Business Press: Multi-family outlook weak; bright spot West End

11:36 AM PDT on Thursday, April 22, 2010 (http://www.thebizpress.com)

By CHRIS H. SIEROTY
Contributing Writer

Construction of new apartments in Inland Southern California is not expected to resume on a large scale any time soon. That’s due to a glut of foreclosed homes that have flooded Riverside and San Bernardino counties over the past three years and now compete with apartments for tenants, according to a new national report by the commercial real estate and research firm Marcus & Millichap.

That trend was especially true in the region’s outlining areas such as Palm Springs, Perris and southwest Riverside County, the report said.

Asking rents are forecast to fall 3.7 percent to an average of $969 a month, while actual rents should fall 5.6 percent to $895. Those numbers will result in the completion of just 520 new apartments this year, down from 1,260 units last year, Marcus & Millichap said.

“There are very few projects on the books. Most have been put on hold because of the economy,” said Alex Garcia, senior vice president with Marcus & Millichap in Ontario. “Investors have been buying foreclosed single-family homes and turning them into rentals. In some cases, they were bought cheap enough to be more affordable and compete with apartments.”

Overall, San Bernardino and Riverside counties moved up five places from last year to 37 in the 2010 National Apartment Report by Marcus & Millichap. Analysts attributed the rise to forecasts for modest payroll additions and minimal construction.

The annual report ranks the nation’s 44 major metro markets on an investor index based on 12-month indicators of supply and demand. Markets are ranked by average scores for factors including forecast employment change, vacancy, construction, affordability and rental rates.

“The local housing industry downturn will continue to adversely impact the apartment supply/demand balance in the Inland Empire this year, though operational performance will depend largely on location,” analysts said in their latest report.

This heightened competition will cause incentives to increase as landlords look to fill vacancies. Conversely, operations are expected to be steadier this year in submarkets closer to Los Angeles County.

Vacancy in Ontario, Chino and Rancho Cucamonga, for instance, began to stabilize late in 2009 and will lead the region once a recovery starts, the report said. But while apartment conditions continue to soften this year, analysts expect the market to be near the bottom of its decline, which was expected to show recovery next year and in 2012.

“It’s tough to time the bottom of the market,” Garcia said. “But the trends point to a recovery. The west is a stronger market with less vacancies and higher rents, but the further east you go the longer it will take to recover. In the submarkets in Coachella Valley and High Desert you have an overall vacancy closer to 20 percent.”

Cray Carlson, senior vice president with CB Richard Ellis in Ontario, agreed saying the High Desert and Coachella Valley suffered from overbuilding and were devastated by job losses.

Carlson said he assumes a turnaround will begin at the end of the year, “but the realistic answer is, ‘I don’t know.'”

Inland sales activity was expected to increase as distressed and Real Estate Owned (REO), or banked-owned, listings become more prevalent. A number of smaller bank-owned properties came to market late last year, attracting bargain-seeking buyers.

Legend Apex Investments LLC of Los Angeles recently acquired 36 units of the 40-unit Rialto Arrow Terrace condominium project from a partnership of two lenders for $3.8 million in a foreclosure sale, according to Paul Runkle, associate partner with the Inland Empire office of Hendrick & Partners in Temecula. Runkle said at the time of foreclosure in October, the outstanding loan balance on the project was $9 million, or more than $250,000 per unit.

He said Legend Apex plans to operate the complex, which was completed in April 2006, at 1655 W. Rialto Ave., as rentals until the condo market recovers.

From January to May 2008, four of the condominiums were sold to individual buyers at prices ranging from $305,000 to $309,000 per unit; the remaining 36 units were never sold. The units are 1,332 square feet each, with three bedrooms, two and a half bathrooms and a direct-access, two-car garage.

“This was a 40-unit condominium project,” Runkle said. “They sold four units before realizing it wasn’t going to work. The buyer realized it was worth more as a rental than for sale. Already half of the units have been rented.”

The region’s eastern and southern areas should offer the most distressed-asset opportunities; however, properties in these areas will likely recover more slowly than the market as a whole.

Garcia, of Marcus & Millichap, said he was working on a couple of short sales, including a “pretty high quality” property that is 35 percent vacant in the Coachella Valley. He said the multifamily property was the first short sale “ever” involving Fannie Mae.

With the sale expected to close within two weeks, Garcia declined to provide additional details. Messages left with Fannie Mae in Washington, D.C. were not returned.

As 2010 progresses, larger, newly built Class A complexes also will work through the foreclosure pipeline, drawing investors with considerable capital reserves, the report said.

Sales of traditional apartment assets are expected to be limited as owners who are not in immediate distress elect to hold at a time when buyers are demanding significant price reductions.

Carlson attributed the lack of apartment sales to “not a lot of inventory on the market” and to banks taking longer to approve loans on existing listings.

“It’s taking between 30 and 90 days to get a listing to where the banks will loan to finance the sale,” said Carlson, who added that the average listing is on the books today for between 60 and 120 days, compared to 30 to 45 days in 2008.

He said his office had three multifamily listings including two in Barstow and one in Riverside. The listing, whose price was not disclosed, was located at 3257 Market St. in Riverside. The property, which was built in 2008, was situated on 0.39 acres and consists of one three-story mixed-use building that includes two levels of 2 bedroom/2.5 bath townhomes.

Carlson said the region’s apartment market was near the bottom of the current down cycle and he expected investors to “start jumping back into the market.”

“It’s time,” he said. “Investors are looking for anything that makes sense.”

Garcia said his biggest concern was a turnaround in the region’s job market, because if expectations weren’t met additional foreclosures could come to market.

Despite the expected uptick in employment figures, waning demand and ongoing competition from foreclosed homes are expected to drive up vacancy 40 basis points this year to 9.8 percent in the two-county region. In 2009, Inland vacancy increased 240 basis points.

In a first-quarter report compiled by Marcus & Millichap, Rancho Cucamonga was the best performing sub-market in the two-county region with a vacancy rate of 5.4 percent, up 70 basis points from the same period a year ago. Rents in Rancho Cucamonga averaged $1,198, down 3.2 percent from the first quarter of 2009.

On the opposite side of the ledger, Upland and Southwest Riverside County were the worst performing sub-markets. In Upland, the vacancy rate jumped 240 basis points to 8.8 percent, while rents were down 7.2 percent to $985 at the end of the first quarter. In Southwest Riverside County, the report found vacancies increased 10 basis points to 9 percent, and rents were off 4 percent to $1,007 compared to the end of the first-quarter of 2009.

Citizens Business Banks reports double-digit income growth

10:00 PM PDT on Thursday, April 22, 2010 (http://www.pe.com/business)

By CHRIS H. SIEROTY
Special to The Press-Enterprise

Despite continued moderate loan losses, CVB Financial Corp., the holding company for Citizens Business Bank, announced Thursday that its net income for the first quarter jumped 22.42 percent.

Citizens reported net income of $16.1 million, or 15 cents per share, an increase of $3.9 million compared with net income of $13.2 million, or 13 cents per share, for the first quarter of 2009. Joe Glade, an equity analyst with B. Riley & Co. in Philadelphia, said Citizens Business Bank beat Wall Street estimates by 4 cents per share in the first quarter.

“Their loan losses were in line with expectations,” said Glade, who expected continued growth in the “performance of its bad loans over the next few quarters.”

First-quarter operating results included a $12.2 million provision for credit losses and were impacted by the accounting treatment of credit-related transactions from the San Joaquin Bank loan portfolio, according to the company. Christopher Myers, president and chief executive of Citizens Business Bank, said the bank continues to “run through those loans” acquired from San Joaquin Bank, but it was well positioned to handle them, due to its loss-sharing agreement with the Federal Deposit Insurance Corp.

He said loan losses for noncovered loans in the first quarter totaled $8.8 million. As of March 31, the bank had $112.3 million set aside to handle credit losses.

“The good news was we added more for loan losses than we needed,” Myers said. “We now have more reserves in our war chest. I’ve got a good war chest to handle any additional losses.”

By comparison, for the first quarter of 2009, Citizens Business Bank had net charge-offs of $10.2 million and a $22 million provision for credit losses. The allowance for credit losses was 3.2 percent and 1.8 percent of total loans and leases outstanding as of the end of the first quarter of 2010 and 2009, respectively.

“We are pleased with our top-line performance,” said Myers in a statement. “Our deleveraging strategy has positively impacted our net interest margin and reduced our sensitivity to a potential future rise in interest rates.”

At the end of the first quarter, total deposits were $5.05 billion, an increase of $130 million, or 2.64 percent, from $4.92 billion on Dec. 31. The company also reported total assets of $6.79 billion, an increase of $48.9 million, or 0.73 percent, over total assets of $6.74 billion at the end of 2009.

Earning assets totaling $6.07 billion decreased $117.5 million, or 1.9 percent, when compared with earning assets of $6.18 billion at Dec. 31, 2009. The decrease in earnings assets was due to a decrease in the loan portfolio, the company said.

At the end of the first quarter, Citizens Business Bank reported $602.4 million in gross loans from San Joaquin Bank, with a carrying value of $438.5 million.

Glade said loans associated with Citizens’ acquisition of San Joaquin “are pretty much guaranteed by the FDIC” and weren’t expected to be a problem. On Oct. 16, Citizens Business Bank entered into an agreement to purchase most of the assets and assume most of the deposit liabilities of the Bakersfield-based bank in an agreement with the FDIC.

Myers described the San Joaquin Bank deal as strictly an “acquisition that was about expansion.”

Myers said the acquisition was completed about six weeks ago. As a result, Citizens Business Bank shut down one San Joaquin branch and laid off about 80 employees.

“It was a real challenge to convert all of their systems over to our systems,” he said. “We had a lot of redundancies, which led to layoffs of human resources, finance, accounting and technology employees. We expect the cost savings to be realized in the coming quarters.”

Myers admitted that the bank was “definitely looking at other opportunities to acquire another bank,” whether it’s through the FDIC or on our own.

“We want to make another acquisition this year,” he said. “However, if it doesn’t fit into our culture, we won’t pull the trigger. We are interested in a business bank with a strong local presence in California.”

The Press-Enterprise – Mattel consolidates distribution operations in San Bernardino

07:41 PM PDT on Thursday, April 15, 2010 (http://www.pe.com/business)
By CHRIS H. SIEROTY
Special to The Press-Enterprise
Mattel Inc. will close its distribution center in the City of Industry within the next three months and consolidate operations to its distribution center in San Bernardino.
The company’s decision to shut down its Industry distribution facility July 30 means the loss of 115 jobs, according to Mattel spokeswoman Lisa Marie Bongiovanni. She said she wasn’t sure when or if any of the positions being eliminated would eventually be transferred to San Bernardino.
The Inland facility, which was completed in 2004, employs 125 people and is a 1.2-million-square-foot distribution and logistics center on a 58-acre site formerly occupied by Norton Air Force Base.
The decision to close their Industry distribution center was made “following an extensive assessment to streamline distribution capacity in Southern California,” Bongiovanni said in a statement, adding that employees were given advance notice of the closure.
The elimination of the 600,000-square-foot distribution center comes during changing times in the toy industry. Despite reporting an 86 percent increase in fourth-quarter profits, Mattel continues to face stiff competition from other toy manufacturers both in the United States, Taiwan and China.
“They are in a very competitive market. They continue to do anything they can do to streamline their costs and operations,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.
Kyser said the one piece of good news was that international trade continues to improve, with exports continuing strong growth, along with modest growth in imports. He expected that continued growth to translate into a pickup in demand for distribution and logistics jobs in Southern California.
Inland politicians and economists welcomed Mattel’s announcement as confirmation of the region’s strength as a center of warehousing and logistics.
“It’s good news that we will be retaining our facility here, and it puts us in a good position for future expansion as the economy recovers,” San Bernardino County Supervisor Neil Derry said.
Despite the job losses in Industry, Derry said Mattel’s decision was more confirmation of the strength of the San Bernardino market as a central hub for distribution in Southern California.
“It’s also cheaper to do business here than in Los Angeles and Orange counties,” the supervisor said.
John Husing, a Redlands-based economist, agreed, saying Mattel’s decision was based on the cost of doing business being less in the Inland Empire.
“Companies under pressure tend to migrate out here,” Husing said. “Mattel’s announcement was just one of several announcements from other companies” moving operations to local facilities.
Recently, Kohl’s Inc. announced the purchase of 970,000-square-foot warehouse at 825 E. Central Ave. in San Bernardino. Meanwhile, Skechers USA Inc. announced plans to build a 1.8 million-square-foot distribution hub in Moreno Valley.
“It’s never good to see job losses, but this move demonstrates the vibrancy of this market,” said Jim Morris, chief of staff to San Bernardino Mayor Patrick J. Morris. “The upside as I see it, is as the economy recovers, Mattel will rehire some of those positions (lost in Industry) here.”

The Business Press – The start of a successful Reign

MINOR-LEAGUE TEAM: With attendance trending up, Ontario franchise expects to make a profit in its third season.
06:00 AM PDT on Wednesday, April 7, 2010 (http://www.thebizpress.com)
By CHRIS H. SIEROTY
Contributing Writer
For the top executive of the Ontario Reign minor league hockey team, responsibilities go far beyond just working with his staff to set ticket prices, budgets, player acquisitions, issues with the arena, merchandise, and overseeing the team’s relationship with AEG and their National Hockey League affiliate, the Los Angeles Kings.
Being the vice president of business operations, means Justin Kemp – the face of the franchise – takes every opportunity to promote the game and not just to the team’s fan base but to the 4 million residents who call Inland Southern California home.
“The biggest challenge we have is awareness,” Kemp recently told The Business Press in an interview at the team’s executive offices adjacent to Citizens Bank Arena. “There are still people within five miles of here, who don’t know that the arena or team is here. That’s a challenge we both face.”
The Reign, one of three East Coast Hockey League teams in California, began operations before the 2008-2009 season as the anchor tenant in the new, $150 million Citizens Bank Arena. In their first year in existence, the team finished second in the league in attendance, averaging 5,856 per game. This season, the team is averaging 6,165 fans per-game.
That success led to the Reign hosting the ECHL’s All-Star game on Jan. 20.
“That was a good sign,” he said. “Hosting an all-star game means they are liking where we are sitting in attendance. We play in a community that is of interest to the league, it’s one of their top markets and it’s easy to get here. Those were all factors in determining that we would host the event.”
Kemp said despite the early success, the goal was to continue to make more Inland residents aware of the Reign both on and off the ice. Off the ice, he said it was crucial to have their players attend monthly charity events along with parties hosted during the off-season at various restaurants in the region.
The team has also created The Hope Reigns Foundation, dedicated to providing children in the Inland Empire with educational and recreational opportunities. He said the foundation was largely supported through private donors and fundraising efforts.
“In my opinion, we have a very strong ownership group with Barry and Justin Kemp,” ECHL Commissioner Brian McKenna said in a phone interview from Princeton, N.J. “The Ontario market is strong, and the arena is fantastic. We are very happy with how things are working out so far.”
But to really spread the word of the Reign’s existence throughout the region, a TV or radio contract could lead to wider recognition if a deal could be reached that is beneficial for both parties. In terms of getting Reign games on local radio, Kemp may need to be convinced there is an audience for their games.
“We may have been the only team this year and last year not to have one,” he said. “It’s a budget expense we thought wasn’t necessary. I’m not one of those people who is convinced people listen to hockey games on the radio. Unless, we could get a radio station to step up and donate their airtime … where it is attractive for both of us.”
But with the success of the ECHL All-Star game that was televised regionally, Kemp is considering working with Fox Sports West to reach a deal.
“The all-star game was our first televised game that reached 5.8 million homes, and Fox Sports West replayed it six times,” he said. “How many people responded to that, including fans and non-fans alike? Television works, but it’s very expensive. We want to get a few games televised, maybe a Reign game of the month or two or three games a season. ”
He said being in partnership with AEG did help in securing Fox Sports West to televise the game, but because of the game’s success the regional sports network was “open to other opportunities if the price was right.”
Kemp said it costs $3.5 million a season to operate the Reign. That figure includes player salaries, which cost between $11,000 and $12,000 per week, housing costs for the players, their lease at the arena, costs for arena workers at each game, office space in Ontario, travel expenses, employee salaries among other operational costs.
Compared to minor league baseball, where the major league affiliate picks us most of the players salaries, Kemp explained that the Reign was responsible for paying their players wages, most of whom are free agents. Unless the player is property of the Los Angeles Kings, then the team is only responsible for $525 a week even if the player is making $1 million a year from the Kings, he said.
“It’s tough for us based on the expenses we have,” he said. “I think the business of minor league baseball in many ways is more attractive, because your costs are so much less, but your revenues aren’t the same. It’s really hard to turn a profit in hockey, minor league hockey especially. It’s not impossible, but there are a lot of factors.”
Asked if the Reign were profitable in their first two seasons of operation, Kemp told The Business Press the team had “not made a profit the last two years,” but he was optimistic that would “change this next year.” He said the team had already seen a spike in season ticket sales for next season and corporate sponsorships had exceeded the team’s expectations.
“In year three, it’s going to be about increasing our revenues and cutting some expenses,” Kemp said. “We are in a good position to turn a profit next year.”
Kemp said the team is in partnership with AEG, the entertainment company that owns the Kings and Staples Center in downtown Los Angeles. He explained that AEG had been awarded the management rights to the arena for 10 years and that the Reign has an ownership split with AEG.
“They own part of the team and we own part of the management rights,” he said. “The difference is they completely run the facility and we run the hockey team. ”
Despite operating the team at a loss for the first two years, Kemp said he was committed to offering an affordable product to local hockey fans.
“We recognize that the number one thing people are looking for with us is value,” he said. “Based on what other teams in our league price at, our tickets are one of the most expensive in the league, but we play in one of the most expensive markets in the league. So it’s all relative.”
Kemp stressed that he was committed to offering fans $10 tickets, while the most expensive ticket is $40 to sit next to the glass for a Friday or Saturday night home game. With attendance figures placing the Reign near the top of the league, you could argue that they priced them right.
“You could also argue that we priced it too low,” he said. “I’m sure that no one walking up to buy a ticket wants to hear that. The important thing to us is that we always have a ticket that people can get for about $10. Ultimately, it’s going to come down to value for our fans. People are still going to look for a good deal when the recession is over.”
He said you can experiment with the pricing of your premium seats, maybe raising ticket prices by $2 or $3, but it was crucial that the organization offer affordable tickets, especially in a recession.