port’s fiscal year runs from July 1 to June 30. For the 2014-2015 fiscal year, the POLA has budgeted for a 3.8 percent increase in cargo growth. DiBernardo noted some of the cargo growth that occurred so far this year might have been because shippers were trying to pre-empt any potential port shutdown if the ILWU goes on strike. The Port of Long Beach has had a relatively flat year so far in terms of container traffic, according to former Interim Executive Director Al Moro, who completed his duties as interim when the newly hired chief executive, Jon Slangerup, took over on July 1. So far this year, cargo traffic has increased 1.5 percent over 2013. If this percentage holds through the end of the year, the port should be in good shape, Moro said. He attributed relatively flat cargo growth to business shifting to the neighboring Port of L.A. – a shift he noted is a continual occurrence between the two ports. Lee Peterson, a spokesperson for the Port of Long Beach, said the port is estimating a 1 percent decrease in container revenue for the current fiscal year, which ends September 30. Next fiscal year, the port anticipates as much as a 5 percent decrease in container revenue. The POLB is currently budgeting for the 2014-15 fiscal year beginning October 1. Moro said the port is remaining conservative in its budget estimations. “We are actu(Please Continue To Page 10)
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1_LBBJ_July8_SectionB_LBBJ MASTER LAYOUT 7/6/14 8:57 AM Page 10
ECONOMIC OUTLOOK MID-YEAR REPORT 10-B Long Beach Business Journal ally projecting a very small decrease in overall revenue because we are just not certain where the cargo will end up by the end of the year,” he explained. Compared with 2013’s revenues, the port is projecting a 2.7 percent decrease.
Capital Improvements Both local ports have many capital improvement projects underway to benefit port tenants and ensure facilities are ready for increasingly larger cargo vessels. Long Beach’s Gerald Desmond Bridge Replacement Project continues to face new obstacles to completion. Last year, the project was delayed and its budget increased by about $163.2 million due to complex work associated with abandoning (sealing) and relocating oil wells and related infrastructure. Now, the project faces more delays and budget increases due to complex design reviews, according to Moro. The project’s completion date has been extended by a year to 18 months, he said. He has received preliminary cost estimates associated with that delay from contractors and said a firm figure should be announced in July. The bridge is being replaced with a new, taller bridge to accommodate larger vessels passing beneath it. The POLB’s Middle Harbor Redevelopment Project, in which two aging terminals are being combined and updated with state-of-the-art and environmentally-friendly equipment for tenant Long Beach Container Terminal (LBCT), is “moving along very well,” Moro said. To date, about 16 stacking cranes for LBCT have been delivered. The IT and North
July 8-21, 2014 Operations Building, which is for the company’s offices, is now complete. Moro estimated the first phase of the Middle Harbor project should be completed by October 2015, at which point LBCT may move into the finished half of the terminal and workers may begin work on the second half, which should be completed by 2019. In June, port staff estimated $11.4 million must be taken from the Middle Harbor project’s $30 million contingency fund to make up for costs primarily associated with removing buried substructures within the terminal area. “The other area [in which] we are doing capital improvements is rail,” Moro said. A project to realign tracks off of Ocean Boulevard is “doubling the mainline capacity serving the southeast portion of the harbor area – Pier G and Pier J,” he said. The project’s completion date is some time next year. Another rail project for the southern half of Pier G is also in the works, Moro said. “The port’s goal is to get to about 35 percent of cargo moving on dock rail. Right now we are about 22 percent,” he said. Moving more cargo by rail should help alleviate road congestion and is more economical, he explained. The Port of Los Angeles also has many infrastructure projects underway, with about $281 million allotted for capital improvements in its fiscal year 2014-15 budget, according to Mike Keenan, the port’s interim director of planning and economic development affairs. “That is going to support 4,600 jobs directly and indirectly,” he said. The $155 million Berth 200 rail project
is going to be completed this year, according to POLA estimates. Plans for the West Basin Railyard at Berth 200 include 70,000 feet of new track, a new locomotive maintenance facility and new administrative building. This project alone is generating around 2,000 jobs. The port estimates the rail yard should eliminate 2,300 daily truck trips from the I-710 and 110 freeways. Another big project for the POLA is the TraPac Container Terminal expansion, a five-year endeavor scheduled for completion in 2016. TraPac’s expansion includes an additional 4,600 linear feet of wharves, deeper water at some of the terminal’s berths, new cranes, improvements to 50 acres of backlands and a new on-dock rail facility. An environmental impact review is underway for another improvement project for POLA tenant Yusen Terminals Inc., with an estimated completion date within 18 months. If approved, the $49 million project would improve wharves and water depth at the terminal’s berths and add on-dock rail yard capacity and new gantry cranes. “These projects allow us to provide the facilities for customers to meet their needs and allow them to grow and route more cargo this way,” DiBernardo said. “The infrastructure is a key element in allowing us to bring in larger ships, which is why these projects are very important to the port,” he added. The Port of Los Angeles has also implemented a $383 million program to improve traffic congestion generated by the port on public roadways. This program should be complete by 2016, according to POLA.
New Leadership Both ports are now under new leadership. Jon Slangerup, who spent the last seven years as president of FedEx Canada, took over as chief executive at the Port of Long Beach on July 1. Gene Seroka, who has served in various roles in multiple countries for American Presidents Line (APL) and most recently as its head of commercial overseeing operations in the Americas, became executive director at the Port of Los Angeles in June. Moro said staff at Long Beach’s port is excited about having Slangerup’s leadership. At this time, Moro is unsure whether he is returning to his previous post as chief harbor engineer or if he is being assigned different duties. In the interim, he said he has offered to help Slangerup transition into his new position. Seroka is also being well received by Port of Los Angeles staff. “We’re very excited at the port to have Gene come on board,” DiBernardo said. Both he and Keenan praised Seroka’s international business and trade background. ■
Oil & Gas ■ By MICHAEL GOUGIS Contributing Writer trong oil supplies, a mild hurricane S season and increases in the amount of oil produced in the United States should ease some of the pain at the gas station pump by the end of 2014, according to industry executives and expert analysts. Locally, activity is expected to remain similar to the first half of 2014, with a slight upward trend, says Frank Komin, president and general manager of Oxy Long Beach, which operates four properties in the Long Beach area, with the Tidelands and THUMS oil islands responsible for most of the production. “We expect to average about 36,000 (barrels per day) from our Wilmington Oil Field operations for the remainder of 2014. This is a slight increase from earlier this year,” Komin told the Business Journal. And the company’s economic activity, he says, “should be about flat with last year. Our capital investment program in Long Beach will total roughly $350 million for 2014. It will be focused on continued drilling combined with various facility infrastructure and mechanical integrity upgrades throughout the field. We are targeting to drill about 170 new wells.” The biggest news surrounding Oxy’s operations is that the company is undergo a major restructuring. Earlier this year, Occidental Petroleum announced plans to separate its California assets and form a new company, California Resources Corp. The spin-off is scheduled to take place during the fourth quarter of 2014, and when it is completed, the new entity will be an independent and separately traded company that will be one of the largest gas and oil producers in California. “It will be comprised of roughly 8,000 employees and contractors. CRC will be committed to continued investment in California as well as in Long Beach,” Komin says. “This will ensure that the city (of Long Beach) and the state, as the pri(Please Continue To Page 12)
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ECONOMIC OUTLOOK MID-YEAR REPORT 12-B Long Beach Business Journal
July 8-21, 2014 Oxy Long Beach, headed up by President Frank Komin, pictured, includes THUMS Long Beach Company, which operates the offshore portion of the Wilmington Field; Tidelands Oil Production Company, which operates the onshore portion of the Wilmington Field; two additional smaller leases in the Long Beach area and additional Southern California fields. According to its website, “THUMS’ unique combination of production functionality, visual appeal and environmental and safety features has garnered the facility dozens of awards and recognition from local, state and national organizations. The Wildlife Habitat Council (WHC), a nonprofit organization that helps landowners enhance wildlife habitat, has certified all four THUMS’ islands for commendable wildlife habitat management and environmental education programs. Since 2004, the wildlife team at THUMS has worked with WHC to establish California plant habitats on the islands.”
mary beneficiaries of the oil operations in Long Beach, will continue to benefit from oil revenues well into the future. CRC will continue to operate with the same integrity and concern for the environment and the safety of our employees and contractors that we have for over the past decade.” Similarly, for the City of Long Beach, oil revenues are expected to remain stable for fiscal 2014, says Chris Garner, director, Long Beach Gas & Oil Department. The city will budget on receiving $70 per barrel of oil, which is – as is traditional – a conservative estimate well under the anticipated price that will be used to fund ongoing projects. Revenue above the $70 per barrel mark is used by the city for one-time expenditures. The nation's production of crude oil continues to increase. U.S. total crude oil production, which averaged 7.4 million barrels per day in 2013, is expected to average 8.4 million barrels per day in 2014 and 9.3 million barrels per day in 2015. Even Mother Nature is cooperating with the oil production industry – the National Oceanic and Atmospheric Administration is predicting near- to below-normal tropical weather activity, meaning fewer disruptions of oil production in the Gulf of Mexico. The 2015 forecast represents the highest annual average level of oil production since 1972, according to the U.S. Energy Information Bureau (EIA). “Locally, in California and nationally, we are seeing an upward trend in production volumes,” says Ralph Combs, manager of corporate development at The Termo Company, a Long Beach-based oil and natural gas exploration and production company that operates in California, several Rocky Mountain states, Texas, Oklahoma and Louisiana. “Prices at $100 a barrel, ongoing success with shale development throughout the United States, hydraulic fracturing and other well stimulation techniques, as well as companies having a better understanding of the regulatory environment and how to navigate it, are driving the increases,” Combs told the Business Journal. “We have made incredible increases in supply in the U.S., but that has been offset by reductions in production elsewhere, and increasing economic well-being in other
countries that is increasing the demand for hydrocarbon-based fuels elsewhere.” Still, the expectation is for lower gasoline prices at the pump. The benchmark North Sea Brent crude oil spot price is expected to decline slowly during the remainder of 2014, according to the EIA. That is after 11 straight months in which the average Brent crude price hovered between $107 and $112 per barrel. The West Texas Intermediate price, which averaged more than $13 per barrel below the Brent crude price, shot up in the early part of the year to less than $4 per barrel below the Brent crude price in April. Brent crude is expected to drop to an average of $102 per barrel in 2015, with the West Texas crude average $9 to $11 per barrel less expensive, the agency predicts. U.S. average regular gasoline retail prices nationally are expected to fall from a high of $3.67 per gallon to an average of $3.54 per gallon in September. On the West Coast, average regular gasoline retail prices are expected to dip from a high of $4.02 per gallon in May to $3.51 per gallon by December. On the regulatory front, the state is easing into the regulation of hydraulic fracturing (fracing, as it is known in the industry) and other well stimulation practices following the approval of legislation last year that allowed the state to regulate the procedures. Although the final regulations are not due to be issued until January 1, interim measures already are being put into effect. The process remains controversial, with a bill working its way through the state legislature that would place a moratorium on well stimulation pending further studies on the safety of the practice. And another piece of legislation would delay part of the state’s groundbreaking AB 32 cap-and-trade legislation designed to reduce greenhouse gas emissions. AB 69, introduced by Assemblyman Henry Perea (D-Fresno), would delay for three years the inclusion of transportation fuels in the statewide cap. Currently, transportation fuels will be placed under the cap – the goal is to reduce greenhouse gas production to 1990 levels by 2020 – starting on January 1. Perea, and the bill’s supporters, feel that the financial impact of the move has not yet been fully examined, and is
likely to increase gasoline costs by several cents per gallon. “It will impact consumers, as no business can afford to simply absorb these increased costs,” Catherine Reheis-Boyd, president of the Western States Petroleum Association, told the Business Journal.
Technology And Communications ■ By BRANDON FERGUSON Staff Writer n the technology sphere, innovation Ivolatility continues despite reports of increased in the Information Technology (IT) sector. This year was marked by established companies continuing to deliver on promises of ever-advancing technological gadgetry from baby monitors that connect to cell phones to wirelessly connected, hands-free cars as well as newcomers to the wireless arena, particularly online giant Amazon, which has developed its first smartphone, Firefly. Similar advances in digital commerce continue despite a recent report by the International Data Corporation (IDC) that predicts increased volatility in the IT sector. According to the IDC report, which was released in May, global spending on IT is expected to grow, but at lower than
expected rates. The IDC’s downgrade on spending estimates from 4.5 percent to 4.1 percent resulted from market volatility driven by trouble in emerging markets, such as Ukraine, combined with a slowdown in smartphone and tablet sales after years of “phenomenal expansion.” In a statement, the vice president of IDC’s Global Technology & Industry Research Organization, Stephen Minton, said, “This volatility, coupled with the macroeconomic uncertainty in many emerging markets is somewhat masking a more positive underlying foundation for enterprise IT spending, with firms continuing to invest in working off that pent-up demand to replace old servers, storage and network gear. Some of that spending is also driving IT services, despite the fact that an increasing number of businesses are moving more of their traditional IT budget to the cloud.” According to IDC figures, 10 percent of software spending will have moved to the cloud by the end of 2014. Cloud computing allows users to store data over a computer network rather than a personal hard drive, and in the consumer market, cloud services are offered by companies like Verizon as part of standard data packages. Verizon Wireless spokesperson Ken Muche noted that cloud services are becoming more useful to consumers. “It’s very handy in this day and age when people are Instagramming and Facebooking everything with videos and pictures, to be able to save all those pictures to the cloud so that when you switch phones, you’re always going to have those pictures,” Muche said, adding that he sees wireless consumers increasingly moving toward digital applications involving video and social media. “Generally people are doing more with video than ever before, and certainly with social media. You look at Vine video or Instagram video, and certainly people are using those short videos more than ever before,” Muche said. When asked about Verizon’s latest gadgets, Muche pointed to the company’s “innovation centers” in cities like San Francisco and Waltham, Massachusetts, which employ scientists and engineers from industries across the country. “What we’ve seen through the innovation centers is really an explosion of smart accessories,” Muche said. These accessories include everything from wearable cellphones to baby monitors that can sync
Motorola Droid X, sold exclusively through Verizon Wireless, is shown here with an 8 megapixel camera. Verizon spokesman Ken Muche told the Business Journal he sees people doing more with video and smartphone technology. “You look at Vine video or Instagram video, certainly people are using those short videos more than ever before,” Muche said. (Photograph courtesy of Verizon Wireless)
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ECONOMIC OUTLOOK MID-YEAR REPORT July 8-21, 2014
Long Beach Business Journal 13-B explained that the company has spent $1.95 billion building up its network in the Los Angeles area enabling the use of ever advancing gadgetry “This is the ‘smart’ era,” Taylor wrote. “Not only do we have smart phones, but now we have smart cars, smart houses, smart watches, and smart jewelry. We have caught up with and passed James Bond.”
Utilities ■ By MICHAEL GOUGIS Contributing Writer atural gas and electricity supplies N should remain inexpensive and plentiful over the next six months, as will water,
This month, online giant Amazon announced the release of its first ever smartphone known as the Firefly. The phone’s Dynamic Perspective feature makes use of a series of cameras and LED lights that recognizes where a users head is in relation to the phone and provides a more “immersive” experience. The Firefly will be available exclusively through AT&T beginning July 25. (Photograph courtesy of Amazon)
with caregivers’ smartphones, Muche pointed out. “Baby monitors cannot just report and transmit your baby’s voice, but will analyze the decibels of your baby’s cry, look at it historically and be able to send you a text to tell you whether your baby’s diapers need to be changed, or [if the baby] needs to be fed or if possibly your child is sick,” said Muche, adding that “these are things we sell now in our retail stores because of that explosion in innovation. It’s really been transforming what’s possible.” While companies like Verizon have been honing their telecommunications offerings for decades, last month marked the first time online retailer Amazon entered the wireless market with its Firefly smartphone. A June 18 Amazon press release stated that Firefly is the only phone on the market to use “Dynamic Perspective,” a system of infrared LEDs and specialized cameras that recognize “where a user’s head is relative to the device.” The technology enables a more “immersive” experience when it comes to using games and applications. A Firefly button also allows the phone to scan printed material such as phone numbers, barcodes and artwork, allowing the phone’s user to take actions with less typing. Firefly is available at At&T stores starting on July 25. In addition to its partnership with Amazon, AT&T announced earlier this year that it built the AT&T Drive Studio in Atlanta, a 5,000-square-foot facility with garage bays and a speech lab that pushes innovation to develop a “connected car” providing features such as voice recognition and hands free communication. In an e-mail to the Business Journal, Georgia Taylor, an AT&T spokeswoman,
although the extraordinarily dry year to date means that just into 2015, water supplies could become critically low throughout the state and in Southern California in particular, utilities officials say. With natural gas supplies and prices stable, and Southern California Edison resolving two of the major issues hanging over the utility’s head, attention is focusing on the water outlook for the next several months, experts say. “The Metropolitan Water District is using 50 percent of its reserves this calendar year,” says Kevin Wattier, general manager of the Long Beach Water Department. “Obviously, you can’t do that more than twice. Castaic Lake is dropping a foot a day – I assume you could sit there and watch it drop. It’s only half full.
“We’re using huge amounts of our storage this year. If next year is dry, we’re going to be in a serious, serious water supply shortage.” The potential water supply crisis has triggered Long Beach and Los Angeles to restrict lawn watering to three days a week, Wattier says. The dry, dry winter of 2013-2014 left Southern California with less than 40 percent of its average annual rainfall. The situation in Northern California was worse; even though rainfall was about 60 percent of average, the storms that brought in that precipitation were warm, meaning that little fell as snow. The snowpack is critical for extend-
ing the period during which water flows from the high Sierras, Wattier says. In a good year, the snowpack will last into July. This year, with snowfall 25 percent of normal – “the lowest in history,” Wattier says – the snowpack disappeared early in May. The Metropolitan Water District of Southern California, which imports about 50 percent of the water used in the region, says that the agency will receive “the smallest allocation in the 43-year history of State Water Project deliveries from Northern California after three years of drought,” according to a statement issued by the water agency. (Please Continue To Next Page)
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ECONOMIC OUTLOOK MID-YEAR REPORT 14-B Long Beach Business Journal
July 8-21, 2014
Kevin Wattier, general manager of the Long Beach Water Department, is shown at the department’s drought tolerant garden that features informational panels to educate the public on ways to conserve water. For information on participating in the department’s lawn to garden program, visit: http://www.lblawntogarden.com/(Photograph by the Business Journal’s Thomas McConville)
“State deliveries, which normally account for about a third of the Southland’s annual supplies, stand at only 5 percent of a full allocation. Although snowpack in the Colorado River watershed is above average this year, the river system is recovering from 12 years of drought. Storage in the system’s two huge reservoirs – Lake Mead and Lake Powell – is just above 40 percent.” The Long Beach department plans to continue along its five-year schedule of raising water rates to correct a pattern of deficit spending, Wattier says. The four percent increase that will take effect later this year is the second increase of a fiveyear plan to balance spending and revenues, Wattier says. Sewer rates also are scheduled to increase by approximately four percent, he says. On the electricity front, Southern California should have more than adequate supplies to meet the demand over the second half of 2014, according to information provided to Edison International investors. The target reserve margin for Southern California Edison is between 15 and 17 percent; the utility should have an actual margin of approximately 33 percent, company documents indicate. Edison is in a stable place over the next few months, with the announcement of a proposed settlement over the closing of the San Onofre Nuclear Generating Station and a settlement in the bankruptcy of the Santa Ana-based Edison Mission Energy, says Ted Craver, Edison International president, chairman and chief executive officer. The SONGS settlement agreement was reached in April and is pending before the California Public Utilities Commission (CPUC), which may issue a decision on the proposal this summer, Craver told investors. “The settlement is supported by representatives from four key constituencies – consumers, environmentalists, labor and the owners. All of the parties have agreed to work to obtain timely consideration and approval by the CPUC,” Craver says. “With strong support for the settlement and minimal opposition, the settling parties continue to seek prompt approval.” Edison increased its SONGS settlement-
related financial impairment to a pre-tax total of $806 million in the first quarter of fiscal 2014, up from the $575 million recorded in the second quarter of fiscal 2013. The Mission Energy bankruptcy settlement will cost the utility an estimated $634 million, paid out over the next three months, according to investor documents. The first payment of $225 million was made in April. With those two issues substantially resolved, Edison will be free to concentrate on modernizing its operation and increasing revenues to its shareholders, Craver says. “The significant progress in resolving SONGS and EME should allow investors to focus on Edison International’s longterm earnings and dividend growth,” Craver told investors. “Building this next generation grid requires significant technical know-how and capital investment. This is something that Edison is particularly well-positioned to do. We plan to return . . . to our target of paying out 45 to 55 percent of SCE’s earnings in dividends.” The natural gas front likely is the quietest of all, although there are early indications that dwindling reserves could put upward pressure on prices. The nation’s natural gas working inventories in the first part of the year were 33 percent lower than they were at the same time last year, and an even greater amount – 37 percent – lower than the fiveyear average from 2009-2013, according to the Energy Information Administration. Therefore, the agency predicts that the benchmark Henry Hub natural gas spot price will increase from $3.73 per MMBtu (million British thermal units) on average in 2013 to an average of $4.74 per MMBtu this year, leveling off at a slightly lower $4.49 per MMBtu in 2015. However, the longer-term production outlook is stronger, with the agency expecting natural gas marketed production to grow by an average rate of 4 percent in 2014 and 1.3 percent in 2015. Locally, residential natural gas prices remain below the 50 cents per therm (approximately 100 cubic feet of natural
gas), and supplies remain plentiful, says Chris Garner, director, Long Beach Gas & Oil Department. “As long as it (supply) stays low and reasonable, our gas bills will stay low and reasonable,” Garner says, noting that Long Beach has marked 29 straight months of having lower average residential gas bills than Southern California Gas Company customers. ■
Retail ■ By BRANDON FERGUSON Staff Writer ong Beach business leaders attribute L an increase retail spending to a rebounding economy, while many also acknowledge that shoppers looking for unique items are increasing sales in Long Beach stores. Local leaders from four of the city’s business districts took the time to speak with the Business Journal about these current trends in the retail sector.
East Anaheim Street Rod Wilson, president of the East Anaheim Street Business Alliance (EASBA), told the Business Journal people are shopping again. “Most of the businesses are reporting
increases in sales,” said Wilson, adding that customers are coming to the district for unique purchases. “For probably the last year, we’re seeing increased numbers of people who are no longer just using East Anaheim Street as a corridor to get across town. We’re seeing more cars stopping and [customers] finding a place to eat and finding a place to shop and finding an antique or that special item. I think this is being recognized, not only in the local media, but also in the national media by the recognition of some of our top merchants and top restaurants.” Wilson pointed to the example of Urban Americana, an antique store, which opened in February at 1345 Coronado Ave. The business inhabits a 16,000-square-foot warehouse and was recently the focus of a Huffington Post article. “It’s not simply what we’re telling ourselves or reporting, it’s also the fact that these things are being recognized by others,” Wilson said. Vacancy rates also remain low, Wilson noted. “We still have a very low vacancy rate. There’s less than half a dozen locations that have vacancies and are looking for tenants along [East] Anaheim Street.” In order to attract shoppers to the district, EASBA works hard to engage the community, Wilson said. “We are involved in advertising and outreach in the local community with door to door, not only newsletters, but also advertisements for local businesses,” Wilson said.
Fourth Street “We definitely have the sense that people are out and about spending money. It’s very apparent things are looking up,” said Kerstin Kansteiner, president of the 4th Street Business Improvement Association. According Kansteiner, who owns Portfolio Coffee House and the Art Theater along the street, shoppers have become more supportive of local businesses. “Supporting your local business is now a lot more on the forefront of everyone’s mind. We see a lot more residents that live in the local neighborhood . . . it’s more walkable and it’s more bike friendly on Fourth Street, so we have a lot more locals that come by,” Kansteiner said, adding that with the exception of one building currently undergoing remodeling, there are no vacancies in her district. One of the newer businesses to set up shop is Goldie’s on Fourth, a woman’s
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ECONOMIC OUTLOOK MID-YEAR REPORT July 8-21, 2014
Long Beach Business Journal 15-B
Real Estate ■ By SAMANTHA MEHLINGER Staff Writer
Multi-Family ith the exception of massive infrastructure projects at the port, the multi-family real estate market in Long Beach is responsible for much of the construction across the city. From luxury rental towers to the adaptive reuse of old office buildings, at least eight new multi-family projects are planned or underway downtown, totaling more than 1,100 new rental units. According to Steven Cochrane, managing director of Moody’s Analytics, and Robert Kleinhenz, chief economist of the Los Angeles County Economic Development Corporation, the construction of residences is spurred by pent up demand for housing. “We think home building . . . will play a very important role in accelerating the economy in the next year to two years,” Cochrane said. He explained that home construction creates demand for goods and services in many industries and “has a way of filtering through rather deeply through the economy.” Ryan Altoon, executive vice president of AndersonPacific, LLC, developer of a dual-luxury residential tower project called Shoreline Gateway at 635 E. Ocean, said in an e-mail that his company “chose to develop in Downtown Long Beach because
W
Rod Wilson, president of East Anaheim Street Business Association (left) is pictured with Chris Greer, owner of Urban Americana, an antique and design collective located at 1345 Coronado Ave. The business, which opened in February, is located in a 16,000-square-foot warehouse. (Photograph by the Business Journal’s Thomas McConnville)
apparel retailer located at 2106 E. 4th St. It opened in February of this year. “We feel like it’s definitely the end of the tunnel of the recession and it’s really visible to anybody at this point,” Kansteiner said.
Downtown Downtown Long Beach Associates’ (DLBA) Economic Development Manager Brian Wallace told the Business Journal that the proliferation of online retailers has forced the downtown area to adapt to a new era of commerce. The result, he said, is that downtown is transitioning from what he calls “the middle” or conventional shopping and dining experiences. “There’s a lot more interest in what we’re seeing here in the unique and the customized experience,” Wallace said. He cited the recent opening of the highend furniture store Restoration Hardware, located at 81 Aquarium Way, as the strongest opening of any of the company’s outlet properties, and it is currently the highest grossing Restoration Hardware outlet in the country. The latest numbers compiled by DLBA show that 14 retailers have opened in downtown since the start of the year. Wallace also added that shopping isn’t the only thing bringing people downtown; food is playing a big role in the transition. “You can do a lot of things virtually online, but you can’t eat online,” Wallace said. “That is a real growth opportunity. We’ve seen eight restaurants open up in just this calendar year so far. We’re getting a lot of our inquiries from potential tenants who are looking to jump on that trend and open a restaurant.” Among the newer restaurants to open in the area is Bo-beau Kitchen + roof tap, which opened at 144 Pine Ave. in May. The business, which is owned by the San Diego-based Cohn Restaurant group,
replaced Smooth’s Sports Grille in a 13,722-square-foot space. Owners David and Leslie Cohn reportedly spent $4.5 million purchasing and remodeling the space. “This is their first restaurant outside of the San Diego market – a really big leap for them to come this far north and to make such a large investment in our downtown,” Wallace said. The DLBA is currently anticipating an impending repositioning of The Pike at Rainbow Harbor property. Discussions between the city and Developers Diversified Realty, which owns the property, center on performing some façade overhauls of the existing buildings. “I think you’ll look to see some announcements on that in the near future. We’re not privy to anything else at this point, but we expect some really exciting new energy down there,” Wallace said. Belmont Shore Though she didn’t have specific numbers to offer, Dede Rossi, executive director of the Belmont Shore Business Association (BSBA), said there’s been a lot of new businesses that have recently opened in her district. “We have a lot of new businesses. I feel like that’s a good thing. When someone leaves, it always brings in somebody else who has a lot of enthusiasm and passion,” Rossi said. She added that weekly “stroll and savor” community events are well attended and likely an indicator of the local economy. “To me that means people are really kind of ready to go out there and spend some money,” she said. Rossi added that right now there’s also a lot of diversity in the types of shops lining her district. “Sometimes, it was all women’s shops, or one type of thing. Now it’s all prices – high end, medium, lower, you know, something for everybody. It’s kind of nice.”
She added that restaurants also seem to be doing well – “especially if they have a TV during soccer,” she said, laughing. ■
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ECONOMIC OUTLOOK MID-YEAR REPORT 16-B Long Beach Business Journal
July 8-21, 2014
Beneath the Pacific Court Apartments on Broadway and Pacific Avenue, a parking lot and former AMC movie theater were gutted out to make way for 69 new apartment units in a project called Pine Square. There are 142 existing units above. The owner of the entire project, Pacific Court-Pine Square Partners, is leaving existing retail on the Pine Avenue side of the development intact, according to Long Beach Development Services Director Amy Bodek. (Photograph by the Business Journal’s Thomas McConville)
it provides one of the most unique waterfront urban settings in California, with walkable amenities . . . [and] a mix of cultural and recreational amenities, integrated with several modes of public transportation, all within proximity to major employment centers in the region.”
The first of the two Shoreline Gateway towers, called The Current, broke ground this spring. “The Current will be promoted to young professionals and executives that desire an urban experience and are attracted to waterfront amenities,” Altoon said. Plans for the 17-story apartment
rental tower include 224 units. A complementary “35-story condominium tower [is] planned for the adjacent site,” he added. Sales activity among existing apartment properties across Long Beach also reflects strong demand for multi-family real estate. For the past year or so, agents have
observed high demand and competition for multi-family properties in Long Beach. Tight supply of available buildings has led to increasing sales prices as investors bid against each other for all classes (quality) of properties. Lately, the velocity of sales transactions
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ECONOMIC OUTLOOK MID-YEAR REPORT July 8-21, 2014
Long Beach Business Journal 17-B
Pictured is K-9 Corner, Long Beach’s first off-grid solar-powered dog park, located at 9th Street and Pacific Avenue in Downtown Long Beach. The park was built in 2009 as a joint effort by then-councilman, now Mayor-elect Robert Garcia, Assemblywoman Bonnie Lowenthal, the North Pine Neighborhood Alliance and local company Solar Source, Inc. Solar panels appear throughout Long Beach on both public and private sector projects(Photograph provided by Solar Source)
has slowed, Steve Bogoyevac, vice president of investments for Marcus & Millichap, told the Business Journal. “There is a little bit of a lull right now,” he said. “I have seen a trend in the multi-family market over my 11 years doing this that things tend to slow slightly over the summer,” he explained. Although transactions have slowed, he said values of properties continue to increase. Once fall arrives, Bogoyevac expects more deals to be made on Long Beach multi-family properties. “There are typically a lot of closings in October through
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December as people are trying to get properties closed [on] before the end of the year for tax purposes for the following year,” he explained. “I also think people use real estate as a hedge against inflation, and that is probably a driving factor on making purchases right now,” he added. Robert Stepp, owner of multi-family investment firm Stepp Commercial, said more sellers are going to introduce multifamily properties to the market this year. However, he expected the amount of actual sales transactions to remain on pace with previous months this year. “The reason I
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don’t think velocity will increase at the same rate inventory is increasing is that we are going to have another separation between buyers’ and sellers’ expectations,” he said. He explained that Class C properties, which represent lower quality real estate, have increased in value so much in the past year that there is much less of a value gap between those and higher-quality Class B properties. As a result, buyers may feel they are overpaying for Class C properties if sellers do not adjust their expectations by decreasing their list prices. “I think sellers
are not going to make the adjustment as quickly as the market is going to adjust on pricing,” he said. Multi-family property owners in the Los Angeles metropolitan region, which includes Long Beach, are optimistic about the coming year, according to results from a recent survey by Marcus & Millichap. On average, survey respondents owned seven multi-family properties each, Bogoyevac said. When asked about their properties’ occupancy rates, 64 percent of respondents said they believed their buildings would be above 95 percent occupied during the next 12 months. About 33 percent said occupancy would be between 90 to 95 percent. Lease rates should continue to increase, according to the survey. Bogoyevac said 48 percent of those surveyed anticipated increasing rents between 1 to 3 percent over the next 12 months. With lease rates increasing and occupancy remaining strong, Bogoyevac projected property values should continue increasing this year. “It’s not going to be at the same pace it has been at for the last 12 months, but I think we are going to continue to see increasing values,” he said. Stepp said that Class A and B properties should remain in demand this year and may see increasing prices, although he does not believe Class C properties have much room to grow on price point.
Single-Family Sales activity in the Long Beach singlefamily market, which experienced gains in average price of more than 20 percent last (Please Continue To Next Page)
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ECONOMIC OUTLOOK MID-YEAR REPORT 18-B Long Beach Business Journal year, retracted a bit in the first half of this year, according to Phil Jones, owner of Coldwell Banker Coastal Alliance. “I honestly believe the second half of the year is going to be stronger than the first half. It wouldn’t take a lot,” Jones said. “Sales were down 11 percent over the first five months of the year compared to the corresponding period last year,” he explained. Tammy Newland, owner of Keller Williams Realty Los Alamitos, said her firm’s sales have decreased 22 percent year over year. “Last year at this time everything was going crazy, price appreciation was starting
July 8-21, 2014 to move up drastically . . . We are not in that same market today,” Newland said. Both Jones and Newland attributed less sales activity to rapid price appreciation last year, which reduced affordability for current homebuyers, and also cited a stricter lending environment. “There was an interesting report that came out [recently] that said 27 percent of people who had recently gone through the loan approval process would rather have had a root canal than go through it again. That is how difficult it is,” Jones said. Last year, flippers and investors flooded the single-family market to take advantage
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of low sales prices, Jones recalled. Once prices increased, these buyers backed off. “They are largely absent in the marketplace this year. That is why we are seeing a significant drop in the number of sales,” he said. Now, current demand is coming from buyers who actually intend to live in the homes they purchase. However, a combination of factors leads Jones to believe sales should increase in the next six months. “With interest rates remaining low and price appreciation moderating, I think you’ll see more activity,” he said. Interest rates for home loans are currently hovering around a low 4 percent, he noted. Newland said interest rates might increase by a half percent by year’s end, which she said is not significant. The inventory of available properties for sale has also increased, which translates to more options for buyers and more opportunities for sales, Jones pointed out. “This month we have seen a tremendous uptick in the number of listings,” he observed. With the pressure on inventory somewhat alleviating, he said the median sales price of Long Beach homes should not increase at the same rate as last year, but may still increase between 10 to 12 percent by year’s end. Sales of condos seem to be outpacing that of freestanding homes, Jones and Newland said. Condos are much more affordable for entry-level home buyers, with a median price point in Long Beach of $274,500, while single-family homes have a median cost of $480,000, Jones said. The condo market should continue to see increasing demand and sales this year, both real estate professionals projected.
Office
Shimadzu Aircraft Equipment USA, whose new headquarters are under construction at Douglas Park north of the Long Beach Airport, is one of three companies under Shimadzu Precision Instruments, Inc. The others are Shimadzu Medical Systems USA, based in Torrance, and Shimadzu Industrial Equipment USA, based in Santa Clara. Shimadzu Precision Instruments is a subsidiary of Shimadzu Corporation, which was established in 1875 and is headquartered in Kyoto, Gerald Singh, vice president of Oltmans Construction Co., presents Japan. Shimadzu Aircraft Yutaka Nakamura, president of Shimadzu Precision Instruments, Equipment USA, which Inc., a plaque commemorating the groundbreaking of the new headquarters for Shimadzu Aircraft Equipment USA at Douglas will be relocating to Long Park. (Photograph by the Business Journal’s Thomas McConville) Beach from Torrance, states on its website, “If you operate a commercial airliner then chances are you are one of our customers. We assemble, repair and certify a wide variety of Shimadzu OEM (original equipment manufacturer) aircraft equipment in-house and standby ready to provide you with World Class Customer Support. As a production facility we are able to maintain a high level of inventory to support your aftermarket needs. No other facility in the world can match the wide variety of Genuine Shimadzu Aircraft spare parts stored in our Torrance, California warehouse. Launched in 2007, our FAA Certified Repair Station is continually undergoing improvements to expand our product coverage to better meet our your needs. In efforts to further shorten repair turn times, in 2009 we opened our own in-house Non-Destructive Testing Lab.”
The Long Beach office market should remain flat through 2014, but further down the road things are looking up, according to Dave Smith, senior vice president at CBRE, Inc. “We are seeing a strong pick up in the overall momentum of the market, not as much from a tenant requirement standpoint but from an overall optimism standpoint, particularly in downtown with the residential that is happening and with a lot of the retail [developments] that we’re seeing throughout the city,” Smith said. “There is a lot of positive energy going on around the city, and people from outside the city are seeing that . . . It just takes awhile to get through that cycle to translate into people leasing office space.” Smith said he does not expect this optimism to boost leasing activity by year’s end, but he does expect more interest from potential tenants. “In terms of signed leases between now and the end of the year, I expect it to remain flat. I expect an uptick in tenant activity through tours, proposals, and so on,” he explained. Actual leasing activity may not pick up until late 2015 or 2016, he estimated. Although Smith projects a relatively flat market on the leasing front this year, he does expect rental rates to increase. “We have seen rates in Long Beach actually continue to grow despite the fact that leasing activity has not been as good as a lot of us would have hoped,” he said. “I expect to see steady increases in rental rates in all building classes,” he said, and estimated lease rates might increase 3 to 5 percent annually over the next couple of years.
After the sale of Shoreline Square for $101.7 million in April and the sale at auction of 115 Pine Ave. (known as the Clock Tower Building) for $160 per square foot, there hasn’t been much sales activity in the Long Beach office market, Smith noted. “I don’t think we would really expect much more sales activity between now and the end of the year . . . There isn’t anything on the market or getting ready to hit the market that is going to trade between now and the end of the year,” he said. In order for more investors to purchase office properties in Long Beach, occupancy must first improve, he explained. “As we see the leasing market improve, then you’ll see the capital fall in right behind.”
Industrial The industrial sector of the local commercial real estate market hasn’t had any trouble attracting buyers in the past year or so, and that trend should continue, said Brandon Carrillo, principal at Lee & Associates. “Looking into my crystal ball as they say, sales are going to continue to be hot. If something in the marketplace is priced right it is going to move,” Carrillo said. With no sign that interest rates on commercial property loans are increasing any time soon, demand to buy should remain strong, he noted. “The real issue remains the supply,” Carrillo said, explaining that there are very few industrial properties available for sale in Long Beach and the South Bay area right now. Carrillo said the lack of inventory is causing potential sellers to hold off on selling until they have an opportunity to invest in a new property and take advantage of the Internal Revenue Code Section 1031 exchange, which “provides an exception and allows you to postpone paying tax on the gain [sale of a property] if you reinvest the proceeds in a similar property as part of a qualifying like-kind exchange,” according to the Internal Revenue Service. “Property owners have no incentive to sell right now even though they can get a big [sales] number because they have nothing to exchange into,” Carrillo explained. Although demand to buy industrial properties is high, the actual amount of sales transactions occurring through the end of the year may be stagnant thanks to low inventory, Carrillo said. “There are still properties selling and activity on assets currently in the market . . . but not to the volume we would like to see in a normal market,” he noted. Leasing activity has dropped in the past few months as business owners look to take advantage of low interest rates by purchasing property; however, because vacancy rates are at a tight 5 percent, lease rates have been increasing this year. “With the vacancy rate going [down], landlords are trying to push up lease rates to prerecession levels,” Carrillo said, yet he does not expect this trend to continue. “We are getting to the point where lease rates are almost leveling off, because the feedback we’re getting from companies are their margins are getting squeezed,” he explained. Carrillo expected the vacancy rate of industrial properties in Long Beach and the South Bay to reach about 4.7 percent by the end of the year, a decrease from the 5.2 percent rate reported by his company in the first quarter of the year. ■
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