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Wealth Gurus

By
James Brock
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Morton Wealth’s Stacey McKinnon and Jeff Sarti. (Photo by Rich Schmitt)

This article has been revised from the original version.

Pilates instructor, barista and actor: these are among the career backgrounds of those now managing $2.6 billion at Morton Wealth. The Calabasas-based firm doesn’t shy away from talking about its employees’ backgrounds outside of finance. In fact, the firm credits these perspectives for honing its unique approach to wealth management, which recently resulted in the firm’s best quarter for client growth in its 40-year history.

The company credits its unique employees and focus on alternative assets such as asset-backed lending for its continued growth amid a high interest rate environment.

The firm now manages assets on behalf of 1,100 clients and has seen an uptick in client interest since macroeconomic headwinds brought on by the Covid-19 pandemic exposed many stock market investors to loss and uncertainty.

Unlike most wealth management firms, which commit half to two-thirds of their portfolios in the stock market, Morton generally reserves only a third of its assets – at the most – for the market at a time.

While unconventional for an industry built on formulas and models, Morton has been courting entrepreneurial clients through its distinctive approach since its founding.

“That nontraditional background makes it so that we’re all more impact driven, as opposed to just data driven,” said Stacey McKinnon, the firm’s chief operating officer.

The firm’s unique approach to hiring people with backgrounds that aren’t strictly financial has been around since the beginning.

Jeff Sarti, Morton Wealth’s chief executive, credits the firm’s founder for its approach.

Lon Morton, a former professional baseball player who founded the firm, brought Sarti on in 2004. 

Sarti was at the UCLA Anderson School of Management studying real estate. He had bounced around multiple industries, even trying wealth management on at one point, but remained disillusioned due to what he called “the industry’s lack of excitement.” 

But Sarti believed Morton’s strategy outpaced an industry that can be slow to change, and this kept him intrigued. Ultimately, Sarti was named as Morton’s successor.

“In many ways his lack of traditional Wall Street experience was actually his strength,” Sarti said. “He was very entrepreneurial – brilliant, but not classically trained, so he had a very different approach.” 

Today, Morton’s firm continues to seek the nontraditional. From top to bottom, the majority of the people within the firm come from other industries, and that’s intentional. 

McKinnon, the chief operating officer, was hired by the firm’s chief investment officer, Meghan Pinchuk, after making an impression as her Pilates instructor.

The firm’s 55 employees include a former teacher, people who worked in restaurants or coffee houses, and a former actor. According to McKinnon, including different backgrounds, especially those where an emotional connection is emphasized, allows for clients to tap into different industry expertise.

“One of the things that surprised me the most about this industry is (how) we play the role of life coach and therapist as much as we play the role (of) financial advisor,” McKinnon said. “It’s because money is sensitive, it’s emotional.”

More online options available for wealth management 

Morton Wealth sees firsthand how digital marketing now pressures clients into unverified investing methods, and updated its business model to pull its clients back to reality.

The firm used to meet clients twice a year for a checkup. With the onset of digital investing options, where push notifications and digital marketing fuel hype cycles on assets, the firm now runs a tracking list to see each client at least every other month for smaller check-ins.

“It’s become incredibly important for us an organization to be connected with our clients,” McKinnon said. “Because otherwise, if they don’t have us as a resource, they will find another resource.”

Digital wealth-management platforms have disrupted the space and clients’ expectations across the industry. But both Sarti and McKinnon warn these low-cost and low-barrier investment options reinforce the formulaic bubble Morton Wealth believes is unreliable. 

“It’s very dangerous,” Sari said. “It reinforces a silver bullet-type approach with regards to investing short term versus long term. That’s something we’re always cognizant of and battling against.”

The firm is also broadening its service offering to cater to more Millennials committing to long-term financial planning but perhaps without the net worth of Morton’s typical clientele.

Its standard offering is a $15,000 minimum fee, which when factored against the 1% charge on assets puts most clients at about $1.5 million in assets. 

To meet earners in the 30-to-55 age range, a year ago the firm launched in stealth a program called Modearn, which McKinnon described as a concierge doctor crossed with a personal trainer for finance. 

This service aims to get younger customers on board and broaden the firm’s base past the typical high-earner profile associated with wealth management. Modearn generally runs on a $6,000 per year flat fee, and offers services such as behavioral finance training and estate planning. McKinnon says the firm will likely launch the program officially in the fall.

Morton’s real-world investing

Morton doesn’t shy away from showing its strategy. In January, Sarti published a column in Forbes outlining his firm’s resiliency plan amid an environment where uncertainty will only increase.

Asset-backed lending remains critical to the firm’s portfolio building. While cash-flow lending focuses on revenue and earnings, this line of credit focuses on the value of existing assets, which can ultimately serve as a backstop for potential losses.

In Morton Wealth’s view, these asset types should achieve their return across economic outcomes, compared to cash-flow lending, which depends on positive economic scenarios far outside both the company’s and investor’s control.

“Having that resiliency in terms of that collateral is something we crave as lenders,” Sarti said. 

A real-world tie-in helps Morton to reduce risk, and for clients to grasp exactly what they are putting their money into. McKinnon highlighted some assets such as boat-finance flips, where one can invest in the rental incomes at marinas, distilleries, and health care royalties, where a drug inventor receives a lump sum to develop a new product while investors cash in on his or her previous drug-sale royalties. 

For a client base made up of small-business owners and entrepreneurs, the tangible feel to what a financial advisor is outlining allows a real-world tie-in to what could be an unfamiliar risk outside of the stock market.

“Our investors appreciate the fact that a lot of what we’re bringing to the table and our unique investment strategies is actually how they experience their life,” McKinnon said. 

As the Southern California entrepreneur base grows, Morton Wealth remains optimistic its nontraditional strategy and emotional focus will resonate with future cohorts of founders and business owners – even if they contribute to the automated tech rapidly changing its industry.

“At the root, the service we provide is having true, vulnerable conversations with our clients around these emotions,” Sarti said. “All of those complexities from the social point of view, I don’t see how technology can really solve some of those issues.”

Players Unite!

By
James Brock
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At first glance, one might think that the Los Angeles gaming industry is confined to the so-called Silicon Beach, which encompasses global giants such as Culver City-based Riot Games Inc. and Santa Monica-based companies Activision Blizzard Inc. and Naughty Dog. However, another set of thriving gaming companies does business a few miles north in the San Fernando Valley. Some, like Woodland Hills-based Infinity Ward Inc. and Burbank-based Insomniac Games Inc., have held onto their Valley headquarters for more than a decade, staying through acquisitions by other major companies and significant events such as the Covid-19 pandemic and the 2008 financial crisis.

The San Fernando Valley does share several demographic characteristics with Santa Monica, according to the Census Bureau, including similar population densities and employment levels. Over time, many Valley residents and business owners have asserted that it has a separate identity from the rest of Los Angeles, a claim that has been acted upon through several attempts to secede from L.A. proper over the last 50 years.

On its own, the local economy is bolstered by the entertainment and media industry, including companies such as The Walt Disney Co. and Warner Bros., but also by a growing aerospace and aviation industry. The Los Angeles County Economic Development Corp. ties the Valley’s “independent and quite entrepreneurial” business community to the reputation it has earned for being business-friendly and proactive, with less government oversight and a wealth of business assistance programs.

Similar to Silicon Beach’s gaming companies, several of the Valley-based gaming companies have gone through acquisitions. Infinity Ward, which developed the best-selling “Call of Duty” franchise, was founded in 2002 and acquired by Activision only a year later. Although Activision – itself recently acquired by Microsoft Inc. – is in Santa Monica, Infinity Ward has never moved from the Valley. 

Jack O’Hara, co-studio head of Infinity Ward, says that while there are pros and cons attached to both Silicon Beach and the Valley, Woodland Hills has been home to its studio and team for more than 20 years. As for the company itself, O’Hara says the Valley is well situated to give it access to talent around the county and beyond, adding that Infinity Ward employees commute from Culver City, Santa Clarita, Pasadena and even Palmdale.

“We have folks that live east, west, south and north of the studio, and meet here every day to make record-setting entertainment” O’Hara says. “The location provides access to a large pool of talented individuals from across the region and, for out-of-state candidates, the San Fernando Valley can be accessed from a lot of areas in L.A.” 

O’Hara says that, although Activision is in Santa Monica, its Valley studio location is focused on allowing it to hire the best people and make the best games, rather than proximity to its parent company’s headquarters. 

Other companies stay at home

Another local studio, Insomniac Games, has been in Burbank since 1994 and remains even following its 2019 acquisition by Sony Interactive Entertainment LLC for $229 million.

Chatsworth-based Respawn Entertainment LLC was founded in 2010 by two former leaders of Infinity Ward and was purchased by Electronic Arts Inc. in 2017. Respawn has since opened another studio in Vancouver, British Columbia, and announced last year that it will open a branch in Madison, Wisconsin, but its headquarters haven’t budged from Chatsworth.

To Rory Bebbington, founder and chief executive of Marina del Rey-based Fabric Staffing, there are two things that keep video game company executives, particularly those at smaller studios, committed to their Valley offices: cost and convenience. 

“It’s probably close to where the founders live, and it’s a lifestyle choice because they don’t want to commute to Santa Monica,” Bebbington says. “The second reason is rent prices … Santa Monica would put their operating expenses up by 50%. If cost was no object, of course they’d be in Santa Monica.”

While rent prices may not be the deciding factor for where a company chooses to set up shop, the cost difference between the Valley and Silicon Beach is stark. According to Jones Lang LaSalle Inc., asking rents for class A office spaces in the San Fernando Valley averaged $2.91 per square foot in the fourth quarter of last year. By contrast, asking rents on the Westside averaged $5.82 a square foot, and in Century City, the average was a whopping $7.29 per square foot. 

Some firms have personal reasons

For Sherman Oaks-based Mythical Inc., the choice to operate outside Silicon Beach is a bit more personal. Mythical co-founder and chief executive John Linden says that the initial reason his company chose to set up shop in Sherman Oaks was because of its proximity to his home. However, Mythical has also seen some advantages in its access to talent due to its location, similar to Infinity Ward.

“We chose Sherman Oaks because it was near my house, honestly, and I was tired of driving to Santa Monica,” Linden says. “But I think, for us, we also chose that area because it was a good location to get people. We were able to get (talent) all the way from Burbank, to Pasadena, even coming up from Santa Monica kind of against traffic … that was primarily the reason, and honestly, it wasn’t bad being walking distance to the house for me, personally.”

Linden emphasizes that Mythical’s Sherman Oaks office, as well as its offices in Seattle and Lisbon, Portugal, are remote-heavy. While hybrid or remote work options are not exclusive to the gaming world, Bebbington says that Valley employers may be more inclined to offer such options when looking to acquire talent.

“Those companies that are in the Valley have to pull some levers to make it more attractive,” Bebbington says. “Using a hybrid model versus (requiring) five days a week in the office is an advantage, and if they don’t want to use those advantages the talent pool is going to become less and less.”

Although several of these companies are deeply rooted in the Valley, Bebbington says that the area may not appeal to many employees, particularly younger ones. While workers are sometimes priced out of Silicon Beach by its living costs, he says the area’s “power” in the video game industry and presence of leaders such as Riot and Naughty Dog still pull tech workers there over the Valley.

He adds that the appeal of working at a studio in the Valley may be greater to the “slightly older” crowd of individuals who might have already moved to the Valley to buy a house or start a family. According to the Census Bureau, the San Fernando Valley, Marina del Rey, Culver City and Santa Monica all have a median age of about 40.

“Here’s the thing: people will commute from the Valley to Santa Monica, but they won’t commute to the Valley if they live in Santa Monica,” Bebbington says. “Because they don’t need to. Santa Monica has pull because that’s where the ‘cool’ companies are, which is probably its biggest defining factor.” 

Although most of L.A.’s large gaming titles operate in Silicon Beach, smaller studios are still cropping up around the Valley and big names such as Infinity Ward, Mythical and Respawn have remained at their local offices through purchases and pandemics. O’Hara says that, at Infinity Ward in particular, employees have developed strong ties to the area. Some Infinity Ward employees have been working in the Valley’s gaming industry for as many as two decades.

“I think the main draw are the games and the talent associated with our studio, but I know we also have some employees with deep roots in the area that appreciate it for all kinds of reasons, including housing,” O’Hara says. “We’ve been in the Valley for 20 years, so this is home for the studio and the team, and they have built up (their) families, relationships, favorite businesses and schools.”

Brent Reinke and the 101 Biotech Corridor

By
James Brock
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Brent Reinke in a biotech lab in Thousand Oaks. (Photo by David Sprague)

The 101 Biotech Corridor has sprung up over the past quarter century in the region around biotech giant Amgen Inc.’s Thousand Oaks headquarters. It now encompasses more than 40 companies stretching from Camarillo on the west to Woodland Hills on the east. At the center of the action for nearly all that time has been Brent Reinke, chair of the BioScience Alliance and an attorney in the life sciences practice of the Newport Beach law firm of Stradling Yocca Carlson and Rauth; he is based in the firm’s Westlake Village office.

Prior to joining Stradling in 2021, Reinke spent 16 years as a partner in the Westlake Village office of downtown Los Angeles-based law firm Musick Peeler and Garrett, where he built up its biotech practice.

Initially, Reinke helped scientists departing from Amgen set up their own companies. In 2008, he founded the BioScience Alliance, which aims to help grow the bioscience industry along the 101 Corridor.

The Business Journal sat down with Reinke to discuss his longstanding efforts to boost the 101 Biotech Corridor.

How did you first arrive on the scene around what would become the 101 Biotech Corridor?

I’d been practicing in the Thousand Oaks area since 1999. In about 2005-2006 (right after joining Musick Peeler), I was approached by several Amgen scientists and researchers. They were seeking to negotiate better contracts to join other firms or to start their own firms, often near the Amgen campus that they knew.

Why was that?

By that time, Amgen was becoming more of a big-pharma company (2005 revenue of $12.4 billion) and understandably less entrepreneurial. Some of the people there had enjoyed the more entrepreneurial focus and began looking for greener pastures. 

What prompted you to set up the BioScience Alliance in 2008?

Earlier in my career, I had worked with scientists at the Los Alamos (National Laboratory) in New Mexico and with scientists at Rockwell Scientific Co. I learned that scientists were brilliant people, but often lacked the experience to grow and start companies. They needed a support ecosystem to facilitate the development of companies. I looked at the area around Amgen and nearby where a few other companies had started setting up shop and saw there was nothing there in terms of a support ecosystem. So that’s why I started the BioScience Alliance – mainly to provide education and networking opportunities for these companies.

Then what happened?

The timing worked out – at least for the alliance. In late 2007, Amgen announced a major round of layoffs (up to 2,600 jobs cut, or 12% of its workforce at the time). This provided even more intellectual talent coming out of Amgen all at once: these scientists were motivated to move on to whatever their next steps in their careers would be.

But you soon learned more was needed than just education and networking for these scientists eager to launch their own ventures.

Yes, over the next three or four years, we had to come to grips with several issues. There was no wet lab space in the area for scientists to work with liquid solutions to develop their drugs. Venture capitalists were telling startup companies to locate closer to established bioscience clusters where they (the venture capital firms) already had offices. And, despite the talent coming out of Amgen, there was a perceived lack of local talent pool for the purpose of taking companies through the growth process.

How did you and the alliance start to crack the venture capital nut?

We learned that it takes one or two successful startups to essentially say, ‘No, this is where we are going to be.’ That’s what happened with the first great success story of the corridor: Kythera, a biotech company started by an ex-Amgen C-suite executive, Keith Leonard. They told their potential investors that they were not going to move: ‘If you want to invest, you have to do it here.’ They went public in October 2012 and then sold themselves to (Dublin, Ireland-based) Allergan for $2.1 billion in 2015.

Why was that so crucial?

What Kythera did from a perception perspective: They proved you could build a successful life science company in the 101 Corridor region – beyond Amgen, of course. That was a proof of concept. And then, after the sale, some of the executives that had been with Kythera went on to start their own companies in the region. So now you had two companies seeding the corridor with startups. Also, this prompted the venture capital community to take notice.

But there were still other transformative milestones to come.

The next big inflection point was in 2018 with the founding of Westlake BioPartners by Beth Seidenberg and Sean Harper, who was the former head of R&D at Amgen. They are a life-science venture capital fund and homegrown, being located on the corridor and with the principals living in the area. Seidenberg and Harper had also seen what was starting to happen in the area. Their initial fundraise was $400 million and they have raised about $1.2 billion overall to date. 

Why was this so important?

That did two things: it brought a ton of outside attention to the region and the firm started investing in companies located in the region.

Earlier this year, another startup announced its presence in the 101 Biotech Corridor: Latigo Biotherapeutics, which was spun out of Westlake Village BioPartners and came out of the gate with $135 million in funding. Is this a model going forward for launching companies along the corridor?

Having a venture capital firm located on the corridor is beneficial to further growing the life-science cluster here, and I note that, eventually, there may be enough of a critical mass of life science companies to convince other life science-oriented VC firms to have a presence here. But I am confident that we will see continued growth in the corridor even if no other life science funds physically locate in the area.

What else has happened to jump-start the 101 Biotech Corridor?

Over the last few years, Alexandria Real Estate Equities (a Pasadena-based real estate investment trust) started buying buildings and retrofitting them to accommodate life-science companies. Alexandria invests in major life-science clusters across the country – in San Francisco, San Diego, Boston, etc. 

Then a couple of years ago, (Boston-based) Charles River opened a lab and vivarium (animal-testing facility) in Thousand Oaks, which started to address that other key shortcoming I mentioned earlier: the lack of wet lab and testing space along the corridor. A few other wet labs have opened here since.

What do you see coming next for the 101 Biotech Corridor?

Until now, companies have been scattered along the corridor from Camarillo to Woodland Hills. There’s been no central hub to house startups. But that is about to change. Alexandria (the REIT) recently bought two buildings from Amgen across from Amgen’s campus in Thousand Oaks. They tore the buildings down and have now permitted a 300,000-square-foot life sciences campus with wet lab space. They are waiting for an anchor tenant to commit. This would be the first major-scale biotech campus in the region to house multiple companies.

Fitness Guru Seeks Brain-Body Synergy

By
James Brock
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Q4 Active owner Phil Swain, left, consults with member Alan Witcher in a training session. (Photo by Michael Owen Baker)

Mindy Gold had been getting epidural shots every three to four months for more than 10 years. 

But since she began the exercise regimen at Q4 Active in Woodland Hills, the San Fernando Valley resident has increased the time between shots.

“I have one scheduled in March and it will be seven months that I haven’t had to get an epidural,” says Gold, who lives in Woodland Hills. 

It is the movement and the exercise that have helped her. She had been in so much pain that she thought it would be too hard to do the workout at the fitness studio.

“But I came and … seven months,” Gold says, asking, “Isn’t that awesome?”   

Those are golden words to Phil Swain, the founder and chief executive of Q4 Active. He founded the fitness studio for people 50 years and older because he saw an opportunity with an aging population that needs exercise.

“When people are locked in and not exercising their health starts to go downhill,” Swain says.

Swain opened the Woodland Hills studio last year. He has more than 45 years of experience in the health and fitness industry, including at notable companies such as Sports Club Co., Spectrum Clubs and Yoga Works. 

He started Q4 Active with financing from private investors and has plans to franchise the business. 

More than just working out

But along with the exercise, Q4 Active also promotes brain health, improving the cognitive skills of its members. 

Displayed on a large electronic board in the main exercise room at the facility are dice that need to be manipulated so that the same number of dots are shown on each one. 

“This is the Smartfit board,” Swain says. “That’s where you challenge your cognitive thinking along with the exercise simultaneously, and that’s where the neurons fire together.”

Q4 Active has themed classes, like Agile Not Fragile or Three’s Company, in which class members have to match up dice in multiples of threes on a Smartfit board.

There is also a class called Thanks for the Memories, where participants pick out word pairs from a board while exercising. Then they move on to the next board.

“It is small challenges like that while we have your heart rate up that create that simultaneous cognitive activity along with the physical,” Swain says.

“The whole concept is functional fitness, cognitive fitness, but it is also very social,” Swain adds. “As we are aging, some people are widows or widowers, they are alone. We create an atmosphere of camaraderie and socialization with serious science-backed exercises.” 

Making money through memberships

Q4 Active’s business model is based on monthly memberships, which cost $150 for unlimited classes. 

In comparison, a membership at Gold’s Gym SoCal Group starts at $14.95 for single-club access plus a $99 activation fee and a $49.99 annual fee. At Equinox, single-club fees in Los Angeles vary from $225 to $275 a month.

Q4 Active has about 100 members currently, with the average age of students being 69, Swain says, adding there are some members in their 90s and others who are in their 50s.

“It is a really nice mix of people,” 66-year-old Swain says.  

Among the older members is Helga Unkeless, who is 92. 

“The wonderful part of the outfit is that they all care for us,” she says. “They walk around, and they correct us, and they help us. It’s not like they close the door and see you in an hour.”

When she was younger, Unkeless was a physical therapist, and she says the exercise she gets from Q4 Active is very important to her.

“There is always another way of doing the same helpful exercise and they come and show it to us,” Unkeless says. “It is just wonderful.”

Big business opportunity with older clientele 

Swain, who does the Q4 Active regimen at least three times a week himself, says going after the 50-and-older crowd is a good business opportunity. 

“When you look at fitness today, everything is geared toward the younger people,” Swain adds. “So it was a big opportunity.”

The Baby Boomers are the largest and most wealthy of the generations, he says.

“There are a lot of people out there, the Boomers, who have the money and who need this but feel alienated from a lot of the other gyms. They feel they aren’t important; they aren’t focusing on their demographic,” Swain says. 

In addition to the memberships, Q4 Active is also offering specialized brain-training programs in private and semi-private sessions and in a 12-week program developed by Sarah McEwen, an advisory board member of Swain’s company.

There are overwhelming amounts of biochemical, neurological and behavioral data supporting the benefits of exercise and cognitive stimulation, says McEwen, the former director of research at the Pacific Neuroscience Institute’s Pacific Brain Health Center, which is based in Santa Monica.

“Working together, the two can stave off the negative effects of aging on the brain,” she adds in a statement. 

Both physical exercise and cognitive exercise is good for the brain, Swain stresses. 

“Doing them simultaneously is kind of like the magic bullet for brain aging. That’s the stuff we are integrating in here,” Swain says. “We are taking science-backed research and putting it in a fun, commercial setting.” – MARK R. MADLER

Insurance Firms Continue California Exit

By
James Brock
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The Farmers Insurance headquarters building in Woodland Hills. (Photo by Ringo Chiu)

Insurance remains an industry in flux in California, and it’s unclear whether any one company will be motivated to fill in the gaps on a large scale.

Take Farmers Insurance, the Woodland Hills-based mainstay that in August announced an 11% staff reduction to “better position itself for a future of long-term profitability and growth.”

In November, it announced that one of its subsidiaries – Farmers Direct Property and Casualty Insurance Co. – was no longer writing new policies or renewing policies, although it continues to offer policies and renewals here under separate subsidiaries. As previously reported by personal finance website Kiplinger, those subsidiaries – including Bristol West Insurance Group, 21st Century Insurance and Foremost Insurance – represented 98% of Farmers’ customers in California.

Meanwhile, the industry is facing even more challenges. Crestbrook Insurance Co., a subsidiary of National Mutual Insurance Co., this year became the latest insurer to stop renewing or adding homeowners’ policies in California. Other national carriers, including State Farm Insurance, threw in that towel last year. And unlike in other industries, it is antithetical for competitors to scoop up a competitor’s clients wholesale because the idea of insurance is not putting your eggs – customers – all in one basket, for an earthquake or fire to topple.

“It is really, really tough. I just went through it myself, looking for insurance,” says Sean Andrade, an insurance litigation attorney and managing partner of downtown law firm Andrade Gonzalez LLP. “We have clients, too, who have trouble getting insurance. Whatever insurance is left is not that great and pretty expensive.”

Representatives with Farmers Insurance did not respond to multiple interview requests.

The most obvious problem – one telegraphed by many of the carriers who have curbed their operations here – is that natural disasters are becoming too expensive for them. Wildfires have devastated much of the state in the past decade; earthquakes are an ever-present threat; and the wet winters of the past two years have now made flooding and mudslides a bigger threat.

Trial outcomes are also making an impact on carrier behavior, Andrade says, thanks to the eye-popping payouts from personal injury, construction defect and other claims affecting insurance.

Still, the trend will have to change, eventually.

“No matter what, I think there’s still a pretty big incentive to get into the California market because we are so big,” Andrade concedes. “We get so many people and businesses, and I think there is a draw because the business can be very profitable.”

We’re already seeing some movement in that direction. After exiting the state altogether last year, Allstate Insurance this year began offering auto insurance in California again – but at a 30% markup from its previous rates. Restaurant insurer Rainbow Insurance also entered the California market this year.

And while prices are high at the moment, market forces can ultimately fix that for customers in the future.

“Having those new insurers come in will immediately impact the pricing,” Andrade says. – ZANE HILL

Pegi Matsuda Talks Boards and Career Paths

By
James Brock
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Pegi Matsuda with a salad at the Braemar Country Club in Tarzana. Matsuda, a former Business Journal publisher, has her own consulting business. (Photo by David Sprague)

Pegi Matsuda’s resume is as long as it is diverse. From 1999 to 2012 she was the publisher of the San Fernando Valley Business Journal. Upon leaving that publication, she served as foundation president at Valley Presbyterian Hospital. 

In 2018 she founded a consulting practice, now known as On Board. The Sherman Oaks-based company works with small businesses and nonprofit clients to help both manage their businesses better. On Board offers, among other services, organization planning, communication services and board development. Matsuda also helps with fundraising programs, and holds a Certified Fund Raising Executive certification.

Matsuda has also been involved on many boards over the years, including the Fernando Award Foundation, VICA, the Valley Economic Alliance, ACG-101 Corridor, Woodbury University, Southern California Association for Healthcare Development, Valley Presbyterian Hospital, West Hills Hospital and the Community Foundation of the Valleys.

“I think the Valley has something for everyone … I can’t see myself living anywhere else,” Matsuda says of her work in the area.

She sat down with the Business Journal at the Braemar Country Club in Tarzana for a power lunch.

You’ve had an interesting career path, moving from publishing to working with a hospital to starting your own consulting business. What do these industries have in common, and what made you interested in pivoting between these varied sectors? My career path has been somewhat unconventional, and some of my industry changes confused my friends and colleagues, and sometimes, even me. While the industries are different, I’ve basically been leading similar tasks in each of these industries, such as external relations, public affairs/public relations, marketing, communication, strategic planning and operations. Mostly, I’ve had the opportunity to be a leader of people, processes and projects, independent of the industry. 

Like many professionals, I was recruited into these industries by people who knew me and saw me in their businesses and organizations in a way I initially didn’t see myself. While maintaining a consulting practice takes energy and time, deciding on starting the practice took about 10 seconds. In launching my practice, I identified the skills I already had and matched these skills with what I like to do.

What advice can you give to nonprofits looking to make changes to their boards? It really depends on what changes the board is trying to make. Many times, board or staff have already identified the change they want to make, but the challenge is usually how to implement the change. One example is board recruitment. The board may already know they need more members but may need assistance to create and to implement a strategic process to make sure they identify, recruit and successfully onboard the new members they are seeking. Another example is board succession planning. Many nonprofit board members have legacy board members who have significantly contributed time and money to the nonprofit over many years. It is difficult to replace these board members, so succession planning is needed for the board as well as for staff.

There’s been a push recently to get more women and people of color on boards. How have you worked on this, and what are some of the difficulties associated with getting minorities on more boards? The focus on identifying and recruiting women and people of color on boards is not a new concept, but I know it may not always be an ‘active reality’ for everyone. Most of my clients are seeking women and minorities for their boards because they already understand the changing and multilayered landscape of Los Angeles.

So, while most people understand the importance of women and minorities on boards, they may not always understand the board recruitment process, which includes having the network … to identify and to recruit.

Pivoting to company boards, I’m a volunteer with an organization that promotes women on corporate boards and co-lead a webinar to help women start their board journey. As of December, women held almost 30% of board seats on national company boards, which does increase every year. Although progress is slow, progress is being made through the leadership of other women who have shared their own journey to the corporate boardroom.

You are also very involved in a number of boards yourself. How do you pick which ones to join? I have a lot of community and social interests, so it’s sometimes challenging to focus on where I would fit in. Candidly, I’m most passionate about economic development, job training and general job preparation. I believe that when a person has access to education, job training and general job preparedness, everyone in society benefits. While I’ve also been on boards with other missions, I generally always come back to my passion. I also like supporting organizations that support small business, especially women-owned and women-led companies.

What is next for you? I don’t have a bucket list, but I love to travel and to see new places. Career-wise, I’ve always had great jobs with great employers and (am) now working on my own. I’m having fun thinking about the future and look forward to the many roads I have yet to travel. –  HANNAH WELK

Roberto Barragán on Principles and Lessons Learned

By
James Brock
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Roberto Barragán (Photo by David Sprague)

Roberto Barragán serves as the managing director for the Initiating Change in Our Neighborhoods Community Development Corp., a small-business lender and resource center headquartered in Van Nuys better known as ICON CDC.

He previously helmed the Valley Economic Development Center, which was one of the top small-business lenders in the area.

Here, Barragán reflects on one of the biggest mistakes of his career, the lesson it taught him and good principles for a leader to follow.

Learning from my mistakes

Early in my career, I served for four years as the executive director of a nonprofit organization that focused on small-business and community revitalization in a Latino neighborhood in Northern California. I worked to start new businesses, expand existing ones, and attempt to move forward community economic development by using art, tourism and cultural identities as tools for change. 

Although I implemented innovative solutions to neighborhood blight and decline, including social enterprises and job-creating ventures, I was eager and brash. I exhibited a lack of prudence and caution that resulted in unsatisfactory financial management.

Sound financial management and compliance reporting have (since) been integral in my tactical and strategic planning and implementation over the last 20 years. I have learned that program growth and organizational expansion without corresponding financial-system development and strong fundraising will create cashflow challenges and overshadow the progress made to address community problems.

Guiding principles as a leader

For a leader to inspire others to follow their vision, they need to create an agenda that can be easily articulated, widely agreed upon and worthy of the hard work required to turn ideas into actions. As someone who’s spent their entire career in the nonprofit sector, it’s particularly important to remember that people are engaged for the mission rather than the money. Developing a supportive and rewarding environment as a leader is crucial to success. 

I firmly believe that leadership is about creating change, rather than receiving credit.

Latino identity impacts connection to local community

While the San Fernando Valley has almost 1 million Latino residents, I see a lack of recognition of the Latino community, its stakeholders and it needs. There is also a lack of Latino organization and community building in the Valley. As a Mexican American – I prefer the term Chicano –  I have always advocated for recognition of the Latino community and tried to support organizations, such as ICON CDC, that serve Latinos. 

There are important signs of progress, though, that we can build upon … However, Latinos are not adequately represented on city commissions and the boards of directors for banks, hospitals, universities, museums and so forth. Lack of capital continues to be a problem for Latino business growth. ICON CDC seeks to address these barriers to Latino economic development and is working with VICA (Valley Industry & Commerce Association), local chambers and others to create lasting change. – TAYLOR MILLS

Inside The Valley Magazine Publisher’s Letter

By
James Brock
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If you skipped the last issue of the San Fernando Valley Business Journal, you missed an important announcement – and no, your eyes aren’t deceiving you; we’ve made a few changes! 

The SFVBJ has evolved into the magazine you are reading today: Inside The Valley. Don’t let the Los Angeles Business Journal masthead fool you, Inside The Valley, publishing six times per year, will provide in-depth articles, exciting new features and longtime favorites (such as The Lists), covering our Valley communities including: the San Fernando Valley, Conejo Valley, Simi Valley, Santa Clarita Valley and Antelope Valley. 

This, our inaugural edition, packs a punch with a variety of content in diverse industries throughout the region. We introduce you to Morton Wealth, a thriving Conejo Valley finance company that is unique in that most of its employees do not have a financing background. We dive into the biotech cluster that has emerged along the 101 Corridor through an interview with Brent Reinke, founder of the BioScience Alliance. We explore the gaming industry with companies in Woodland Hills and Burbank (Infinity Ward Inc. and Insomniac Games, respectively). As we continued our reach into the Valleys, our editorial team discovered a growing number of breweries in Santa Clarita. Our feature shares a few, such as Pocock Brewing Co. and Santa Cruz Brewing.

Our dedication to the Valley Community of Business couldn’t be stronger, and readers are taking notice. We held our Valley Economic Trends event on March 6 at CSUN’s Orchard Conference Center. Two panels of Valley leaders shared insights and predictions – much of which is provided within, starting on page 53.

The ways in which readers consume content is constantly evolving. We’re committed to providing award-winning content in all the ways our readers choose to absorb it: in newspaper print, in various digital formats, in person through face-to-face events, and now, in magazine print (and yes, available online with your subscription as well). 

Regional business magazines are among the fastest-growing media platforms throughout the country, offering a unique reader experience. Adding this to our array of products expands our media footprint and only increases engagement with our readers. 

We hope you enjoy reading this first issue as much as we enjoyed creating it! 

Machina Labs Inks Five-Year Lease

By
James Brock
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Edward Mehr, Machina Labs' co-founder and chief executive, with some equipment at his company’s lab. (Photo by David Sprague)

Robotics and AI innovator Machina Labs has expanded its local footprint with the signing of a five-year lease for a 60,000-square-foot manufacturing warehouse in Chatsworth.

Machina Labs, which was founded in 2019, enables rapid iteration and swift production to accelerate the design, engineering and innovation of products for industries including aerospace, automotive and defense.

The new space, at 20559 Prairie St., will allow the company to expand its manufacturing facility, which, according to the firm, will support a nearly threefold increase in production.

“With increased customer demand for our agile manufacturing platform, finding our next foothold location that would support our rapid company expansion plans was critical,” said Edward Mehr, chief executive and cofounder of Machina Labs.

Lee & Associates Los Angeles North and Ventura principals Erica Balin and Scott Caswell represented Machina Labs in the transaction. The landlord is Lainer Investments.

“After an extensive search, we were able to identity 20559 Prairie St., which not only offers a well-designed, high cube space that has 100% HVAC, but also includes all the necessary amenities – including heavy power, with the cost-effective ability to increase to a higher voltage – which is a requirement for advanced manufacturing companies like Machina Labs,” Balin said. “It is the perfect solution to finding the expansion location for one of the industry’s truly innovative companies, especially in the tight industrial market here in the San Fernando Valley.”

The San Fernando Valley and Ventura County market boasts an industrial vacancy rate of 1.5%, according to Colliers. Machina Labs is expected to move into the property in the second quarter.  – BRYNN SHAFFER

STORAGE BUYS

Public Storage is looking to continue the momentum it achieved last year.

The Glendale-based self-storage real estate investment trust set new milestones in properties owned and its customer count, numbers bolstered significantly by the company’s largest-ever acquisition. Traders largely responded in kind, with share prices closing out last year at $305, an increase of 14% from the start of that year.

“2023 was a year of significant achievement for Public Storage amidst a competitive industry environment,” said Chief Executive Joe Russell Jr. during a year-end financials call last month. “The team elevated our customer experience and financial profile through digital and operating model transformation, enhanced existing properties with over 500 solar installations and the Property of Tomorrow program, advanced complementary business lines – including tenant reinsurance and third-party management – and grew the portfolio through acquisitions, development and redevelopment.”

Public Storage last year added 1.7 million rentable square feet with 11 new facilities, to the tune of $363 million; five of those facilities were opened in the fourth quarter. The company also purchased 37 other self-storage facilities, adding 2.7 million rentable square feet, for $437 million. More importantly, it added 152 new facilities with a $2.2 billion acquisition of Florida-based Simply Self Storage in September; 127 units are company-owned and the rest belong to third parties but are under its management.

That deal, which added 9.4 million rentable square feet to the portfolio, helped rescue share prices, which by then had fallen to their low point of the year.

Public Storage closed out 2023 with $4.52 billion in revenue, which massaged out to a net income of $2.2 billion. It also finished with more than $370 million in cash.

“Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand any challenges and bank on expansion opportunities through acquisitions and developments,” read a report from Zacks Equity Research. “The company maintains a strong financial profile characterized by solid credit metrics, including low leverage relative to its total capitalization and operating cash flows.”

The company made other quality-of-life improvements last year. In September, it launched an in-house insurance program offering customers protection against loss or damage. It also began construction on 133 rooftop solar panel projects in Maryland, New Jersey and Illinois that will allow local residents to buy electricity generated from panels on Public Storage facilities at significant discounts.

It wasn’t all roses last year, however. Buffalo, New York-based Life Storage Inc. rejected an all-stock purchase proposal by Public Storage, on the basis that the deal undervalued the competitor company.

For this year, Chief Financial Officer Tom Boyle told investors he was more encouraged than he was at this point last year and expected comparable revenues. He added that Public Storage anticipated $500 million in acquisitions this year on top of $450 million in new development – a record for the company.

However, Zacks Equity cautioned in its report that Public Storage – which ended last year with $9.1 billion in debt – could fall victim to sclerotic construction costs and interest rates with this long-term development.

“Though (the developments are) encouraging, the substantial pipeline exposes the company to rising construction costs and lease-up concerns. Self-storage spaces are not usually pre-leased and new assets generally take time to generate yields,” the report added. “A high interest rate is a concern for Public Storage. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate.” – ZANE HILL

ImmPACT BIO Gets $8M

West Hills-based ImmPACT Bio USA Inc. has received an $8 million award from California’s stem cell research agency to fund ongoing clinical trial research for the company’s drug to treat certain types of lupus.

The award from the California Institute of Regenerative Medicine, or CIRM, went to a research team at ImmPACT led by Chief Medical Officer Jonathan Benjamin. It was one of two awards from the agency in its most recent funding round for further research into drugs to treat lupus; the other similar-sized award went to a researcher from San Diego-based Fate Therapeutics Inc.

ImmPACT Bio’s drug uses immune cells extracted from a patient and then re-engineered to better treat specific types of cancers or other diseases, a process known as CAR T-cell therapy. 

This drug targets two types of lupus: one known as systemic lupus erythematosus that is the most common form of the disease and the other a variant that resists a common treatment. The drug, known by the placeholder name of IMPT-514, has received fast-track designation from the Food and Drug Administration. It is currently in an early-phase clinical trial. ImmPACT Bio will use the funds to help expedite the clinical trial process.

“We are extremely grateful that CIRM has recognized the scientific merit and technical feasibility of our clinical trial evaluating IMPT-514 for the treatment of both LN and SLE,” Johnson said in the company’s announcement of the stem cell agency award. “Lupus is a debilitating, multi-organ disease that primarily affects women, often in young adulthood. There is a critical unmet medical need for well-tolerated therapies that offer improved efficacy and durable disease remission.”  – Howard Fine

Zest AI Adds New Tool

Burbank-based Zest AI, an artificial intelligence developer for lenders, rounded out the first quarter of this year with several new developments.

At the end of February, the company debuted a generative AI tool called LuLu, which it says allows lenders to scrape industry and portfolio insights.

 The product is currently being piloted by the Tennessee- based ORNL Federal Credit Union and HawaiiUSA Federal Credit Union, and pending its beta performance could see a general release by the end of the year. 

“Right now, access to lending analysis is complicated, time consuming and often cost prohibitive, which is why LuLu is a game changer,” said Adam Kleinman, head of strategy and client success at Zest AI.

Earlier last month the company brought on a new member to its board. 

Rodney E. Hood, the former National Credit Union Administration Board chair,  joined the board after almost 20 years at the banking regulatory agency. 

Hood has an extensive background in building accountability frameworks for promoting financial inclusion, and cited Zest AI’s advocacy for credit equity through tech as a determining factor in his decision to join the company. 

“With its patented technology, proven fair-lending models, regulatory expertise, and mission to drive economic equity, Zest AI is one of the strongest advocates for and solutions to this issue,” Hood said. – Taylor Mills

Marcus & Millichap Gets Proptech Right

By
James Brock
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Hessam Nadji, chief executive of Calabasas based Marcus & Millichap, at the company’s headquarters.

Proptech is increasingly important to the real estate industry, and Marcus & Millichap is hoping to lead the charge. 

The Calabasas-based brokerage implemented two new technologies into its communications system last year as it announced partnerships with both San Francisco-based Archer and New York-based EquityMultiple.

“For well over a decade now, investing in technology, both internal and external, has become essential to the commercial real estate business,” says Hessam Nadji, chief executive of Marcus & Millichap. “It’s very hard to ignore the importance of technology and how it affects all facets of commercial real estate now.”

Back in November, the firm announced its strategic partnership with Archer, a venture-backed real estate technology company that uses automation to accelerate market analysis and underwriting processes for its clients. 

Nadji calls Archer a “refreshing startup,” adding that “it makes the preparation of underwriting and execution of underwriting much quicker and much more efficient.” 

And just over two weeks later, Marcus & Millichap shared its new investment in EquityMultiple, a real estate financing and investment technology platform that allows sponsors and operators to connect with supplemental sources of private capital.

“Certain aspects of the business can be enhanced by joining forces with other proptech companies that have an entire business plan and commercial path toward a business they’re trying to carve that’s complementary to our core business,” Nadji says. “In the case of EquityMultiple, they’re so well known and have a great track record for helping sponsors that happen to be our clients come to market raising equity,” he adds. 

Nadji says the brokerage’s latest investments are nothing new. He says the company has been forward-thinking since its founding by George Marcus and Bill Millichap in 1971.

In fact, Nadji, who studied computer science as an undergrad at City University of Seattle, revealed that the company’s prioritization of technology was a major influence in his own decision to join Marcus & Millichap, which he did in 1996, first as the head of research and advisory services.

“Bill Millichap in particular really took to the notion of modernization and automation of traditional brokerage through technology,” Nadji says. “The notion of investing in technology and using it for our business model is very much in the DNA of the company.”

In 2022, the company launched MyMMI, an internal, customizable brokerage tool that automates perpetual matching of investors’ property-search preferences with the firm’s exclusive listings. Today, the firm has more than 100,000 investors registered with MyMMI.

But despite its steep technological advancement, Nadji says Marcus & Millichap still plays it cautious when deciding on new investments. 

“We’ve been pretty selective in the way that we partner with different technology providers,” Nadji says. “We’re looking at other business lines that we do believe will be supplemental, like appraisal and consultation, like investment management,” he adds. “Those have really good correlations with our core business. And we’re exploring multiple opportunities in all those areas.” – BRYNN SHAFFER

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