How a Techie Followed the Money to Win Brokers Over Real Estate by Shelly Garcia One of the things that I’ve always liked about covering the real estate scene in the San Fernando Valley is just how easy it is to get brokers to talk about their deals. Deals are, after all, what brokers live for. Which makes Rick Pelz’s accomplishments all the more noteworthy. In January, Pelz, vice president and CIO at Marcus & Millichap Real Estate Investment Brokerage Co., landed on Computerworld magazine’s list of the 100 premier information technology leaders in the country. It is a list that also includes folks like Michael E. Cromar, vice president of e-business and global business process for IBM Global Financing, and Bob Bickel, chief technology officer at Hewlett-Packard Co., all worthy recipients, I’m certain. But their clients know technology, they like it. Heck, they breathe it. When guys like Cromar or Bickel sit down to work with others in their company, they all speak the same language. Pelz, on the other hand, would seem to be a fish out of water in the real estate biz, an engineer in a world of glad-handing, people people in relentless pursuit of their next deal. His job, when he joined Marcus & Millichap in 1998, was easy enough for a techie: set up a centralized, Web-based network that far-flung brokers could use to access listing and sales and marketing tools and send e-mails, among other tasks. But in 1998, brokerage houses were pretty much the insects of the information technology evolutionary chain. (Pelz says it’s still the most sophisticated system in use in the brokerage business, where many companies outsource their computer services.) And unlike his former “clients” at Bank of America Corp. or Pacific Gas & Electric Co., where Pelz set up similar systems, brokers didn’t want to devote a nanosecond to technology. Pelz not only had to get up to speed on how the real estate business works, he had to make the system so seamless brokers would buy in and use it. And he had to do all that while cajoling the brokers into paying attention and offering input and perspective on their needs. “In a brokerage they give you about a minute, and in banking they give you about a day,” Pelz said. What earned Pelz the respect of his broker colleagues along with his recent award was his ability to break through the culture gap to get the broad-based support he needed to build the system, and it didn’t come without a few mistakes. Pelz found he had to start over when his first assumptions that brokers would be willing and able to spend time inputting data and managing their databases turned out to be unrealistic. “I realized the broker makes no money doing that, so you’ve got to get the broker out from behind the desk and into the field,” said Pelz. He also had to find a solution that was attractive enough to get brokers to give up the systems they had been using, systems that, it turned out, were as individual as the brokers themselves. “Every broker had their way of doing a deal, of managing a contact, of doing a listing proposal, of doing a marketing package,” said Pelz. “They don’t like change. The big challenge was to get all of them to migrate to an IT solution that would increase their production.” How did he do that? “Rick’s had to sell his technology as something that will help our brokers make more money,” said Bill Millichap, chairman of the company. “Rick knew that took speed, reliability and the vision to bring us incrementally along.” Yeah, but how did he do that? I asked Pelz. “Keep it simple and make it productive,” he said, an answer that I suspect doesn’t begin to explain the complexity of the process he went through. Medical Facility Leased Up Rolling Oaks Medical Center, a Thousand Oaks facility developed by Amoroso Cos., has been fully leased to six tenants: Kidney Center of Thousand Oaks, Comprehensive Imaging Center, Dr. Melvin Hayashi, Thousand Oaks Dental Center, Southern California Orthopedic Institute and Thousand Oaks Surgical Institute. The 38,000-square-foot medical center is the first of a two-phase development that will also include a 40,000-square-foot hospital. Michael Slater and Tom Dwyer, brokers with CB Richard Ellis, represented Amoroso. Sublease Activity Stirs Some of the growing inventory of sublease space was filled in recent weeks. Axius/Autoshade, a maker of automotive accessories, subleased 126,662 square feet of warehouse space at 700 Science Drive in Moorpark from its former occupant, Aldik Flower. Bob Kahn at CB Richard Ellis represented Axius. CB’s Craig Peters and Doug Sonderegger represented Aldik. eBuilt Inc., a software company based in Irvine, subleased 9,600 square feet of office space in North Hollywood to two tenants. Herzog Productions, an entertainment firm, and Media Temple Inc., a web-hosting company, signed on for the remaining four-year terms at 4640 Lankershim Blvd. The combined transactions are valued at $700,000. Robert D. Erickson, a broker with Cushman & Wakefield, represented eBuilt. Trevor Belden with Lee & Associates represented Herzog and Gil Canton of CB Richard Ellis represented Media Temple Westlake Leases Among the new tenants at Westlake Corporate Centre, an 85,000-square-foot office complex at 2659 Townsgate Road and 875 Westlake Blvd. in Westlake Village are: Cain Technologies, an electronics firm; Eugene Lee, physical therapist; Barbara Freedman, psychologist; Philip Black, attorney at law; Heidi Ellis Buschow, speech therapist; and Nagy Protection Services. Tony Principe and Alisa Barbarino, brokers with Westcord Commercial Real Estate Services, represented the landlord, Johnston Group. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14, or by e-mail at [email protected].

Inside Baseball Over Breakup Terminology Too Late Commentary: From The Newsroom by Michael Hart Does the San Fernando Valley want to “secede”? Would it rather have “cityhood”? Or does it just want to help itself and its neighbors to the south “specially reorganize”? The question in some circles is apparently not whether to be or not to be, but how to frame the question, skirting dangerously close to the Clintonian debate on what you mean by “is.” There is a little inside baseball going on among what I will for the moment continue to call secession advocates that is interesting. However, the fact that such an issue is still being debated with such passion so close to what should be the inauguration of a massive election campaign does not sound good for secession I mean, special reorganization fans. Here’s the deal: Some people interested in having the San Fernando Valley become its own city have begun to express reservations about what has been known as secession. They note the state legislation that pulled the trigger on the whole business a couple of years ago defined the process as a special reorganization. They make the argument that the Valley is not trying to break away from Los Angeles as much as it is trying to reorganize one city into two. Bob Scott of the Civic Center Group went so far as to say in a widely distributed e-mail last week of the term secession that “some in the minority community even hear it in the unflattering context of the Civil War.” Scott’s much cc’ed e-mail was addressed to Ken Bernstein of The Civic Forum, a group of business and community leaders who have joined together in hopes of providing a middle ground from which objective information about a potential breakup could be disseminated and discussed. Scott makes a good case that established vernacular and old habits that are hard to break notwithstanding anything along the lines of special reorganization or even cityhood would be preferable to secession when it comes to describing what is going on. Among those cc’ed was Jeff Brain of Valley VOTE who, as might be expected, went a little further down this trail by advising Bernstein, “If you are to be a neutral facilitator of information on this issue, then the term ‘Special Reorganization’ is the term you will use.” So, there. Bernstein, exercising great common sense, said all this is logical but the fact is that secession is what the public has come to call it and something as bureaucratic-sounding as special reorganization would just confuse people. What’s more, he pointed out, the term cityhood is likely to elicit as many negative reactions from opponents as secession does from the advocates of whatever it is. As a longtime copy editor, let me parenthetically suggest that, before any of you wannabe headline writers go crazy over the idea, just try to cram the eight-syllable “special reorganization” into the space you’ve grown accustomed to fitting the three-syllable “secession” into. All this terminology debate is interesting enough, particularly since you even get the chance to consider how many of our neighbors here in the Valley are drawing parallels to the Civil War. It’s also just one more show in a many-ringed circus: There’s the ongoing tussle over who can come up with the most accurate potential first-year budget for a new city. The estimates alternately tossed out by the city and Valley VOTE are so far apart, it’s hard to trust either one right now. There’s the ancillary debate over how many Los Angeles City Council districts the Valley should get (enough to make the Valley happy about sticking with the status quo, but not enough to insult the rest of L.A.). There’s the squabble (which only seems like it’s gone on forever) about which municipal assets should belong to whom by when. The Daily News even had a contest to pick a new name. Add the debate over whether you’re hopping on the secession bandwagon or the cityhood train, and there’s an issue for everyone. However, regardless of how any of these various little issues are resolved, sooner or later LAFCO probably is going to say, yes, you get to decide on Tuesday, Nov. 5. And then, suddenly, the fun and games stop and a few other questions become more intriguing: – Who out there is raising the millions of dollars needed for the kind of high-profile election campaign Southern Californians are used to? Knowing that it isn’t just Valley voters who’ve got to be convinced, a full-fledged media onslaught that will reach every citizen of Los Angeles is going to be necessary. Mayor Jim Hahn has pledged to raise $5 million for the opposition; who’s doing as much on this side of the hill? – Under the circumstances and regardless of what the latest polls might say, convincing the Valley this is a good idea will be a comparative cinch; people here have had decades to build up their resentment. But how do you tell the other two-thirds of L.A. that smaller government is good for them too? If it took this long to develop critical momentum in the Valley, will 10 months be enough for the rest of the city? – Finally, and perhaps the question many have been afraid to ask: Who are the political leaders that will answer the call once an election campaign begins? Those with the highest profiles in the secession/special reorganization movement in recent years David Fleming, Richard Close, Jeff Brain all say that is for somebody else besides them. But who? The Valley’s two most popular politicians at the moment, Assembly Speaker Bob Hertzberg and City Council President Alex Padilla, have announced they’re working for the other side. So who’s in charge? And what are they doing? No more inside baseball, it’s time for the serious politics to begin. Michael Hart is editor of the San Fernando Valley Business Journal. He can be reached at [email protected].

City Union Chief Takes ‘No Questions Asked’ Stance Politics by Jacqueline Fox Representatives of the Service Employees International Union Local 347 have backed down on their earlier vow to request a formal audit of the Comprehensive Fiscal Analysis report released last month by the Local Agency Formation Commission (LAFCO), the agency weighing secession. According to Julie Butcher, the union’s general manager, she and other members decided they were more concerned about LAFCO’s financial projections than technical data, and there was no guarantee the State Controller’s Office would consider them important enough to dig into. “The concerns we have are with LAFCO’s presumptions and analysis, and we just felt the state likely wouldn’t consider them to be significant enough to approve for an audit,” said Butcher. In addition, Butcher said requesting an audit could have slowed down the process for crafting a ballot initiative in time for the November election. Meanwhile, members of the United Chambers of Commerce decided to hold off on a decision to take a formal stand for or against secession. UCC board members had been expected to come out in favor of secession late last month. However, they agreed instead to wait until LAFCO releases the final terms and conditions before choosing sides. Representatives of the Valley Industry and Commerce Association and the Economic Alliance of the San Fernando Valley have also said they would not announce their positions on secession until after the terms and conditions are released. The Los Angeles County Federation of Labor, however, has formally launched its “No on Secession” campaign. The federation, an umbrella group representing several unions with 800,000 workers, voted to launch a drive to dissuade voters from supporting a Valley split, saying secession threatens to take jobs away from its members. Off the Map Universal Studios isn’t the only San Fernando Valley institution to take issue lately with LAFCO’s proposed map of a new city. Universal officials are upset with the latest proposed map for a new Valley city because, in a post-secession world, Universal City could be split up among three separate municipalities: The new Valley city, Hollywood and Los Angeles. The map also outlines a new Valley city’s council districts. Secessionists have concerns because it places Los Angeles Pierce College in the communities of Winetka and Canoga Park, instead of its long-time home, Woodland Hills. LAFCO commissioners argued recently that population figures for the area immediately surrounding the college were too high to include it in a proposed District 8, based on census tracking requirements. Secessionists say that’s hogwash and want the map redrawn. They got a little support from Commissioner Zev Yaroslavsky who said of the area surrounding the college, “pigs outnumber people there 10-1.” Is It or Isn’t It? Officials with the California Technology Trade and Commerce Agency are apparently miffed with state Assemblyman Tony Cardenas for supplying the L.A. Daily News with what may have been misinformation about the potential closure of the San Fernando Valley Financial Development Corp. (FDC). The agency funds the FDC, which is overseen by VEDC. The VEDC announced last month that the FDC, which helps small businesses get guaranteed state loans, was in danger of being shut down because of budget cuts. Then Cardenas was quoted in the press as having secured funding for the program, thus saving it from closure. VEDC spokeswoman Kerry Aubry said part or all of that story was incorrect. However, she wouldn’t confirm whether closure was still an issue. Stay tuned. BID Business Roberto Barragan, president of the Valley Economic Development Center, said recently his agency is negotiating to take over a number of business improvement districts in the Valley because many involved with the BID’s say they are not doing much to increase business the original idea particularly along Ventura Boulevard. “They just aren’t working as efficiently as they could be,” Barragan said. The BID’s are part of a community program that involves designating certain areas for landscaping and structural improvements, paid for by fees collected from property owners. But business owners involved in BID’s say they don’t end up seeing much impact on their bottom lines. Topiaries and new awnings, many say, just aren’t enough to get people get out of their cars to shop. Barragan said a VEDC takeover would focus on increasing the financial resources of the BID’s by widening the pool of available loan and financing programs. The Boulevard Gets a Hand Mayor James K. Hahn and the L.A. Department of Transportation launched a new program Jan. 31 to help ease the gridlock along Ventura Boulevard during the morning and evening rush hours. The DOT has agreed to place eight officers at five of the boulevard’s busiest intersections to direct traffic. The intersections at Van Nuys, Sepulveda, Laurel Canyon, Coldwater Canyon and Beverly Glen will be manned from roughly 7 a.m. to 9 a.m. and 5 p.m. to 7 p.m. each weekday. Jacqueline Fox is political reporter for the San Fernando Valley Business Journal. She can be reached at [email protected].

INTERVIEW: Hahn and His ‘Great City’ Mayor James Hahn is putting in overtime to see the San Fernando Valley remains part of a Los Angeles he’s worked a lifetime to lead. By JACQUELINE FOX Staff Reporter Since he was elected mayor of Los Angeles in June of 2001, James K. Hahn, 51, has repeatedly referred to Los Angeles as “this great city” and, for the most part, business owners and residents in the Valley tend to agree with the mantra. But that doesn’t mean there isn’t plenty of discord brewing here, vis- & #341;-vis a secession drive, disgruntled business owners seeking a fairer tax system, and commuters who battle some of the worst traffic in the country each day as they crawl from one end of the Valley to the other. As the push for secession started to heat up last summer, Hahn announced his own plans for keeping the city together. His strategy was highlighted in November with the formation of his political action committee, L.A. United, which has vowed to raise a $5 million war chest to stop secession. Hahn agrees voters should have the right to decide the issue this year but he recognizes the fact that, in order to convince them secession is a bad idea, he’s got to meet them face to face. So he’s begun to build a presence in the Valley, becoming a regular at many civic and social events, calling for city commissioners to hold meetings locally, and working to strengthen relationships with business owners and residents. But Hahn has also been criticized by members of the business community for dragging his feet on filling all 300 of his commission appointments and for keeping what they call a low profile in the stalemate over development of the Van Nuys Airport. Jacqueline Fox, political reporter for the Business Journal, met with the mayor recently to discuss the drive to break up Los Angeles, how it’s affected his administration, his blueprint for improving the level of services in the Valley and what else he intends to do to keep the city whole. Question: As a long-time city official you’ve seen the issue of Valley secession come up before, albeit not quite as vigorously. What makes this movement so different that it’s forced you to raise $5 million to kill it? Answer: It’s real this time because they’ve got petitions to start the LAFCO process and we know it’s headed for a vote in November and anytime there’s a vote on anything, there’s the possibility that the side that you want to win doesn’t win. So, I think that it’s a decision that needs to be made, made once and for all, and I want to be able to make the case while we’re stronger. Q: How much money has your PAC raised so far? A: Well, we just started raising money (and have) $30,000, but we expect to get more aggressive as we go past the March primaries. We’ll work very hard to raise the funds from people who feel that this is just the wrong time to break up this great city. Q: The city and your staff have clearly invested a lot of time and money coming up with the data to prove secession would be harmful. That’s time and money that could have been used to improve city services. How has this work on secession impacted your administration? A: I disagree that we were trying to prove secession would be harmful. We were trying to come up with the data so people can make the decision. This is a process that LAFCO requires the city to do. We had to come up with the financial analysis for how the new city would be able to function, how the old city would be able to continue services and what the cost differential is. This has been enormously expensive for the city. This special dispensation has been given to the folks who are promoting breaking up the city, because usually this kind of expense needs to be borne by proponents, and all along the burden has been on all of the city taxpayers to do this. But I think that since this is something that has been simmering for a long time, we need to get the facts out. Q: You’ve promised to improve the quality of services in the Valley, but many residents say they’ve heard this before. Now, with budget cuts and a call for a citywide hiring freeze there’s concern that city services everywhere will be compromised. What do you think you can do in the next 10 months to improve services that previous city administrations haven’t been able to do in the last 10 years? A: Well, obviously it’s not what I had planned. I planned on having the same kind of revenue growth the previous mayor experienced. He was getting almost 10-percent revenue growth per year and was able to do a lot of different things. So if I’d even gotten half of that, there would have been a lot of money to improve things like street paving and sidewalk repair and tree trimming and all the kinds of visible things that people want to see. We are facing a huge budget deficit now of $250 million next year. It’s going to be very difficult, but I’m going to ask the general managers and the city employee unions to figure out ways to deliver services more efficiently. Q: Clearly you’ve been increasing visibility in the Valley by having commissions hold meetings here, setting up a local office for your business team and being a part of civic organizations and events. Why shouldn’t Valley residents view your actions as nothing more than empty gestures designed to stop secession? A: Because it’s not only happening in the Valley. It’s not just about the Valley, it’s not just an empty gesture, it’s something we’re doing all over the city. We’re trying to bring government out to neighborhoods and out to people. Q: Not only do many say that it will be years before neighborhood councils in the Valley are fully up and running, they add that they will give residents little power to affect change. What’s holding up the process and how can residents be assured that, if they get involved, it will be worth their effort? A: What I’ve said was I want to give these neighborhood councils real involvement with city government. I want them to review budgets of departments, review the performance of general managers, get them involved, let them know that their voice is really going to be heard. The first year (neighborhood councils were introduced) I don’t think Mayor Riordan gave this department enough money to get it started. There’s a lot of work to get people organized around a totally new idea, there’s a lot of skepticism about it and getting people started has been very difficult. In a sense, I think we are a year behind where we wanted to be, but I think we’re moving very fast now. Q: The Valley Industry and Commerce Association has formally asked your staff to study alternatives to the gross receipts tax structure. Will you support the idea? A: Yes. I think we need to take a look at the whole revenue structure of the city to see if it’s fair to business, fair to homeowners, how the tax burden gets shared. Everybody thinks they pay more than their fair share, but I think everything ought to be on the table. We ought to really take a look at our revenue structure and see if it makes sense. Q: Operators at the Van Nuys Airport say LAWA’s inability to craft a master plan for land use is hampering their plans for expansion and refurbishments. They’d like to see you direct LAWA to come up with a plan by the year’s end. Will you do it? A: It really hasn’t been fair to the business owners that we haven’t been able to come up with that plan, so I’ll do my best. We should have had one by now but we keep having this battle with the city council that has kept us from moving forward. But we’ve got to bring more closure to that. Q: You’ve vowed to bring more buses to the Valley. Can you update our readers on the East-West Transit Corridor project? A: The bus way is going to move forward. It’s a very expensive project. I think for the same amount of money, you could do much more with expanding the rapid bus program. I think we’re going to do that anyway. It’s been very successful on Ventura Boulevard and they’ve had a huge increase in ridership. And you can do that without infrastructure improvements at all. But the MTA’s going forward with the East West Transit Corridor, and it doesn’t look like anything is going to slow that down and it will be beneficial. Will it be worth the amount of money we’re going to spend on it? I guess time will have to tell. Q: Some Valley business leaders say, with or without secession, the Valley should have an autonomous transit system. Meanwhile, the MTA is proposing a Valley-based extension of its own agency. Which would be more efficient and why? A: I like the outlines of (the MTA plan) of basically decentralizing MTA so that there would be different semi-autonomous regions. A Valley transit zone still would have to honor the contracts that the current bargaining units have with MTA, so I don’t know where the savings is necessarily going to come in.

Special Delivery to the Bottom Line After the tech fallout cut revenues by a third, a Moorpark quality assurance firm concentrated on helping clients move products to market more quickly. By CARLOS MARTINEZ Staff Reporter Three years ago, Moorpark-based quality assurance firm Quality Logic Inc. had a good business. In 1999, it had sales of $9.9 million providing a number of services to mainstream clients like the Hewlett-Packard Co. and International Business Machines Inc. Then, like many companies, it saw an opportunity in the dot-com bonanza, took it and like many suffered the consequences. Today, after drastic cutbacks and layoffs, the company has narrowed its strategy, hoping for recovery by helping companies get their products out the door faster. “When we saw the dot-coms start to fall one by one, we knew we were in trouble,” said James Mater, company CEO. The privately held quality assurance firm was relegated in 2001 to watching its client list and its revenue drop, wondering whether it also would go by the wayside. Today, the company is doing about two-thirds of the business it did just two years ago. “We’re still here, so that’s a lot better than some other companies hit by this recession,” he said. Established in 1999 when Mater’s Woodland Hills-based Electronic Data Systems acquired Genoa Electronics, the firm mixed Genoa’s software-making expertise with its own electronics equipment testing service to create Quality Logic. Quality Logic tested printers, computer hardware and software for a number of mainstream firms. But more and more dot-coms also found a need to continually test their Web-based software and servers. Quality Logic had revenues of $18 million in 2000 and projections of even more in 2001, Mater said. But after the dot-com meltdown, Quality Logic was left to cut back drastically or become another casualty of a tough economy. “We started (2000) with 200 people and we ended up with 100 after we closed offices and cut out all the waste, but it didn’t really seem like enough,” Mater said. When Mater couldn’t cut anymore, he and his staff decided it was time to rethink their strategy. “We thought, ‘Let’s start pushing marketing,’ and eventually that got things started,” he said. Instead of focusing on quality assurance programs that ranged all the way from product development through the manufacturing process, Mater told clients his company could help them move their products faster and more efficiently to market. Efforts to stem the revenue drop through the new sales pitch slowly began to work, said David Jollota, Quality Logic COO. “We had to shift our focus to help companies with the problem of ‘how do we help you get your product out the door?’ instead of ‘how do we help you with some good development practices?'” Jollota said. Dan Twitty, vice president of application programs at Bank of America, said companies now are more interested in streamlining the manufacturing process than in traditional quality assurance in the overall product development process. “They can’t afford to spend money on things that they won’t see a return on for years,” he said. The company focused the marketing strategy on a few key clients, like Hewlett Packard and Microsoft Corp., and more sales dollars began trickling in. Still, Quality Logic closed 2001 with $12 million in sales, $6 million less than a year earlier. CFO Deborah Fields said the sharp revenue decline took the company by surprise. “We suddenly had to shift our focus from investing in our infrastructure to having to pull back and put things on hold,” she said. The challenge in recovering from a tough economy, Jollota said, is to convince companies that quality assurance is truly important to their business. “People still think quality assurance is a luxury, so companies cut out the people in QA and later they end up paying for it with a bunch of defective products,” he said. Quality Logic Inc. today is continuing to push for companies to outsource their quality assurance services as well as their IT and computer consulting needs, Mater said. And while his company is still clearly in the recovery mode, Mater said, he hopes it will begin to expand by next year. “That’s our goal,” he said. Spotlight: Quality Logic Inc. Core Business: Software development and quality assurance services, information technology services. Revenue in 2000: $18 million Revenue in 2001: $12 million Employees in 2000: 200 Employees in 2001: 100 Goal: To help companies get their products out the door faster Driving force: An environment where technology companies need to boost bottom lines quickly

Little Good News Expected At Optical Communication CORPORATE FOCUS By SHELLY GARCIA Senior Reporter With no end to the telecommunications downturn in sight, Optical Communication Products Inc. is hunkering down for a long slump. A weakened demand for wireless services has eroded sales and reduced gross margins at the Chatsworth-based company. And while the worst of the sales downturn may be over, the outlook for a reversal remains bleak. Despite steps to cut costs on the one hand and bolster new products on the other, Optical Communication executives do not expect a recovery anytime soon. “We are not projecting any (further) deep reduction in revenue as we predicted over the last few quarters, but what we see beyond the next quarter is still hard to say,” said Muoi Van Tran, chairman and CEO at Optical Communication. “I think it depends a lot on the economy and how the service providers are doing. If they don’t do well, we won’t do well.” As wireless communication, including the Internet and mobile phones, grew in popularity, telecom providers began building networks that could transmit more and more data with more and more speed. Optical Communication, which makes fiber optic components for those networks, flourished. But last year, the supply of products began to outstrip demand. When providers such as AT & T; stopped selling, their suppliers, such as Lucent Technologies, saw their sales erode as well, and their need for components declined in turn. Optical Communication moved quickly to cut its expenses as sales began to slide, and the company slashed 110 jobs last July. It is also moving aggressively to shore up its market position once conditions improve. But after six straight quarters of revenue increases and strong profits, sales at Optical Communication are spiraling downward. “Our revenue has been decreasing over the last few quarters from $39 million to $14.9 million and this quarter $8.8 million,” said Tran. “We believe that this reduced demand is due to the reduced capital spending by service providers as well as existing inventory levels by some of our customers.” In its just reported quarter, Optical Communication registered its third consecutive sales decline. The company saw revenues fall nearly 79 percent to $8.8 million in the company’s first fiscal 2002 quarter ended Dec. 31 from $41.9 million for the same period in the prior year. Earnings decreased to $200,000 for the period or $0.00 per diluted share, from $10.8 million or $0.10 per diluted share in the same period of fiscal 2001. Although its revenues fell within the range analysts expected, Optical Communication disappointed on earnings, which were expected to come in at $0.01 per share, according to Thomson Financial/First Call consensus estimates. The news sent Optical Communication’s stock price sliding to $3.03 per share from $3.13 before the earnings announcement and down from a 52-week high of $19.25. On Feb. 1, shares in Optical Communication closed at $3.09. The outlook is just as problematic. Until the supply chain frees up for providers, Optical Communication is likely to see few orders pouring in, and so far, there’s little evidence that telecom providers will resume their capital expenditures anytime soon. Optical Communication projected that its second 2002 quarter revenues would fall in the $7 million to $9 million range, down precipitously from $47.9 million in the second quarter of fiscal 2001. Worse yet, the sharply reduced sales mean Optical Communication’s fixed operating costs have grown proportionately higher and operating expenses will continue to rise this year as the company continues to invest in R & D.; Optical Communication plans to introduce new transponders and transceivers in 2002 and, in the second quarter, additional hiring. “We are still continuing to bring in additional engineers,” Tran said. “As we add additional heads, you’re going to see that (operating expense) number increase. In the March quarter, we’ll see an increase of 10 or 15 percent.” A continuing decline in revenue levels, coupled with further erosion in gross margins as a result of the increased spending, means Optical Communication is not likely to turn a profit anytime soon, analysts said. “We have lowered our (fiscal 2002) revenue estimate from $38 million to $35.8 million, and our EPS estimate from $0.05 to $0.00,” wrote Conrad W. Leifur and Frank R. McEvoy, research analysts at US Bancorp Piper Jaffray in a report issued on Jan. 30.

Van Nuys Airport Operators Sing the Blues Some Wait 12 Years For OK to Expand By JACQUELINE FOX Staff Reporter Mark Sullivan, owner of Skytrails Aviation at the Van Nuys Airport, has a small fleet of new jets sitting on the tarmac outside his 17-year-old company. The planes butt nose to nose in precariously close quarters, packed in tightly because he doesn’t have enough hangar space for them all. Not that there isn’t room for him to build more hangars, or that he doesn’t have the money to pay for them. In fact, Sullivan is one of six longtime leaseholders at VNA who’ve submitted proposals to develop a long-vacant 5.8-acre parcel, once leased by the late Walt Disney, for expansion purposes. But a 12-year stalemate over a master plan for land use at the VNA and residents’ demands for noise and safety controls, operators and others say, keep their projects grounded. As a result, the airport, which has operated in the red for several years, its tenants and the city of Los Angeles are losing out on millions of dollars in new revenue and taxes. Meanwhile, many operators believe their landlord, Los Angeles World Airports (LAWA), is pushing ahead with its own developments, namely a planned transfer of a maintenance yard to a vacant 70-acre parcel once used by the Air National Guard and a new $34 million facility for Flyaways, a passenger transfer system to LAX. “My business is growing like crazy right now,” Sullivan said. “I’ve got a quarter of a billion dollars of aircraft on my property that I can’t even get hangars for. And (the owners) could leave and go someplace else like Burbank or Camarillo. Is that business-friendly, or business-unfriendly?” The RETLAW (Walter spelled backward) property is actually one of three available parcels at the airport Sullivan and other aviators would like to develop. Although LAWA officials say a blueprint for a master plan is nearly complete, an approved version probably won’t surface before year’s end, and they aren’t likely to award any development bids before that. In addition, the city planning commission recently adopted an Interim Control Ordinance (ICO) requiring all development plans be pre-approved by the Van Nuys Citizens Advisory Council (CAC), a group of homeowners and local business owners concerned mostly about tracking development and noise issues at VNA. The city says the ordinance is intended to spur LAWA to move quickly on a master plan. Others call it a stalling tactic aimed at keeping development at bay for as long as possible, adding that LAWA’s own projects have, in the past, been exempt from earlier ICO’s and likely will be this time around. The fact that operators must have their plans reviewed by the CAC tells them the city is giving the group an ad-hoc approval role in development at the airport. From the CAC’s perspective, it gives the public more say in what happens next. “Our position, and that of all the business owners at Van Nuys, is that, for all the airport does and can do for the Valley economy not to mention the city proper it’s criminal to neglect it and thwart this development,” said Robert Rodine, chairman of the Valley Industry and Commerce Association aviation committee. While only one bidder will get the RETLAW project, the other five plan to develop at other locations at the airport. Rodine said that together they could eventually develop roughly 40 acres for new business and pump an estimated $75 million into the local economy during the construction phase. Post-construction revenues could be as high as $530 million a year for the Valley, he said. Airport spokesman Richard French said interviews with the six leaseholders are being scheduled. He downplayed the notion that LAWA was trying to thwart aviation development, saying that right now the agency’s primary focus has been on post-9/11 security mandates. “What people might not realize is that we are still in recovery and what affects LAX also affects us,” said French. “So it’s not that we aren’t moving on it, we’re just moving more slowly.” Rodine said, “It’s just phenomenal to think that all this potential economic power is lying dormant while LAWA and city officials drag their feet.” The airport’s losses for fiscal year 2001 ending June 30 were $572,000, but have consistently topped $4 million in recent years. Post-Sept. 11 expenditures are likely to produce even steeper losses in the 2002 fiscal year. French said the ICO is intended to streamline the process for getting a master plan in place. “We view the ICO as a way to facilitate business because we think it gives us guidelines to go by while LAWA is drafting a final plan,” said French. “It’s intended to keep things moving along.” Not every operator at VNA wants to develop vacant land. Some just want to bring their older buildings up to date. But they too say they have been hampered by LAWA and the city’s refusal to negotiate without an approved master plan in place. “They (LAWA) push for anything it wants to work on, but tenants who pay rent here can’t get anything done,” said Harold Lee, owner of Million Air. “It would just be nice if our landlord supported us.” Lee wants to build a new $15 million, 300,000-square-foot office and hangar complex. Planning Commissioner Bob Scott, who voted against the recent ICO and previous exemptions for LAWA, said the ordinances are a transparent effort by the city to stall development. “ICO’s are a death knell for the area because of the stigmatizing effect they have,” said Scott. “No one can get a long-term lease. No one can make refurbishments, and I have a real feeling of guilt about that. I think we’ve done a disservice to businesses based there. To me, (the ICO) gives LAWA cover and an excuse and an apology to go for another five or 10 years arguing it out.”

Biotech Has a Magic Pill for Growth in ’02 By SHELLY GARCIA Senior Reporter While cutbacks and caution mark most sectors, the biotech industry in the San Fernando Valley and its environs is enjoying double-digit revenue increases and planning aggressively for the year ahead. The local optimism mirrors the national outlook for the industry, which has seen an average annual growth rate of about 11 percent continue unabated despite the slowdown in nearly every other part of the economy. The sales growth in turn is prompting additional spending on research and development and, in some cases, capital improvements, pumping up the local economy at a time when many other industries are cutting back on such expenditures. “Most companies I saw (at a recent biotechnology conference) are looking for better top-line growth than they’ve had in the last couple of years,” said Charles C. Best, CFO for BioSource International Inc., a Camarillo-based maker of tools used for research, testing and manufacturing. “Most are committed to more R & D; spending.” Biotech firms nationwide last year generated revenues of $25 billion, up from $22 billion in 2000 and double the size of the industry in 1996, according to data compiled by Ernst & Young LLP. With more than 300 new drugs currently in late-stage clinical trials and dozens of those likely to launch in the market this year, the sector is expected to exceed those annual growth averages in 2002. Statistics are not available for the band of biotech companies that stretches from the San Fernando Valley to the eastern end of Ventura County, a much smaller cluster than the communities in San Diego to the south or San Francisco to the north. But many local firms offer similarly optimistic projections. “This will be the most dramatic year in our history,” said Mark Stene, vice president and general manager of Esoterix Inc.’s endocrinology division, a Calabasas Hills company dedicated to highly complex diagnostic testing that detects genetic mutations and other research technology for medical care providers and drug companies. “Our growth rate is in the high teens.” The aging of the baby boom population has provided a ready and largely untapped market for new diagnostic procedures, treatments and therapies that promise to ward off disease, reduce its effects and even postpone the inevitable, driving the success of these companies and interest from investors. And progress in cataloging the human genome has transformed many of these endeavors from the realm of academia to real business pursuits. “We have a lot more answers now about how the human body works,” said R. Steven Davidson, CEO of Zengen Inc., the Woodland Hills-based company that developed the over-the-counter cold remedy Zicam and is currently working on a number of ethical pharmaceuticals (prescription drugs). “It helps the scientist or researcher to answer those questions that you would have to research out or, quite frankly, guess at before.” With a map of human physiology, scientists are able to speed the time it takes for a product to go from the research to the clinical trial stage and, eventually, to market. “A DNA test that took hours to do five years ago can now take a couple of hours,” said Ricardo Ordonez, spokesman for One Lambda Inc., a Canoga Park-based company that provides testing services for implant compatibility. The quickened pace of research has, in turn, stepped up R & D; spending. Last year, R & D; expenditures increased 30 percent to $13.8 billion industrywide, according to data compiled by Ernst & Young. Budgets, typically in the range of 10 percent of sales, are slated to rise to 15 percent to 20 percent of revenues this year. As many of these companies’ initial products reach critical mass, they are able to generate sufficient revenues to pump more funds into research and development, expanding further still the products that come to market. Advanced Bionics Corp. is a case in point. The Valencia-based company was founded by Alfred Mann to manufacture a device able to treat certain types of deafness through neurostimulation, changing the way sound is delivered to the auditory nerve in the brain instead of merely amplifying the sound, which is what hearing aids do. The technology behind Advanced Bionics’ cochlear implant, recently brought into the limelight when it was used to treat radio talk show personality Rush Limbaugh, is now being applied to other conditions, generating more R & D; needs and pumping more dollars into the economy. “As you move toward clinical trials, expenses increase exponentially,” said Bob Paulson, senior vice president and general manager of the auditory products division of Advanced Bionics. “In the natural maturation, you start adding people and infrastructure to support a product.” Younger firms more typically seek alliances and partnerships at different stages of development to reduce the costs of what can be a long clinical trial process and decrease the risk. BitTech Inc., a six-year-old company in Westlake Village, was formed with a $2.26 million grant to research cancer. Last year, with a patent on a technology that can help to destroy cancer cells without affecting healthy cells, the company established BitTech OncolLogic Corp. to pursue commercial areas for its technology. The company is looking for a strategic partner to help. “Business-wise, for that particular technology, we can’t discover and develop therapeutics on our own,” said Grant A. Bitter, BitTech’s founder. “For a strategic alliance, we would want to look for a larger biotech and pharmaceutical company interested in developing cancer therapeutics.” Zengen, which just sold its Zicam business for $17 million, has been able to pump some of that profit back to its ethical pharmaceutical research, but as the company proceeds with its other projects, including therapies for inflammatory bowel disease and work with antimicrobials, it plans to seek out licensing and other types of alliances. “What it does allow us to do is bifurcate our pathways and hit multiple applications at the same time,” said Davidson. “That helps because working on one indication is a big risk. There are companies putting all their money into one indication and, if it doesn’t go, that’s the end of their company.” For the most part, it appears there is no dearth of companies seeking alliances or investors willing to plow money into many of these projects. So exacting is the research required, that a single company, no matter how large, often lacks the expertise to take a product through the development process alone. And in the aftermath of the dot-com debacle, many investors are actively seeking out biotech ventures. The jackpot potential if a company were to find a cure for cancer or some other life-changing breakthrough is immeasurable. But even the promise of smaller victories that improve quality of life have drawn attention. The work at AlleCure Corp., a small Valencia company seeking therapies for autoimmune disorders that give rise to allergies, asthma and other conditions, has attracted considerable investment interest, including that of Mann who heads the private conglomerate of which AlleCure is a part. “A lot of these markets are under-served,” said Michelle Lozada, an AlleCure spokeswoman. “There are some options out there that treat symptoms, but they’re not addressing the underlying causes of the disease.” And as the baby boom generation grays, nearly every segment of the industry from arthritis treatment to pain management appears a ripe business opportunity. “The demographics in the health care industry are compelling,” said Paulson. “Two of the things that are certain in life is we all are going to age and we all are going to get sick. Those two things will never go away.”

The Briefing – THE BOSS’ MANAGEMENT STRATEGY RGEB Inc. was formed in 1996 when Renee Glickman decided to leave Blue Cross of California after 15 years as a regional manager. For the first several years, Glickman was virtually a one-woman show as she built her group insurance brokerage and employee benefits consulting firm. Then, her husband Barry Cohn joined her and became president of Tarzana-based RGEB. With the two of them working at it, RGEB has grown from a $600,000 company in 1996 to one with premiums of about $4.5 million expected in 2002. They have both finally moved out of the corporate world and into one in which the married couple are together, well, a lot. Second, they have had to grow their business fully aware that their old clients still wanted the same thing they did when Glickman was that one-woman show: excellent customer service. Barry Cohn spoke to Business Journal Editor Michael Hart recently about how they handled those transitions. “My wife worked for Blue Cross and then decided to go over to the agency side of the business. For the first four and a half years, it was just her and one assistant. “I spent 25 years in corporate banking. A year and a half ago, the timing was right to get out. “We had met with three other couples who had businesses together. We learned it’s important to try to keep business hours business and personal hours personal. “Our business leads went from about four to 20. Suddenly, Renee was adding 10 clients a year, and we knew it was time to do something. When you run your own operation, it’s all in your head. Moving past that is the challenge. There’s only so many hours in a day. Either you have to be in the office to answer the phone calls and service the clients, or go out and get new business. “Because Renee had been in the business so long, we knew a lot of people. So, we brought on some people we already knew. One of them came on board full time and one part time. “Then we went to the One-Stop Center in San Fernando and hired someone who came highly recommended. Still, we basically trained this person from the ground up, and it has paid off. “What Renee specializes in is companies of 100 people or less. The biggest challenge in our business is customer service. For most of our clients, if you have under 50 people, you could go to 10 employee benefits companies and get the identical bid. There’s no difference in price. “We had to make sure we had people who would take care of our clients the same way we would.”

Playboy Breaks Ground on New $25M Studio By CARLOS MARTINEZ Staff Reporter Playboy Entertainment Group is building a 110,000-square-foot state-of-the-art digital production studio in Atwater Village, where it will consolidate its cable and online services at one location. The $25 million facility near San Fernando Road and Fletcher Drive in Glendale will become the primary production and editing facility for the company’s Playboy TV Networks, which operates The Playboy Channel, said Scott Barton, the company’s director of public relations. Construction is scheduled to be completed by July, on a site that housed a smaller production facility, Barton added. In a joint venture with Directrix Inc., a New Jersey-based telecommunications firm that will manage the facility at 3030 Andrita St., Playboy will consolidate all its television and Internet operations there rather than at the several locations it currently leases, Barton said. “We have our entertainment office in Beverly Hills, our production office on LaBrea (Boulevard) and studios in Hollywood, so we’re all over the place,” he said. The new facility will also house Playboy Entertainment’s flagship Playboy Channel and its sister service, Spice, which operates three separate pay-per-view channels. Other parts of the building will be rented to other tenants, Barton said. Richard Llewellyn, a press aide for Los Angeles Councilman Eric Garcetti who represents the area, said residents generally support a new production facility in the area. “There are production studios in the area already and I don’t think anyone would be opposed to it,” he said. According to Playboy Enterprises Inc. filings, revenue from its Internet and television operations account for about 45 percent of all sales. Altogether, the company’s entertainment unit reported net income of $25.3 million on $101 million in total revenue in 2000, compared to $44 million in net income on $125.8 million a year earlier. Playboy’s online business reported a net loss of $25.2 million on revenues of $25.3 million in 2000. Roger Faherty, Directrix CEO, said, “This facility will eliminate tape and everything will be in the digital format which allows for more efficiency and freedom to create shows.” Playboy plans to install $7.5 million in electronic equipment to produce programming for its Web sites and the Playboy Channel, Faherty said. Dennis McAlpine, an analyst with Josephthal, Lyon & Ross, said Playboy’s plan to build a digital television studio and production offices is in keeping with its efforts to bolster its presence in the cable television market. “They’ve made some big moves, particularly with its acquisitions of Vivid’s pay channels and going into video on demand,” McAlpine said, referring to the $70 million purchase of Vivid Entertainment Group’s three pay-per-view adult film channels last September. McAlpine said that by consolidating its Internet and cable television services in one place, the company would be better positioned to mesh the two together once broadband service becomes more widely available. Aram Sinnreich, online analyst for Jupiter Communications in New York, said Playboy’s consolidation strategy is on target. “They’re arguably the strongest brand in adult online content and they appear to be in a good position to grow that side as well as the television side of the business,” he said. Playboy, which already produces more than 200 hours of TV programming a year at its facilities, plans to ramp up its production schedule, which now includes the mystery series “Sexy Urban Legends” and a live call-in show, “Night Calls 411,” Barton said. “Having this facility will drastically reduce costs for us and allow us to do more things,” he said. Christie Hefner, chairman and CEO of Playboy Enterprises Inc., said the facility will mesh the company’s online operation with its television unit by providing streaming video of its productions for online users on Playboy.com. The company plans to enhance its programming by encouraging viewers to access its Web sites to vote on a show’s direction and to participate in other televised programs. Hefner said the facility, through its online streaming capabilities also will help attract more attention to the company’s e-commerce sites, Cyber Club and the online Playboy Store. Cyber Club, which will also move into the new studio from West Hollywood, charges subscribers up to $60 a month to view archived articles and photos from Playboy magazine. It currently has about 90,000 subscribers. The dot-com bust last year forced Playboy to hold off its plan to spin off its Internet business with an IPO.