About a year ago, the owners of a 24-acre parcel in Van Nuys waged a heated battle with the California Department of Toxic Substances Control over developing the site. It was worth the fight. So strong is demand for industrial property in the area that just months after getting a go-ahead from the DTSC, the two buildings that now stand on the property have been leased. Enson Inc., a start-up Internet company that makes and sells children’s clothing, and Capstone Turbine Corp., a maker of microturbine systems for manufacturing, have signed leases at the Airport Business Park, under development by Trammell Crow Co. Enson will occupy a 108,162-square-foot building on the property and Capstone Turbine has signed a lease for about 100,000 square feet. The Business Park, formerly occupied by aerospace firm Marquardt Co., has been years in redevelopment because defense manufacturing on the site left behind industrial solvents, some of which are believed to cause cancers in rats. Despite extensive clean-up efforts by the seller, Lancaster, Penn.-based Ferranti International Inc., and a recommendation for approval by the Los Angeles Planning Department, the DTSC was unwilling to green light the property. But now, with the dispute finally settled, the property this summer was sold to AMB Property Co., which partnered with Trammell Crow to refurbish the existing buildings and develop the remaining land. Five additional buildings are planned for the site, which will include a total of 680,000 square feet of industrial space when it is completed. “It’s a great property,” said Mark Leonard, a principal with Trammell Crow. “Hopefully, we’ll have the five new buildings leased before they’re completed next April.” Leonard said the company used its own in-house environmental group to navigate the approval process. “They were able to understand the environmental condition and move the project through to construction,” Leonard said. With industrial vacancies in the San Fernando Valley at under 5 percent, developers and tenants were eagerly awaiting the redevelopment of the airport property at Saticoy Street and Hayvenhurst Avenue. “We got to a point in this lease negotiation where the landlord said we’ve got a backup, they’re ready to step up and take this space if you guys don’t do it,” said David Kimball, associate director at brokerage Julien J. Studley Inc., which represented Enson. “At that point we got the lease signed.” The five-year Enson lease is valued at about $4 million. Enson had been working out of a 14,000-square-foot headquarters space in Alhambra and began looking for new office space because its lease was expiring. The company intended to lease separate warehouse and distribution facilities when its Web site launches later this year. But the airport park property offered Enson the opportunity to combine its office and warehousing functions under one roof. “The whole office environment is tight as a drum,” said Kimball. “The space afforded us the ability to not only do a substantial warehouse but to do a substantial office build-out as well.”

Kohl’s who? The highly successful Midwestern department store chain is not well known in Los Angeles, even to those who follow the retail industry, but that will soon change. Menomonee Falls, Wis.-based Kohl’s Corp. has been actively shopping the San Fernando Valley market for store sites as it prepares to blitz the region in the spring of 2003. “Their target is to open 35 stores in Los Angeles in one fell swoop,” said Ben Reiling, president of Zelman Retail Partners, one of many developers that have had conversations with the retailer. “That’s the way they do it.” Kohl’s stores, a mix of 80 percent apparel and 20 percent housewares and other home goods, are built on the notion that consumers want convenience and discounted prices. Unlike other retailers that often come into a market one step at a time, the company moves into a region en masse. “A big part of the strategy is where we locate,” said Gary Vasques, Kohl’s executive vice president for marketing. “We don’t make people drive to the mall to buy Levi’s. You can buy Levi’s in your neighborhood.” Vasques would not confirm reports that the company plans to enter the Los Angeles market, saying only that Kohl’s will continue its rapid expansion, with 60 stores rolling out this year and another 60 in 2001. Its current efforts are focused on the Southeast and Northeast, but Vasques added, “We will be a national player.” Industry observers, however, say that, because Kohl’s moves into a market with multiple locations simultaneously, the company must get an early start locating possible sites and beginning the entitlement process. One alternative to that strategy would be to acquire another retail chain, as Kohl’s did recently in the Northeast with its acquisition of the Caldor chain of stores. “They have a long ramp-up time and they’re trying to make their deals now so they can coordinate this,” said Bill Haglis, vice president, retail properties for NAI Capital Commercial, who has talked to Kohl’s officials about a site in the Esplanade shopping center in Oxnard. Brokers report that the retailer has hired the brokerage house of Epstein & Associates to help locate properties in the San Fernando Valley, Conejo Valley and Ventura County, although no deals have yet been signed. Ron Wood at Epstein would neither confirm nor deny the reports. In the areas where Kohl’s has opened about 320 stores now dot 26 states from New York to Denver it has quickly carved out a healthy slice of the mid-price market. “They’ve clearly taken market share away from Sears, Penney’s and the major department stores,” said Steven Richter, an equity analyst with Tucker Anthony in Boston. Small is better To get some idea of a Kohl’s store, imagine a small department store about 86,000 square feet in freestanding or strip center locations with parking in front. Inside, the stores carry an assortment of men’s, women’s and children’s apparel, accessories, footwear and intimate apparel, along with some home furnishings and housewares laid out like a discount store with racetrack aisles, shopping carts and central check-out stations. Unlike discounters and retailers like Penney and Sears, though, which use private-label brands, most of the merchandise that Kohl’s carries includes the same brands found in more traditional department stores Nike, Sag Harbor, Haggar and Vanity Fair at prices typically lower than the department store rivals charge. The formula has helped snatch shoppers from both the discount and department store arenas and led to four consecutive years of annual earnings growth in excess of 30 percent. For the second quarter ended July 29, Kohl’s reported a 42 percent increase in net income to $64.3 million (19 cents per diluted share), compared to $45 million (13 cents) for the comparable period in 1999. Net sales rose 33.6 percent to $1.2 billion. Many other chains have sacrificed earnings for rapid expansion, but Kohl’s has managed to keep its income levels high, in part, because of the controlled way in which it adds stores. Beginning with its Midwestern roots, Kohl’s has expanded east and west to contiguous states in a way that keeps its new stores within a day’s drive of its warehouse and distribution facilities. Kohl’s also limits its vendor list to those manufacturers that can supply the quantities its stores require. “As it grows 20 percent annually, it needs to work with vendors that can support timely delivery and efficient replenishment so they always have stock,” said Richter. “Over the years, that’s become a large strategic weapon.” Vasques puts it another way: “We don’t want the customer to come in and not find their color,” he said.

A worker at Amgen Inc. in Thousand Oaks has filed a lawsuit against her employer, claiming she was exposed to toxic mold that made her sick and that the company knew about the mold but covered up its findings and failed to alleviate the hazard. Thousand Oaks resident Darcy Jensen, 31, is currently on disability as a result of claimed respiratory distress, headaches, dizziness, sinus infections and other allergic-type reactions from alleged toxic mold contamination in one of the buildings she used to work in at the biotech giant. The lawsuit, filed at theVentura County Superior Court in Simi Valley, accuses Amgen of fraud and concealment, negligence, battery and other “unfair business practices.” Among court documents filed is an internal Amgen report indicating that the building in which Jensen worked “appears to have problems” and that “mold is showing up in too many places.” The mold was found in a facility used to test Epogen, one of three drugs that Amgen makes to treat anemia in kidney dialysis patients. The suit claims that Amgen has concealed from its employees, customers and the U.S. Food & Drug Administration the discovery of microbial contamination in rooms used in the research and development of Epogen and other products being used in clinical trials by Amgen. Jensen, a full-time Amgen employee for nearly nine years, was a facility supervisor for several laboratory buildings, including Building No. 5 (the primary building in question), said Alex Robertson, Jensen’s attorney. Beginning in March 1999, Jensen began experiencing allergic-type reactions for reasons unknown to her, Robertson said. Outside consultants Jensen discovered that environmental consultants hired by Amgen had concluded in August of this year that Building No. 5 was contaminated with toxic mold known to produce mycotoxins poisonous to humans, Robertson said. The mold allegedly found included a toxic variety known as Stachybotrys, which can cause allergic reactions, according to the Centers for Disease Control. Stachybotrys is a fungus found worldwide. It produces toxins that can affect the immune system, according to Indoor Air Solutions Inc., a firm that tests indoor air quality. It can have adverse effects on the central nervous system, eyes, skin and upper and lower respiratory tract. Amgen spokesman David Kaye said company officials would have no comment. “As a matter of company policy, we don’t comment on litigation,” Kaye said. Attorney David Walsh of Paul Hastings Janofsky & Walker, the firm representing Amgen, also declined to comment. “Amgen does not comment on pending litigation,” Walsh said. The lawsuit further alleges that Amgen conducted a similar investigation in 1997, which also found the presence of toxic mold, but that Amgen covered up these findings and failed to do anything to eliminate the hazard. “The people who work in these rooms wear moonsuits,” Robertson said. “(These rooms) are supposed to be antiseptically clean. To think you have toxic mold growing on the ceiling and walls from leaks is just astounding. The fact that it has been allowed to exist for several years is amazing.” Other cases brewing? Since Jensen has come forward, other Amgen employees have contacted her attorney saying they, too, have experienced similar allergic reactions, Robertson said. He would not reveal their names. “They fear for their jobs,” he said. Jensen went on disability last month and, once the lawsuit was filed, Amgen management told employees they were not to communicate with her or they would be fired, Robertson said. In August of this year, Amgen conducted a “Building 5 Mold Report” that found Stachybotrys present in room 258, the report states. It said rooms 258, 259 and 260 had “old ductwork (that) has large amounts of mold.” It also states: “Registers for 258 and 260 have large amounts of mold; 258, large amounts of mold on cove, autoclave exhaust, chiller valve.” On the second floor, large amounts of mold were found in the chiller insulation and on the wall behind the drain, documents show. “Water on floor has Stachybotrys,” the report states. Copies of Amgen’s internal report, as well as the lawsuit, were sent to the FDA’s regional office in Orange County in mid-October, Robertson said. FDA officials declined to comment at this time, said FDA spokesperson Laurel Eu.

There’s been yet another twist in the storied tale of the redevelopment of the old police headquarters site in Burbank. Concerned that the latest plans for the project may fall through, the Burbank City Council in mid-October invited a second developer to submit plans for the property, about 3.2 acres bounded by Olive Avenue, San Fernando Boulevard, Angeleno Avenue and Third Street. Cusumano Group, a Burbank-based developer and one of the original bidders on the site, will join Legacy Partners Commercial Inc. in drawing up a proposal for the site. Several years ago, when Burbank first turned its attention to developing the parcel, the city selected a proposal by Regent Properties for a mixed-used complex that was to have included office space, retail shops, a hotel and a movie theater. Regent, however, withdrew from the project, in large part because the recent retrenchment of movie theater operators made it unlikely that the company would secure a movie tenant. Legacy stepped in, anticipating that Marriott International Inc., which had been negotiating with Regent, would remain a key tenant in the project, but that prospect too now seems iffy, said Bud Ovrom, Burbank city manager. In addition to inviting Cusumano back into the process, Burbank officials are preparing another request for proposals on the site. “If we can make a deal in the next 30 to 60 days, that’s great,” Ovrom said. “If things don’t work out, we won’t waste any time.” The problem, Ovrom said, is not with the developers, but rather with a fast-changing market. “Every time we turn around, a different market evaporates on us,” Ovrom said. “We (first) thought movies were an important element, then the movie market collapsed. Then we were working with Marriott and financing for hotels has become very difficult.” A revised plan for the site is likely to replace the movie theater and hotel with residential units, said Ovrom. Results Mixed in Third Quarter The central San Fernando Valley was the one bright spot in an otherwise lackluster third quarter for the office real estate market. While vacancies rose or remained flat in most submarkets, rates in the Central Valley, which includes the communities of Sherman Oaks and Encino, declined by 2 percentage points to 9.5 percent from 11.5 percent in the prior quarter, according to figures just released by Grubb & Ellis Inc. Absorption in the submarket, a measure of the net balance between space vacated and space leased, totaled 248,000 square feet. Not so for the other Valley submarkets, where absorption declined steeply, moving into negative territory in two areas, the East Valley and the Conejo Valley. The East Valley, which includes Studio City, North Hollywood and Universal City, took the hardest hit, showing a 4 percentage point rise in vacancies to 11.8 percent for the third quarter of 2000, from 7.7 percent, the Grubb & Ellis report revealed. Even the area’s hottest markets slowed markedly, with the West Valley remaining relatively flat at 10.4 percent, compared to 10.5 percent in the second quarter of the year. Conejo Valley also showed an increase in vacancy levels to 6.3 percent from 5.8 percent in the second quarter of 2000, the Grubb & Ellis data revealed. In the West Valley, absorption dipped to somewhat more than 86,000 square feet for the third quarter of the year, from nearly 138,000 square feet in the second quarter of 2000. (The Health Net lease, amounting to more than 300,000 square feet of space in Warner Center, was not reflected in the Grubb & Ellis numbers because the company had yet to leave its previous space.) Conejo Valley too saw a negative absorption of 34,000 square feet, compared to the second quarter when tenants occupied 149,000 square feet more than they vacated. Brokers attributed much of the downturn to the tech-wreck on Wall Street in April. Although the Conejo Valley has emerged as the address of choice for many new technology companies, the Nasdaq market correction in April appears to have had wider repercussions in the real estate sector, brokers said. “There was a point when we were seeing 30 percent to 40 percent of tenants that were tech-related looking at space,” said Brian Hennessey, vice president at Grubb & Ellis. “Now it’s down to 10 percent to 20 percent, so that tells you that segment of the market is not as strong as it was in the first two quarters of the year.” Most brokers said that the numbers reflected in the third-quarter report do not lead them to conclude that a wholesale slowdown in the real estate market is at hand. Some of the noteworthy transactions in the third quarter included Alcatel’s 200,000-square-foot lease at Conejo Spectrum, Los Angeles County’s deal for 164,500 square feet of office space at Chatsworth Business Park and Countrywide Home Loans’ 140,000-square-foot lease in West Hills Corporate Village. North Hollywood Lease West EFX, a special effects company, doubled the size of its production facilities in a deal for 24,200 square feet of space in North Hollywood. The five-year lease, valued at $770,892, will move the company’s 15 employees to 6840 Vineland Ave. Bob Hoyer, a broker with Delphi Business Properties, represented the tenant in the deal. Nigel Stout of Grubb & Ellis Inc. represented the property owners, Sandra E. Bowman, Sharyn Schrick and Denise McLaughlan. Encino Sales Douglas Emmett & Co. has acquired two buildings in Encino. The company acquired the 200,000-square-foot Pinkerton Building at 15910 Ventura Blvd. and the Encino Gateway, a 334,000-square-foot building at 15760 Ventura Blvd., for a combined $85 million. Staff reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].

Like the house but wish the ceiling was higher? The master bedroom was bigger? Need an extra room over the garage? Custom homes have traditionally been the province only of the most affluent buyers. But a new program at Kaufman & Broad Home Corp. is bringing many of the same choices to middle-income buyers as well. This month the country’s largest home builder cut the ribbon on its new DreamHome showroom, the first in the Los Angeles area, offering buyers of its homes some 16,000 choices to tailor their new abode to their individual needs and tastes. The first L.A. DreamHome in Ontario will be followed by a second facility in the Santa Clarita area at the beginning of next year. “The choices weren’t there for the homebuyer before,” said Jay Moss, president and regional manager of Kaufman & Broad’s greater Los Angeles division. “Before, most of the choices were already established in construction and room configuration and all the buyers’ choices really had to do with carpeting, colorization and counter tops.” The program works this way: Kaufman & Broad sells its new homes with a basic floor plan. Then buyers go to the showroom where they can modify the home to their own specifications. That way, company officials say, buyers on a budget can pick and choose the elements that are most important to them. Say a buyer would rather have a lush bathroom with separate shower stall than a fireplace. Or, perhaps a smaller family doesn’t need a fourth bedroom but would like a larger master bedroom. Maybe the buyer prefers vaulted ceilings or a brick facade. The home can literally be re-drawn to accommodate a multitude of different options. With the advent of the Internet and today’s more discriminating shopper, Kaufman & Broad felt that even homebuyers with modest budgets have become more selective about how they spend their money. “While a competitor may have vaulted ceilings and a fireplace standard for $10,000 more, we can say, ‘Our house is $10,000 less, and you can choose the items you want without having to pay for what you won’t use,'” Moss said. Moss likens the idea to buying a car, where customers buy a basic model and choose a variety of options to go into it. “The car industry for many years has let customers ‘have it your way,’ Moss said. “It’s a basic philosophy and the home building industry hasn’t found the keys to do that yet.” The showroom is set up with vignettes displaying the different options available, everything from architectural details to appliances. The Ontario facility measures 10,000 square feet. Santa Clarita, because Kaufman & Broad’s market there is somewhat smaller than the Riverside and San Bernardino market, will house a somewhat smaller showroom, but Moss said the company expects to move into a larger space as its business there expands. While homebuyers have always had the ability to choose such options as floor tiles, counter tops and appliances, the DreamHome concept goes several steps further. “I think the concept of having something that’s semi-custom makes sense,” said Jim Link, executive vice president for the Southland Regional Association of Realtors. “It’s a good idea.” The idea is too new in L.A. to reveal any patterns, but in Las Vegas, where Kaufman & Broad has been operating a DreamHome showroom for some time, Moss said he’s seen some surprising trends. “When we went to this program, only 5 percent of the people picked fireplaces,” Moss said. “If you think about it, how many times do you use your fireplace?” A fireplace accounts for about $5,000 in cost, and most shoppers would prefer to put that money into additional square footage, Moss said. “They want the biggest house they can get for the least amount of dollars, and whatever they have left, they’ll put into whatever.”

A business group has charged that the restrictions on development at the Warner Center are outdated and threaten to turn the premier business community into an abandoned graveyard of offices and stores. The Warner Center Association, a group of commercial tenants and real estate developers, will meet with the Los Angeles Department of Planning later this month to argue that the 8-year-old Warner Center specific plan has boosted the cost of development to levels that will deter growth and send businesses fleeing. The group hopes its concerns will lead to a change in the ordinance that governs development in Warner Center. The tenants and developers want to loosen parking restrictions and eliminate a number of provisions for roadway enhancements and other improvements that have made it far more costly to develop real estate projects in Warner Center than in many other parts of Los Angeles or in neighboring cities. “Our concern is that the city puts so many constraints on, it’s not allowing development to progress and (the area) will become stagnant,” said Brad Rosenheim, a lobbyist and executive director of the Warner Center Association. “And when it becomes stagnant, it becomes like North Hollywood, and the city has to come in to reinvigorate it. Our goal is to keep that from happening.” “There’s no question that the (Warner Center) fees are among the highest in the city,” said Bob Sutton, deputy director of the city planning department, “and we’re trying to bring more parity to it.” At the same time, agency officials said, the specific plan has so far accomplished what it intended, which is to balance the needs of the business community with the needs of the residents, and there is no evidence that it has curtailed growth in the area. “I recognize they have some problems,” said Sutton, “but I think they’re overstated. I’m going to try solving some of those problems. They may not think we’ve gone far enough.” Warner Center an area of about 1,000 acres bounded by the Ventura (101) Freeway, Vanowen Street, DeSoto Avenue and Topanga Canyon Boulevard was designed as a regional business hub for the West San Fernando Valley in the 1980s. By concentrating commerce and offices within a specific area, public policy makers believed they could more easily and cost-effectively build an infrastructure to support the business community. But the Warner Center specific plan includes so many infrastructure improvement requirements and restrictions on growth and development that some now say it is at odds with what it was originally intended to do. Councilwoman’s stance “You can go to a building in almost every other commercially zoned area and not have the same parking ratios and trip fees,” said Los Angeles City Councilwoman Laura Chick. (Trip fees are charged to developers based on the number of vehicle trips the project is expected to generate.) “We ought to make specific plans to promote those commercial centers, not denigrate them,” added Chick, who is also working to get the specific plan changed. The total dollar amount of improvements and services called for in the specific plan for Warner Center is $660 million, according to Rosenheim. By comparison, he says, Ahmanson Ranch, a 2,800-acre development planned in the Conejo Valley requires mitigations to the surrounding area totaling only $17 million. “I like the Ahmanson deal better,” Rosenheim deadpanned. When the Warner Center specific plan was drawn up in 1993, it was intended to keep the area from bogging down in traffic gridlock and to foster peaceful co-existence with the neighboring residential community. To control traffic into and out of the area, the plan restricted the parking available in Warner Center and called for remote parking locations from which commuters would board shuttle buses to their offices. In addition, a number of infrastructure requirements, such as widening roadways, were included to ease the flow of traffic. Developers are assessed fees to pay for the infrastructure improvements, and they pass those costs along in the form of higher rents. In Warner Center, for example, a new, 100,000-square-foot office building would be assessed nearly $1 million in trip fees and other charges imposed by the city. So far, developers have taken the risk that the market will bear the higher freight. “Clearly, the trip fees are large fees,” said Cliff Goldstein, a partner with J.H. Snyder Co., which built Warner Center Marketplace. “There’s no question that it was a higher risk because you’re building to a larger rent (requirement), but we were eventually won over by the area.” Concerns about exodus The Warner Center group, however, believes that, if the specific plan is not revised, developers and tenants will begin to abandon the area for less restrictive and less expensive communities to the West, leaving vacant offices and undeveloped land that will transform the community from a thriving business center into a ghost town. “The bottom line is these fees add substantially to the cost of building and that’s been reflected on rents and purchase prices,” said Rosenheim. “We’re really trying to bring development costs to closer parity (because) we’re obviously having to compete with other cities that are just a few miles away.” Costs can be reduced, the group says, because a number of the provisions built into the plan are either not necessary or no longer feasible. The subway system, for instance, has been scrapped altogether, and a requirement to provide offsite parking, called intercept parking, from which commuters would board shuttle buses, is not likely to be used in an area like Warner Center. “The problem with that is it’s very high cost and its effectiveness has never been demonstrated in an area like Warner Center, which is suburban,” Rosenheim added. The original specific plan also established maximum limits on parking within Warner Center, a restriction that gives tenants only 2.7 parking spaces per 1,000 square feet of office space. That compares with an average of about four parking spaces provided per 1,000 square feet of offices in places like Calabasas and Agoura Hills. When the plan was established, workspaces were designed with offices for each worker or several workers. But now many companies have gone to open-space designs and the result is that more workers are housed in a given amount of square footage. As a result, employers are more likely to move to sites that allow more parking for their workers. “Plus, most cities have minimums (for number of parking spaces), not maximums,” Rosenheim said. Officials with the L.A. city planning department agree that development costs in Warner Center are too high and have launched a study to consider the fee schedules, parking restrictions and off-site requirements. An open meeting scheduled for Oct. 25 will be the first step in considering the different proposals and taking comments from the residential community. “It’s a careful balancing act that we’re working with, and we’ll do the best that we can do,” Sutton said.

The Northridge earthquake is suddenly rattling insurance carriers all over again, with Gov. Gray Davis on Sept. 30 signing into law a measure giving thousands of homeowners an additional year to refile quake-damage claims. The measure, SB 1899, will likely end up costing insurers tens of millions of additional dollars on top of what has already been one of the costliest disasters in U.S. history. “It does open the door to a significant number of people asking their claims to be reviewed, and that will take time, resources and energy,” said Kittie Miller, a spokeswoman for Los Angeles-based Farmers Insurance Group, which processed 37,000 quake claims. “It also opens the door to more lawsuits.” Brian Kabateck, a Century City attorney who has represented some 300 quake victims against the insurance companies, estimates as many as 10,000 policyholders could submit revised claims. Within a few days of the governor’s signing of the law, Kabateck said, two dozen perspective clients had approached him. “What’s it going to cost to revisit these claims? I’m not sure if it’s in the hundreds of millions of dollars, but I wouldn’t be surprised if it were in the $20 million to $30 million range,” he said. Critics such as Kabateck say insurance companies were responsible for widespread low-balling in their estimates of quake damage, telling homeowners in many cases that the damage didn’t exceed their deductibles. When homeowners later discovered more significant damage, insurance companies, citing provisions in their policies, rejected any claim submitted more than a year after the Jan. 17, 1994 temblor. The insurers strenuously deny that their appraisers low-balled damage estimates or that the companies failed to take care of their customers in the aftermath of the quake. Candysse Miller, a spokeswoman for the Insurance Information Network of California, an industry trade group, said insurers have already paid out $15.3 billion, making the Northridge quake the nation’s most costly disaster. Yet out of 600,000 claims that were settled, less than one half of 1 percent were disputed. “With all the hype surrounding this law, and attorneys advertising for clients, there could be a number of people who say, ‘Hey, maybe I can make some money off the insurance companies,'” said Miller. Kittie Miller, with Farmers, agreed the law could open the door to iffy claims. Her company conducted an extensive survey after the quake to see if its customers were satisfied with the way their claims had been handled. Out of 26,000 customers surveyed, only 616 bothered to return the surveys. And of those, only 123 asked that their claims be reviewed. “People, we believe, were happy with the services we gave them,” she said. With the new law, “It’s almost as if the Legislature and the trial attorneys were trying to convince homeowners they’ve been wronged,” she said. Few were slammed harder by the Northridge quake than 20th Century Insurance Co. (since renamed 21st Century Insurance Co.), which paid 46,421 policyholders a whopping $1.1 billion to settle claims. “It put an extreme hardship on the company. It came close to wiping out all of our capital, and it erased all of our preceding profits,” said Ric Hill, company spokesman. So for 21st Century, the new law reopens some painful wounds. Hill predicted the insurance industry would vigorously fight it in court, claiming it sets a dangerous precedent for contract law, not only for insurers but all businesses. Policyholders had a year to file their claims after the quake and additional time in court to seek a remedy if they were unhappy with the way insurers handled their claims. “It’s very poor public policy,” said Hill. “At some point in time you have to say people are responsible for themselves. When does it stop?” SB 1899, sponsored by Senate President Pro Tem John Burton, D-San Francisco, got a significant boost by the controversy surrounding former state Insurance Commissioner Charles Quackenbush. Mishandled cases A State Department of Insurance survey found insurers had mishandled 25 percent to 50 percent of a sampling of several hundred files, in many cases underestimating quake damage. Quakenbush used the survey results to collect $19 million from the insurers to advance his own political ambitions, a revelation that led to his near impeachment and ultimately his resignation in July. The new law, which goes into effect Jan. 1, 2001, gives homeowners until Jan. 2, 2002 to submit claims for quake damage even if they had previously missed the deadline to file. To be eligible to file a revised claim, policyholders, however, must have submitted a claim to their insurers that was denied for not being filed within a year after the quake. To succeed, homeowners will also have to prove any damage to their home was a result of the Northridge quake. That will be a tough task given that the damage could have been caused by settling or subsequent temblors. But insurance industry officials agree that it could be tremendously expensive doing additional investigative work and then resolving new legal disputes.

When Zelman Cos. acquired 103 acres in Burbank last year, the company was a new player on the San Fernando Valley real estate scene. Now, Zelman is bringing a new retailer along in its wake. Anchoring the 900,000-square-foot retail portion of the $100-million complex will be The Great Indoors, a fresh store concept launched by Sears Roebuck & Co., said officials at Zelman, which received final approvals for the project at the end of September. The Great Indoors, a concept launched by Sears in 1998 that now includes three stores, chose the San Fernando Valley, along with Irvine and Chino Hills, for its first three California units. The stores are among a group of 30 Great Indoors locations that Sears plans to open in its initial rollout. The retailer expects to have 100 sites selected within the next three years. In Burbank, The Great Indoors will join Costco and Lowe’s Home Improvement Warehouse as anchors of the center, which is being built near the Burbank Airport. The retail center, which is nearly fully leased, will be part of a complex that also includes about 600,000 square feet of office space and two hotels, Extended Stay America and Courtyard by Marriott. The project is the first Valley development undertaken by Zelman, which also developed the Puente Hills East complex in the City of Industry. The Great Indoors, a 142,000-square-foot superstore, is part do-it-yourself home improvement center, part appliance and home furnishings retailer and part decorating center with an emphasis on pricier brands and more-sophisticated styles than those typically found at Sears stores. “We found from our research that the customer wanted one stop to do it all,” said Peggy Palter, a spokeswoman for The Great Indoors. “Typically, a customer might go to eight or more stores if she has a redecorating or remodeling project, and maybe make purchases in three or four of those. She was looking for a one-stop convenient location.” Broad product selection The stores carry everything from towels to home theater systems, along with all the materials needed to remodel a room, from kitchen counters to bathroom fixtures, slate tiles and wood flooring. Brand names include Bose for sound systems, Kohler for bathroom fixtures, Viking for appliances and Karastan carpeting, instead of the typical Sears mainstays such as Kenmore appliances and Panasonic sound systems. Merchandise is showcased in about 75 room vignettes along with traditional retail displays; decorating consultants and personal shoppers are also available. Rollout of The Great Indoors corresponds with a similar concept under development by Home Depot called Expo Design Center and comes at a time when competition in the appliance sector is growing increasingly fierce. Although Sears holds a healthy 31-percent share of the large appliance market, according to industry reports, stores like Home Depot have been chipping away at its leadership position. Home Depot also explored space in the Zelman center but the developer ultimately signed a lease with Lowe’s Home Improvement Warehouse. The Great Indoors officials had some initial reservations about locating in Burbank, which they still remembered as the sleepy town Johnny Carson once joked about, said Ben Reiling, president of Zelman Retail Partners. “They were very pleasantly surprised with finding out the huge change that has taken place in Burbank in the last 10 years,” Reiling said. Indeed, the changes in the city were largely responsible for the developer being able to secure tenants for nearly all of its retail space well in advance of the center’s target opening date of October 2001, said Reiling. Tenant lineup Other stores that have signed on include Best Buy, Target, Michael’s, Linens ‘N Things, Sportmart, Staples, Shoe Pavilion and Marshalls. A food court will house T.G.I. Friday’s, Hometown Buffet, Krispy Kreme and others. “It looks almost exactly like we thought it would look,” said Reiling, of the tenant mix. “We had in almost every category two people (interested in leasing space at the complex) for every space (available).” The one product that consumers will not be able to shop for at the new center, however, is cars. Although Burbank city officials had hoped to secure two auto dealerships for the site, where a Lockheed plant formerly operated, both those deals fell through. “Car dealers are hard,” said Bud Ovrom, Burbank city manager. “If an auto dealership wants to move within a 10-mile radius (of another dealer, the other) dealer has the right to protest.” Burbank officials had hoped that DaimlerChrysler and General Motors Corp. would both locate on the site. But the Chrysler store would compete with a Glendale dealership, and the Glendale rival protested. Plans to move a GM dealership from Glendale fell through when the manufacturer nixed the move.

Homeownership is a “sure thing,” perhaps the last one. Whatever we do, whatever our income, whatever our family circumstances, we all need to live somewhere. So we should own instead of rent. And while we’re at it, our home should be as big and as expensive as possible. Our stocks may crash, our cars may depreciate and DVD may outmode our videotapes, but homeownership is good for everybody, all the time. Besides, it’s the last major source of tax deductions. That’s the conventional wisdom. In fact, the new world of mobility and rapid change has made homeownership a much bigger risk than it was for our parents and grandparents. The increased risk comes from four different sources: leverage, mobility costs, lost savings and real deductions. Suppose you visit one of the popular Web sites that will tell you how much house you can afford. At Quicken.com, for instance, you’ll learn that an income of $60,000 a year, modest credit commitments of $300 a month and a down payment of $25,000 will enable you to buy a house that costs $177,700 to $200,100. That top figure is more than three times annual income. Indeed, if you plug in a variety of incomes and circumstances, you’ll find that you can qualify for a mortgage that is about three times your annual income. In addition, you may also buy a house that is worth 10 or even 20 times the amount of your down payment. Either way, you’ve got a lot of financial leverage. If the house rises in value only 5 percent, your 5 percent down payment equity will double in value. Similarly, a 5 percent rise in home value will feel as though you had saved 15 percent of your income. Better still, the gain is tax-free. Unfortunately, the same principal also works in reverse. If the value of the house sinks by 5 percent, your 5 percent down payment is wiped out and, worse, you’ll have to save 15 percent of your income to recoup the loss. Still worse, you’ll have to pay taxes on that income, so you’ll have to put aside 23 percent of your income to recoup the loss. (This assumes a 28 percent federal tax bracket and the employment tax. Add a state income tax, the full employment tax or a higher tax bracket, and the burden will be higher.) Leverage means more risk. Buying less house reduces your risk. If you were going to have one job for the rest of your life, leverage would be your friend. But in the free-agent economy, we’re changing jobs and careers more often. With selling costs of about 7 percent of your home’s sale price, it would take more than two years of 3.5 percent annual appreciation just to recover the commission and other costs of any move. Each time you move, you are rolling the dice on selling time vs. selling price. With homes costing about 1 percent of market value per month to operate, a three-month wait in a level market can take a year of appreciation out of your pocket. Again, the lower the initial cost of the house and the smaller the monthly cost of the house, the lower your risk. With a $10,500 limit that may be raised to $15,000 on 401(k) plans, anyone who doesn’t contribute to his or her limit is losing a tax deduction and choices of highly liquid investments in mutual funds. Yet many people have mortgage commitments that make it impossible to save the maximum amount, foreclosing the opportunity for the easiest tax deduction available. And unlike home equity, money in a 401(k) plan can be moved without expense when you change employers. Most homeowners believe that the tax deductions from homeownership have greater value than they actually have. In fact, the purchase of a house valued at the U.S. median ($137,800) with a 20 percent down payment, a 7.5 percent mortgage, and a 2 percent tax rate will produce about $11,000 of tax deductions in the first year, exceeding the standard deduction of $7,350 by only $3,650. So the real tax saving is just over $1,000. Anyone who buys a house for $91,875 or less gets no tax benefit from homeownership. The bottom line: If you’re young and believe that your work is your fortune, the best home may be one that’s smaller, less mortgaged and less of a stretch. Real-life Story Question: I often find myself having little sympathy for the individuals whose questions you respond to. A couple makes $200,000 combined, has a $200,000 home, just inherited $1 million, and wants to know whether to lease or buy new cars! In the real world, my husband and I earn a combined income of about $75,000. We have credit debt of $20,000 that we are trying to pay off at $600 a month. We’ve been trying to save for a new home but are discouraged after learning our 30-year-old starter home (worth $50,000) has foundation problems. We also have new and used car payments. Should we sell the home and take the hit? Keep it and rent it out? Stay and pay off credit debt first? C.D., San Antonio Answer: The real world is a very large place, and it has a growing number of people blessed with large incomes, large inheritances, fortuitous stock options, wild IPOs, etc. They are trying just as hard to cope with their good fortune as you are trying to cope with the real and difficult problems in your life. The first thing you should know is that you’re in pretty good shape with respect to both income and debt. Let me tell you why. First, your household income is over the median income for two-earner households, and you’re young. Many of the people you read about in this column have a 10- to 30-year running start on you. Second, while you have a painful burden of consumer credit debt, your home mortgage is small relative to your income. Unfortunately, your credit card debt and car payments work to limit the amount you could borrow to buy a new home because it raises what lenders call your “back-end” ratio the total of your mortgage payment, real estate taxes and other committed payments. What to do? First, think about eliminating your supplementary savings plans and making additional payments on your credit card debt. Second, you didn’t mention how much you owed on automobiles, but most families, including those with incomes higher than yours, can’t sustain two auto loan payments without reducing their mortgage borrowing power. If you can arrange to drive less-expensive cars, you can reduce the payments. Try to have just one car payment. Make a plan, see what it will do for you, and then put it into action. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: scott(at)scottburns.com. Check the Web site: www.scottburns.com. Questions of general interest will be answered in future columns.

WELFARE RECIPIENTS GET mONEY, tRAINING TO LAUNCH THEIR OWN bUSINESSES Carl Jones applied for publicity jobs at most of the major film studios and entertainment companies when he got out of prison, but prospective employers never called back. Now, Jones is about to launch his own company as one of 12 students in the first graduating class of a pilot program designed to turn welfare recipients into entrepreneurs. Funded through the state’s Welfare-to-Work initiative, which tapped the Valley Economic Development Center Inc. to provide the training, the program teaches welfare recipients how to market and manage a small company. It also pays for the cost of a business license and, for those deemed creditworthy, even provides small loans to cover the cost of startup and supplies. The businesses being launched by graduates of the first program are small, one-person operations run from home. But by helping welfare recipients to set up independent businesses instead of entering the traditional workplace, job-development officials hope the participants can increase their earning potential beyond the minimum wage jobs they may otherwise be limited to. “They may be able to cook or work in a restaurant because maybe they’re making tamales at home, but the difference is putting them in a job that will pay $5.75 an hour as opposed to teaching them how to turn their skill making tamales into a business that would be more beneficial than the $5.75 an hour job,” said Cheryl D. Walters, manager of the program at the VEDC. Consider Gwendolyn Valle, a young mother who has been receiving public assistance since being laid off from her job at Vallarta Supermarkets. Born in Los Angeles, Valle lived most of her life in Mexico, and has only a limited command of English. What she does have is a family recipe handed down from her grandmother and a talent for artistic design. For years, Valle has been baking confections made of gelatin, shaping them into fruits, cartoon characters and other designs for her family and friends. Now, with her newly learned business skills and a small loan to purchase molds, she is launching World of Gelatin making desserts and gift baskets. “I’m going to give it a try, step by step,” said Valle. “I’m going to make it work, and have an income and not be dependent on anybody.” The first training program has also turned out a hairstyling business, house-and pool-cleaning services, a walkie-talkie rental company and a decorative silk-flower manufacturer, among others. The students came to the program with skills or experience in their chosen field, and the VEDC provided training to help them devise a business plan, project sales, set prices, market and manage the company. “It really took you from the concept of having a job to the concept of doing business,” said Jones. “Even though I was thinking on that level, this really clarified it.” Off the dole When the California Welfare Reform Act was passed in 1997, the philosophy was to get recipients off the state dole and into the workforce, but that focus leaves many stuck in low-paying, entry-level jobs. Many don’t have the skills required by employers to advance in the traditional, wage-earning marketplace. “This program says, well, you know what? There are a lot of people that will not go to work because they don’t possess any marketable skills that employers are looking for, but they do have skills they have used that will afford them the same opportunity,” said Walters. Welfare workers have long known that many recipients are engaged in informal businesses as a way to augment their meager public-assistance incomes. Last year, hoping to channel those informal efforts into bona fide businesses, the Community Development Department tapped the VEDC to offer formal training in running a business, allocating $275,000 for a one-year pilot. In addition, the VEDC made available loans ranging from $500 to $2,500 to those graduates who meet the agency’s lending criteria. Students are referred through Greater Avenues for Independence, the same agency that helps find jobs for welfare recipients. The students must have a focused business idea that can be implemented on a small scale at low cost. Many will still have to hold down part-time or even full-time jobs while their companies get off the ground. “We had probably as many as 40 people apply,” said Walters. “Some were turned down because they were not committed enough. Some won’t come to the next class because their schedule or child-care situation didn’t allow them to start now. Some needed a little more work developing their idea.” Shaunna Griffith, who is receiving public assistance as a result of a divorce that left her without child support, got her idea for Close Range Communications, a walkie-talkie rental service, from her personal experience as a mother of four children and because, in her part-time job as a character escort at Universal Studios Hollywood, she often deals with lost children. “I deal with the parents on one end and the children on the other end, and we always find them, but it breaks your heart,” Griffith said. Griffith said she browsed the Internet until she found a supplier who could provide walkie-talkies that double as cell phones, and took the idea to Universal, but they proceeded without her. “I submitted it in May or June and the next thing I know come September they had my walkie-talkie renting them in one of their stores,” Griffith said. (Universal did not return calls about the situation.) With a $1,000 loan from the VEDC, Griffith is trying to set up the rental outposts in neighboring hotels. “If I get one client, I’ll be OK,” she said. “But I still have to work my regular job and take care of my kids and get out there in my spare time. So it’s definitely a challenge, but I know it’s going to be a better life.” Overcoming the stigma Because of their financial histories, many of the recipients were unable to land loans, and will have the added burden of financing their businesses. Merlene Yelding, who worked as a hair stylist for 10 years in Ohio before coming to Los Angeles just under a year ago, always wanted to own her own business by the time she was 30. She thought she would be receiving a grant to get her business going, but because she did not qualify for a loan, she will have to settle for plying her trade in her clients’ homes. Yelding is worried about her ability to make a go of her business without a shop to work from, but she said she plans to pursue it anyway. “That was the biggest disappointment,” Yelding said. “If we had the money (to open a business) we wouldn’t be on welfare in the first place.” The survival rates for small businesses are not promising; most fail in the first two years. But experts say that’s because many small-business owners lack training. “Probably the most flagrant example is the man who pumped gasoline for years and became positive he knew everything about running a gas station,” said Charles Bearchell, emeritus professor of business at Cal State Northridge and author of “Retailing, A Professional Approach.” “The fact is that you do need training and you need to wear six or seven hats. That’s one of the advantages of being sponsored by the VEDC or the Small Business Administration,” Bearchell said. And what of the stigma of their backgrounds as welfare recipients? Will the students be able to secure the clients and vendors they need to make their businesses work? “I’ve asked myself that several times, even before I took the position of being program manager,” Walters said. “Then I thought about it, and you know what? The people making the decisions now in corporate America are mostly the baby boomers. We’re the ones who know that the lives we lived were not picture perfect, and we have become the people we’ve become because we were persistent and we believed we could. And now, in our heart of hearts, we’re willing to give somebody else a chance.”