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Business Observer Friday, Aug. 15, 2008 12 years ago

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+ Kleiner Perkinsinvests in companyKleiner Perkins Caufield & Byers, one of the best-known venture capital firms in the world, recently disclosed it is an investor in Lehigh Technologies, a Naples-based company that was the winner of the Gulf Coast Business Review's technology innovation award for the Lee-Collier area in 2006.+ Newsflash: Checkthe copyright booksThe irony of this story is especially sweet: Seems that a group of supposedly well-intentioned attorneys across Florida goofed on a basic legal principle when forming a group to provide free legal services to homeowners facing foreclosure.+ Walter Industriesstock rises and fallsWalter Industries saw its stock jump to more than $104 a share this month on the New York Stock Exchange on the heels of a good quarterly report.+ Commercial propertyowners find tax helpNot every real estate-related business is in the doldrums.+ Developer doesn't give up,despite a massive loan issueA $40 million loan default isn't exactly what Brent Virkus had in mind when he made his initial foray into the Gulf Coast development pool two years ago.+ PODS marksmillionth milestoneClearwater-based PODS Enterprises Inc., the portable storage company, delivered its one millionth PODS container recently to Paul Johnson, a customer doing a home remodeling job in Fullerton, Calif. + Manatee business climatecontinues to sufferIn many cases, the issues facing senior exec

Coffee Talk

+ Kleiner Perkins

invests in company

Kleiner Perkins Caufield & Byers, one of the best-known venture capital firms in the world, recently disclosed it is an investor in Lehigh Technologies, a Naples-based company that was the winner of the Gulf Coast Business Review's technology innovation award for the Lee-Collier area in 2006.

Kleiner Perkins is best known for backing entrepreneurs of the tech boom with such companies as AOL, Amazon.com, Genentech and Sun Microsystems. Lately, the firm has been backing entrepreneurs who are seeking alternative sources of energy and benefiting from the "green" movement.

Dennis Gormley, the Naples resident and former chairman, chief executive officer and president of auto-parts maker Federal Mogul Corp., started Lehigh Technologies to recycle used tires. Lehigh's plant near Atlanta grinds old tires to a fine powder and then sells it to tire makers to manufacture new tires. The powder is a less expensive material than virgin oil-based products and in some cases using the powder in connection with other chemicals can make tires longer lasting. The higher the price of oil, the more attractive Lehigh's material is to tire makers.

Kleiner Perkins was among a group of investors that recently provided Lehigh Technologies with $34.5 million. Other investors include European venture-capital firm Index Ventures, NGP Energy Technology Partners, a private equity firm in Washington, D.C., and Florida Gulfshore Capital, a private investment firm in Naples.

+ Newsflash: Check

the copyright books

The irony of this story is especially sweet: Seems that a group of supposedly well-intentioned attorneys across Florida goofed on a basic legal principle when forming a group to provide free legal services to homeowners facing foreclosure.

The lawyer-led group, including several divisions of the Florida Bar, named their group FLASH - Florida Attorneys Saving Homes. The group issued their first press release on July 10 and a few weeks later its organizers were touting the group on the Larry King Show on CNN.

Oops. Turns out the Federal Alliance for Safe Homes, a national nonprofit organization focusing on homebuilding safety based in Tallahassee - a place many Sunshine State lawyers are infinitely familiar with - already has a copyright on FLASH.

It was the TV appearance that did in the lawyer-run group. The day after the show, the original FLASH office began fielding phone calls and e-mails from dozens of distressed homeowners. The executives with the original FLASH called the attorneys with the second FLASH to inform the latter group of the potential copyright infringement.

"We commend the work they are doing and their desire to help Florida homeowners," says Leslie Chapman-Henderson, FLASH's president and chief executive officer, in a statement. "But the failure to observe the fundamentals of trademark use is causing significant customer confusion."

Attorneys for the attorney-led FLASH are working to fix the problem.

+ Walter Industries

stock rises and falls

Walter Industries saw its stock jump to more than $104 a share this month on the New York Stock Exchange on the heels of a good quarterly report.

But then the Tampa coal-mining and homebuilding company watched the stock drop about 17% in the past week. It closed more recently at $79.90.

Walter's Chief Financial Officer Vic Patrick credited the rise in the stock price to the ongoing success of its metallurgical coal operation, which has benefited from skyrocketing demand in China, India and Brazil and big price increases for metallurgical coal.

But the company only attributed the more recent price drop to the entire natural resources sector retreating.

James Addington, managing member of Quality Associates International LLC, which audits the labs that check coal quality, says part of the explanation may be volatile crude oil prices.

When crude oil is up, coal stocks usually follow. When it drops, so does coal. A portion of crude is made into fuel oil used for power plants.

Walter posted second-quarter earnings of $50.8 million, or 94 cents a share, compared with $18.1 million, or 34 cents a share, a year earlier. Revenue rose 25% to $370 million. Analysts were expecting earnings of 57 cents a share, excluding extraordinary items, on revenue of $304.7 million.

+ Commercial property

owners find tax help

Not every real estate-related business is in the doldrums.

Consider Peter Roberts, a representative with a Naples firm called Engineered Tax Services. He's busy helping struggling commercial-property owners save money with a maneuver that's particularly welcome today.

For tax purposes, commercial property is usually depreciated over 39 years. But with a cost-segregation study, Roberts says owners can shift certain property costs to depreciable lives of as little as five years, resulting in substantial tax savings. That's because many construction-related soft costs have been historically lumped in with the real property.

The savings can be significant. For every $100,000 of cost shifting from 39-year to five-year depreciation, the net present value of tax benefits (assuming a tax rate of 35% and a 5% return on capital) can be up to $18,000.

Even better, Roberts' firm can go back as far as 1987 because the Internal Revenue Service permits companies that have claimed less than the allowable depreciation to claim it in the year of the study.

All of this was made possible by changes in the tax codes a few years ago after hospital giant HCA challenged the 39-year depreciation rules, successfully arguing that's much too long.

+ Developer doesn't give up,

despite a massive loan issue

A $40 million loan default isn't exactly what Brent Virkus had in mind when he made his initial foray into the Gulf Coast development pool two years ago.

No matter. Virkus, president and chief executive of the Sarasota-based Triton Cos., is forging ahead on his plans to bring a luxury hotel to downtown Sarasota - smothering economic downturn notwithstanding.

"We are working our butts off to get this hotel out of the ground," Virkus tells Coffee Talk. It was his first public comments on the default since officials from New York City-based commercial real estate lending firm iStar Financial told him late last month they would be initiating the legal process to foreclose on the $40 million loan it gave Triton.

Adds Virkus: "We are still in the trenches."

Triton and several partners used the $40 million in financing to buy the former Gold Bank Plaza building on Palm Avenue in downtown Sarasota, in a deal that closed in April 2006. Back then, the price for the 11-story, 290,000-square-foot building was considered high by some local real estate observers, even factoring in the then on-going commercial real estate boom. The price, which included about $4 million in fees, was even a Sarasota commercial real estate record for the year.

But Virkus, a onetime money manager and financial planner for Merrill Lynch UBS Paine Webber, looked at the purchase as both a trophy and a ticket into the Sarasota market for Triton, the development company he founded in his native Michigan in 2002. He initially planned to build condos on the property; he turned the concept into to a hotel last October in response to the flat condo market.

Now Virkus is looking at being on the wrong end of one the largest commercial real estate loan defaults on the Gulf Coast. Court proceedings on the property, now known under the M&I Bank name, could begin later this month. And the building could be on the Sarasota County foreclosure auction roster as soon as next month.

What's more, Virkus tells Coffee Talk his personal loss in the so-far failed project is more than $1 million. Says Virkus: "This one project, at this stage, doesn't look like it was a real good investment for us."

Virkus, however, does have a few crumbs of good news to munch on. For starters, he's adamant that the iStar foreclosure will have zero impact on another Sarasota project his firm is developing: The Hyatt Siesta Key Beach, a $100 million, 44-unit fractional ownership luxury hotel project that is currently under construction a few miles from downtown Sarasota.

That project has different equity partners, Virkus says, and unlike the potential hotel development, the Hyatt Siesta Key Beach is a real out-of-the ground development with actual sales. (See 7/25/08 Review.)

Virkus also says a published report in a Sarasota daily newspaper that he stiffed Sarasota architect Gary Hoyt out of $1.4 million in fees on the Palm Avenue hotel project are erroneous. Hoyt, who is also the architect on the Hyatt Siesta Key Beach project, confirmed to Coffee Talk that the report was indeed incorrect.

+ PODS marks

millionth milestone

Clearwater-based PODS Enterprises Inc., the portable storage company, delivered its one millionth PODS container recently to Paul Johnson, a customer doing a home remodeling job in Fullerton, Calif.

To recognize the landmark sale, the company gave Johnson one free year of PODS storage and a $500 gift card to a construction warehouse. PODS also donated a storage container to Habitat for Humanity of greater Los Angeles.

In 1998, PODS began transporting mobile storage containers. The PODS container is loaded onto trucks for transport. PODS stands for Portable On Demand Storage.

PODS serves a population of more than 230 million consumers and businesses in the United States, Canada and Australia. There are more than 130,000 PODS containers in service. PODS is available in 57 states and provinces and has performed about 150,000 long-distance relocations.

+ Manatee business climate

continues to suffer

In many cases, the issues facing senior executives and small business owners in Manatee County haven't changed much over the past year, a new survey states. According to the report, commissioned by the Economic Development Corp. of Manatee County, those issues include the overall cost of doing business, health insurance expenses and finding quality employees.

But while the challenges remain unchanged, the numbers and raw data complied in the survey have gotten considerably worse.

One of the most glaring results in that vein is the number of business owners and executives who think the business climate in the county is on a downward trend. "When asked to compare the general business climate in the county with two years ago, [more than] 72% said it was worse," states the survey, which counted 122 responses out of 600 questionnaires that were mailed to Manatee County businesses. "Less than 7% said it was better."

Coffee Talk is surprised that even 7% of the respondents - let's call them hardcore optimists - say the local business climate is better now than it was in 2006.

Meanwhile, several other statistical categories were down compared to last year, including the number of companies thinking about undergoing some type of expansion. That number doubled, from 10% of the total respondents in 2007 to 20% in 2008.

Other numbers in the survey showing a decline include:

• Half of the respondents say their industry was in worse shape than it was last year. Only 35% of the respondents reported that in the 2007 survey;

• The number of companies reporting annual revenue increases and decreases. On the increase front, 30% of the respondents reported an annual revenue increase over the last 12 months, down from 38% in 2007, the first year the EDC commissioned a business climate survey. Meanwhile, 41% of the survey respondents reported an annul revenue decrease, up from 27% last year.

+ Corrections

Bradenton-based First Priority Bank, which was shuttered by federal banking regulators, lost $9.4 million in the 2008 second quarter. The amount of the loss was incorrect in a Coffee Talk item in the Aug. 8 Review.

Smith Seckman Reid, featured in a story in the Aug. 8 Review on the new power plant being built at Sarasota Memorial Hospital, is an engineering design and facility consulting firm. One of the company's services listed in a picture caption was incorrect.

The Gulf Coast 500 published incorrect revenue figures for Kforce Inc. It should have reported gross revenue of $938.45 million for 2006 and $1,036.92 million for 2007.

The Gulf Coast 500 listed an incorrect company name. The 461st ranked company should have been listed as Infinity Business Systems.

ECONOMIC SNAPSHOT

MAY AUTO SALES SPUTTER

What the data shows: The category of autos and accessories includes taxable sales of new and used cars, repair shops, auto-supply stores and sales at gasoline stations.

What it means: Auto sales are a good barometer of consumer confidence and the numbers show people aren't spending as much as they did last year. It's no surprise, given the slowing economy and high gasoline prices. Rising unemployment means consumers are more skittish about their financial futures and are less likely to spend money on big-ticket items such as cars. All areas of the Gulf Coast reported slower sales than the state as a whole on an annual percentage basis.

Forecast: Auto dealers have been hawking fuel-efficient vehicles and indications are that this segment of the market may keep sales from falling further. Forecasts of declines in gasoline prices could also help sales, though consumer confidence, job creation and a rebound in the real estate market remain important drivers of auto sales.

MAY TAXABLE SALES ($ in millions)

Area taxable sales Annual Chg.

Fort Myers $137 ‑20.4%

Naples $57.3 ‑19.5%

Punta Gorda $23.4 ‑17.5%

Sarasota $139.8 ‑18%

Tampa $592.2 ‑15.2%

Florida $4,063 ‑14.3%

Source: Florida Legislature Office of Economic & Demographic Research

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