Dream of Vision 2020 Requires a Solid Reality Check From The Newsroom by Michael Hart At the conclusion of the Economic Alliance’s Vision 2020 forum on Feb. 21, Alliance Chairman David Fleming proposed a champagne toast to the ever-so-optimistic enterprise. The couple of hundred in attendance could easily say, “That’s a wrap!” because it’s hard to see where the whole process is possibly headed next. Give Bob Scott and his cast of hundreds credit it’s hard to find fault with their vision of the San Fernando Valley 20 or so years in the future: We’ll all live close enough to Town Centers to walk to them for almost everything we want. And for what we can’t find, there will be Regional Centers for our “regional needs.” To get there we’ll take “readily accessible” public transit, even though freeways will be “upgraded and technologically enhanced.” Our good friend technology also will “improve air quality, reduce power demands, recycle water and conquer visual blight.” Cities will cooperate with one another and, if and when population increases, Smart Growth principles and Livable Cities strategies will make it so you won’t even notice. Everyone will live in a place they can afford and economic development will “provide an ever-increasing array of opportunities.” Who wouldn’t go for that? Certainly every elected official even remotely associated with the San Fernando Valley did. I know that because the day’s presentation at the Airtel Plaza Hotel included endless videotape of them stating in no uncertain robot-like terms what a great idea all this is. (In fairness, let me make it clear that one of those officials, Assemblyman Robert Hertzberg, actually appeared both on tape and in the flesh.) Even the Daily News, which manages to find fault on its editorial page with almost every institution in this city, waxed poetic the following Sunday about the future as revealed by Vision 2020. So, I guess that leaves it to me to ask a question or two. First, what took so long? Read all 36 pages of the report, and it sounds suspiciously like the kinds of General Plans cities all over the United States put together when they’ve got a lot of undeveloped land available and are worried about what might happen if somebody doesn’t step in and apply a little common sense. It’s not the fault of anybody who’s here now that this didn’t take place in a more substantial way 40 or 50 years ago. But with the possible glaring exception of Ahmanson Ranch (and you already know that story), most every inch of the Valley is already built out. So, how do you make a plan for perfection in a place that’s almost finished? “Reality’s reality,” admitted Economic Alliance CEO Bruce Ackerman the next day. “We don’t have a clean slate.” Well, let’s just say you are “stretching the envelope” to “think out of the box” here. Maybe you can imagine a way to take a misshapen, disorganized, unplanned but colorful, imaginative, chaotically charismatic place like the San Fernando Valley and mold it to your liking. How do you pay for those brilliant ideas? Certainly not with public money because, also according to this proposal, 20 years from now “the overall tax and regulatory structure is fair and competitive,” and we all know what that means. There is an answer, of course. Everything we want for the Valley can be provided for by the creation of more wealth in the area. But even if, as this proposal suggests, the regulatory process that accompanies business expansion is streamlined, and even if whatever these Town Centers are create a livelier retail sector, that won’t be nearly enough to get the job done and here’s why. High-tech and biotech are everybody’s promise for the future. But many of the Valley’s highest-profile companies in those sectors have moved their labor-intensive manufacturing components to other states or countries. Those that haven’t want to, and mostly for reasons that nobody at the local level can control. It is certainly likely that companies will continue to maintain their headquarters here, that R & D; staffs will remain, that maybe even more will come. But will the income that brainpower generates be enough to build a Vision 2020-like world without a sizeable manufacturing component to accompany it? Likewise with the Valley’s other giant economic engine, entertainment. At this point, elected officials are doing everything they can think of to keep production from moving out of the country. Perhaps they will be successful, but will the film and TV production increases we can reasonably expect be enough to support the kind of infrastructure needed to make this a comfortable place to live? Vision 2020 also calls for “preserving” industrial properties, but even if all the space available now were fully utilized, would it create that much more wealth than it already does? Dreams aren’t bad. Nothing happens without a vision, we’re always telling ourselves. But this vision will have to go through quite a few reality checks before it’s conceivable. Michael Hart is editor of the San Fernando Valley Business Journal. He can be reached at [email protected].

Voit Out of Warner Center Deal After Dropping Price Real Estate by Shelly Garcia The Voit Cos. has been eliminated from negotiations to acquire a portion of Warner Center Properties. Voit officials said they were forced to lower their bid after learning of additional costs the seller planned to pass along. “We were willing to go forward, but at a different price,” said David Allison, COO of Voit. Allison said the sellers of the property, a joint venture between Alaska Permanent Fund Corp. and Harvard University’s endowment fund, have not been in touch with the company since they sent the revised bid, but he believes they are now considering a different bidder. Voit last month had been selected, along with Douglas Emmett & Co., from an initial group of about 20 investors who expressed interest in acquiring the 15 low-rise properties and six high-rise buildings that comprise the 2.3-million-square-foot business hub. Sources said Voit initially offered $63 million for the low-rise properties. According to Allison, who would not comment on the pricing, the company relied on information provided by brokers in making its initial bid but, in later conversations with the sellers, was advised of additional costs the company would have to incur. “They were asking us to pay for certain things that weren’t reflected in our pro forma,” Allison said. “So we had to revise our offer price downward.” Douglas Emmett is going forward with its plans to acquire the six Warner Center high-rise buildings, according to sources. (The company has declined to comment on the transaction.) At least three other serious bidders put their hats into the ring for the low-rise properties, sources believe. AEW Capital Management LP, the asset managers for Warner Center Properties and the company advising the sellers, declined to comment. Voit chairman Robert Voit was the original developer who built much of Warner Center in the 1970s. Simi Rehab A few years ago you could barely get a national retailer to take a second look at Simi Valley. Things were so grim, in fact, creditors foreclosed on a 300,000-square-foot shopping center there after several tenants went belly up. Today, new owners have acquired the center and are planning a $30 million rehab, secure in the belief that if they build it the retailers will come. “The market has changed,” said Scott Yorkison, vice president at KMI Real Estate Group Inc., a developer that closed escrow on the center, Mountaingate Plaza, last month. “There are now retailers that five years ago would not have even entertained going into Simi Valley actually looking at it as a viable market.” In just over 10 years, the population of Simi Valley has grown 15 percent to 116,505 and the median income of those residents has jumped 40 percent to $75,579, according to city officials. The area is home to major employers including Countrywide Funding Corp. and Farmers Insurance Group, as well as a number of mid-sized manufacturing firms. Perhaps best known as the setting for the trial of Los Angeles police officers charged with beating motorist Rodney King the jury’s acquittal set off the Los Angeles riots in the early 1990s Simi Valley began drawing attention from housing developers in the late 1980s. But the recession that followed stymied those efforts, and the area remained relatively undeveloped until a few years ago. “In the early ’90s, there was a pent-up amount of building permits for projects that were never built,” said James Purtee, deputy director of economic development for Simi Valley. “We’re running through that backlog now.” “If you were looking at where growth is going to happen, the majority is in the northwest portion of town,” he said. Not coincidentally, that is where complexes including the Tapo Canyon Shopping Center with a Regal Cinemas movie theater and Home Depot have opened within the last two years, and where Mountaingate, at Los Angeles Avenue and First Street, is located. The new owners hope to carve out a niche for the complex by expanding on the types of retailers already in Mountaingate and considering expansion there: off-price retailer T.J. Maxx, crafts chain Michaels and Bally Total Fitness, among them. “Right now it looks like it will take more of a soft goods neighborhood,” Yorkinson said. “T.J. Maxx is going to stay; Michaels is going to stay. We’re looking to complement those types of users.” Chris Wilson, president of Wilson Commercial Real Estate, who represented KMI in the purchase from CRIIMI MAE Inc., and has just begun to market the center, said he is fielding inquiries for space. “The interest we’re getting is strong from tenants in the 15,000 to 30,000 range,” Wilson said. Valencia Residential Complex BRE Properties acquired 7.35 acres at Valencia Boulevard and Old Road in Valencia with plans to build a 234-unit apartment complex. The purchase price was $11.2 million. The apartment complex will become part of a master-planned community under development by Newhall Land and Farming Co., according to Mike Haviland, Santa Clarita economic development director, that will eventually include about 670 homes and 330 attached townhouses along with additional apartments and a golf course. Fred Cordova, a broker with Cushman & Wakefield, represented BRE in the transaction. The seller, Newhall Land and Farming, was represented in-house by Keith Herren. Shopping Center Planned Hopkins Real Estate Group, a Newport Beach-based developer, has completed the acquisition of 7.4 acres in Valencia for $4.2 million with plans to construct a 70,000-square-foot shopping center on the site. The center, to be called Highbridge Crossing, will be located at Cooper Hill Drive and Newhall Ranch Road. It is slated for completion in spring 2003 and is currently 50-percent pre-leased. Ray Bayat, Mitch Bayat, Bert Abel and John Cserkuti of Grubb & Ellis represented the buyer and seller, Newhall Land and Farming. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].

People Interview: Homeward Bound As Speaker Robert Hertzberg’s work in Sacramento comes to a close, he begins to focus on issues closer to home in the San Fernando Valley By JACQUELINE FOX Staff Reporter In December, State Assemblyman Robert Hertzberg, D-Van Nuys, will wrap up his sixth and final year in the California State Legislature. He began the closure process earlier this month when he stepped down as speaker, a post he was twice elected to, and is now making plans to return to the San Fernando Valley. As speaker of the assembly, Hertzberg was compelled to take a state-wide view on issues. That, however, doesn’t mean he neglected the Valley. Hertzberg almost single-handedly rewrote the original Kortese-Knox Act (now the Kortese-Knox-Hertzberg Act), the legislative roadmap used by the Local Agency Formation Commission as a blueprint for municipal reorganizations. The revisions both stripped the L.A. City Council of its veto power over a LAFCO-approved reorganization and paved the way for the study of the Valley secession proposal now on the table. Insisting he is not pro-secession, Hertzberg has rejected requests for support from both sides of the debate and vowed to remain above the fray for now. However, he says he plans to devote a lot of time over the next few months to studying alternatives to secession, pushing regionalism as an antidote to the state’s budget woes and what he calls a dysfunctional financial framework for government. Hertzberg spoke to Business Journal political reporter Jacqueline Fox recently about his strategy for tackling the secession issue and what he plans to do once he leaves office at the end of the year. Question: Although you’ve been asked to support both camps on the secession front, you’ve said you prefer to remain above the fray. Why have you chosen not to take a side? Answer: First, I never ever weigh into a situation that’s complicated unless I have some understanding of it. My time has been focused on the budget crisis, on the energy crisis and the terrorism crisis. So, to go in and jump in the fray I would not do. I am looking for a way to figure out an answer and we’ll figure that out. I wanted to do the homework. I don’t really know the answer. I know the problem. I know the situation, and I’m trying to figure out how to solve it. So now, one of the things that I’m going to do is put a lot of time and attention and energy and research into it and figure out how we can resolve this issue that’s very unique to Los Angeles. Q: Based on your knowledge of voters’ concerns, would a secession initiative be approved by the voters if it were held today? A: I don’t know. I do know that movements are based upon a vision, and a set of values. Not based upon, we don’t like this group or that group and we want a divorce. Whatever you do has to be out of a positive vision that’s good for everybody. The message has to be good for everybody. Scare tactics don’t work. It’s not about one geographic area versus another. It’s about how you create a government that works for people. Q: You’ve suggested that a study of the borough system for Los Angeles would be worthwhile? Why do you think at this point, that form of government would offer a better alternative to a new Valley city? A: I don’t know that it is for sure. It could be a possibility, and the reason, of course, is to get the benefit of a larger government with the benefit of a smaller government that gives you a sense of community. That’s where I’m coming from on that. But it’s one option. Q: Can you explain your vision for a regional approach to government and why you believe that approach is necessary? A: The state’s financial structure is a mess. It is dysfunctional. You have all major sources of money highly volatile sources of revenue and nobody in any business would ever build a business based on these tremendous, wide fluctuations. The new economy has changed how we organize. There are synergies, for example, around industries, like the entertainment industry or the garment industry. Businesses do things very differently now and, for those reasons, I think government has to also change. It occurs to me that smaller units of government that are regionally based and very localized work and are the new model for how the state should be. You’re just not going to fix it unless you have a revolution. And I think the revolution is devolution. Q: Given your audience here is the San Fernando Valley business community, what would you consider your top accomplishments while in office? A: I formed the San Fernando Valley Business Advisory Commission, where leaders from all walks of life in the business community advised me on legislation ideas. I didn’t always take (the advice), but I always understood. The business community in the Valley was disproportionally effective in terms of having impact at the statewide level, and this commission has worked to improve that. Q: What programs or measures concerning the San Fernando Valley had you hoped to see realized but were unable to push through? A: The Valley transportation system, pure and simple. I wanted that up and running. I wanted those wheels turning. Q: You crafted revisions to the Kortese-Knox Act for special reorganizations. Can you explain what revisions you authored and why they were necessary? A: When I began studying the issue about the city council’s veto powers on secession and reorganization issues, I looked at the law. It was 179 pages and it was just complete mishmash, pure and simple. I read it and re-read it and I couldn’t figure it out. I just couldn’t. So I did what I always do: I do the immediate and I do the long term. The immediate was AB62, which took away the council’s veto powers on reorganization, and the long term was a bipartisan commission under Gov. Pete Wilson, which resulted in a 180-page revision. So, it’s in English now and everyone can read it and understand it. Q: You’ve vowed to devote more time to helping reshape local government. What’s your strategy for doing so? A: Well, hard work. Study and hard work. It sounds trite, but it’s true. You read, you think, you give other people credit, you test new ideas and you begin to mold things in terms of a vision. How that will take place, I do not know. I will reengage by joining a number of boards and community activities. I’m not disengaging from the community. I had 20-something years before I got elected to government as a very active participant in civic life and in the community. Q: Do you intend to run for a seat in local government once your term ends in December? If not, what do you see yourself doing for a living? A: Well, I didn’t need to run for government before, so I don’t know. I’m interested more in statewide office, possibly, if I run again. In the meantime, I’m going to make a living. I’ve got young kids and I want to spend a lot of time with them and I want to reengage in the community. But I don’t want to run for office just to run. I don’t want to do something based on platitudes. I want to do something to make change. So, am I interested in public service? Yes. Does it have to be elective office? Possibly. But in the meantime, I’ll come back and one thing I do know is, I’ve never not been busy. It’s not the job. It’s me.

The Digest A ROUNDUP OF SAN FERNANDO VALLEY NEWS Homestore to Restate Earnings Homestore.com Inc. will restate its 2000 financial results and file new numbers by mid-March. Following Homestore’s announcement on Feb. 13, Nasdaq halted trading in Homestore shares until the company fully satisfies the exchange’s request for additional information. The sale price was 72 cents when trading was halted. Homestore, whose shares have fallen 97 percent in the last year, already had said it would restate financial results for the first, second and third quarters of 2001. That announcement led to the suspension of trading Dec. 21. Trading resumed Jan. 7. Homestore announced the resignation of Chief Executive Stuart Wolff on Jan. 7 and named board member Joe Hanauer as chairman. Jack D. Dennison, formerly with WebMD, was named chief operating officer, and Lewis R. Belote III was appointed chief financial officer. The company said last week that it expects its cash flow from operations to be positive for 2002. It said it had about $48 million in cash and cash equivalents and restricted cash of about $100 million as of Dec. 31. At least a dozen suits contend that Homestore and some of its officers sought to prop up the stock by issuing a false and misleading picture of company finances. Executives sold at least $16 million in Homestore shares while the stock price was still high. In December, Homestore said it overstated revenue in 2001 by as much as $95 million. The company said it was firing 300 employees this quarter, after reducing its work force by 20 percent in October. Dick Clark Productions Purchased Dick Clark Productions Inc. is being acquired in a deal worth $140 million. A group of investors led by Mosaic Media Group Inc., Capital Communications CDPQ Inc. (which does business as CDP Capital Communications) and Jules Haimovitz, a senior television executive, will acquire all of the outstanding shares. The agreement provides that stockholders other than Dick Clark will receive $14.50 per share in cash. Clark, who owns about 70 percent of all outstanding stock, will receive $12.50 per share in cash for a portion of his shares. Henry Winterstern, co-founder and managing partner of CDP Capital Entertainment, will also invest in the acquiring entity. Dick Clark Productions will continue to operate as an independent television production company with Dick Clark serving as the chairman and CEO. Founded in 1957, Dick Clark Productions is an independent producer of a wide range of television programming for broadcast networks, cable networks, distributors and advertisers. Encino Accounting Firms Merge The Encino accounting firm of Kirsch Kohn & Bridge LLP of Encino has merged with Bernard Lewak & Co., also of Encino. The merged firm will now operate as Kirsch Kohn & Bridge LLP. Kirsch Kohn & Bridge has specialized in the construction, manufacturing, publishing, real estate, health care, food service and wholesale industries. Bernard Lewak & Company has specialized in the entertainment, restaurant, real estate, manufacturing, retail and service industries. SR Technics eliminates 44 jobs SR Technics Palmdale has cut 44 jobs and the company’s president and four other Swiss nationals have returned to Switzerland. Alex Kugler, the company’s president and chief executive officer, who oversaw the start-up of the company, will retain his position and will continue to oversee the company, but will do so from an office in Zurich. Also returning to Switzerland are Jakob Straub, director of product management; Christoph Kunz, manager of production engineering; and two engineers who supported operations since the company began working on aircraft in August. The company also announced that Gordon Fast, director of operations, will become the general manager of the company and will be responsible for day-to-day activities. The company, which at one point had close to 600 workers, now has a work force of 285. Iwerks, SimEx Complete Merger Iwerks Entertainment Inc. of Burbank and Toronto-based SimEx Inc. completed their previously announced merger on Jan. 9. As a result of the merger, Iwerks became a wholly owned subsidiary of SimEx Inc. Each of Iwerks’ 3.5 million outstanding shares of common stock can now be exchanged for 63 cents in cash.

What to Do About Rising Business Health Care Costs Commentary Guest Column: Cal Lockett The problem of rapidly rising health care costs has once again emerged as a national issue, with costs rising faster now than at any time in the past 10 years. The average cost of health care benefits for active employees rose 11.2 percent in 2001, compared to a general inflation rate of only 2.1 percent. Expectations for 2002 are equally glum: Overall, employers expect their costs to rise by an average of 12.7 percent; some (15 percent) expect to be hit with increases of 20 percent or more. Smaller employers have already had to take steps to shift more costs to their employees, most notably increasing individual deductibles by 100 percent or more. Although there was no comparable cost-shifting among large employers (500 or more employees) in 2001, it is clearly coming. Forty percent of large employers report they will require their employees to pay higher deductibles, co-pays or out-of-pocket maximums in 2002. Cost-shifting is a response, not a solution, and it creates its own set of problems. Especially in lower-income households, people are choosing to save money by scrimping on prescription drugs. Among the chronically ill population, people with higher co-pays are less likely to seek care for both minor and serious symptoms. Over the long term, such decisions often result in people becoming sicker and needing more (and often more expensive) treatments. The budget surpluses lawmakers were counting on to finance programs such as expanded coverage for the uninsured, Medicare reform and prescription drug coverage for seniors are virtually gone. In the face of dwindling funds, lawmakers at both the state and federal level are tempted to legislate costly mandates as a way to show progress in responding to these expensive health care issues. Mandates are politically appealing to legislators because they offer a way to “do” something at minimal government expense. However, they represent cost-shifting of the worst sort, generating even greater health care costs and forcing premium increases to businesses and workers alike. In addition to costly health care coverage mandates, two other legislative threats are looming, in which the potential to increase health care costs for California businesses is enormous: The liability provisions of the Patients’ Bill of Rights now before Congress and the liability provisions contained in the new California Assembly Bill 1600. Currently, employer-sponsored health care plans fall under the regulations of the Employee Retirement Income Security Act of 1974 (ERISA). Although ERISA subjects these plans to federal oversight, in the event of denied benefits, it also protects them from being sued, beyond reinstatement of those denied benefits, for emotional distress and punitive damages. Under the Patients’ Bill of Rights (PBOR) bill passed by the Senate last June, the liability provisions are a trial lawyer’s dream. Individuals may sue employers and/or health plans for medically reviewable decisions (for example, administrative) in federal court. In federal court, individuals would be eligible for unlimited economic and non-economic damages, and up to $5 million in punitive damages. In state courts, they would be eligible for unlimited damages, including punitive. Under the somewhat less burdensome House-passed version of PBOR, economic damages remained uncapped while non-economic and punitive damages are capped at $1.5 million each. Punitive damages are only available if a plan fails to comply with an external review decision. The deadline to introduce new legislation in California is the end of February, but already Assembly Bill 1600 is moving through the legislative process. AB 1600 is one of the most onerous, costly health care proposals in decades It seeks to shift health plan enforcement from the new California Department of Managed Health Care to the courts. The bill would allow physicians or any “interested party” to sue health plans over reimbursement rates in negotiated and signed contracts – or for nearly any matter regulated by the state’s new Department of Managed Health Care. This would be true even when plans are complying with DMHC requirements and providers have signed the very contract they wish to take to court. Proponents of AB 1600 admit their primary purpose is to force government review of contracted payment rates between providers and plans. Except for public utilities, state law never allows government regulation of payments between private entities and their subcontractors. Such court-ordered rate setting is unprecedented and bad for consumers because it is intended for just one purpose: to increase physician incomes, which will automatically push up the cost of health care – including premiums, deductibles and co-payments faced by businesses and consumers. As legislators get down to business in this election year, it is incumbent on both small business owners and corporate large group purchasers to be directly involved in the debate on health care: – Contact your trade and professional associations and ask them to monitor health care legislation, particularly proposals that clearly increase costs. – Get involved individually in the debate and let your voice be heard by your personal legislative representatives. There are many Web sites that facilitate such contact, including the nonpartisan, user-friendly www.vote-smart.org. The most immediate action issue is AB 1600. It is critically important that you contact your state assemblyperson as soon as possible to express your views and concerns regarding this onerous legislation. As you receive feedback on other health care proposals that will raise costs and threaten your ability to provide health benefits to your employees, take action again. Only through the concerted efforts of those who will bear the burden of spiraling costs can we hope to affect health care legislation that is reasonable and equitable. Cal Lockett is staff vice president of public affairs for WellPoint Health Networks Inc. He also serves on the VICA board of directors.

Here’s Hoping Vision 2020 Is as Exciting as It Sounds Editorial From The Newsroom – Michael Hart The moment’s finally arrived: The Economic Alliance of the San Fernando Valley is about to reveal Vision 2020. This is an 18-year plan for the Valley devised, believe it or not, by consensus of hundreds of people. Vision 2020 is a process that began in early September and involved a number of roundtable discussions, all with the intention of coming up with a comprehensive plan for the Valley over the next two decades. The report will be presented at the Airtel Plaza Hotel on Feb. 21. As Franklin Covey (or whoever it is that happens to manufacture your particular appointment book) tells us: You need a plan. It doesn’t matter whether you’re talking about your day, your business, your life – you’ve got to have a plan for it. Even more so in the case of a Valley with more than a million and a half people, tens of thousands of businesses and aspirations to become a city of its own. Vision 2020, in fact, could be the most significant document business and community leaders have before them as the San Fernando Valley seeks further to distinguish itself from the rest of Los Angeles over the next year or two. Or it could end up being an awful waste of time for all those hundreds of people who invested so much in it. What’s more, regardless of its significance, which is liable to be substantial, it could be – and I write this purely as a warning to those planning to attend the unveiling of this report on the afternoon of the 21st – boring. Face it: Any plan that tries to take into account what a geographic area the size of the San Fernando Valley will be like two decades from now is not going to have the same kind of sex appeal that, for instance, an Olympic figure skating scandal does today. And statements, as all-encompassing as they will have to be, on population densities, economic development strategies, traffic patterns and land use plans will not be able to compete for headline space with the Mayor Hahn-Chief Parks feud. Editors (like me) will yawn as reporters (like those here at the Business Journal) try to explain the stories they plan to write about Thursday’s event (even though we’re the ones who assigned them to cover it). Now, I know that what we call the policy wonks among you are already gritting their teeth as they read this. What do you mean, they’re already saying, projections of traffic flowing through the 405-101 interchange in 2015 aren’t fascinating? How can you say, they’re wondering, it’s not important to make sure there are enough water and sewer connections for the X number of people who will be living here in 2020? Do you really, they’re already asking, want to surrender the future to happenstance as we’ve seen it done in so many other places and times? The answer, of course, is no. But we do wish the whole thing had a little more sizzle. I really don’t know what form the Vision 2020 presentation will take at the end of this week and what there will be in it for us to act on now. I hope though that it’s something. A year from now, the San Fernando Valley may or may not be its own city. To some extent it hardly matters. As a community, the Valley is reaching a defining moment that has clearly been decades in the making. Even if on the morning after Election Day in November the Valley is still part of L.A., it will have clearly staked out an identity as a distinct community in a way that it hasn’t in the past. During the last several months, the only formal planning for that has involved figuring out how a new government might pay for itself in the weeks and months immediately following potential incorporation later this year. Eventually though, a new city here (even if it’s only in spirit) will be more than just who picks up the garbage and who decides how much we pay for it. It will be a spirit and, yes, a vision of what is liable to be here 20 years hence. That’s why a process like Vision 2020 is important, regardless of how ponderous and out of touch with reality it may seem here and now when there are so many more exciting things to distract us. So, listen carefully on Thursday – and don’t nod off. — With this issue, much as it has several times over the last couple of years, the San Fernando Valley Business Journal has a first: Our first special report on commercial real estate activity in the Valley. Elsewhere in this issue, you can read about the kind of year the industry had in 2001 and how 2002 is likely to shape up. You can learn about some of the individuals whose achievements stuck out above many others and about the developments that attracted the most attention. And you can read, in grueling detail, about the biggest deals of 2001. At least, it was grueling for us. Like I said above, you need a plan for everything and, for this project too, we had one: Survey every real estate brokerage we can find that does business in the Valley and ask them to send us information about their top people and the deals they did during the year. So far, so good. Then last week as the inevitable deadline fever set in, the real work took place – and circumstances changed. For instance, we would call up a broker to get details on what we thought was the big lease transaction he negotiated to have him say, “Oh, I’m sorry. I should have told you earlier that was a sale, not a lease.” Other helpful brokers called to say, “Hey, here are five 100,000-square-foot deals I forgot to mention. Do you have a pencil handy?” And we always did have one handy. So, in your hands you now have the San Fernando Valley Business Journal’s first special report on commercial real estate, just as planned. Michael Hart is editor of the San Fernando Valley Business Journal. He can be reached at [email protected].

Biotechs Struggle for Venture Capital By CARLOS MARTINEZ Staff Reporter Biotech startups must do a better job of communicating their ideas in non-scientific language if they expect to get noticed by or funding from venture capitalists, according to a group of experts who gathered to discuss the financing troubles facing the industry sector earlier this month. Brent A. Reinke, managing director of the law firm Crosby Heafey, said during the Feb. 6 conference hosted by VC Bio in Westlake Village that biotech startups traditionally have had trouble marketing themselves to venture capitalists and other investors who do not have strong scientific backgrounds. “It’s hard enough to get venture capitalists to talk to a company, let alone try to get them excited about your business model,” Reinke said. Part of the problem, said John Simard, CEO of CTL Immunotherapies, is that scientists sometimes find it difficult to communicate their technologies to non-scientists, a category most venture capitalists fall into. According to a September 2001 survey by PricewaterhouseCoopers, venture capital investment in biopharmaceutical companies declined from a year earlier, despite a spike in interest in 2000 with the completion of the mapping of the human genome. The survey showed that through August 2000, there were 189 deals in the U.S. worth $2.6 billion in venture capital investment in private biopharmaceutical companies. A year later, the survey showed the number of deals dropping to 147 for $1.8 billion. In 1999 there were 234 deals for $1.9 billion. That drop in funding is in spite of the optimism in an industry which has seen an average annual average growth rate of about 11 percent continue unabated while nearly every other part of the economy has slowed. The decline in venture capital dollars is in line with other industries, said Gary Clark, CEO of Thousand Oaks-based consulting firm Fifth World Technology. But, he noted, biotech startups need not be painted with the same brush as the now-tarnished dot-coms and must do more to secure the fewer dollars available. “It’s a tougher market out there, so you have to have innovative products and be aggressive,” he said. “You have to pique their interest by making your product stand out.” Stephen O’Connor, CEO of Pasadena-based Nanostream Inc., said his company was able to secure $10 million in financing by touting its nanotechnology and its potential to develop devices so small they can’t be seen by the human eye. His company is developing microfluidic chips that will help automate and miniaturize fluid handling within the body. “It’s an area where there is so much potential that it almost boggles the mind,” O’Connor said. But O’Connor admitted his company’s success in finding investment dollars is thanks to the recent interest in nanotechnology and not typical for new biotech startups. Other biotechs with fewer obvious commercial applications or those in the middle of long-term development processes have a tougher time finding dollars. In the mid-’90s venture capitalists were flocking to biotechs amid the promise of new technologies, new medical devices and technologies and the accompanying promise of the Internet. The PricewaterhouseCoopers national survey showed venture capital investment in biotechs doubling from 1995 to 1996, from $506 million to $1.1 billion. But as dot-coms began falling by the wayside, upstart biotechs suffered along with them. Venture capitalists, burned by their experience with dot-coms, were no longer as eager to fund new technologies, even if they were in the life sciences area, said James W. Loss, an associate with the Los Angeles-based investment firm, Riordan and McKinzie. “Biotechs have to convince venture capitalists that their strategies will work,” Loss said. While some point to mega-giants of the biotech industry like Amgen and Johnson & Johnson, which gross billions of dollars in revenue from their products, Loss said few biotechs will ever see that kind of money, despite the years of research they put into new products. “Biotechs mean a long-term investment any way you look at it,” he said. But even those who make inroads with venture capitalists don’t often find the big dollars they’re after. Last year, Thousand Oaks-based StemSource Inc., for instance, was only able to drum up $2.5 million in funding, despite the potential of its stem cell research. “It’s a difficult market and a difficult economy when it comes to venture capital,” said company CFO Terry Butler, who along with other company officials made the rounds looking for investors. The company has begun a second round of funding which, Butler said, could raise an additional $5 million to $8 million. But Bill Robbins, managing director of Los Angeles-based Convergent Ventures, said biotechs can also tap into other potential sources of funding like grants, strategic partners, individual investors and even IPOs. “These are all areas they can pursue, depending on what their goals are,” he said. But there are drawbacks. Strategic partnerships, for instance, sometimes force a company to move away from its business strategy, Robbins said, sometimes so far the startup’s original purpose for existing is forgotten.

Valley Forum: How’s the Real Estate Market? During the past four or five years, commercial real estate brokers in the San Fernando Valley have been busy. Activity may have slowed a bit in 2001, but there were still substantial deals made. So, a month and a half into the new year, the San Fernando Valley Business Journal asks: What is your outlook on the Valley commercial real estate market in 2002? Jeffrey Schick Vice President North American Title Co. Glendale From what I’ve been gathering, commercial real estate in the San Fernando Valley will see a very good, if not great, 2002. Other than the tech corridor on the far west and Burbank on the far east end of the Valley, there will probably be only small apartment development outside of Legacy’s Warner Ridge. But investment sales, especially for apartment buildings, should be very robust. There are some new purchasers of low to mid-rise suburban office buildings out here now. For example, Lennar Properties at the Warner Center. So, even if rental rates for office remain flat, I expect to see good sales activity for Valley office buildings. Industrial is likely to be flat. Rates are still low, so refinancing will continue strong. I look forward to a very good year. Arthur Arejian Senior Investment Broker RE/MAX on the Boulevard Sherman Oaks 2002 will be a strong seller marketplace for apartment owners in the San Fernando Valley, with many investors seeking opportunities to place their funds. This is a market with very low inventory. 2002 will be a year of low supply and high demand. Low interest rates, low vacancies, upside in rents and the shortage of on-market product have been key factors in increasing values for sellers. The number of transactions will most likely decrease from 2001, indicating that sellers have fewer reasons to sell, with many reasons to hold. Chris Jackson Senior Associate Grubb & Ellis Sherman Oaks I look for the activity in 2002 to pick up in the third quarter of this year. Sale activity is strong due to low interest rates, but once interest rates start to rise buyers will go back to leasing. Kevin Tamura Executive Vice President Daum Commercial Real Estate Services Woodland Hills Activity remains brisk and I am looking forward to stable pricing and strong demand from the industrial and commercial marketplaces. As long as interest rates remain constant, we expect the emphasis to remain on sales versus leasing.

Long Wait Seen For Any Pickup In Pace of Deals Valley Commercial Real Estate Scene By SHELLY GARCIA Senior Reporter With vacancy rates climbing and corporate malaise lingering, real estate developers and landlords are digging in for a long year ahead. Landlords are refraining from increasing rents on lease renewals and coming to the negotiating table with concessions that have not been seen in the industry for a number of years. Developers are putting plans to build on a speculative basis on the back burner, or waiting until at least some tenants sign on before moving forward. To be sure, activity has picked up in recent weeks brokers report a number of firms have initiated discussions on future plans but most agree it will likely be months before those talks give way to more serious pursuits. “A lot of corporate decisions now are to sit tight in terms of relocating or expanding,” said Kevin Read, vice president at Lennar Partners, which is redeveloping LNR Warner Center. “For some people, they’d rather focus on their business rather than relocating space, which is a relatively major disruption.” A lot of tenants are waiting until the second half of the year, when they think it will be easier to gauge how long the current recession will last, before making commitments to new offices. Those that are renewing leases are finding there are some bargains to be had. But what no one is finding is the rock-bottom, fire-sale mentality that prevailed in the last recession. With interest rates in the 6-percent range, many building owners can afford to ride out the slowdown. Their vacancy rates may be rising, but they have been able to refinance and reduce their costs significantly as well. That has kept a cap on tenant lease negotiations and the asking prices for properties that are put on the market. “They’re not motivated sellers,” said Rickey Gelb, general partner with Gelb Enterprises, which owns a number of smaller buildings in the San Fernando Valley. “Even though they have vacancies, the bottom line is probably as good or better than it’s ever been.” That’s not to say that landlords are hoping to ride out the recession without making some compromises. Many began to offer concessions in the fourth quarter of last year everything from free rent for the first six months of the lease to free or discounted parking and a range of tenant improvements. Owners of smaller buildings are offering shorter leases, and those with larger complexes are writing in provisions that would extend the customary annual rent increases by six months or even an additional year instead of the 5-percent to 10-percent annual increases that were typical in years past. “We have not lowered rents, but we did not raise our rates as we have been doing,” said Eric Hasserjian, first vice president for Arden Realty’s Los Angeles North region. In other cases, as leases come up for renewal, landlords are adjusting rates downward to more closely align with the marketplace. Many of the leases signed five years ago as the market began its upswing provided for increases based on the assumption that rates would continue to rise. In some cases, the leases called for increases late in the term that now exceed market rents. Modern Videofilm Inc., which just renewed its lease at 4411 Olive Ave. in Burbank, is a case in point. Because of increases built into its last lease, the company is now paying rates that are higher than what it would be able to get on the open market. So Mark Sullivan, executive vice president at Julien J. Studley Inc. who represented Modern Videofilm, negotiated a new rate that takes the current market into account. “The rent they are paying going forward is probably 15 percent to 20 percent less than what they will be paying in the last month of their term,” Sullivan said. “The marketplace is less expensive than what people predicted when this lease was signed, and I think there’s an opportunity for tenants to look at leases where they’re paying rents greater than market and immediately reduce their occupancy cost.” Sullivan said he is working with clients who are still two years or more away from the end of their lease term to take advantage of the current market. He believes the strategy can help landlords as well by allowing them to ensure a continual cash flow. Such tactics may not be as effective with other landlords. Higher vacancy rates may mean these properties are generating less income, but the debt costs of operating the buildings have come down as well. Those who stand pat now believe they will find an ample market of tenants and opportunities to sell at even higher prices should they desire when the market improves. The same thinking has led to a dearth of properties for sale on the market. “We made three offers in the last six months,” said Gelb. “And so far, we haven’t been able to get them at a fair price. We’re about 8 percent to 10 percent away on the price they’ll sell for.” Conventional wisdom would suggest that developers use the down market to purchase new properties for renovation or land for building, but those in the market for such properties are not finding any bargains. “There’s a great disconnect right now between what buyers want to buy properties at and what sellers want to sell them at,” Read said. “With interest rates so low, it’s a better business decision to go out and refinance your property rather than sell.” Interest rates have also helped developers of new properties, who point out that the cost to carry these empty buildings has declined by as much as six or seven percentage points from the 10-percent or 11-percent rates that prevailed in the last recession. But an empty building is still an empty building, and there are few takers for the higher rents these new developments are charging. “Compared with a year ago, there are maybe 20 percent of the lookers out there,” said Gerald L. Katell, president of Katell Properties who just completed a 67,000-square-foot office building in Agoura Hills. “I expected this building to be 25-percent leased upon completion. I expected to have tenants in when we opened. So it’s not where I wanted it to be.” Potential tenants for the space, with asking rates of $2.25 per square foot to $2.30 per square foot, are so scant that brokers are calling Katell about potential tenants with even the smallest space requirements. With a dearth of prospects for new space, those developers who had planned to begin new speculative projects have put those plans on the back burner, preferring to wait for signed deals before they move forward. Lennar had planned to build the first and part of the second phases of its LNR Warner Center project on spec, although the company ended up pre-leasing most of the buildings anyway. But that was last year. Now Lennar has no plans to rush into the third phase until it has secured at least some tenants. “We’ll be submitting plans for the plan check to have something ready to go,” Read said, “but certainly we wouldn’t go up on a 100-percent speculative basis, we’ll need some pre-leasing. At least that’s today’s plan.”

San Fernando Bails Out Local Frozen Food Firm By JACQUELINE FOX Staff Reporter The city of San Fernando has asked the Valley Economic Development Corp. for help saving a frozen food manufacturer that employs 150 and has been in business in the city for a half century. San Fernando’s redevelopment agency is teaming up with the VEDC to take advantage of a county financing program to bail out OH BOY! Corp., which has been hurt by the consolidation of the supermarket industry and soaring energy bills. The agency earlier this month agreed to apply for a $3 million loan through a relatively obscure county program to help OH BOY! pay off its creditors and possibly expand its operations. Because of increased competition in the frozen food industry and a faltering credit rating, OH BOY! wasn’t able to apply for a loan directly. But the county “float-through” loan program allows cities to use their credit ratings to obtain loans and then pass them on to a third carrier, in this case the VEDC, according to San Fernando city administrator Jose Pulido. San Fernando is using the 50,000-square-foot OH BOY! plant as collatoral for the loan, which must still be approved by the Los Angeles County Board of Supervisors. Once approved, the funds will be transferred to VEDC, Pulido said. The VEDC in turn will put together a refinancing program for OH BOY!, whose annual revenues have held at about $16 million for the last two years even as profits have drastically dwindled. The company manufactures and distributes pizza, stuffed potatoes, garlic bread, meatballs and other specialty frozen foods. It also acts as a distributor for other frozen food firms. OH BOY! founder and president Pietro Vitale said escalating energy bills in 2001 came just as he was grappling with a string of lost receivables on accounts that had been swallowed whole in the supermarket consolidations. “There used to be 16 to 20 chains out there we could do business with, now there are about three,” said Vitale. “So, all of a sudden, the OH BOY! brand, which was number one out there, was losing ground.” Vitale said his company receives 40 percent of the gross sales from OH BOY! products. But changes in the marketplace have forced him to focus more heavily on “co-packing” with other companies, for which it only receives 17 percent of gross sales. Even the co-distribution business for OH BOY! has begun to fall off, most notably with the recent loss of its key account: the Wolfgang Puck frozen pizza line. “I scramble now,” said Vitale. Vitale said he began to fall behind on his electricity payments to Southern California Edison Corp. last summer. SCE threatened to turn off his electricity last fall, the kiss of death for a frozen food company. Vitale said he took out a second mortgage on his home in order to cope with his cash flow problems. Then three months ago, SCE asked for an $80,000 deposit, for the first time in the half century he’s been in business. “For 50 years I’ve never had to pay them a deposit,” said Vitale. “They (SCE) took my two highest bills and combined them and asked me to pay that as a deposit, and they did this without any consideration for the fact that they were threatening to put 150 people out on the streets.” But according to Glen Becerra, regional manager for SCE, the utility’s $80,000 deposit, which was paid, represented only a fraction of what OH BOY! owed. In addition, Becerra said SCE set up a payment plan for Vitale to handle the overdue bills and even sent out a team to identify ways in which OH BOY! could reduce its energy costs. “We worked with them on every level,” said Becerra. “We recognize that they are a large employer and an employer that we have a long history with. So we didn’t want to shut them off. We just couldn’t do that. However, the deposit was necessary because, after 50 years, clearly something had changed. So we had to make changes of our own out of fairness to the company and our other customers.” Vitale said he threw his hands in the air and went to Pulido for help. He said, “They put me in touch with the VEDC. Thank God for them.” VEDC President Roberto Barragan said the funding is expected to help OH BOY! not only turn its finances around, but give Vitale the capital to expand. “We will act as the intermediary for them,” said Barragan. “What makes this so significant is their real estate holdings. They have a plant of 50,000 square feet we are using as collatoral, and they have another 2.5 acres they could use for expansion down the line.” San Fernando, with a predominantly low-wage, Latino worker base, has witnessed an exodus of manufacturing firms over the last few years. Pulido said the county program could be tapped to help other businesses in San Fernando stay afloat. “This is not just a Band-Aid,” said Pulido. “This is a comprehensive financial package.”