july 8-21, 2014 section b

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Groundbreaking ceremonies were held July 1 for Shimadzu Aircraft Equipment USA’s new headquarters at 3645 Lakewood Blvd. at Douglas Park in Long Beach. The firm, part of Shimadzu Precision Instruments, Inc., is relocating from Torrance and hopes to move into its 58,796-square- foot, two-story concrete tilt-up building in December. The new facility will include office and manufacturing interior improvements, process plating lines, process plating treatment, as well as on and off site work. In addition to Shimadzu Precision Instruments, the project team includes Oltmans Construction as the general contractor, DRA Architects and Robert A. Vezzuto Consulting as the owner’s representative. Pictured from left are: James Wu, project manager, Oltmans Construction Co.; Larry Lukanish: senior vice president of Sares-Regis Group; Todd Taugner: principal with The Klabin Company; Yutaka Nakamura, president of Shimadzu Precision Instruments, Inc.; Yasuhiro Yamanaka, president, Asahi Kinzoku; Kiyotaka Ihara, president of Shimadzu Aircraft Equipment USA; Carrie Hoshino, principal/architect with DRA Architects; and Vezzuto, who serves as construction manager. For more information, see Page 18-B. (Photograph by the Business Journal’s Thomas McConville) MID-YEAR REPORT Economic Outlook

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The Business Journal presents its Mid-Year Economic Outlook and a focus on going green.

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Page 1: July 8-21, 2014 Section B

Groundbreaking ceremonies were held July 1 for Shimadzu Aircraft Equipment USA’s new headquarters at 3645 Lakewood Blvd. at DouglasPark in Long Beach. The firm, part of Shimadzu Precision Instruments, Inc., is relocating from Torrance and hopes to move into its 58,796-square-foot, two-story concrete tilt-up building in December. The new facility will include office and manufacturing interior improvements, process platinglines, process plating treatment, as well as on and off site work. In addition to Shimadzu Precision Instruments, the project team includes OltmansConstruction as the general contractor, DRA Architects and Robert A. Vezzuto Consulting as the owner’s representative. Pictured from left are:James Wu, project manager, Oltmans Construction Co.; Larry Lukanish: senior vice president of Sares-Regis Group; Todd Taugner: principal withThe Klabin Company; Yutaka Nakamura, president of Shimadzu Precision Instruments, Inc.; Yasuhiro Yamanaka, president, Asahi Kinzoku;Kiyotaka Ihara, president of Shimadzu Aircraft Equipment USA; Carrie Hoshino, principal/architect with DRA Architects; and Vezzuto, whoserves as construction manager. For more information, see Page 18-B. (Photograph by the Business Journal’s Thomas McConville)

MID-YEAR REPORTEconomic Outlook

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ECONOMIC OUTLOOK MID-YEAR REPORTJuly 8-21, 2014 Long Beach Business Journal 3-B

� By SAMANTHA MEHLINGER

Staff Writer

T he federal government’s lateJune announcement thatnational gross domestic product

(GDP) decreased 2.9 percent in the firstquarter of the year put a damper on whathad until then been a positive narrative foreconomic growth this year. National andregional economic analysts admitted thenews was disappointing, but expressedoptimism about the economy’s well-beingin coming months.

“There seems to be more and more goodnews on the economy just about every-where except that GDP number, whichreally was due to some very temporary fac-tors,” said Mark Vitner, senior economistfor Wells Fargo. Steven Cochrane, manag-ing director of Moody’s Analytics, saidmany of the economic factors that causedthe dip in GDP were “one time events.”

Accounting for about half of the dropin GDP were decreased national exportsin the first quarter, Vitner said. This 8.9percent decrease was partially caused bythe Chinese New Year coming earlier thanlast year, he said. To get ahead of the hol-iday, shippers exported products in thelast quarter of 2013, which they wouldhave normally shipped in the first quarter.He noted this had a direct impact onSouthern California ports, where a highpercentage of container traffic travels toand from China.

Cochrane pointed out that bad winterweather on the East Coast was likely to

blame for “tepid” consumer spending,which only grew by 1 percent in the firstquarter. Vitner noted the weather alsocaused many businesses to temporarilyclose. Corporate profits decreased $198.3billion in the first quarter, according to theU.S. Bureau of Economic Analysis.

Because major factors playing into thedecrease in GDP were anomalies, nottrends, Vitner and Cochrane projectedGDP should grow in the coming months.“For the second half of the year we stillthink we could be in the 3 percent range,which would be pretty strong,” Cochranesaid of estimated GDP growth. RobertKleinhenz, chief economist with the LosAngeles Economic DevelopmentCorporation (LAEDC) Kyser Center for

Economic Research, projected a 2.5 per-cent increase in GDP this year.

“It seems to us that the economy isgradually building momentum and that weare likely to see growth somewherebetween 2.5 to 3 percent through the restof the year,” Vitner said.

“Despite the alarming decline in GDPin the first quarter of the year, whichcaused many people concern about thenational economy, the fact of the matter isother national indicators show strength,”Kleinhenz said.

A positive indicator for the national andregional economies is job growth. “The U.S.economy has now regained, at least numeri-cally, all the jobs that were lost in the reces-sion,” Vitner said. While nationwide the

country has recovered the number of jobslost in the recession, some states, includingCalifornia, are still playing catch up.“California should regain all the jobs that itlost in the recession next month,” he added.

Los Angeles County’s job growth contin-ues to pace the state’s, Kleinhenz said. Thestate had an unemployment rate of 7.6 per-cent in May, while the county had an 8.2percent unemployment rate. The prereces-sion average for unemployment in L.A.County was 8 percent, Kleinhenz said, buta more ideal rate would be 7.5 percent. Heexpected the county to reach that unem-ployment rate in the next 12 to 18 months.If California meets that goal, it would havetaken six years post-recession for unem-

“From luxury rental towers to the adaptive reuse of old office buildings, at least eight new multi-family projects are planned or underway downtown, totaling more than 1,100 new rental units,” writes StaffWriter Samantha Mehlinger in her update on the residential real estate industry. (Photograph by the Business Journal’s Thomas McConville)

Despite First Quarter GDP Slump, Economic Outlook Is ‘Decent’

Inside Economic Outlook Mid-Year Report4 Health Care6 Financial Services7 International Trade10 Oil & Gas12 Technology/Communications13 Utilities14 Retail15 Real EstatePublished July 8, 2014, by the Long Beach Business Journal, 2599 E.28th St., Suite 212, Signal Hill, CA 90755. The full publication is avail-able online at no cost at www.lbbusinessjournal.com. 562/988-1222 • e-mail: [email protected]. Reproduction in whole or in part isnot permitted without written approval of the publisher. The LongBeach Business Journal is a publication of South Coast Publishing,Inc., incorporated in the State of California in July 1985.

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Los Angeles Economic Development Corporation’s Economist KimberlyRitter-Martinez and Chief Economist Robert Kleinhenz, Ph.D., believethe economic outlook for the remainder of the year is positive, and thatthe economy “is gradually building momentum.” They expect broad-based job growth to continue across Los Angeles County industries.(Photograph by the Business Journal’s Thomas McConville)

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ECONOMIC OUTLOOK MID-YEAR REPORT4-B Long Beach Business Journal July 8-21, 2014

ployment to decrease to a healthier level.“That is the longest recovery time in thepost-World War II era,” he said.

In Long Beach, unemployment was 8.8percent in May, down from 10.2 percent ayear ago and 12.2 percent in 2012,Kleinhenz said.

The jobs outlook for the remainder of theyear, like that of the nation and greaterL.A. region, is positive overall, judging bycomments from Cochrane, Kleinhenz andVitner. “Not only did we have strong jobgrowth, but the gains were very broadbased,” Vitner said. The economists allanticipated continued job growth acrossmost industries throughout the year.Kleinhenz said L.A. County should experi-ence a 2 percent job increase.

“The strength of the Long Beach econ-omy should be similar to the county’s, in thatwe will see job gains in health care . . . trans-portation and warehousing, and tourism-related leisure and hospitality,” Kleinhenzsaid, noting that these industries have beensteadily adding jobs in L.A. County.

The health care industry is a majoremployer in Long Beach, withMemorialCare Health System’s three hospi-tals, Molina Healthcare, St. Mary MedicalCenter, Molina Healthcare and LakewoodRegional Medical Center supporting thou-sands of jobs directly and indirectly. Leaderswithin the local health care industry told theBusiness Journal they might continue hir-ing this year and beyond as more LongBeach-area residents gain access to health-care through the Affordable Care Act.

Another strong industry for jobs in LongBeach and L.A. is the leisure and hospitalitysector, which consists of mostly lower payingentry-level positions. This industry was thefirst to recover all the jobs it lost in the reces-sion, Kleinhenz said. According to the stateEmployment Development Department(EDD), the leisure and hospitality industryled job gains again in May, adding 7,900 jobsto Los Angeles County since April.

Professional and business services jobsshould also continue growing, Kleinhenzsaid. His colleague, LAEDC Economist

Kimberly Ritter-Martinez, said growth inthis field includes jobs in accounting, law,architecture, software development andengineering. A June report from the EDDstated this sector gained 23,500 jobs fromMay of last year to the same month this year.

While the construction industry has alsobeen adding local jobs, Ritter-Martinez saidthe industry has been growing at a slowerrate than others. “Even though we have seena lot of growth recently in constructionemployment, it is still well below pre-reces-sion levels. We just haven’t seen industrialor commercial real estate come back as faras new construction goes,” she explained.

The good news is pent-up demand fornew housing should create more construc-tion employment in the coming months,Kleinhenz said. Because many post-reces-sion households are being formed byyoung professionals, it is likely developersmay choose to invest in rental develop-ments, he explained. Many multi-familydevelopments – all with units for rent – areunderway across Downtown Long Beach,with more than 1,100 apartment and loftunits planned. Cochrane noted housingconstruction is beneficial to more than justthe construction industry because itrequires many types of goods.

Other indicators of potential positiveeconomic growth in the second half of theyear are that household and corporate bal-ance sheets are “very healthy” and “thebanking sector has largely emerged fromall of its issues in that banks are very wellcapitalized right now,” Cochrane said.

Despite a generally positive outlook forgrowth this year, the national and regionaleconomies are not immune to uncertain-ties at home and abroad. Overseas,European economies, with the exceptionof the United Kingdom and Germany,continue to struggle, which may impactexports, Cochrane said. He pointed outthis may be more relevant to theNortheastern U.S., through which mostEuropean exports are routed.

Vitner said the Chinese economy mightbe growing slower than economistsexpected this year. Cochrane also observeduncertainty within China. “Particularly ifthe housing market were to falter in China,it would cause the larger economy to stum-ble and we could see a slowing of global

trade,” he said, explaining China may havea housing bubble due to overbuilding.

Additionally, conflict in Iraq may impactfuel prices if oil resources are impacted,Vitner and Cochrane noted.

A local issue to watch is the negotiationsprocess between the InternationalLongshore and Warehouse Union (ILWU)and the Pacific Maritime Association, whichrepresents port businesses employing ILWUworkers. If ILWU workers were to strike andthe San Pedro Bay Ports shut down, theeconomy would suffer, Kleinhenz said. “Itcould have a ripple effect through not justthe goods movement segment of the econ-omy, but the retail segment of the economyand elsewhere,” he explained.

Considering all these factors, the outlookfor the economy this year is “decent,”Kleinhenz said. “Maybe it is not extraordi-nary. But it is decent,” he said.

Health Care� By SAMANTHA MEHLINGER

Staff Writer

W ith four hospitals and severalhealth plan providers located

within Long Beach, the local health careindustry supports thousands of jobs andmany more patients. Local health careleaders expressed optimism about theremainder of the economic year andbeyond, projecting stable finances, grow-ing participation in health plans and invest-ments in new facilities and technologies toserve a growing patient population.

Local hospitals, including the threeMemorialCare Health Systems’ hospitals(Long Beach Memorial Medical Center,Miller Children’s & Women’s HospitalLong Beach and Community HospitalLong Beach) and St. Mary MedicalCenter both expect to remain on solidfinancial footing this year.

“We will be on budget,” Diana Hendel,CEO of MemorialCare’s Long Beach hos-pitals, told the Business Journal. “We arestable from a financial perspective. We arein a position to continue maintaining thenumber of jobs we currently have andpotentially adding jobs,” she added.Roughly 6,000 people work at

Thomas Salerno, president and CEO of Dignity Health St. Mary Medical Center, visits one of the hospital’s cardiac operating rooms. The hospital, whichemploys about 2,000 people directly and indirectly, is celebrating its 90th anniversary this year. (Photograph by the Business Journal’s Thomas McConville)

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MemorialCare’s hospitals, plus 2,500 inde-pendent physicians who derive theirincomes from working at MemorialCarefacilities, she said. Between 2,000 and3,000 independent contractors also dependon the hospitals for their livelihoods.

MemorialCare’s Seaside Health Plan,which primarily focuses on Medi-Cal andMedicare patients and launched in LongBeach last September, now has about15,000 members, Hendel said. She pro-jected enrollment to increase by 6,000 to10,000 more members over the next year.

The outlook for St. Mary Medical Centeris positive, and the hospital should remain“in the black” this year, said CEO ThomasSalerno. Nearly 1,400 people are employedby the hospital, with an additional 600independent physicians who work there.

Molina Healthcare, a health insuranceplan provider with an extensive real estatefootprint in Long Beach, should continueto have a positive year, according to JohnMolina, CFO. The Fortune 500 companyemploys about 2,500 full-time employeesin Long Beach. “When we add in part-time[employees] and consultants, the numbergoes up to about 3,300,” he added.

Kaiser Permanente, another regionalhealth care employer, has several local facil-ities, including a large medical center inCarson and another in Harbor City to servethe South Bay and Long Beach. KaiserPermanente South Bay Medical CenterExecutive Director Lesley Wille, RN, saidvia e-mail that Kaiser employs about 3,400staff and 460 physicians in the South Bayand Long Beach. Kaiser has about 202,000patient members in Long Beach and theSouth Bay, and “membership growth hasbeen on target for this year,” Wille said.

Molina, Salerno and Wille all said theirorganizations would evaluate staffing needsas enrollment and patient bases grow –which they all anticipate to continue in com-ing months thanks to the individual coveragemandate of the Affordable Care Act (ACA,or “Obamacare”) going into effect this year.

“What we are seeing in terms ofgrowth from Obamacare in SouthernCalifornia is much stronger than we orig-inally had thought, and I think that isgoing to drive, certainly for providers,more paying patients,” Molina said. Hepointed out that enrollment in CoveredCalifornia, the state’s health insuranceexchange for the ACA, is not a big partof Molina’s business, but overall CoveredCalifornia should impact the greaterhealth care industry.

A steadily increasing number of peoplewith health care means hospitals are goingto be reimbursed for care more frequently,Salerno said. “We are starting to see moreinsured patients through our emergencyroom. Financially, that is very positive forus,” he said. Salerno observed thatObamacare has been a positive influence inthe local community because it has enabledmore people to become insured. “A largeportion of Long Beach – as many as 34 per-cent – are uninsured, according to a 2011study by the UCLA Center for HealthPolicy Research,” he noted.

“Throughout Los Angeles County,Kaiser Permanente enrollment throughCovered California exceeded projections –which is a great thing,” Wille said. “Overthe next 10 years, affordability will be the

dominant force for change in the healthcare market. To address this affordabilitychallenge, we’re transforming the way thatwe deliver care – leveraging technologyand the skill of our caregivers, continuallyimproving efficiency, while increasing theengagement of our members,” she added.

While the Affordable Care Act has posi-tive aspects, the new policy is also causingan “unprecedented transformation of ourhealth care delivery system,” which is cre-ating some uncertainties, Hendel said.“There is a lot of volatility from a revenueperspective because the model for reim-bursement is rapidly changing from fee forservice, where there is payment for diag-nosis and treatment and healing, and muchmore focus on . . . [having] providers take

responsibility of prevention and wellnessfor patients, which is really a wonderfulthing,” she said. “But that transformationis quite complex,” she added.

Additionally, “There is still a lot of con-fusion amongst the newly insured and theproviders in knowing [from] whom andwhere they are supposed to access care,”Hendel explained. “Collectively providers,insurers and patients are working togetherto clarify, but that creates some efficiencychallenges and confusion.”

Wille echoed Hendel’s thoughts. “It iscritical that patients, providers, insuranceplans and employers all work hard tounderstand the changing dynamics of thehealth care landscape and continue to adaptto these changes quickly,” she said.

Investing In FacilitiesAnd Technology

MemorialCare, Molina Healthcare, St.Mary Medical Center and KaiserPermanente all have near-term plans toinvest in new facilities and technology tobetter serve their communities.

MemorialCare has many infrastructureprojects planned and underway, with about$80 million budgeted for capital improve-ments for equipment, refurbishments andfacility upgrades, Hendel said.

Two new projects are for pediatric care.“This fall, we will be announcing a loca-tion for a 60,000- to 80,000-square-footoutpatient pediatric specialty medical vil-lage,” Hendel said. The new facility is

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going to be located within the Long BeachMemorial Medical Center and MillerChildren’s campus, she added.

As part of efforts to expand inpatient andoutpatient mental health services, “We areevaluating an adolescent psychiatric facil-ity at Community Hospital, and will hope-fully have announcements about thatbefore the end of the calendar year,”Hendel said.

In May, Long Beach Memorial MedicalCenter opened a new facility for a mini-mally invasive heart valve replacement sur-gery available at only around 290 sitesnationwide. The surgery is approved by theFood and Drug Administration for patientswho are deemed high-risk for traditionalopen chest surgery.

MemorialCare also continues investing intechnology, purchasing a new PET/CT scan-ner and a new magnetic resonance imagingmachine, Hendel said. These machines helpdiagnose internal physiological issues. Thehospital system is also installing an elec-tronic medical record system at CommunityHospital in October, she said.

Molina’s Millworks project, the rehabili-tation and reuse of the Meeker-Baker andPress Telegram buildings into new officespace, received its certificate of occupancyon June 28, according to Michelle Molina,managing partner of Millworks. “We pre-dict another 800 [Molina] employees willbe moving in to the Meeker-Baker [build-ing] over the course of the summer, bring-ing our occupancy to around 1,200,” shesaid. The project is complete four monthsahead of schedule, she added.

Molina Healthcare recently partneredwith College Health Enterprises after theorganization bought Pacific Hospital ofLong Beach, and now offers acute careservices at the facility, which was renamedCollege Medical Center, John Molina said.“It gives us another avenue to help takecare of patients,” he noted.

St. Mary Medical Center is reinvestingin its emergency department, accordingto Salerno. “The community is largeenough to require we expand our emer-gency services,” he explained. “Theexpansion will begin in 2015. Then wewill be able to provide better access, morebeds, larger waiting areas and more pro-cessing areas,” he said.

Kaiser Permanente is “nearing comple-tion of a new North Hospital at the South

Bay Medical Center in Harbor City, whichserves our Long Beach members,” Willesaid. “Scheduled to open in February 2015,the new hospital will feature all privatepatient rooms, on-demand meal service, astate of the art diagnostic imaging suite andmuch more,” she stated.

Wille continued, “In addition to newfacilities, we’re looking at the role technol-ogy can play in improving access to care.”Through www.kp.org, Kaiser’s website,members may directly communicate withtheir physicians, “look up lab results, refillprescriptions, schedule appointments andmore,” she explained. Kaiser Permanente isalso piloting phone and video conferencingtechnologies for members.

Although the implementation of theAffordable Care Act may be causing someuncertainties, all health care leadersreached by the Business Journal continueto grow their services and maintain strongemployment and financial footing.

Hendel observed, “In the greater LongBeach area, we have a wealth of terrifichealth care agencies . . . For the region, thefuture of health care bodes well.”

Financial Services� By BRANDON FERGUSON

Staff Writer

A s the economy continues torebound, financial professionals’

clients have lingering concerns about thefuture. That’s according to members of thefinancial services community who recentlydiscussed the economic outlook with theBusiness Journal.

Though indicators such as recent dropsin unemployment signal economicimprovement, hiring remains soft and, aswidely reported two weeks ago, the U.S.Bureau of Economic Analysis adjusted itsfirst quarter estimate to reflect a 2.9 per-cent drop in Gross Domestic Product(GDP) – 1.9 percent more than initiallyestimated. But despite some setbacks,financial experts paint a largely promisingpicture of the future.

“I believe we will see stronger globalgrowth led by the United States; I alsothink interest rates could be higher,” saidTravis Barr, senior financial advisor atMerrill Lynch’s Long Beach office. He

added that investor complacency mixedwith higher stock valuations, however,would increase market volatility “acrossthe board.”

When asked what primary concerns hisclients have, Barr explained that with moreworking adults approaching retirement,some worry about outliving their retire-ment savings. “We’re spending our timeright now trying to build those portfolios toproduce income. More and more peopleare retiring. It’s something like 10,000 peo-ple a day for 19 years,” Barr said.

Describing his client’s concerns, BlakeChristian, a certified public accountantwith Long Beach-based firm HolthouseCarlin & Van Trigt, said in an e-mail thatpeople are still skittish when it comes tothe economy.

“Even with some positive indicators (e.g.banks desiring to lend, increase in newhousing starts, home price increases, lowerunemployment, etc.) there is a bit of mis-trust in the numbers and concern with bothdomestic and foreign economic and mili-tary issues,” Christian wrote, adding thatbusiness owners in California also continueto wrestle with zoning and regulatoryissues that slow expansion efforts.

“Generally they feel optimistic, but arelikely to continue to be cautious for theforeseeable future.”

Banking experts contacted by theBusiness Journal reported a bright outlookfor the rest of 2014 with tangible growthevidenced by branch office openings. RodBanks, executive vice president of CityNational Bank’s commercial banking serv-ices, said the institution added five newoffices in 2013.

“[At] City National, we’ve had steadygrowth, and we find ourselves now the23rd largest commercial bank and we’regrowing,” Banks said.

Attributing City National’s continuedsuccess to the markets in which it operates,Banks said California has kept up with afaster rate of economic improvement overother markets across the county. “All in allwe think California has certainly beenkeeping up . . . [and] the pace of unemploy-ment has been improving faster in theCalifornia market than it has in the rest ofthe country,” said Banks, adding that whilelow interest rates have been frustrating, heexpects them to rise in the near future.

“Rates today have not risen frankly asfast as we had hoped or thought theywould. You look at the 10-year: it’s stilltrending around 2.6 percent. I think a lotof people felt it might be closer to 3 [per-cent] by now, but it hasn’t moved. We dothink they’re going to rise and the Fed islikely to end their bond buying by the fallor certainly the first part of next year,”Banks said.

Ben Alvarado, Orange County and LongBeach community banking president atWells Fargo, attributed his bank’s contin-ued growth to a focus on customer service.

In order to “reflect the full level ofcare the hospital provides,”Miller Children’s Hospital LongBeach has been renamed MillerChildren’s & Women’s HospitalLong Beach, according to astatement issued in June. “Weoffer a comprehensive level ofcare for women, children andthe entire family,” said SuzieReinsvold, chief operating offi-cer, of the renamed hospital. Sheadded, “Miller Children’sHospital Long Beach has alwaysprovided superior care forexpectant mothers and high-risknewborns alongside the qualitytreatment it has provided for chil-dren. It is important that ourname accurately reflects who weare and the full service we pro-vide to the entire family.”(Photograph by the BusinessJournal’s Thomas McConville)

Ben Alvarado is Wells Fargo’s president for the Orange County Coastal Community Bank. He is pic-tured here at the Wells Fargo branch at 12830 Seal Beach Blvd. in Seal Beach. Ranked number 29on the Fortune 500, San Francisco-based Wells Fargo has 9,000 branches and 12,500 ATMs.(Photograph by the Business Journal’s Thomas McConville)

Rod Banks is executivevice president for CityNational Bank’s com-mercial banking serv-ices. He said the bankhas experienced “steadygrowth” and openedfive new branches in2013. (Photograph byCity National Bank)

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“We’re going to mirror the industry.Things are steadily growing; things areimproving. I think Wells Fargo will keeppace with that and maybe outpace it abit,” Alvarado said. He added that thecompany plans to open new branches inHuntington Beach and Long Beach thisyear. In addition to new brick and mortaroperations, Alvarado said the bank’sonline presence is also growing.

“We want to be wherever the client is,so that means they’re online in mobilebanking. We’ve got great online toolsavailable for our customers, and we areseeing a lot of interest and growth inthose tools,” Alvarado said.

Though he declined to predict futureinterest rates, he expressed optimismabout where the economy is headed. “Ithink we’re seeing healthy growth in theeconomy; we’re seeing a lot of positivetrends, and so the outlook in the near- tomid-term is looking to stay in line withthat,” Alvarado said.

Michael Miller, president and CEO ofInternational City Bank, explained to theBusiness Journal that based on his bank’sstrategic plan, which considers factors suchas interest rates and the overall growth ofthe economy and generally looks two yearsahead, continued growth is in the cards.

“We’re looking at, year over year, about20 percent growth,” Miller said. He addedthat in recent years the bank has experiencedmore growth in core deposits as opposed tohigher interest accounts such as CDs. “Ifyou look at our balance sheet on the deposit

side, there hasn’t not been significantgrowth there, but it’s been more beneficialto the bank because it’s more core related.”

When asked for his thoughts on thefuture of interest rates, Miller said he didn’texpect a dramatic rise, at least in the nearterm, but added that based on client feed-back, profits are on the rise.

“By and large the feedback that we’regetting is that things are improving.Revenues and profitability are picking up,it’s not a dramatic increase by any stretch,but I think overall, [according to] our clientbase, systematically year over year, thingsare getting better.”

But while interest rates currently remainlow, insurance rates, and specifically work-ers’ compensation rates, are increasing.

“In terms of expected claims, the indi-cations are that claims are rising. Not rap-idly, but ticking up pretty much in generalin keeping with the pace of the economy,”said Steven Weisbart, senior vice presi-dent of the Insurance InformationInstitute. “It depends on what type ofinsurance you’re talking about. Anythingconnected with medical care, whichwould include liability coverage andworkers’ comp, those claims would tendto be increasing a little faster than thegeneral inflation rate.”

Kelly Williams, who owns Long Beach-based Kelly Williams Insurance, told theBusiness Journal that higher workers’comp rates are tied to increases in health-care costs as well as California’s complexlegislative structure.

“The costs of medical care in generalhave gone up so when people get injured,the claims are higher. We also have a lot oflaws in California that allow disability andother things, a lot of stuff makes the claimsa lot higher than they would be in anotherstate.”

Williams said the increase in workers’comp prices over the last year was difficultto pinpoint and largely depends on the typeof business involved in a claim.

“[Workers’ comp claims] took a 20 per-cent rate increase it seems like in the lastyear. I’d say it [won’t] go up that much nextyear, but I would say we’re still looking at a10 percent rate increase,” Williams said. �

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ECONOMIC OUTLOOK MID-YEAR REPORT8-B Long Beach Business Journal July 8-21, 2014

workers – then the San Pedro Bay Ports’container traffic outlook through the end of2014 is positive.

“Assuming there is no strike, looking atthe trends we have seen so far this year andstretching back, this should be a good yearfor the ports and more generally for trans-portation, warehousing and the goodsmovement industry,” said RobertKleinhenz, chief economist for the LosAngeles Economic Development Center.

A representative from PMA told theBusiness Journal contract negotiationswith ILWU should extend into mid-July,which he said is typical. A statementreleased by PMA on July 1 said both PMAand the ILWU “understand the strategicimportance of the ports to the local,regional and U.S. economies, and aremindful of the need to finalize a new coast-wide contract as soon as possible to ensurecontinuing confidence in the West Coastports and avoid any disruption to the jobsand commerce they support.”

John Husing, principal with Irvine-basedEconomics & Politics, Inc., said there is nosign of an impending strike. “When therewas an interruption [of work at the ports]back in 2002, we saw a lot of trade diver-sion as a consequence,” Husing recalled.“It looks like the West Coast ILWU doesnot really want to do anything to harm the[current] competitive situation. That isreally important,” he noted.

Barring a strike, Kleinhenz projected a5.5 percent increase in total container traf-fic through the San Pedro Bay Ports, whichincludes both the Port of Los Angeles

(POLA) and Port of Long Beach (POLB),in 2014 compared with 2013’s total traffic.Husing stated the outlook for cargo traffic“looks pretty good” through the remainderof the year.

Most container traffic through the San

Pedro ports is in imported goods. Husingexpected this imported traffic to increasedue to domestic demand for holiday goodsin the upcoming winter season. He did notexpect exported container traffic toincrease dramatically, but said exports

should “continue moseying along the waythey have.”

Through May, the POLA has experi-enced an 8.2 percent increase in cargo traf-fic from the same period last year, accord-ing to Mike DiBernardo, the port’s directorof business development. He projected acargo traffic increase between 2 to 4 per-cent during the next six months. “This istracking a little bit higher than we budgetedfor, so it is definitely positive,” he said ofcontainer traffic at the POLA.

The Los Angeles port’s fiscal year runsfrom July 1 to June 30. For the 2014-2015fiscal year, the POLA has budgeted for a3.8 percent increase in cargo growth.DiBernardo noted some of the cargogrowth that occurred so far this year mighthave been because shippers were trying topre-empt any potential port shutdown if theILWU goes on strike.

The Port of Long Beach has had a rela-tively flat year so far in terms of containertraffic, according to former InterimExecutive Director Al Moro, who com-pleted his duties as interim when the newlyhired chief executive, Jon Slangerup, tookover on July 1.

So far this year, cargo traffic hasincreased 1.5 percent over 2013. If this per-centage holds through the end of the year,the port should be in good shape, Morosaid. He attributed relatively flat cargogrowth to business shifting to the neighbor-ing Port of L.A. – a shift he noted is a con-tinual occurrence between the two ports.

Lee Peterson, a spokesperson for the Portof Long Beach, said the port is estimatinga 1 percent decrease in container revenuefor the current fiscal year, which endsSeptember 30. Next fiscal year, the portanticipates as much as a 5 percent decreasein container revenue.

The POLB is currently budgeting for the2014-15 fiscal year beginning October 1.Moro said the port is remaining conserva-tive in its budget estimations. “We are actu-

Los Angeles Economic Development Corporation Chief Economist Robert Kleinhenz, Ph.D., is projecting a 5.5 percent increase in container traffic through theSan Pedro Bay ports – unless there is a strike by the International Longshore and Warehouse Union. (Photograph by the Business Journal’s Thomas McConville)

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ECONOMIC OUTLOOK MID-YEAR REPORT10-B Long Beach Business Journal July 8-21, 2014

ally projecting a very small decrease inoverall revenue because we are just not cer-tain where the cargo will end up by the endof the year,” he explained. Compared with2013’s revenues, the port is projecting a 2.7percent decrease.

Capital ImprovementsBoth local ports have many capital

improvement projects underway to benefitport tenants and ensure facilities are readyfor increasingly larger cargo vessels.

Long Beach’s Gerald Desmond BridgeReplacement Project continues to face newobstacles to completion. Last year, the proj-ect was delayed and its budget increased byabout $163.2 million due to complex workassociated with abandoning (sealing) andrelocating oil wells and related infrastruc-ture. Now, the project faces more delaysand budget increases due to complex designreviews, according to Moro. The project’scompletion date has been extended by ayear to 18 months, he said. He has receivedpreliminary cost estimates associated withthat delay from contractors and said a firmfigure should be announced in July. Thebridge is being replaced with a new, tallerbridge to accommodate larger vessels pass-ing beneath it.

The POLB’s Middle HarborRedevelopment Project, in which twoaging terminals are being combined andupdated with state-of-the-art and environ-mentally-friendly equipment for tenantLong Beach Container Terminal (LBCT),is “moving along very well,” Moro said. Todate, about 16 stacking cranes for LBCThave been delivered. The IT and North

Operations Building, which is for the com-pany’s offices, is now complete. Moro esti-mated the first phase of the Middle Harborproject should be completed by October2015, at which point LBCT may move intothe finished half of the terminal and work-ers may begin work on the second half,which should be completed by 2019.

In June, port staff estimated $11.4 mil-lion must be taken from the Middle Harborproject’s $30 million contingency fund tomake up for costs primarily associated withremoving buried substructures within theterminal area.

“The other area [in which] we are doingcapital improvements is rail,” Moro said. Aproject to realign tracks off of OceanBoulevard is “doubling the mainline capac-ity serving the southeast portion of the har-bor area – Pier G and Pier J,” he said. Theproject’s completion date is some time nextyear. Another rail project for the southernhalf of Pier G is also in the works, Morosaid. “The port’s goal is to get to about 35percent of cargo moving on dock rail.Right now we are about 22 percent,” hesaid. Moving more cargo by rail shouldhelp alleviate road congestion and is moreeconomical, he explained.

The Port of Los Angeles also has manyinfrastructure projects underway, with about$281 million allotted for capital improve-ments in its fiscal year 2014-15 budget,according to Mike Keenan, the port’s interimdirector of planning and economic develop-ment affairs. “That is going to support 4,600jobs directly and indirectly,” he said.

The $155 million Berth 200 rail project

is going to be completed this year, accord-ing to POLA estimates. Plans for the WestBasin Railyard at Berth 200 include 70,000feet of new track, a new locomotive main-tenance facility and new administrativebuilding. This project alone is generatingaround 2,000 jobs. The port estimates therail yard should eliminate 2,300 daily trucktrips from the I-710 and 110 freeways.

Another big project for the POLA is theTraPac Container Terminal expansion, afive-year endeavor scheduled for completionin 2016. TraPac’s expansion includes anadditional 4,600 linear feet of wharves,deeper water at some of the terminal’s berths,new cranes, improvements to 50 acres ofbacklands and a new on-dock rail facility.

An environmental impact review isunderway for another improvement projectfor POLA tenant Yusen Terminals Inc., withan estimated completion date within 18months. If approved, the $49 million projectwould improve wharves and water depth atthe terminal’s berths and add on-dock railyard capacity and new gantry cranes.

“These projects allow us to provide thefacilities for customers to meet their needsand allow them to grow and route morecargo this way,” DiBernardo said. “Theinfrastructure is a key element in allowingus to bring in larger ships, which is whythese projects are very important to theport,” he added.

The Port of Los Angeles has also imple-mented a $383 million program to improvetraffic congestion generated by the port onpublic roadways. This program should becomplete by 2016, according to POLA.

New LeadershipBoth ports are now under new leader-

ship. Jon Slangerup, who spent the lastseven years as president of FedEx Canada,took over as chief executive at the Port ofLong Beach on July 1. Gene Seroka, whohas served in various roles in multiplecountries for American Presidents Line(APL) and most recently as its head ofcommercial overseeing operations in theAmericas, became executive director at thePort of Los Angeles in June.

Moro said staff at Long Beach’s port isexcited about having Slangerup’s leader-ship. At this time, Moro is unsure whetherhe is returning to his previous post as chiefharbor engineer or if he is being assigneddifferent duties. In the interim, he said hehas offered to help Slangerup transitioninto his new position.

Seroka is also being well received byPort of Los Angeles staff. “We’re veryexcited at the port to have Gene come onboard,” DiBernardo said. Both he andKeenan praised Seroka’s international busi-ness and trade background. �

Oil & Gas� By MICHAEL GOUGIS

Contributing Writer

S trong oil supplies, a mild hurricaneseason and increases in the amount

of oil produced in the United States shouldease some of the pain at the gas stationpump by the end of 2014, according toindustry executives and expert analysts.

Locally, activity is expected to remainsimilar to the first half of 2014, with aslight upward trend, says Frank Komin,president and general manager of OxyLong Beach, which operates four proper-ties in the Long Beach area, with theTidelands and THUMS oil islands respon-sible for most of the production.

“We expect to average about 36,000(barrels per day) from our Wilmington OilField operations for the remainder of 2014.This is a slight increase from earlier thisyear,” Komin told the Business Journal.And the company’s economic activity, hesays, “should be about flat with last year.Our capital investment program in LongBeach will total roughly $350 million for2014. It will be focused on continueddrilling combined with various facilityinfrastructure and mechanical integrityupgrades throughout the field. We are tar-geting to drill about 170 new wells.”

The biggest news surrounding Oxy’soperations is that the company is undergo amajor restructuring. Earlier this year,Occidental Petroleum announced plans toseparate its California assets and form anew company, California Resources Corp.The spin-off is scheduled to take place dur-ing the fourth quarter of 2014, and when itis completed, the new entity will be anindependent and separately traded com-pany that will be one of the largest gas andoil producers in California.

“It will be comprised of roughly 8,000employees and contractors. CRC will becommitted to continued investment inCalifornia as well as in Long Beach,”Komin says. “This will ensure that the city(of Long Beach) and the state, as the pri-

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OO X Y X Y LL O N G O N G BB E A C H , E A C H , II N C .N C .

CCELEBRATING ELEBRATING TTHE HE SSUCCESSUCCESSOOF F TTHEHE

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CELEBRATING THE SUCCESSOF THE

CITY OF LONG BEACH

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ECONOMIC OUTLOOK MID-YEAR REPORT12-B Long Beach Business Journal July 8-21, 2014

mary beneficiaries of the oil operations inLong Beach, will continue to benefit fromoil revenues well into the future. CRC willcontinue to operate with the same integrityand concern for the environment and thesafety of our employees and contractorsthat we have for over the past decade.”

Similarly, for the City of Long Beach, oilrevenues are expected to remain stable forfiscal 2014, says Chris Garner, director,Long Beach Gas & Oil Department. Thecity will budget on receiving $70 per barrelof oil, which is – as is traditional – a con-servative estimate well under the antici-pated price that will be used to fund ongo-ing projects. Revenue above the $70 perbarrel mark is used by the city for one-timeexpenditures.

The nation's production of crude oil con-tinues to increase. U.S. total crude oil pro-duction, which averaged 7.4 million barrelsper day in 2013, is expected to average 8.4million barrels per day in 2014 and 9.3 mil-lion barrels per day in 2015. Even MotherNature is cooperating with the oil produc-tion industry – the National Oceanic andAtmospheric Administration is predictingnear- to below-normal tropical weatheractivity, meaning fewer disruptions of oilproduction in the Gulf of Mexico. The2015 forecast represents the highest annualaverage level of oil production since 1972,according to the U.S. Energy InformationBureau (EIA).

“Locally, in California and nationally, weare seeing an upward trend in productionvolumes,” says Ralph Combs, manager ofcorporate development at The TermoCompany, a Long Beach-based oil and nat-ural gas exploration and production com-pany that operates in California, severalRocky Mountain states, Texas, Oklahomaand Louisiana.

“Prices at $100 a barrel, ongoing successwith shale development throughout theUnited States, hydraulic fracturing andother well stimulation techniques, as wellas companies having a better understand-ing of the regulatory environment and howto navigate it, are driving the increases,”Combs told the Business Journal.

“We have made incredible increases insupply in the U.S., but that has been offsetby reductions in production elsewhere, andincreasing economic well-being in other

countries that is increasing the demand forhydrocarbon-based fuels elsewhere.”

Still, the expectation is for lower gaso-line prices at the pump.

The benchmark North Sea Brent crudeoil spot price is expected to decline slowlyduring the remainder of 2014, according tothe EIA. That is after 11 straight months inwhich the average Brent crude price hov-ered between $107 and $112 per barrel.The West Texas Intermediate price, whichaveraged more than $13 per barrel belowthe Brent crude price, shot up in the earlypart of the year to less than $4 per barrelbelow the Brent crude price in April.

Brent crude is expected to drop to anaverage of $102 per barrel in 2015, withthe West Texas crude average $9 to $11 perbarrel less expensive, the agency predicts.

U.S. average regular gasoline retailprices nationally are expected to fall from ahigh of $3.67 per gallon to an average of$3.54 per gallon in September. On the WestCoast, average regular gasoline retailprices are expected to dip from a high of$4.02 per gallon in May to $3.51 per gallonby December.

On the regulatory front, the state is eas-ing into the regulation of hydraulic fractur-ing (fracing, as it is known in the industry)and other well stimulation practices follow-ing the approval of legislation last year thatallowed the state to regulate the proce-dures. Although the final regulations arenot due to be issued until January 1,interim measures already are being put intoeffect. The process remains controversial,with a bill working its way through thestate legislature that would place a morato-rium on well stimulation pending furtherstudies on the safety of the practice.

And another piece of legislation woulddelay part of the state’s groundbreaking AB32 cap-and-trade legislation designed toreduce greenhouse gas emissions. AB 69,introduced by Assemblyman Henry Perea(D-Fresno), would delay for three years theinclusion of transportation fuels in thestatewide cap. Currently, transportationfuels will be placed under the cap – thegoal is to reduce greenhouse gas produc-tion to 1990 levels by 2020 – starting onJanuary 1. Perea, and the bill’s supporters,feel that the financial impact of the movehas not yet been fully examined, and is

likely to increase gasoline costs by severalcents per gallon.

“It will impact consumers, as no busi-ness can afford to simply absorb theseincreased costs,” Catherine Reheis-Boyd,president of the Western States PetroleumAssociation, told the Business Journal.

Technology AndCommunications

� By BRANDON FERGUSON

Staff Writer

I n the technology sphere, innovationcontinues despite reports of increased

volatility in the Information Technology(IT) sector. This year was marked by estab-lished companies continuing to deliver onpromises of ever-advancing technologicalgadgetry from baby monitors that connectto cell phones to wirelessly connected,hands-free cars as well as newcomers to thewireless arena, particularly online giantAmazon, which has developed its firstsmartphone, Firefly. Similar advances indigital commerce continue despite a recentreport by the International DataCorporation (IDC) that predicts increasedvolatility in the IT sector.

According to the IDC report, which wasreleased in May, global spending on IT isexpected to grow, but at lower than

expected rates. The IDC’s downgrade onspending estimates from 4.5 percent to 4.1percent resulted from market volatilitydriven by trouble in emerging markets,such as Ukraine, combined with a slow-down in smartphone and tablet sales afteryears of “phenomenal expansion.”

In a statement, the vice president ofIDC’s Global Technology & IndustryResearch Organization, Stephen Minton,said, “This volatility, coupled with themacroeconomic uncertainty in manyemerging markets is somewhat masking amore positive underlying foundation forenterprise IT spending, with firms continu-ing to invest in working off that pent-updemand to replace old servers, storage andnetwork gear. Some of that spending is alsodriving IT services, despite the fact that anincreasing number of businesses are mov-ing more of their traditional IT budget tothe cloud.”

According to IDC figures, 10 percent ofsoftware spending will have moved to thecloud by the end of 2014. Cloud computingallows users to store data over a computernetwork rather than a personal hard drive,and in the consumer market, cloud servicesare offered by companies like Verizon aspart of standard data packages.

Verizon Wireless spokesperson KenMuche noted that cloud services arebecoming more useful to consumers. “It’svery handy in this day and age when peopleare Instagramming and Facebookingeverything with videos and pictures, to beable to save all those pictures to the cloudso that when you switch phones, you’realways going to have those pictures,”Muche said, adding that he sees wirelessconsumers increasingly moving towarddigital applications involving video andsocial media.

“Generally people are doing more withvideo than ever before, and certainly withsocial media. You look at Vine video orInstagram video, and certainly people areusing those short videos more than everbefore,” Muche said.

When asked about Verizon’s latest gadg-ets, Muche pointed to the company’s “inno-vation centers” in cities like San Franciscoand Waltham, Massachusetts, whichemploy scientists and engineers fromindustries across the country.

“What we’ve seen through the innova-tion centers is really an explosion of smartaccessories,” Muche said. These acces-sories include everything from wearablecellphones to baby monitors that can sync

Oxy Long Beach, headed up byPresident Frank Komin, pictured,includes THUMS Long BeachCompany, which operates the offshoreportion of the Wilmington Field;Tidelands Oil Production Company,which operates the onshore portion ofthe Wilmington Field; two additionalsmaller leases in the Long Beach areaand additional Southern Californiafields. According to its website,“THUMS’ unique combination of pro-duction functionality, visual appealand environmental and safety featureshas garnered the facility dozens ofawards and recognition from local,state and national organizations. TheWildlife Habitat Council (WHC), anonprofit organization that helpslandowners enhance wildlife habitat,has certified all four THUMS’ islandsfor commendable wildlife habitat man-agement and environmental educationprograms. Since 2004, the wildlifeteam at THUMS has worked withWHC to establish California planthabitats on the islands.”

Motorola Droid X, sold exclusively through Verizon Wireless, is shown here with an 8 megapixel cam-era. Verizon spokesman Ken Muche told the Business Journal he sees people doing more with videoand smartphone technology. “You look at Vine video or Instagram video, certainly people are usingthose short videos more than ever before,” Muche said. (Photograph courtesy of Verizon Wireless)

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with caregivers’ smartphones, Muchepointed out.

“Baby monitors cannot just report andtransmit your baby’s voice, but will analyzethe decibels of your baby’s cry, look at ithistorically and be able to send you a textto tell you whether your baby’s diapersneed to be changed, or [if the baby] needsto be fed or if possibly your child is sick,”said Muche, adding that “these are thingswe sell now in our retail stores because ofthat explosion in innovation. It’s really beentransforming what’s possible.”

While companies like Verizon have beenhoning their telecommunications offeringsfor decades, last month marked the firsttime online retailer Amazon entered thewireless market with its Firefly smart-phone.

A June 18 Amazon press release statedthat Firefly is the only phone on the marketto use “Dynamic Perspective,” a system ofinfrared LEDs and specialized cameras thatrecognize “where a user’s head is relative tothe device.” The technology enables a more“immersive” experience when it comes tousing games and applications. A Fireflybutton also allows the phone to scanprinted material such as phone numbers,barcodes and artwork, allowing the phone’suser to take actions with less typing. Fireflyis available at At&T stores starting on July25.

In addition to its partnership withAmazon, AT&T announced earlier thisyear that it built the AT&T Drive Studio inAtlanta, a 5,000-square-foot facility withgarage bays and a speech lab that pushesinnovation to develop a “connected car”providing features such as voice recogni-tion and hands free communication.

In an e-mail to the Business Journal,Georgia Taylor, an AT&T spokeswoman,

explained that the company has spent $1.95billion building up its network in the LosAngeles area enabling the use of everadvancing gadgetry

“This is the ‘smart’ era,” Taylor wrote.“Not only do we have smart phones, butnow we have smart cars, smart houses,smart watches, and smart jewelry. We havecaught up with and passed James Bond.”

Utilities� By MICHAEL GOUGIS

Contributing Writer

N atural gas and electricity suppliesshould remain inexpensive and plen-

tiful over the next six months, as will water,although the extraordinarily dry year to datemeans that just into 2015, water suppliescould become critically low throughout thestate and in Southern California in particu-lar, utilities officials say.

With natural gas supplies and prices sta-ble, and Southern California Edison resolv-ing two of the major issues hanging overthe utility’s head, attention is focusing onthe water outlook for the next severalmonths, experts say.

“The Metropolitan Water District isusing 50 percent of its reserves this calen-dar year,” says Kevin Wattier, general man-ager of the Long Beach Water Department.“Obviously, you can’t do that more thantwice. Castaic Lake is dropping a foot aday – I assume you could sit there andwatch it drop. It’s only half full.

“We’re using huge amounts of our stor-age this year. If next year is dry, we’regoing to be in a serious, serious water sup-ply shortage.”

The potential water supply crisis hastriggered Long Beach and Los Angeles torestrict lawn watering to three days a week,Wattier says.

The dry, dry winter of 2013-2014 leftSouthern California with less than 40 per-cent of its average annual rainfall. The situ-ation in Northern California was worse;even though rainfall was about 60 percent ofaverage, the storms that brought in that pre-cipitation were warm, meaning that little fellas snow. The snowpack is critical for extend-

ing the period during which water flowsfrom the high Sierras, Wattier says. In agood year, the snowpack will last into July.This year, with snowfall 25 percent of nor-mal – “the lowest in history,” Wattier says –the snowpack disappeared early in May.

The Metropolitan Water District ofSouthern California, which imports about50 percent of the water used in the region,says that the agency will receive “thesmallest allocation in the 43-year history ofState Water Project deliveries fromNorthern California after three years ofdrought,” according to a statement issuedby the water agency.

This month, online giant Amazon announced therelease of its first ever smartphone known as theFirefly. The phone’s Dynamic Perspective featuremakes use of a series of cameras and LED lightsthat recognizes where a users head is in relationto the phone and provides a more “immersive”experience. The Firefly will be available exclu-sively through AT&T beginning July 25.(Photograph courtesy of Amazon)

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ECONOMIC OUTLOOK MID-YEAR REPORT14-B Long Beach Business Journal July 8-21, 2014

“State deliveries, which normallyaccount for about a third of the Southland’sannual supplies, stand at only 5 percent ofa full allocation. Although snowpack in theColorado River watershed is above averagethis year, the river system is recoveringfrom 12 years of drought. Storage in thesystem’s two huge reservoirs – Lake Meadand Lake Powell – is just above 40 per-cent.”

The Long Beach department plans tocontinue along its five-year schedule ofraising water rates to correct a pattern ofdeficit spending, Wattier says. The fourpercent increase that will take effect laterthis year is the second increase of a five-year plan to balance spending and rev-enues, Wattier says. Sewer rates also arescheduled to increase by approximatelyfour percent, he says.

On the electricity front, SouthernCalifornia should have more than adequatesupplies to meet the demand over the sec-ond half of 2014, according to informationprovided to Edison International investors.The target reserve margin for SouthernCalifornia Edison is between 15 and 17percent; the utility should have an actualmargin of approximately 33 percent, com-pany documents indicate.

Edison is in a stable place over the nextfew months, with the announcement of aproposed settlement over the closing of theSan Onofre Nuclear Generating Stationand a settlement in the bankruptcy of theSanta Ana-based Edison Mission Energy,says Ted Craver, Edison International pres-ident, chairman and chief executive officer.

The SONGS settlement agreement wasreached in April and is pending before theCalifornia Public Utilities Commission(CPUC), which may issue a decision on theproposal this summer, Craver told investors.

“The settlement is supported by repre-sentatives from four key constituencies –consumers, environmentalists, labor andthe owners. All of the parties have agreedto work to obtain timely consideration andapproval by the CPUC,” Craver says. “Withstrong support for the settlement and mini-mal opposition, the settling parties con-tinue to seek prompt approval.”

Edison increased its SONGS settlement-

related financial impairment to a pre-taxtotal of $806 million in the first quarter offiscal 2014, up from the $575 millionrecorded in the second quarter of fiscal2013.

The Mission Energy bankruptcy settle-ment will cost the utility an estimated $634million, paid out over the next threemonths, according to investor documents.The first payment of $225 million wasmade in April.

With those two issues substantiallyresolved, Edison will be free to concentrateon modernizing its operation and increas-ing revenues to its shareholders, Craversays.

“The significant progress in resolvingSONGS and EME should allow investorsto focus on Edison International’s long-term earnings and dividend growth,”Craver told investors. “Building this nextgeneration grid requires significant techni-cal know-how and capital investment. Thisis something that Edison is particularlywell-positioned to do. We plan to return . .. to our target of paying out 45 to 55 per-cent of SCE’s earnings in dividends.”

The natural gas front likely is the qui-etest of all, although there are early indica-tions that dwindling reserves could putupward pressure on prices.

The nation’s natural gas working inven-tories in the first part of the year were 33percent lower than they were at the sametime last year, and an even greateramount – 37 percent – lower than the five-year average from 2009-2013, according tothe Energy Information Administration.

Therefore, the agency predicts that thebenchmark Henry Hub natural gas spotprice will increase from $3.73 per MMBtu(million British thermal units) on averagein 2013 to an average of $4.74 per MMBtuthis year, leveling off at a slightly lower$4.49 per MMBtu in 2015.

However, the longer-term productionoutlook is stronger, with the agencyexpecting natural gas marketed productionto grow by an average rate of 4 percent in2014 and 1.3 percent in 2015.

Locally, residential natural gas pricesremain below the 50 cents per therm(approximately 100 cubic feet of natural

gas), and supplies remain plentiful, saysChris Garner, director, Long Beach Gas &Oil Department.

“As long as it (supply) stays low and rea-sonable, our gas bills will stay low and rea-sonable,” Garner says, noting that LongBeach has marked 29 straight months ofhaving lower average residential gas billsthan Southern California Gas Companycustomers. �

Retail� By BRANDON FERGUSON

Staff Writer

L ong Beach business leaders attributean increase retail spending to a

rebounding economy, while many alsoacknowledge that shoppers looking forunique items are increasing sales in LongBeach stores. Local leaders from four ofthe city’s business districts took the time tospeak with the Business Journal aboutthese current trends in the retail sector.

East Anaheim StreetRod Wilson, president of the East

Anaheim Street Business Alliance(EASBA), told the Business Journal peopleare shopping again.

“Most of the businesses are reporting

increases in sales,” said Wilson, adding thatcustomers are coming to the district forunique purchases.

“For probably the last year, we’re seeingincreased numbers of people who are nolonger just using East Anaheim Street as acorridor to get across town. We’re seeingmore cars stopping and [customers] find-ing a place to eat and finding a place toshop and finding an antique or that specialitem. I think this is being recognized, notonly in the local media, but also in thenational media by the recognition of someof our top merchants and top restaurants.”

Wilson pointed to the example of UrbanAmericana, an antique store, which openedin February at 1345 Coronado Ave. Thebusiness inhabits a 16,000-square-footwarehouse and was recently the focus of aHuffington Post article.

“It’s not simply what we’re telling our-selves or reporting, it’s also the fact thatthese things are being recognized by oth-ers,” Wilson said.

Vacancy rates also remain low, Wilsonnoted. “We still have a very low vacancyrate. There’s less than half a dozen loca-tions that have vacancies and are lookingfor tenants along [East] Anaheim Street.”

In order to attract shoppers to the district,EASBA works hard to engage the commu-nity, Wilson said. “We are involved inadvertising and outreach in the local com-munity with door to door, not only newslet-ters, but also advertisements for local busi-nesses,” Wilson said.

Fourth Street“We definitely have the sense that people

are out and about spending money. It’s veryapparent things are looking up,” saidKerstin Kansteiner, president of the 4thStreet Business Improvement Association.

According Kansteiner, who ownsPortfolio Coffee House and the Art Theateralong the street, shoppers have becomemore supportive of local businesses.

“Supporting your local business is now alot more on the forefront of everyone’smind. We see a lot more residents that livein the local neighborhood . . . it’s morewalkable and it’s more bike friendly onFourth Street, so we have a lot more localsthat come by,” Kansteiner said, adding thatwith the exception of one building cur-rently undergoing remodeling, there are novacancies in her district.

One of the newer businesses to set upshop is Goldie’s on Fourth, a woman’s

Kevin Wattier, general manager of the Long Beach Water Department, is shown at the department’s drought tolerant garden that features informational panelsto educate the public on ways to conserve water. For information on participating in the department’s lawn to garden program, visit: http://www.lblawn-togarden.com/(Photograph by the Business Journal’s Thomas McConville)

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apparel retailer located at 2106 E. 4th St. Itopened in February of this year.

“We feel like it’s definitely the end ofthe tunnel of the recession and it’s reallyvisible to anybody at this point,”Kansteiner said.

DowntownDowntown Long Beach Associates’

(DLBA) Economic Development ManagerBrian Wallace told the Business Journalthat the proliferation of online retailers hasforced the downtown area to adapt to a newera of commerce. The result, he said, is thatdowntown is transitioning from what hecalls “the middle” or conventional shop-ping and dining experiences.

“There’s a lot more interest in what we’reseeing here in the unique and the cus-tomized experience,” Wallace said.

He cited the recent opening of the high-end furniture store Restoration Hardware,located at 81 Aquarium Way, as thestrongest opening of any of the com-pany’s outlet properties, and it is cur-rently the highest grossing RestorationHardware outlet in the country. The latestnumbers compiled by DLBA show that 14retailers have opened in downtown sincethe start of the year.

Wallace also added that shopping isn’tthe only thing bringing people downtown;food is playing a big role in the transition.

“You can do a lot of things virtuallyonline, but you can’t eat online,” Wallacesaid. “That is a real growth opportunity.We’ve seen eight restaurants open up injust this calendar year so far. We’re gettinga lot of our inquiries from potential tenantswho are looking to jump on that trend andopen a restaurant.”

Among the newer restaurants to open inthe area is Bo-beau Kitchen + roof tap,which opened at 144 Pine Ave. in May. Thebusiness, which is owned by the SanDiego-based Cohn Restaurant group,

replaced Smooth’s Sports Grille in a13,722-square-foot space. Owners Davidand Leslie Cohn reportedly spent $4.5 mil-lion purchasing and remodeling the space.

“This is their first restaurant outside ofthe San Diego market – a really big leapfor them to come this far north and tomake such a large investment in ourdowntown,” Wallace said.

The DLBA is currently anticipating animpending repositioning of The Pike atRainbow Harbor property. Discussionsbetween the city and DevelopersDiversified Realty, which owns the prop-erty, center on performing some façadeoverhauls of the existing buildings.

“I think you’ll look to see someannouncements on that in the near future.We’re not privy to anything else at thispoint, but we expect some really excitingnew energy down there,” Wallace said.

Belmont ShoreThough she didn’t have specific num-

bers to offer, Dede Rossi, executive direc-tor of the Belmont Shore BusinessAssociation (BSBA), said there’s been alot of new businesses that have recentlyopened in her district.

“We have a lot of new businesses. I feellike that’s a good thing. When someoneleaves, it always brings in somebody elsewho has a lot of enthusiasm and passion,”Rossi said.

She added that weekly “stroll and savor”community events are well attended andlikely an indicator of the local economy.“To me that means people are really kind ofready to go out there and spend somemoney,” she said.

Rossi added that right now there’s also alot of diversity in the types of shops liningher district. “Sometimes, it was all women’sshops, or one type of thing. Now it’s allprices – high end, medium, lower, you know,something for everybody. It’s kind of nice.”

She added that restaurants also seem tobe doing well – “especially if they have aTV during soccer,” she said, laughing. �

Real Estate� By SAMANTHA MEHLINGER

Staff Writer

Multi-Family

W ith the exception of massive infra-structure projects at the port, the

multi-family real estate market in LongBeach is responsible for much of the con-struction across the city. From luxury rentaltowers to the adaptive reuse of old officebuildings, at least eight new multi-familyprojects are planned or underway downtown,totaling more than 1,100 new rental units.

According to Steven Cochrane, manag-ing director of Moody’s Analytics, andRobert Kleinhenz, chief economist of theLos Angeles County EconomicDevelopment Corporation, the constructionof residences is spurred by pent up demandfor housing. “We think home building . . .will play a very important role in accelerat-ing the economy in the next year to twoyears,” Cochrane said. He explained thathome construction creates demand forgoods and services in many industries and“has a way of filtering through ratherdeeply through the economy.”

Ryan Altoon, executive vice president ofAndersonPacific, LLC, developer of adual-luxury residential tower project calledShoreline Gateway at 635 E. Ocean, said inan e-mail that his company “chose todevelop in Downtown Long Beach because

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Rod Wilson, president of East Anaheim Street Business Association (left) is pictured with Chris Greer, owner of Urban Americana, an antique and designcollective located at 1345 Coronado Ave. The business, which opened in February, is located in a 16,000-square-foot warehouse. (Photograph by theBusiness Journal’s Thomas McConnville)

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it provides one of the most unique water-front urban settings in California, withwalkable amenities . . . [and] a mix of cul-tural and recreational amenities, integratedwith several modes of public transporta-tion, all within proximity to major employ-ment centers in the region.”

The first of the two Shoreline Gatewaytowers, called The Current, broke groundthis spring. “The Current will be promotedto young professionals and executives thatdesire an urban experience and areattracted to waterfront amenities,” Altoonsaid. Plans for the 17-story apartment

rental tower include 224 units. A comple-mentary “35-story condominium tower [is]planned for the adjacent site,” he added.

Sales activity among existing apartmentproperties across Long Beach also reflectsstrong demand for multi-family real estate.For the past year or so, agents have

observed high demand and competition formulti-family properties in Long Beach.Tight supply of available buildings has ledto increasing sales prices as investors bidagainst each other for all classes (quality)of properties.

Lately, the velocity of sales transactions

Beneath the Pacific Court Apartments on Broadway and Pacific Avenue, a parking lot and former AMC movie theater were gutted out to make way for 69 new apartment units in a project called Pine Square.There are 142 existing units above. The owner of the entire project, Pacific Court-Pine Square Partners, is leaving existing retail on the Pine Avenue side of the development intact, according to Long BeachDevelopment Services Director Amy Bodek. (Photograph by the Business Journal’s Thomas McConville)

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has slowed, Steve Bogoyevac, vice presi-dent of investments for Marcus &Millichap, told the Business Journal.“There is a little bit of a lull right now,” hesaid. “I have seen a trend in the multi-fam-ily market over my 11 years doing this thatthings tend to slow slightly over the sum-mer,” he explained. Although transactionshave slowed, he said values of propertiescontinue to increase.

Once fall arrives, Bogoyevac expectsmore deals to be made on Long Beachmulti-family properties. “There are typi-cally a lot of closings in October through

December as people are trying to get prop-erties closed [on] before the end of the yearfor tax purposes for the following year,” heexplained. “I also think people use realestate as a hedge against inflation, and thatis probably a driving factor on making pur-chases right now,” he added.

Robert Stepp, owner of multi-familyinvestment firm Stepp Commercial, saidmore sellers are going to introduce multi-family properties to the market this year.However, he expected the amount of actualsales transactions to remain on pace withprevious months this year. “The reason I

don’t think velocity will increase at thesame rate inventory is increasing is that weare going to have another separationbetween buyers’ and sellers’ expectations,”he said.

He explained that Class C properties,which represent lower quality real estate,have increased in value so much in the pastyear that there is much less of a value gapbetween those and higher-quality Class Bproperties. As a result, buyers may feelthey are overpaying for Class C propertiesif sellers do not adjust their expectations bydecreasing their list prices. “I think sellers

are not going to make the adjustment asquickly as the market is going to adjust onpricing,” he said.

Multi-family property owners in the LosAngeles metropolitan region, whichincludes Long Beach, are optimistic aboutthe coming year, according to results froma recent survey by Marcus & Millichap. Onaverage, survey respondents owned sevenmulti-family properties each, Bogoyevacsaid. When asked about their properties’occupancy rates, 64 percent of respondentssaid they believed their buildings would beabove 95 percent occupied during the next12 months. About 33 percent said occu-pancy would be between 90 to 95 percent.

Lease rates should continue to increase,according to the survey. Bogoyevac said 48percent of those surveyed anticipatedincreasing rents between 1 to 3 percentover the next 12 months.

With lease rates increasing and occu-pancy remaining strong, Bogoyevac pro-jected property values should continueincreasing this year. “It’s not going to be atthe same pace it has been at for the last 12months, but I think we are going to con-tinue to see increasing values,” he said.Stepp said that Class A and B propertiesshould remain in demand this year and maysee increasing prices, although he does notbelieve Class C properties have much roomto grow on price point.

Single-FamilySales activity in the Long Beach single-

family market, which experienced gains inaverage price of more than 20 percent last

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Pictured is K-9 Corner, Long Beach’s first off-grid solar-powered dog park, located at 9th Street and Pacific Avenue in Downtown Long Beach. The park was builtin 2009 as a joint effort by then-councilman, now Mayor-elect Robert Garcia, Assemblywoman Bonnie Lowenthal, the North Pine Neighborhood Alliance andlocal company Solar Source, Inc. Solar panels appear throughout Long Beach on both public and private sector projects(Photograph provided by Solar Source)

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ECONOMIC OUTLOOK MID-YEAR REPORT18-B Long Beach Business Journal July 8-21, 2014

year, retracted a bit in the first half of thisyear, according to Phil Jones, owner ofColdwell Banker Coastal Alliance.

“I honestly believe the second half of theyear is going to be stronger than the firsthalf. It wouldn’t take a lot,” Jones said.“Sales were down 11 percent over the firstfive months of the year compared to thecorresponding period last year,” heexplained. Tammy Newland, owner ofKeller Williams Realty Los Alamitos, saidher firm’s sales have decreased 22 percentyear over year.

“Last year at this time everything wasgoing crazy, price appreciation was starting

to move up drastically . . . We are not in thatsame market today,” Newland said.

Both Jones and Newland attributed lesssales activity to rapid price appreciationlast year, which reduced affordability forcurrent homebuyers, and also cited astricter lending environment. “There wasan interesting report that came out[recently] that said 27 percent of peoplewho had recently gone through the loanapproval process would rather have had aroot canal than go through it again. That ishow difficult it is,” Jones said.

Last year, flippers and investors floodedthe single-family market to take advantage

of low sales prices, Jones recalled. Onceprices increased, these buyers backed off.“They are largely absent in the marketplacethis year. That is why we are seeing a sig-nificant drop in the number of sales,” hesaid. Now, current demand is coming frombuyers who actually intend to live in thehomes they purchase.

However, a combination of factors leadsJones to believe sales should increase inthe next six months. “With interest ratesremaining low and price appreciation mod-erating, I think you’ll see more activity,” hesaid. Interest rates for home loans are cur-rently hovering around a low 4 percent, henoted. Newland said interest rates mightincrease by a half percent by year’s end,which she said is not significant.

The inventory of available properties forsale has also increased, which translates tomore options for buyers and more opportu-nities for sales, Jones pointed out. “Thismonth we have seen a tremendous uptick inthe number of listings,” he observed. Withthe pressure on inventory somewhat allevi-ating, he said the median sales price of LongBeach homes should not increase at thesame rate as last year, but may still increasebetween 10 to 12 percent by year’s end.

Sales of condos seem to be outpacingthat of freestanding homes, Jones andNewland said. Condos are much moreaffordable for entry-level home buyers,with a median price point in Long Beach of$274,500, while single-family homes havea median cost of $480,000, Jones said. Thecondo market should continue to seeincreasing demand and sales this year, bothreal estate professionals projected.

OfficeThe Long Beach office market should

remain flat through 2014, but further downthe road things are looking up, according toDave Smith, senior vice president atCBRE, Inc.

“We are seeing a strong pick up in theoverall momentum of the market, not asmuch from a tenant requirement stand-point but from an overall optimism stand-point, particularly in downtown with theresidential that is happening and with a lotof the retail [developments] that we’re see-ing throughout the city,” Smith said.“There is a lot of positive energy going onaround the city, and people from outsidethe city are seeing that . . . It just takesawhile to get through that cycle to translateinto people leasing office space.”

Smith said he does not expect this opti-mism to boost leasing activity by year’send, but he does expect more interest frompotential tenants. “In terms of signed leasesbetween now and the end of the year, Iexpect it to remain flat. I expect an uptickin tenant activity through tours, proposals,and so on,” he explained. Actual leasingactivity may not pick up until late 2015 or2016, he estimated.

Although Smith projects a relatively flatmarket on the leasing front this year, hedoes expect rental rates to increase. “Wehave seen rates in Long Beach actuallycontinue to grow despite the fact that leas-ing activity has not been as good as a lot ofus would have hoped,” he said. “I expect tosee steady increases in rental rates in allbuilding classes,” he said, and estimatedlease rates might increase 3 to 5 percentannually over the next couple of years.

After the sale of Shoreline Square for$101.7 million in April and the sale at auc-tion of 115 Pine Ave. (known as the ClockTower Building) for $160 per square foot,there hasn’t been much sales activity in theLong Beach office market, Smith noted. “Idon’t think we would really expect muchmore sales activity between now and theend of the year . . . There isn’t anything onthe market or getting ready to hit the mar-ket that is going to trade between now andthe end of the year,” he said. In order formore investors to purchase office proper-ties in Long Beach, occupancy must firstimprove, he explained. “As we see the leas-ing market improve, then you’ll see thecapital fall in right behind.”

IndustrialThe industrial sector of the local commer-

cial real estate market hasn’t had any troubleattracting buyers in the past year or so, andthat trend should continue, said BrandonCarrillo, principal at Lee & Associates.

“Looking into my crystal ball as theysay, sales are going to continue to be hot.If something in the marketplace is pricedright it is going to move,” Carrillo said.With no sign that interest rates on com-mercial property loans are increasing anytime soon, demand to buy should remainstrong, he noted.

“The real issue remains the supply,”Carrillo said, explaining that there are veryfew industrial properties available for salein Long Beach and the South Bay area rightnow. Carrillo said the lack of inventory iscausing potential sellers to hold off on sell-ing until they have an opportunity to investin a new property and take advantage of theInternal Revenue Code Section 1031exchange, which “provides an exceptionand allows you to postpone paying tax onthe gain [sale of a property] if you reinvestthe proceeds in a similar property as part ofa qualifying like-kind exchange,” accord-ing to the Internal Revenue Service.“Property owners have no incentive to sellright now even though they can get a big[sales] number because they have nothingto exchange into,” Carrillo explained.

Although demand to buy industrial prop-erties is high, the actual amount of salestransactions occurring through the end ofthe year may be stagnant thanks to lowinventory, Carrillo said. “There are stillproperties selling and activity on assetscurrently in the market . . . but not to thevolume we would like to see in a normalmarket,” he noted.

Leasing activity has dropped in the pastfew months as business owners look to takeadvantage of low interest rates by purchas-ing property; however, because vacancyrates are at a tight 5 percent, lease rates havebeen increasing this year. “With thevacancy rate going [down], landlords aretrying to push up lease rates to prerecessionlevels,” Carrillo said, yet he does not expectthis trend to continue. “We are getting to thepoint where lease rates are almost levelingoff, because the feedback we’re gettingfrom companies are their margins are get-ting squeezed,” he explained.

Carrillo expected the vacancy rate ofindustrial properties in Long Beach and theSouth Bay to reach about 4.7 percent by theend of the year, a decrease from the 5.2 per-cent rate reported by his company in thefirst quarter of the year. �

More About The Cover

Shimadzu AircraftEquipment USA, whosenew headquarters areunder construction atDouglas Park north of theLong Beach Airport, isone of three companiesunder Shimadzu PrecisionInstruments, Inc. The oth-ers are Shimadzu MedicalSystems USA, based inTorrance, and ShimadzuIndustrial EquipmentUSA, based in SantaClara. Shimadzu PrecisionInstruments is a sub-sidiary of ShimadzuCorporation, which wasestablished in 1875 and isheadquartered in Kyoto,Japan. Shimadzu AircraftEquipment USA, whichwill be relocating to LongBeach from Torrance,states on its website, “If you operate a commercial airliner then chances are you areone of our customers. We assemble, repair and certify a wide variety of ShimadzuOEM (original equipment manufacturer) aircraft equipment in-house and standbyready to provide you with World Class Customer Support. As a production facilitywe are able to maintain a high level of inventory to support your aftermarket needs.No other facility in the world can match the wide variety of Genuine ShimadzuAircraft spare parts stored in our Torrance, California warehouse. Launched in 2007,our FAA Certified Repair Station is continually undergoing improvements to expandour product coverage to better meet our your needs. In efforts to further shorten repairturn times, in 2009 we opened our own in-house Non-Destructive Testing Lab.”

Gerald Singh, vice president of Oltmans Construction Co., presentsYutaka Nakamura, president of Shimadzu Precision Instruments,Inc., a plaque commemorating the groundbreaking of the newheadquarters for Shimadzu Aircraft Equipment USA at DouglasPark. (Photograph by the Business Journal’s Thomas McConville)

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