Business Leaders View Coming Year in Positive Light

To get a sense of the year ahead and some of the key issues facing Valley business, Los Angeles Times reporters and editors sat down last month with four people who will be helping to shape local commerce.

The panelists were Wilma Medina Worden of the Valley Economic Development Center; Cathy Maguire, new chairwoman of the Valley Industry and Commerce Assn.; George D. Yamauchi, a partner and Woodland Hills-based technology analyst with PricewaterhouseCoopers; and R.E. “Mitch” Davis, incoming president of Southland Regional Assn. of Realtors.

Following is an edited transcript of that conversation. The forecast round table is planned as an annual feature for Valley Business.

The Outlook

Question: What is your outlook for the Valley business climate in the year 2000? Sunny? Cloudy? Are there problems ahead?

Medina Worden: I think that what you’re going to see in the Valley is a continuation of what you’re seeing right now. The entertainment industry will still be the prime industry. But I think that the survival of businesses here will be based on two things. One is technology savvy. Businesses have got to be more technologically savvy, especially the smaller companies. And they also still have to be business-savvy. Unless they know how to use technology to work for them, they will tend to decline.

Maguire: Hopefully we’re going to continue to see the growth that we’ve enjoyed [in 1999]. But I think everyone’s very cautious about it. I don’t think everybody’s going to jump right out and make all of those capital expenses without being very cautious and really looking before they start doing expansions and things of this nature.

Yamauchi: I guess from the technology side, one of the drivers clearly is venture capital. PricewaterhouseCoopers does monitor the venture capital activities with respect to this area and other areas. And we’ve seen a doubling in ’99 over 1998 in terms of venture capital coming into Southern California. I see that continuing as clearly venture capitalists have discovered Southern California. There’s a lot of good technology out there. I have a lot of clients, from Ventura down the coast to Orange County. And I’m seeing a lot of capital investment into some very promising companies.

Davis: As far as residential real estate, I believe it’s going to stay just about where it is. It’s leveled off now. It’s been a phenomenal year for resales. [2000] is probably going to stay just about level. There’ll be maybe a slight increase in appreciation, somewhere in the 4%-to-5% range. I don’t see it going any higher. I believe the inflation rate is going to go up and that’s going to have an effect. That might not happen [in 2000], but surely by 2001, and there’s probably a chance of a slight recession following that, as far as real estate is concerned.

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Q: So has the Valley peaked then? Are we nearing the end of the booming business cycle?

Davis: I believe so. And I believe I share that with other voices that it [the home sales level] tapered off right at the end of October. It naturally does at this time of year. But I believe it’s kind of stabilized. I don’t see the things happening [in 2000] that happened in the middle of [1999].

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Q: Anyone else share that view?

Yamauchi: I think I’m a little jaded in that we deal primarily with the technology companies and I see just a lot of growth and a lot of capital coming into these businesses. So I think it is a little jaded in terms of what sectors you deal with.

Medina Worden: I think it’s on a community-by-community basis. There’s a lot of economic activity that’s happening all across the Valley. For me there’s still room for real fast growth in 2000 if the economic projects that are lined up are successfully implemented.

Maguire: I think I agree with Wilma. For example, the northeast Valley--we’ve had some really good projects with the GM [General Motors] plant and some further projects with Hansen Dam. And the Community Redevelopment Agency is looking at several projects for that particular area. And I think it’s important that we keep focused on taking those kinds of areas and really putting in good jobs, not just big-box type of retail.

Land Development

Q: One of the issues that comes up in discussions with developers is the lack of land in the Valley. How is that going to affect economic development in the Valley in 2000 and what do you see City Hall doing about it?

Davis: About the only thing you can add to the Valley residential [mix] is in-fill development. How that relates to the rest of the economic picture, as far as commercial development, I’m not that familiar with. But they are together and without one it’s difficult to have the other. In Santa Clarita, there’s still a lot of land and an awful lot of development--commercial and residential. In the San Fernando Valley, the lack of land is crucial.

Medina Worden: In 2000, what you’re going to see is a continued movement of businesses up north, to the Santa Clarita area. You will see the movement of more of those companies that do need a lot of space. The key to economic development in the San Fernando Valley is to be able to attract and retain those kinds of businesses that do have a high volume of sales but don’t need a lot of people. Things like technology-related companies, service-oriented businesses that don’t require space for manufacturing or inventory space.

Maguire: In the residential area, I see maybe more multifamily-type projects, where they’re actually clearing some old buildings that have been sitting for a long time. Maybe trying to get a little bit more creative in how we mix residential and business. And really taking an assessment of what we have in the Valley. What’s sitting vacant and what can we do to change those buildings to make them more usable?

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Q: What do you see City Hall doing about this?

Maguire: You’ve got the cities of Glendale, Burbank and San Fernando working very hard to pull both business and residential together. The city of Los Angeles, of course, is a little more fragmented. But recently, Councilman [Alex] Padilla’s office came to the [San Fernando Valley Economic] Alliance and gave a presentation on the CRA project for the northeast end of the Valley. I’m encouraging them to make sure to get information out to the community on these types of projects so that we can be a little more proactive in getting these done. So I think it’s going to be up to the organizations to work with the different council members and to identify what’s going on in their council districts.

Medina Worden: What the city will do will greatly depend on what the community wants the city to do. Whatever criticism people might have, the truth is the city works very closely with the San Fernando Valley, with the Alliance [and] organizations such as [Valley Economic Development Center]. And it’s up to us in many ways to recommend to them the kind of projects and the kind of direction that we would like to take. Normally the city would support those kinds of things.

Reform

Q: Last spring, the Los Angeles City Council passed a compromise plan to update the city’s antiquated business tax code. What’s your sense of how those reforms are going to affect businesses in the Valley in 2000 and how crucial is reform to economic development here?

Maguire: The mayor has a committee that has been working diligently on this. And from my position, being chair of VICA, we’re waiting to find out what kind of recommendations will be coming out of their group.

We have actually two problems. We have people that don’t pay their business taxes and have not for probably a long time. The city has no way of finding out who they are and that’s one of the problems. And then those people that we are taxing, we don’t want to tax them out of business. With health organizations wanting to move out to Santa Clarita, there is a problem with the tax situation.

Secession

Q: Have you seen any strong sentiment from businesses either for or against secession, and are you anticipating that businesses will become more vocal in the debate this year?

Davis: We have it on the table at the board of directors meetings each and every month, with a report from a liaison person that attends the Valley VOTE meetings.

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Q: Do you anticipate the board taking a stand on secession this year?

Davis: I don’t see it happening in the near future. If it would be, I think it would be the latter part of 2001.

Maguire: For VICA, I don’t see that we’ll be taking any type of stand on secession until we see the results of the LAFCO [Local Agency Formation Commission] study.

Davis: Yes, it would have to come after that.

Medina Worden: What you’re finding out is that as the economy is doing better, people are less involved with these things. Before, when we had the earthquake and the recession, people wanted to complain and they were looking for something to blame. Now that everything is good, why rock the boat? They’re too busy making money.

Maguire: I don’t see secession going away. You’re still going to have people very involved.

Davis: The people involved with it aren’t going away.

E-Commerce

Q: There was a mom-and-pop Christmas tree lot in Chatsworth that listed a Web address where you could buy a Christmas tree over the Internet. How well do you think businesses in the Valley are adapting to this new era of e-business?

Medina Worden: The fascination with e-commerce is more falling in love with the technology than the application. Everybody thinks that if I get my kid to design a Web page for me, people are going to order things. But e-commerce is nothing more than another distribution system, just a faster way of getting products out there. It still goes back to having a good marketing strategy. It’s like the Christmas tree Web page. Will people really want to order a Christmas tree over the Internet?

Yamauchi: Clearly not all products make sense to be sold over the Net--Christmas trees being one.

Maguire: For the most part, large businesses in the Valley are connected and doing business over the Internet. But for the everyday retailer in Van Nuys or San Fernando or Reseda, I don’t know that they’re as savvy about the technology. They don’t have the time or the financial wherewithal to gather systems that they need.

Medina Worden: Sixty percent of the Valley companies we work with have some sort of Internet presence, but Internet strategy, well, that’s another issue.

Davis: All the 6,000-plus real estate agents in the Valley need to develop an expertise in this new era of technology, or without question they will not be around. There’s a possibility that in the next two to three years, real estate transactions will be electronic. I’m talking about the actual process of signing the papers, closing and the whole transaction being done over the Internet. However, the Realtor is going to remain--at least we hope--the central person in that transaction, whether it’s electronic or not. People like having somebody they can talk to and trust.

Maguire: In all this, we shouldn’t forget about our consumer demographics in the Valley. In trying to build up San Fernando and their shopping district, we’ve seen that it’s a cultural thing for the Hispanic family to come into town, walk around, do their shopping together, have lunch and spend time as a family. As we look at using the Internet, we need to look at the type of people who are going to be e-commerce consumers.

Yamauchi: There are some great Internet success stories out here, like NetZero in Westlake Village. The company went public and now has a billion-dollar market capitalization. Theirs was an issue of timing, being one of the first to provide free Internet service. We have a number of other companies with some very exciting technologies in Westlake, Ventura and Calabasas. A lot of it is timing, and the timing is looking very good. That’s why we’re getting a lot of venture capital.

Employment

Q: Unemployment is at an all-time low. What’s the labor situation in the Valley? Is it getting more difficult for growing companies to find workers?

Medina Worden: Small businesses are having a problem getting qualified people. That’s happening everywhere. It’s not a matter of whether there are people out there; it’s a matter of who are your choices for quality employees.

Maguire: I know that the work force has been a major issue because a lot of companies are saying they cannot get qualified workers. The community colleges as well as our regional colleges have been trying to connect with local businesses and I think it’s beginning to happen. Businesspeople are saying we want high-tech development and we’re going to sit down with you and establish a curriculum that will meet our needs.

Yamauchi: Competition for talented people is as tough or tougher than competition for capital or advanced technologies. A skilled work force is critical.

Maguire: But we shouldn’t forget that we also have manufacturing jobs. There’s a lot of programs, like the one at Van Nuys High School, where kids going through shop classes get paired up with small manufacturers. That’s exactly what we should encourage.

Who Has Clout?

Q: How has the clout of the Valley’s business community changed over the years?

Maguire: We’ve definitely changed. Going back to the Northridge earthquake in 1994, it really coalesced all of the groups in the Valley to focus on the region. And I’m not just talking about the L.A. city portion of the Valley, but also Glendale, Burbank and Calabasas. I think we’ve really put ourselves on the map.

We’ve transitioned from aerospace to high tech and we’re going into biomedicine. The entertainment industry, of course, is No. 1. I think we are very important and we are going to be a driver.

Medina Worden: We’ve always been important. The problem is the perception. Oftentimes, the identity of the Valley and its economic contribution is put aside. Also, it’s hard to get statistics to say exactly what is produced in the Valley because we’re part of the city.

Q: The entertainment industry is one of the leading industries in the Valley, but it doesn’t seem that involved with local alliances or Valley issues. Why is there a disconnect between the entertainment industry in the Valley and the rest of the Valley business community?

Maguire: We’ve made some real inroads having Bill Allen as the [president] of the Economic Alliance. He has an entertainment background and speaks their language. They have been very involved in the Alliance and invest in the Alliance. Our first gala was hosted by the Walt Disney Co., and Universal Studios has hosted too. Having someone that has that ability to communicate helps them understand how much they are a part of the economy in the Valley.

Final Words

Q: Closing thoughts?

Davis: The most important thing from my aspect is what the real estate market’s going to be doing and how it affects the Valley. It has stabilized now and I believe it’s going to stay that way through the year 2000. Generally, I think it’s going to be good--but not as good as it was in 1999.

Yamauchi: It’s just surprising how resilient a lot of small [tech] companies are. I think venture capital funding is the key and I think they’re finding it.

Maguire: I think business needs to continue to be very vigilant--knowing where their money is going, paying attention to the issues, [such as] work force issues, transportation.

And with all of the surpluses, what other kind of taxes could the government be looking at imposing on business. What are they doing in the area of health care? Are there going to be additional costs that businesses need to pick up. What are the taxes for the city of Los Angeles going to look like? Don’t get lulled into [thinking], well things are wonderful right now. Because when things are wonderful, sometimes people don’t pay attention and all kinds of laws can get passed that will affect them.

Medina Worden: The Valley, for it to continue to be competitive as a region, will depend on our ability to become very competitive in terms of the business environment compared to the independent cities or communities that surround us. The second thing is quality-of-life issues--how do we ensure that we have a good quality of life to make sure people stay here? Together with technology comes the ability for businesses to move anywhere and do business anywhere. So if you want to keep the people here and have their businesses here, you have to keep the residents wanting to be here. Quality of life also has to do with education, crime and cleanliness of the environment.

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Wilma Medina Worden

Vice President

Valley Economic Development Center

Medina Worden works to encourage small-business growth through the non-profit VEDC. She also is director of the North Los Angeles County Small Business Development Center, which the VEDC operates under contract with the California Trade & Commerce Agency.

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Cathy Maguire

Chairwoman

Valley Industry and Commerce Assn.

As the new chair of VICA, Maguire leads the organization that represents the Valley’s largest companies and institutions--making it one of the Valley’s strongest advocacy groups. She also is public affairs manager for the Southern California Gas Co. in the Valley area.

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George Yamauchi

Partner

PricewaterhouseCoopers

An expert in technology companies, Yamauchi is based in the Woodland Hills office of PricewaterhouseCoopers, the accounting and consulting firm. He provides strategic advice to a variety of technology and manufacturing companies, and is active with the Southern California Technology Venture Forum.

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R.E. “Mitch” Davis

President

Southland Regional Assn. of Realtors

Davis heads the trade association of real estate agents in the San Fernando and Santa Clarita valleys--the group that issues monthly reports on local home sale prices and activity. He also is the owner of Realty Associates of California, a residential real estate brokerage company based in Santa Clarita.

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WEB LINKS

www.anderson.ucla.edu/research/forecast: UCLA Anderson School of Business economic forecast.

laedc.org/socal.html: Los Angeles County Economic Development Corp. Statistics, news releases and LAEDC special reports on the Los Angeles area economy, including a profile of the San Fernando Valley.

valleyofthestars.org/: Valley of the Stars site sponsored by the Economic Alliance. Links to other Valley business organizations.

cnt.org/mi/la_forum.htm: 1997 Los Angeles area economic outlook from the Metropolitan Initiative, a group sponsored by the James Irvine Foundation.

library.fullerton.edu/refbiztablestats.htm: Cal State Fullerton Pollak Library’s annotated business table. Reports can be ordered from the library.

Sites subject to change.