Douglas Emmett Buys Complex Los Angeles-based Mani Brothers Real Estate Investment has sold a 60,000-square-foot office building in Sherman Oaks to Douglas Emmett Realty for $12.5 million. The four-story building on Ventura Boulevard is anchored by Sanwa Bank and has about 20 other tenants. Bob Safai of Madison Partners represented Mani Brothers in the sale. Major League Baseball Comes to Valley Major League Baseball has chosen the Hansen Dam recreation area for a $10 million, first-of-its-kind baseball complex to provide free training to economically-disadvantaged teens in a variety of baseball-related fields. The academy will include at least five baseball and softball fields, classrooms and training facilities for boys and girls aimed at developing skills in areas such as playing, coaching, umpiring, groundskeeping and other baseball-related fields. Under its Urban Youth Initiative, major league officials chose Los Angeles for the first-time academy in part because of the large number of big leaguers in the area. The big leagues first announced plans to found the academy in 1999, with an initial budget of $5 million, and a target of serving some 150 kids ages 10 to 15 annually. Completion of the academy is expected as soon as fall 2002. Valley Sun Sold Severyn Aszkenazy, owner of a San Fernando-based contracting firm, has purchased the San Fernando Valley Sun, a weekly newspaper covering communities in the Northeast Valley. As a result, the paper has a new look and a new name: the San Fernando Sun. Aszkenazy and his wife, Martha Diaz-Aszkenazy, own Pueblo Contracting Services. Diaz-Aszkenazy chairs the board of the Greater San Fernando Chamber of Commerce. Daily News Publisher Steps Down Ike Massey, publisher of the Daily News and chief executive officer of the Los Angeles Newspaper Group, will resign, effective July 1. Massey came to Southern California in November 1996 when the MediaNews Group formed the Los Angeles News Group and acquired the San Gabriel Valley Newspaper Group, which includes the Pasadena Star-News, the San Gabriel Valley Tribune and the Whittier Daily News. The company went on to acquire the Long Beach Press-Telegram, the Daily News, the Inland Valley Daily Bulletin in Ontario, the San Bernardino County Sun and the Redlands Daily Facts. Film Roman, Pentamedia Reach Terms Film Roman Inc. has reached an agreement that calls for Pentamedia Graphics Ltd. to acquire a portion of the company. Under the new terms, India-based Pentamedia will be issued one new share of Film Roman’s common stock for each $1.17 in value it receives from Pentamedia. Upon completion of the transaction, Pentamedia will own just over 49 percent of Film Roman’s common stock, with an overall valuation of up to $10 million. The new deal replaces an initial sales agreement between the two companies. No Annexation for Moorpark The state’s Second District Court of Appeals has invalidated Moorpark’s annexation of a large parcel that was to house the 3,221-home Hidden Creek Ranch development. Judges agreed with a lower court’s conclusion that LAFCO didn’t have sufficient evidence that the Messenger Investment Corp. project would meet environmental standards or provide adequate city services. The developer still has several options, including appealing the decision to the California Supreme Court. Messenger also could work with the city to submit a new annexation request to LAFCO and then put development plans before voters for approval. However, the compositions of the City Council and LAFCO have changed since annexation was approved in 1998. Two current council members, Roseann Mikos and Clint Harper, were leaders in the effort to block the Hidden Creek Ranch project three years ago. Mayor Pat Hunter cast the sole council vote against the development in 1998. The developer also could abandon annexation plans and attempt to gain approval for a significantly scaled-back version of the project through Ventura County officials. Matthews to Sell Assets A subsidiary of Matthews Studio Equipment Group, which filed for bankruptcy in April 2000, Four Star Lighting Inc., has signed an asset purchase agreement with Four Star Acquisition Company, LLC to sell Four Star’s New York operation for $12.65 million. Four Star rents theatrical and industrial lighting equipment. The deal is expected to close by June 8. Matthews Studio Equipment Group had been in the business of supplying equipment and supplies to entertainment producers through its worldwide distribution network.

New industrial development in the San Fernando Valley, once viewed as a sure bet, is turning out to be a much harder sell. Several of the companies that leased large portions of some of these new complexes have cut back or left the market altogether, leaving in their wake a condition previously unheard of in the region: industrial sublet space. Other facilities are taking longer to lease than anyone would have expected just a few years ago when developers began building the current inventory of upscale properties. “The cracks are in trophy buildings,” said Scott Caswell, a broker with Delphi Business Properties, which specializes in industrial real estate. “(Companies) are saying, ‘we’re not going to spend 90 cents a square foot, we’re going to spend 75 cents.” Consider these developments: – Enson Inc., a startup children’s wear marketer that had leased just over 108,000 square feet at the Airport Business Park, has pulled out of its lease deal. – Pharmavite Corp., which had planned a full-scale relocation of its corporate headquarters and manufacturing facilities to Valencia, is expected to scale back its plans to lease about 740,000 square feet in Vista Business Park in Valencia. – Nortel Networks is closing its facility in Tapo Canyon Business Park in Simi Valley, putting that space up for sublet. The chinks emerging represent only a small portion of the industrial real estate market in the Valley. Vacancy rates in the sector remain in the exceedingly low, 5-percent range. And some deals are continuing to get done. Indeed, a startup optical components firm, Quintessence Photonics Corp. has just leased 40,320 square feet in the Valley Gateway Business Park, a World Oil Corp. development completed last summer in Sylmar, according to Barbara Emmons, a broker with CB Richard Ellis Inc., who handled the transaction for the landlord along with Chris Sullivan at Daum Commercial Real Estate Services. But the apparent slowdown in the sector is nonetheless disconcerting to brokers and developers. A year ago, no one would have guessed that building a new industrial park in the San Fernando Valley was anything less than a swift license to print money. “When the GM plant was built, that went like hot cakes, and everyone was going, ‘gosh, this is great. Let’s build bigger buildings so we can do the same thing,'” said Emmons. “Then the next wave of properties was slower.” In 1998, when Voit Cos. and Selleck Development Group Inc. built Van Nuys Center at The Plant in Panorama City, demand was so strong that the 30-acre industrial portion of the development filled to capacity almost immediately. The companies snapping up 100,000- and 200,000-square-foot spaces in the blink of an eye sent a clear message to other developers, and many rushed to duplicate the successes they saw. Since then, Royal Clark Development Co. built the Cascades Business Park, a 66-acre industrial complex and golf course in Sylmar, and World built the Valley Gateway Business Park with about 170,000 square feet of industrial space, also in Sylmar. The Lewis Co. constructed about 450,000 square feet of industrial space in Van Nuys. And Trammell Crow Co., along with AMB Property Co., grabbed up the former Marquardt Co. site, beginning a project that all-tolled will either remodel or build about 680,000 square feet of industrial space. Some of the properties are still looking for tenants. Valley Gateway has 108,000 square feet remaining. And the Cascades has yet to lease any of about 360,000 square feet in a phase that will be completed this summer. Some brokers downplay the situation. “A lot of time until the walls are up, tenants can’t visualize it,” said Greg Geraci, vice president at CB Richard Ellis Inc., in defense of the lack of leasing activity at Cascades Business Park, which he is marketing. “We’re close on a deal on the 60,000-square-foot (building) and we’ve got activity on the other two buildings.” But others concede that the market has changed, and not for the better. “I had the space listed for three or four months for sublease to try to get my client out from underneath it,” said David Kimball, managing director at Julien J. Studley Inc., referring to an attempt to sublease the Enson space at Airport Business Park. “We had some people take a look at it, but right now it seems like everyone’s taken a step back and decisions aren’t being made as quickly as they were last year.” One issue is price. In their effort to capture some of the new economy companies expanding, developers built more expensive amenities into their projects, features that, in general, increased rents from an average of about 55 cents per square foot in older properties, to about 75 cents per square foot in the newer buildings. But perhaps more important are the volatile conditions at many of these companies. Enson simply failed to launch when the e-commerce economy turned sour. Pharmavite, caught in a downturn in the supplement market, determined that its plans to upgrade its manufacturing operation were too costly, according to sources. (Pharmavite officials were not available at press time.) And Nortel, caught in the tech wreck, has been forced to downsize. Even those companies that have not experienced any dramatic business changes have been forced to turn their attention to managing the store, putting relative luxuries like the search for new real estate on the back burner. “They’re focusing on the bottom line and making sure they’re selling their products,” said Kimball. “They don’t want to spend their time on real estate transactions. They want to spend their time on making sure their businesses are running properly.”

Zits Were Cheaper If the thought of going to your high school reunion makes you cringe, you’re not alone, especially if it’s how you look that’s making you cringe. In a poll commissioned by Westlake Village-based Jafra Cosmetics International, most women said how people looked, not what they did or how successful they had become, was the main topic of conversation after a reunion. About 33 percent of women respondents said they’d pass up their reunion because they didn’t like the way they looked. Only 15 percent said that they wouldn’t go because they weren’t as successful as they thought they should be. It’s probably no coincidence that Jafra commissioned the study to help promote its new Intensive Retinol Treatment, a cream that promises to combat wrinkles and other signs of aging. Still, the online survey of 1,032 women aged 35-49 had some interesting data to report. For instance, on the stress scale, reunions rated higher than meeting future in-laws. Most women, 88 percent, said they’d be willing to fork over money to gussy up for a reunion. On average, women nationally said they would shell out $138 to steel themselves for the parade of adolescent “ex’s” and why-nots. But in Western states, women were willing to spend more, an average of $164. That’s a lot of anti-aging cream. Think Snow The thermometer soared well into the 90s at most spots in the San Fernando Valley for at least a few days last week, prompting rolling blackouts, traffic jams and certainly a boost in water sales and long lines at Baskin Robbins. Organizers of the return of the Northridge Fashion Center Farmers Market & Family Festival took note of the heat, came up with a way to attract customers and commemorate the return of the popular evening family event, which opened Wednesday. They hauled in 25 tons of freshly made snow, giving children a way to chill out while their parents shopped for fresh produce and hand-made gifts. The snow was dumped in an area near Pacific Theatres and Zany Brainy on the mall’s north end. An ice carver was also on hand to create sculptures from blocks of the wet stuff. Pretty cool, huh? Superwomen to the Rescue Sherman Oaks-based TV producers Sid and Marty Krofft had a little fun recently when they sent actresses Markie Post and Anne Steadman, clad as superheroes Electra Woman and Dyna Girl, to personally deliver the pilot of their proposed series of the same name to the WB Network in Burbank. Bill Tracy, a spokesman for the Kroffts, said Post and Steadman arrived at the network’s studios in a limousine and promptly traversed a maze of corridors before finally presenting a tape of the pilot, dubbed “Electra Woman and Dyna Girl,” to network programming bosses. The network is scheduled to announce its fall lineup on May 15. “They were in their full costume with tights and red capes and a lot of surprised people,” said Tracy. Post, best known for her role in “Night Court,” plays a superhero who fights crime with teen-age sidekick, Dyna Girl, played by Steadman. The show is a remake of a 1976 series starring Deirdre Hall. Never-ending Issues The new agreement between the Writers Guild of America and the Producers Alliance has had an impact on the Residuals Bar in Studio City, a gathering place for local writers. Melissa Coury, a bartender there, says writers had been gathering more often at the bar in recent weeks to discuss the then-ongoing talks to hammer out an agreement between the writers and producers. “They’d been coming here pretty regularly and the talk’s been nothing but about the strike,” Coury said. With the strike ended and the run on domestic beer over, Coury says the crowds are still coming. “Now there’s a lot of loud talk about the contract,” she said. “I guess they still have issues.” Somebody Call Geraldo! The longtime safe of legendary studio mogul Jack Warner is proving so tough to open, the Army might be called in to crack it. Speculation abounds about the contents of the vault possibly wads of “mad” money stowed to lavish on Warner’s stable of stars, or box-office receipt information on some of yesteryear’s biggest films. The building’s current tenant, USC’s Entertainment Technology Center, is so curious about what is inside the safe that it plans to seek the help of a top-notch Army safecracker to finally pull the curtain on the mystery. There are doubts about what’s inside, however. Some say the notoriously tight-fisted-with-a-buck mogul would never have haphazardly left any cash inside when he sold the place, which is located in Hollywood at 6433 Hollywood Blvd.

If you’re looking for a sign that the Conejo Valley is still a good commercial real estate investment, this one is probably as good as any. John E. Anderson, the octogenarian, multi-millionaire entrepreneur for whom UCLA’s School of Management is named, is acquiring four office buildings in Westlake Village. Doing business as Duesenberg Investment Co., Anderson has acquired the 115,720-square-foot Westlake Plaza Centre I at 2801 Townsgate Road from Sagamore Realty Group for $22 million. Anderson is also under contract to acquire two additional buildings, a 41,307-square-foot office building at 200 North Westlake Blvd. from Pacifica Real Estate Group, and Westlake Plaza Centre III, an 81,500-square-foot building at 2815 Townsgate Road. Sources said the company also acquired an office building at 100 N. Westlake Blvd. from Pacifica Real Estate Group. The buildings were all constructed since 1980, except Plaza Centre III, which is currently under construction and due to be completed this summer, and were not listed for sale, said Brian Forster, co-owner of TOLD Partners, an affiliate of Core Network. “He wanted to have a few trophy properties out there,” Forster said. TOLD represented both buyer and seller in the 2801 Townsgate deal and the 200 N. Westlake transaction. The seller in the 2815 transaction, Plaza Centre LLC, was represented by Tony Principe at Westcord Commercial Real Estate Services. Forster would not disclose the purchase prices for the properties because the deals have not closed, but said “the prices are all record-setting. Even though there’s definitely a slowdown in that market as with other markets, he’s enamored with the area.” Other sources said the properties commanded an exceptionally high purchase price because of the prime location. Sources said the purchase price for the 100 N. Westlake and 200 N. Westlake buildings was in the $225-per-square foot range. It’s believed the 2815 Townsgate building will sell for almost $245 per square foot. Anderson, whose name landed on the UCLA business school after he made a $15 million donation, owns more than 30 companies, including the Thousand Oaks Auto Mall. Anderson’s real estate investment company takes its name from the street on which the dealership complex is located. Makeover at Galleria The Sherman Oaks Galleria now being renovated has signed three new tenants that will comprise a beauty and fitness center within the mall. 24-Hour Fitness Inc. will open a health club in 32,000 square feet of the center. Burke Williams Day Spa & Massage Center will open a 12,000-square-foot full-service spa. Next door, Aida Grey will open a 2,500-square-foot beauty salon. The Burke Williams spa, the sixth for the company, will be the first San Fernando Valley location. “A lot of our clientele that comes to two of our other spas come from the area, and it’s a central location in the Valley,” said Bill Armour, the company’s owner. He added that the Galleria’s focus, as an entertainment center, was a draw. “The fact that someone could go to the spa and then go to a restaurant or a movie is more appealing to us,” Armour said. The spa, which Armour likened to resorts such as La Costa Resort & Spa and Canyon Ranch Health Spas, is set to open early in September. The Galleria, which is being redeveloped by Douglas Emmett & Co., is set to open sometime this summer, although some of the renovated office spaces are completed and several of the food court vendors have already opened. Allen Young and Brent Howell, senior vice presidents with CB Richard Ellis Inc., are exclusive marketing agents for the Galleria. Westfield Gets Game It looks like makeover plans at Westfield’s Shoppingtown at Woodland Hills Promenade are back on track. The shopping center owners inked two deals that will effectively fill the space left vacant when a lease with entertainment center Jillian’s failed to materialize. Chick’s Sporting Goods, a family-owned retailer with eight stores in Southern California, has signed a lease for 49,000 square feet of space in the complex. The 51-year-old company, with sales of $73 million, is an upscale retailer that focuses on name-brand apparel like Tommy Bahama and Quicksilver, team sports wear and licensed products, along with ski, snowboarding and other sports equipment. Owner Jim Chick said he chose the location because of the mix of tenants at the center. Westfield also signed Total Woman Day Spa and Gym. The company will open a 13,000-square-foot facility at the shopping center. Staff reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14, or by e-mail at [email protected].

After 53 years, Winchell’s is not about to let Krispy Kreme corner the doughnut market it has called its own There’s one on every corner. And, if there isn’t one on the corner, it’s likely you’ll find a Winchell’s doughnut shop inside a strip mall just when you need it the most, likely sandwiched between a 7-Eleven and a dry cleaners. But is convenience and brand recognition that’s as much a part of the landscape as black and white police cars enough to stave off competition from an out-of-state doughnut chain that has stormed into Southern California with more fanfare than a presidential motorcade? Absolutely, said Winchell’s President Bob Zanolli. In fact, he said Krispy Kreme Doughnuts Corp., which has opened two stores in the San Fernando Valley within the last 12 months and has 10 more across Southern California, has made it not only fun, but OK to eat doughnuts again. There are 168 more Krispy Kreme stores in 28 states across the country and Canadian expansion plans are just getting underway. As a result, Zanolli insists, sales have actually increased by as much as 10 percent for the privately owned Winchell’s Donut House in roughly 50 percent of the locations near where the 63-year-old publicly held Krispy Kreme has set up shop in Southern California. There are 17 Winchell’s stores in the Valley, about 110 in Southern California and another 100 stores in 12 states plus locations overseas. “I give them a lot of credit for the public relations job they’ve done, which has actually been very good for the doughnut-eating business,” said Zanolli. He was referring to the North Carolina-based company’s in-your-face marketing campaigns that include product placement in Mike Nichol’s political satire “Primary Colors,” spots on “ER,” NYPD Blue” and “Third Rock From the Sun,” and induction into the Smithsonian Institution in Washington D.C. “Now it’s become cool to eat doughnuts again,” said Zanolli. “So from that standpoint, we are thrilled about the brand itself.” But it’s not all sugar and spice over at Winchell’s, no thanks to Krispy Kreme. Digging into a doughnut is only one aspect of the Krispy Kreme experience. Every Krispy Kreme store gives customers an up-close view of the doughnut-making process. Visit stores in either Van Nuys or Canoga Park and you can watch literally hundreds of plain round doughnuts motor their way under a glaze dripping wall before being hand boxed and ready for sale. And it’s not unusual for employees to randomly pass out hot free samples straight from the assembly line. If you miss the free samples, just wait for the “Hot Doughnuts Now” neon to light up and you’re guaranteed a fresh one. Every one of the Krispy Kreme stores is a drive-thru perfect for the Southern California market. “It’s more of an experience here than at Winchell’s,” said Moorpark resident Sharon Evans who stopped into the Canoga Park Krispy Kreme store after a recent visit to the doctor. “If there’s a choice between Winchell’s and Krispy Kreme, I’d come here, unless the drive was too far.” Taking Winchell’s place And that’s exactly what Richard Reinis wants to hear. He is the CEO of Great Circle Family Foods, LLC in Los Angeles, the exclusive franchisee for Krispy Kreme Doughnuts in Southern California. “They (Winchell’s) don’t serve their customer directly from the conveyer belt, I can tell you that,” said Reinis. His company, launched in 1998, is set to open five more stores within the year, including one in Burbank. Reinis said he saw an opportunity for Krispy Kreme expansion here as he watched Winchell’s cut roughly 100 locations over the last few years as part of a cost-cutting and internal restructuring program. And the rapid growth of what now amounts to about 1,600 independent doughnut shops across Southern California, he said, suggested the market was primed for something new. “So we came to Krispy Kreme and saw that Winchell’s chains had dropped from 300 down to about 200 and that we were serious about being a franchisee,” Reinis said. Great Circle is now the largest Krispy Kreme developer in the country. Although Reinis wouldn’t reveal specific revenues for his stores, Krispy Kreme has moved quickly since it launched its initial public offering in 2000. Net income for the fiscal year ending in January 2001was $14.7 million, or 55 cents per diluted share, on revenues of $300.7 million, up from $6.0 million, or 30 cents per diluted share, on revenues of $220.2 million in fiscal year 2000. “One thing they have done is they have really worked to differentiate their product by providing a unique environment, by allowing you to view the doughnut making process,” said Corey McElveen, an analyst with the Chicago-based firm Morningstar. “But another thing that is really in their favor is the doughnut or pastry industry is really fragmented. So they can really send a message out that their product is superior and they can capture part of the market share.” “I can tell you that we normally do in a month or less what the typical doughnut shop does in a year,” said Reinis. He said combined, the Canoga Park and Van Nuys Krispy Kreme stores sell upwards of 400,000 doughnuts a week. So, take the glaze off Zanolli’s welcome mat and what’s really brewing at Winchell’s still the largest doughnut chain on the West Coast is clearly a full-scale effort to, if not reclaim its territory, hold on for dear life. Winchell’s has halted expansion of its partnership stores in gas stations and mini-marts across the country in order to cover expenditures linked to a “back to the basics” approach. The company has come out with a new “Warm and Fresh” ad campaign and logo, which includes TV spots during Los Angeles Lakers and Los Angeles Kings games. Winchell’s has put up new signs at roughly 40 stores so far this year and employees are getting new uniforms. In 1999, the company opened Winchell’s World in Pomona, a 3,000-square-foot “see ’em made,” 24-hour doughnut production line, offering walk-up and drive-thru service. And Winchell’s will begin rolling out a remodeling effort in many of its stores. “One of the things that I recognized as I came on is the (Winchell’s) brand had kind of wallowed,” said Zanolli, who was appointed president earlier this year. He joined the company as general manager in 2000. “So our marketing strategy is to basically do what we can to say that Winchell’s still exists in California.” Krispy Kreme isn’t the enemy Zanolli said Krispy Kreme doesn’t pose as big a threat as do the smaller mom-and-pop shops which, although perhaps less recognizable by brand, are dotting the landscape faster than you can say apple fritter. “Even as Krispy Kreme continues to grow, at best they would only have about a third of the stores that we will have in Southern California,” said Zanolli. “We want to be the neighborhood doughnut shop, that’s our focus.” Reinis said his biggest competitors on the West Coast are actually fast-food chains because of Krispy Kreme’s unique need for locations big enough to accommodate drive-thru operations, which account for roughly 35 percent of sales. “Winchell’s locations are really not a significant factor for us,” Reinis said. “We are more likely to vie for space alongside a Taco Bell or a McDonalds. Morningstar’s McElveen suggested that because the two companies aim to offer such a different kind of doughnut-eating experience, there is likely plenty of room for both to co-exist. For now. “Krispy Kreme is more for someone who wants to come inside and buy their doughnuts and leave,” said McElveen. “And they aren’t taking the approach of high density locations, so concentration isn’t really a factor.” And what about competition from designer coffee houses? After 53 years, Winchell’s still brews its own coffee, but recently added a dark roast bean to its menu to appeal to expresso drinkers. And it has plans to roll out a frozen mocha cappuccino drink this summer “to give people a reason to come back in the afternoon,” said Zanolli. Not surprisingly, Krispy Kreme, too, has its own cold coffee drink: the Original Ice Blended beverage from The Coffee Bean & Tea Leaf, which is served exclusively at the Canoga Park store along with the company’s other premium hot blends. Other Southern California locations are serving up the regular Krispy Kreme blends. However, Krispy Kreme Donut Corp. recently purchased Chicago-based Digital Java, and plans to bring that coffee and its other products out west later on this year, Reinis said.

Minority Owned Businesses

From the window of his 12th-floor office in Woodland Hills, Jim Delany can see most of his customers. One day last week, the CEO and co-founder of Broadband Highway Inc. stood next to a telescope-like contraption pointed directly at another multi-story building. “They get their Internet access from this,” he said, pointing to the laser-powered transmitter that is connecting Valley businesses to the Internet. Delany is counting on laser technology to usher in a new era of high-speed Internet access and he’s starting with the firms he can see from his office. “This is a whole new thing that’s being tried in the Valley,” he said, “and we’re one of the few (in the U.S.) doing it commercially.” High-speed Internet traffic is carried over invisible laser beams from one transmitter to another placed atop buildings. Because neither underground nor overhead cables are required, the technology is considerably cheaper to install than those involving fiber optics. Unlike Digital Subscriber Lines (DSL), which can take days or weeks to install, the service provided by laser-based technology can be up and running in one day, Delany says. With an initial $8 million in startup funding (from MRV Communications Inc. in Chatsworth), most of which remains unused, Broadband Highway hopes to post about $1 million in revenue and show a profit by year’s end. Delany expects revenue for 2002 to be about $3 million as it expands farther north in the Valley. “We will pick up DSL customers in buildings where we can gain an anchor tenant, but we’re not primarily focused on buildings that can provide DSL. The revenue just isn’t there,” said Rick Galloway, company co-founder and chief financial officer. Instead, Broadband Highway is targeting companies with lots of employees who need lots of terminals with Internet access, companies that would typically pay thousands of dollars a month for high-speed lines. Joe Hasson, vice president of the horse race betting web portal Youbet.com, said his company was persuaded by Broadband Highway’s reliability and relatively low cost. “We stream audio and video of horse races from all over the country and they’ve been great,” Hasson said. One false start Broadband Highway began installing laser-transmitting equipment in Valley buildings last October when it began operations. Plans stalled, however, when company sales efforts in those buildings yielded few customers. “We found that, after we paid to get all that equipment in those buildings, 30 percent of the buildings don’t pay at all. We couldn’t even get people to sign up for $39 a month,” Delany said, noting that most potential customers had already signed contracts with other providers. Strategy quickly changed as sales representatives went to work signing up potential heavy-use customers before any equipment was installed. “The concept is to have a good anchor tenant in the building and then be able to move out from there to the rest of the building,” Delany said. Since then, Broadband Highway has signed up 300 business subscribers and secured contracts with 60 buildings in an arc stretching from Van Nuys to Westlake Village. Many of their new customers did not already have dedicated lines for DSL service. Delany, who had worked for another broadband technology firm in the Valley before starting Broadband Highway, said, “I had a lot of contacts here and this is where I wanted to start.” Chris Nicoll, an analyst with Current Analysis, said laser technology could prove a tough competitor to existing high-speed networks. “It’s a technology that has a lot of potential and is very cost-effective,” Nicoll said. Companies that need high-speed Internet access generally rely on DSL, which averages between 200 and 600 kilobits per second, or the much faster and more expensive T-1 lines, which can cost up to $2,000 per line. Broadband sales director Daniel Dahan says the company’s prices are much lower than others charge for 1.5-megabyte-per-second T-1 lines, about $2,000 per month, and 20-megabyte DS-3 lines can usually cost between $15,000 and $18,000 per month. “The DS-3 customers are the ones we’re targeting. We charge much less than what people are paying now,” Dahan said. Broadband’s system can handle up to 100 megabits per second, but it still has its drawbacks. Fog can slow things down, if not shut the system down altogether, Delany admitted. So, luckily, the Valley is virtually fog-free, making it ideal for the service. “Water droplets can sometimes block the light waves and that can put a damper on our system, but that’s not something that will happen very often. We do have backups,” Delany said, including access to traditional fiber optic cabling when necessary. Used by the military The laser, first developed in 1960, has been used by the military for communications for decades, but only now is it being applied to broadband networks. John Ellis, EarthLink Inc. director of broadband products, said laser technology is viable, especially in certain remote areas where DSL or other high-speed services are impractical. “But from an access standpoint, we’re looking at other viable technologies to serve our products,” he said. Ellis said EarthLink remains committed to its cable and telephone-based network, but it is evaluating laser technology in urban areas too. EarthLink, with about 3.8 million subscribers and 300,000 broadband users nationwide, will begin targeting small to medium-sized firms later this year, Ellis said. Lucent Technologies Inc. and Nortel Networks Corp. also are in the early stages of developing laser-based high-speed Internet service. Lucent says it is developing a network in San Francisco while Nortel plans to test its system in Tokyo, Madrid and Dallas. Nevertheless, Delany believes he has a head start on the competition and can connect most of the Valley in the next two years at least as much of it as he wants. “The other players in the market were being judged on how many buildings they could light up rather than how much revenue they were getting, and you can’t really live like that anymore,” he said. “We’re looking to sign up tenants rather than light up buildings.”

Quick. When was the last time you saw an apartment house for moderate-income residents under construction? Not in a very long time. With land scarce and prices for it soaring, most developers will tell you that lower- and middle-income apartment housing just doesn’t make economic sense. But a Tarzana builder is defying that conventional wisdom. Montage Development has seven new multi-family projects, either under construction or just completed, and another three apartment complexes set for renovation throughout the San Fernando Valley, all designed for this much-neglected segment of the market. “I just think it’s demographics,” said Stephen C. Ross, president of Montage. “There’s a lot more people that can afford $950 for a two-bedroom unit than one that’s going to go for $1,700.” Demographics may be on the side of affordable housing, but economics are not. In many parts of L.A., development costs for an apartment complex can exceed $200,000 a unit, meaning that, at rents averaging $1,100 to $1,300 for a two-bedroom apartment (considered an affordable rental), it can takes years, if not decades, to recoup the cost. “It makes sense to build higher-end projects because there’s demand and the rents that you can achieve in these markets make the economics work,” said Michael Sanchez, director at Hanover Financial Co., an equity financing company that has recently purchased several apartment complexes in the Valley with real estate firm Kennedy-Wilson International. Montage, which will deliver about 100 affordable housing units in North Hollywood and Van Nuys this year, often makes deals that pencil out by taking the road less traveled, literally. Ross scours neighborhoods for underutilized parcels not listed for sale, and then makes a somewhat unusual pitch to owners: take less on the front end and share in the profits of the redeveloped parcel on the back end. “A lot of my purchases are grassroots efforts,” Ross said. “We’re in a joint venture and they’ll own half the building, so it’s not an outright land purchase.” A tight squeeze The federal government defines affordable housing with a formula based on median wages for an area and family size. A family of four earning no more than $46,000 in L.A. would be expected to pay $1,149 per month or less in rent. “It’s bananas,” said Alan Greenlee, a spokesman for Enterprise Foundation, a national organization providing loans and technical assistance to non-profit organizations that build affordable housing. “It’s a hard thing to do.” According to a just-released study by RealFacts, a Novato, Calif.-based multifamily database publisher, a two-bedroom, two-bath apartment in the San Fernando Valley averaged $1,259 to $1,354 per month in the first quarter of 2001, up about 12 percent from the comparable period last year. A three-bedroom, two-bath apartment averaged $1,545 to $1,600, about a 9-percent increase over the same period last year. Meanwhile, occupancy rates in the Valley have hovered between 97 percent and 98 percent for nearly two years, the RealFacts data reveals. “We’ve got a situation where the supply of housing relative to the demand of people here is getting worse,” said Greenlee, “so the bottom line is it’s only going to get more expensive for people to live here.” The population in the L.A. metropolitan area is growing at a rate of 200,000 to 300,000 people a year, and many of the newest residents are immigrants who tend to have larger families and need more space. Add to that the fact that, as home prices rise, folks live in apartments longer while they save for a down payment and, in many of the areas where shortages are most acute, the Los Angeles Unified School District is taking housing off the market in its effort to build schools, and many believe Los Angeles is facing an acute housing crisis. “L.A. had a 10-percent vacancy rate throughout the ’90s,” said Steve Renahan, a director in the city of Los Angeles Housing Authority. “That’s tightened to 3 percent and even tighter in some parts of the Valley. There just is not enough new construction of affordable units, or any units.” While government subsidies, the traditional solution to providing low- and moderate income housing, continue to be available, “there just isn’t enough money being allocated to produce enough housing,” Renahan added. Aware of the opportunities, some have begun to seek out properties that can be acquired below market value. Hanover, along with Kennedy-Wilson International, recently acquired an apartment complex in Canoga Park for a price that allows the companies to renovate, raise the rents and turn a profit. But, at about $800 per month for a one-bedroom unit, several hundred dollars more than the current rates at the building, officials concede the end result may be gentrification, not affordability. “There are some people who get priced out of the market, but you’ve got to remember it’s also a function of supply and demand,” said Sanchez, “and there are many people willing to pay higher rents to live in a project that has been substantially renovated.” Making Money When You Buy Aware that most developers have abandoned the middle market, Montage, in 1996, jumped in. The company, which delivered seven single-family houses in its first year of operation, will complete 100 homes this year, generating $12 million in revenues, along with its apartment projects. The trick, says Ross, lies in the acquisition of the properties. Instead of running after properties listed for sale, the company seeks out land or buildings not on the open market. “If it is listed for sale, it will be shopped around and it will get bid up in price,” said Ross. “One of the best ways to find a piece of property is to look at one that might be listed for sale and drive around the area. One of my secrets is getting lost.” Ross found two of the properties he is currently developing after he visited a listed property and then lost his way in the neighborhood. Once he identifies a site he thinks is underutilized, such as a property that may have one house but could accommodate a multi-family dwelling, he begins a letter-writing campaign. Landowners typically want to get the highest price possible for their property, but Ross is often able to convince them to settle for less money up front, in exchange for a partnership in the development. “Oftentimes sellers don’t understand or care about the cost associated with developing a building,” said Ross. “They’re just thinking, ‘I have a piece of land. It’s my opportunity to hit a home run.’ I explain that this is really a longer term savings account and you’re building up net worth and equity.” The process is time-consuming, Ross concedes. He is about to close escrow on a 42-unit property in Panorama City that he has been after for a year and a half. Once built or renovated, the Montage complexes rent for $1,100 to $1,300 for two- or three-bedroom units. They typically don’t have swimming pools or other amenities found in luxury buildings, but they are efficient, Ross said. “They all have central heating and air. They all have dishwashers. The layout of the space, the energy efficiency and the soundproofing is much greater even than buildings built 12 years ago,” he added. And they are leased up almost immediately. “Quite frankly, tenants don’t have many alternatives at that price,” Ross said.

Summary Business: Advanced communication products Headquarters: Calabasas CEO: Michael L. Margolis Market Cap: $1.85 million Dividend Yield: N/A* Total Liabilities: $221 million P/E: 127.6 Long-Term Debt: $119.3 million * Tekelec does not pay dividends Not every technology company has hit the skids. In this year’s first quarter, Tekelec’s net income shot up to $1.4 million from a net loss of $1.8 million a year ago. The Calabasas advanced communications products company reported sales rising 40 percent over the first quarter of 2000, to $84.3 million from $60.1 million a year ago. What’s more, while the stock price of the Calabasas advanced communications products company tracked the Nasdaq composite for much of the last year, it has climbed in the last six weeks, charging from a 52-week low of $14.81 on April 3 to $30.96 on May 11. Meanwhile, competitor Nortel Networks Corp. posted a loss in the first quarter this year of $385 million and announced it was laying off 5,000 workers. Lucent Technologies Inc. lost $3.7 billion in the same quarter. It will lay off 2,000 people. “Yes, we stood out in earnings report season,” said Michael Margolis, Tekelec president and chief executive officer. While many telecommunications product providers have suffered since early last fall, Tekelec, not exactly the household word its competitors Nortel and Lucent are, has profited by tending to its own niche in the telecom world. “We tend to be a leader in an uncrowded space,” Margolis said. What Tekelec shares with Nortel, Lucent and Alcatel is the market in telephone signaling network equipment. Typically, one network carries voice traffic over phone lines, both wired and wireless. Another one, called Signaling System 7 (SS7), actually establishes contact for callers and provides other services requiring limited bandwidth, like caller identification and text messaging on cell phones. These are services required throughout a call from wireless phones as the caller moves from cell to cell. Growth in the use of wireless phones and the development of special services by providers has made the kinds of equipment provided by Tekelec and its competitors essential. And apparently it has made Tekelec resistant to the vagaries of the stock market. While others are in the same business at Tekelec, it is only a small part of their businesses not enough to prop up earnings and stock prices. “They have brand name recognition in their niche,” said Kim Caughey, an analyst with Parker/Hunter Inc., a Pittsburgh-based investment bank. “Some competitors, like Nortel, are not focusing as much on this niche.” In fact, according to the marketing consulting company of Frost & Sullivan, Tekelec captured 73 percent of the North American market for SS7 equipment in 1999. “And we anecdotally believe it’s a little higher than that now,” Margolis said. Tekelec’s stock price rode almost exactly the same roller coaster as that of its competitors and the Nasdaq index until recently. Three of the four leaders in the SS7 business Tekelec, Lucent and Nortel hit their 52-week highs in July 2000. Alcatel went public in October at $71.25. Then all four reached their 52-week lows at the same time, April 3 or 4: Tekelec at $14.81, Lucent at $5.50, Nortel at $12.50 and Alcatel at $20. The similarities may stop there though. Even during what has been characterized as a Nasdaq rebound last month, the stock price of the other three hovered between $10 and $20. Tekelec has climbed steadily past that. “They stand alone as far as that is concerned,” Caughey said. “And the price is directly proportional to its earnings performance.” Margolis said Tekelec has benefited from concentrating on one sector that is still very active while its competitors, although doing business in the same sector, have suffered because other parts of their companies are performing so poorly. “They’re facing challenging times,” he said. “We’re a very focused company. The divisions we’re competing against are not their flagship divisions. “With what we do, we built a better mousetrap.”

Fire Your Imagination Core Business: Paint-it-yourself ceramics Year Founded: 1995 Revenue in 1997: $121,000 Revenue in 2000: $200,000 Employees in 1997: 3 Employees in 2000: 9 Goal: To create an enjoyable experience for families Driving Force: An interest in developing creativity among young people A would-be teacher decided business beat the classroom and created a community resource where kids and adults could indulge their creativity The week before Mother’s Day is busy around Fire Your Imagination. Young would-be artists, their fathers trailing behind, stream into the studio. They scan the shelves crowded with unpainted ceramic dishes, kittens, elephants, bunnies and elves. Once they find just the right one, they settle at a table with paint and brush at hand, ready to create. At the back of the studio, crammed between a Subway sandwich shop and a Baskin-Robbins, a group of girls gathers around a large round table. In the middle of the table is propped up a plate with the figure of a pony on it and the words, “Happy 6th Birthday, Shelly.” A birthday cake is close by. “Sometimes we do two or three birthday parties a day, one after the other,” said Lorene Sosa. “You just can’t say no.” Sosa is the founder, owner, president and creative force behind Fire Your Imagination, a paint-it-yourself ceramics studio in family-friendly Thousand Oaks. Over the last five and a half years, the once-aspiring teacher has turned a passion for ceramics and an inherent love for children into a thriving business. At Fire Your Imagination, anybody not just a kid can pick out a ceramic, sit down and paint it (for a fee of $6 an hour), glaze it or have it glazed by a staffer, and then a couple of days later pick up the work of art. In 1995, Sosa was wrapping up her master’s degree in elementary education when she realized she didn’t want to be a teacher. “So, I had to think fast,” she said, “because I suddenly didn’t have a clue about what to do.” Some people fresh out of college might have gone looking for a job. Sosa went looking for a business, “something where I could be creative with kids.” Given her interest in ceramics and what appeared to her to be an unfilled need for a place where kids could make their own . something, it all seemed easy at the time. “I started asking members of my family what they thought of the idea,” Sosa said. Before she knew it, she had the best kind of venture capital there is: $30,000 from her grandfather and another $30,000 from her mother. “It was a good interest rate too,” she said. Thrown into the deal was plenty of advice from her grandfather, who trudged with her from vacant storefront to vacant storefront in search of the right place. “Finally, he said yes to this one,” Sosa said, and she’s been in Thousand Oaks ever since. “I knew it was a family area with the right demographics.” Sosa, now 29, was in business. That first year her only employee was her grandmother. She lost money. But she learned how to run a business. “I learned not to take things so bad,” she said. “I learned that crying out back every day was not good.” Her accountant, Linda Cameron, who has known her since the day she opened, said, “Actually, her naivete at the beginning was a strength because, if she’d known then what she knows now, she wouldn’t have done it.” By “it,” Cameron doesn’t just mean the 50 or so kids that pour into the place every day (more on weekends) looking to be instant artists. She means also the adult groups from Amgen Inc., Jafra Cosmetics International Inc. and Whole Foods Market that schedule plate-painting sessions. “Team building is really hot now,” Sosa said. “It’s a bonding experience for them.” And now that teachers in the Conejo Valley have learned about Fire Your Imagination, Sosa and her staff of nine (eight of them part-timers) are on the road constantly, delivering the charm of ceramics to schools. “It’s definitely gotten more complicated,” Sosa said. But more profitable too. Sosa did little more the first year than pay back her family. Now she figures she’s grown the business by 20 percent or 30 percent a year ever since. She had revenues of $200,000 in 2000, $160,000 the year before. Despite all the side trips to schools and events, 90 percent of the business still comes from families walking in, picking out an unpainted piece of plaster and sitting down to paint it. But it’s clear, Sosa said, many of them never would have gotten in the door if she hadn’t gone to them first. “In the beginning, I wasted a lot of money on newspaper advertising,” she said. Word of mouth, she learned, works better. “Now Grandma gets a plate. That’s how I advertise.” Thanks to the wisdom that distilled, Sosa was recently named Young Entrepreneur of the Year by the U.S. Small Business Administration and the Los Angeles Area Chamber of Commerce. “When you think about it, this is exactly what small business is about,” said John Tompak, awards coordinator for the SBA. “She is someone who worked hard, gathered capital and built a business from scratch.” When she started out, there were two franchise-operated paint-your-own operations within a short drive of hers, one in Simi Valley and another in Westlake Village. They’re gone now. “It was basically a help-yourself kind of thing,” Sosa said of her competitors. “We try to make this a friendly, homey place. “And the kids, they are just so darn precious.”