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Business Observer Friday, Oct. 19, 2007 14 years ago

Some Pain, Some Gain

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The Gulf Coast's top business managers offer widely varying views on the economy's prospects. But overall, '08 is seen as a bit sunnier.

Some Pain, Some Gain

The Gulf Coast's top business managers offer widely varying views on the economy's prospects. But overall, '08 is seen as a bit sunnier.

HOSPITALITY

Jim McManemon

General Manager

Ritz-Carlton, Sarasota

Sarasota

• Regional economy: McManemon, the top executive for Sarasota's top luxury hotel, points out an obvious yet relatively unspoken boost to the region's economy: This past year marks the second straight year of a mild to almost non-existent hurricane season. That bodes well for the region's image, which can be a catalyst for economic growth. McManemon also realizes a hurricane-free summer is only a small part of the economic picture for the Gulf Coast. He worries that the slumping real estate and construction industries could stay slumping longer than people are predicting, eventually making its way to some parts of the luxury market, which are often seen as somewhat immune to general economic troubles.

• Industry: McManemon says there are two positive trends for the Greater Sarasota-Bradenton hospitality market that will carry over into 2008.

The first development has been an increase in the number of nonstop flights landing at Sarasota-Bradenton International Airport, as well as the cities those flights are originating from. There are now 34 direct flights into the airport, more than double the 16 that were coming in five years ago. Meanwhile, McManemon says tourism officials have done well in improving what he calls the area's "destination awareness," so people that could utilize those new flights will consider the area a place to visit when planning a vacation. A third positive trend McManemon is projecting in 2008 - at least positive from an hotel executive's point of view - is that the weak U.S. dollar will continue persuading international travelers to come to America. McManemon's already seen an increase in international Ritz guests, from countries such as Canada, China and Russia.

• Business: McManemon is predicting about an 8% revenue growth in 2008 for the Ritz-Carlton, Sarasota - a little better than the industry average, but a little less, by about 1-percentage point, than the amount the hotel will grow in 2007. But even more promising is that in 2008, revenue growth should be more of a 50-50 balance between occupancy numbers and the average room rate, McManemon says. In past years, revenue growth has been skewed toward room rates, but with more expected tourists coming to the area McManemon says the occupancy numbers will grow, too.

FINANCIAL

Harlan Parrish

President and CEO

Colonial Bank, Southwest Florida Region

Fort Myers

• Regional economy: Although Parrish has an optimistic long-term outlook based on population and job growth, the current real estate slump is taking its toll. For the first time in nine years, Southwest Florida's unemployment rate is higher than state and national averages. What's more, there are probably many unemployed construction workers unaccounted for in the official unemployment statistics.

Parrish is concerned that the overbuilding of homes has spread to commercial construction.

"I see a lot of construction still taking place. Gee, who's going to fill that space?" Southwest Florida's other economic engine, tourism, is a "mixed bag," Parrish says. "Some folks are thinking not as many people may come." There's evidence consumer spending is slowing, which may mean fewer people will take a Florida vacation this winter. All these difficulties are temporary, however. "Overall, we remain very optimistic," Parrish says.

• Industry: As the real estate market weakens, Parrish says many banks will see problem loans rise. "It's going to take a while to work through that," he says. This may lead to some consolidation. "Some folks can't afford to limp along; their only play is to sell out." Armed with a strong currency, foreign banks will be in position to make acquisitions.

Still, the recent decline in short-term interest rates sparked by the Federal Reserve will improve the spread between what banks pay for deposits and what they make on loans. But banks will be competing for fewer good loans. "There's going to be a lot of market dislocation," Parrish says.

• Business: Slower revenue growth means Colonial Bank won't open as many branches from Tampa to Naples next year. In recent years, Colonial has been opening six to 10 branches a year. "We're going to pull back a bit next year and not open up as many," he says. The company will move into its new regional headquarters in Fort Myers next spring and open four branches in 2008. Several branches slated to open in Sarasota will be delayed. "We'll be in expense-control mode," Parrish says.

TECHNOLOGY

Mark Swanson

Chairman

Telovations

Tampa

• Regional economy: Swanson sees the regional economic growth as "flat to up." Because of the value of the U.S. dollar, he sees an increase in Canadian and other foreigner visitors. But the housing market will be an economic drag. "We probably wont see a correction there (residential real estate) until 2010."

• Industry: "Telecommunications will be up in 2008 because of a big shift in telecommunications from old telephone networks to IP networks," Swanson says. "It provides a lot of cost savings. Businesses are looking for cost savings."

•Business: Telovations, a company that provides telephone service using the Internet, expects higher revenues and profits in 2008, because unlike other VoIP companies, it has invested in its own phone line network and can offer a clearer connection, Swanson says. "There's a lot of interest in this industry," he says. "We have a very differentiated offering in the marketplace. We're pretty much the only company that does what we do today."

TECHNOLOGY

Jennifer Bakunas

President

Magnetic Inc.

Tampa

Regional economy: Despite all the recent residential housing issues, the regional economy will be in "high-growth mode" in 2008 because the Gulf Coast is an attractive place to live, visit and do business, Bakunas says. "Tampa is becoming a major city to do business in the United States. There's continuing business relocations. Here there are jobs created. Small businesses stay here. The mayor is doing good things to grow the area. Hopefully we'll get transit. I think suburban sprawl is killing Tampa."

Industry: "The Internet industry, if you look at any growth statistics, there are staggering numbers," Bakunas says. "I really believe the Internet is just tipping the iceberg for business. So the industry will see unbelievable growth for companies that facilitate that." Internet services companies will thrive in 2008 because as companies become more cost-conscious, they will save money using technology. "They will bring a lot of their core applications to the Internet," she says.

Business: Magnetic, in its 10th year, is seeing a lot of repeat business and referrals in 2007 and expects that to continue in 2008 because of its growing client base internationally and the trend of companies using the Web. "It's been a banner year," Bukanas says. "In 2008, we don't know what our percentage growth will be, but we definitely see us growing."

REAL ESTATE

Michael Saunders

Founder, president

Michael Saunders & Co.

Sarasota

• Regional economy: Saunders, who regularly travels to real estate and business leadership conferences across the country, takes a big-picture view of the Gulf Coast's economy for 2008. And when she occasionally finds herself venting about the area's housing market to peers from say Buffalo, N.Y. or suburban Detroit, she rarely gets any sympathy. The housing and general economic woes, she says, are much worse in those and many other places. Still, Saunders realizes there are some lingering issues when looking at the Gulf Coast's economic well being into the next year. For example, the mortgage market shake-up will continue to make people nervous, although she thinks by the second half of 2008 that situation will calm down. Part of that, she predicts, will be due to government agencies rewriting lending practices.

• Industry: Saunders looks at 2008 as a slow gradual improvement over 2007. And while that's not a return to the boom years for residential real estate, she says, it's a heck of a lot better than 2006, or what she refers to as the year of "the deer in the headlights". That was the year that really shook up in residential real estate, as it became clear that the 35% annual appreciation people were seeing on home values was impossible to sustain. Echoing the sentiments of many of her peers, Saunders maintains residential real estate can still be a successful venture, just a different one than five, or even four years ago. Says Saunders: "Sellers who get it will be able to get out and buyers able to get off the fence will get a good deal."

• Business: Saunders frames her projections for the firm, which recently celebrated 30 years of operating, around optimism. The firm has had an average daily closing rate of just under $5 million in 2007, she says, which is one factor stroking her good vibes. Says Saunders: "I couldn't be more bullish, long-term, on this market." In 2008, she says, agents in the firm's 17 offices will continue working toward the goal of bringing down the area's inventory glut. "The message we try to get out," Saunders says, "is that if you don't have to sell, then take your property off the market."

REAL ESTATE

Michael Hughes

General Manager and broker

Downing-Frye Realty

Naples

Regional economy: Hughes points to record tourist-tax collections in Collier County as a good leading indicator of the region's economic well-being. "If I had a crystal ball, we will see signs of a recovery in 2008," he says. If state legislators pass tax-reform measures such as the "portability" of homestead exemptions from one residence to another, residential real estate activity will pick up. "That would be a great economic boon to Florida," he says. Two years without hurricanes have helped, too. "One thing we all feel is that the west coast of Florida is going to get built out," Hughes says. "The question is: How fast?" Baby boomers are starting to retire and Florida will get its share of that population bulge, even as competition from places such as Arizona and Texas intensifies.

Industry: Hughes says the bottom of the residential market in Naples and Bonita Springs has already been reached. Downing-Frye is the largest residential real estate firm in Naples. "We've already seen in the last 30 days our showings have picked up noticeably," he says. Hughes estimates there are three years' worth of buyers who have been waiting for prices to decline. "A lot of those people are going to be going after the same properties," he says. The residential real estate market may rebound as sharply as it declined. "It could be a bull rush," he says. Meanwhile, he expects the number of Realtors to grow at the same rate of population growth. Most of the consolidation in the industry as a result of the downturn has already happened, he says.

Business: Downing-Frye currently has 670 real estate agents in nine offices from Bonita Springs to Marco Island. Although the firm has scouted opportunities to expand beyond those borders, Hughes says the Internet will be a priority in 2008. "We're constantly searching for ways to move up in the search engines," he says. The Naples market is unique because of its large concentration of wealthy residents, insulating it somewhat from the volatility of lower-priced homes. Hughes expects the volume of transactions to pick up in 2008, though he won't make a forecast. "Anyone who throws out a percentage is just guessing," he says. But, he adds: "I firmly believe 2008 will be better than 2007."

MANUFACTURING

Laura Spencer

Chief Executive Officer

Tervis Tumbler

Venice

• Regional economy: Laura Spencer, who has run the drink ware manufacturer and retailer for about a year, sees the Gulf Coast's economy through jobs, which she predicts will continue to be a mixed bag in 2008. On one side, the excruciatingly tight job market means most growing companies, including Tervis, have been and can continue being picky when it comes to new hires. Still, the problems Florida and the Gulf Coast face, such as property taxes, hurricanes and a lack of affordable housing, mean companies are also losing out on current and perspective employees. At Tervis, for example, Spencer says three to five employees have left over the past year and moved to places such as North Carolina and Tennessee. As to what can fix the situation, Spencer says: "It's to complicated for a quick resolution," says Spencer.

• Industry: The overall retail industry has been down slightly in 2007, and Spencer projects that will likely be the case in 2008.

• Business: Tervis Tumbler's long-stated, long-term goal is to reach $50 million in annual revenues by 2010. It recently passed $30 million after growing 28% so far in 2007, Spencer says, so it's on its way. From a company-wide budget perspective, two areas Spencer expects to focus on are its Web site and hiring employees. On the former, the company intends to make the Internet more customer-friendly. "We'd love to able to get all our business customers operating online," Spencer says. The company spent most of 2007 hiring mid-level and a few senior-level managers, Spencer says, so in 2008 it will likely focus on more of the rank-and-file and production-level positions. The company currently has about 200 employees.

CONSTRUCTION

Todd Gates

Chairman

Gates

Naples

Regional economy: A student of history, Gates looks back at what happened after the terrorist attacks of Sept. 11, 2001. Although Florida's tourism industry took a huge hit, the two other economic engines of Florida - construction and agriculture - carried the state. Fast forward to 2008: construction and agriculture have faltered. If tourism takes a hit from a terrorist attack, Gates says the state's economy would suffer. "We're one bomb away from a recession," Gates says. "That's a deep, deep concern of mine." If tourism remains robust over the next two years, Gates is more confident about the region's longer-term prospects. That's because Florida's warm weather will continue to attract more residents.

Industry: Nationally, Gates says the housing market impacts one job out of 10. In Florida, it's one out of five. In Southwest Florida, it's one out of three. "We're so reliant on that economic engine," he says. "Commercial development over the last 12 months has really slowed down." Development won't rebound until late 2009, Gates estimates. Still, the lull in commercial development won't be as severe as the residential downturn because there hasn't been as much overbuilding. Commercial building will rebound quickly once builders start building new homes again.

Business: Gates opened a new office in Panama earlier this year to diversify away from Florida, banking on the widening of the Panama Canal, increased international trade and fast-growing financial sector in that Central American country. Projects in the works include a 24-story hotel, a 60-story office building and two residential resorts. Gates' revenues from Panama could grow to a quarter of his company's total sales in 2008. "That may go up," he says. "I'm going where the work is." While Florida will still account for the bulk of the company's revenues, Gates says business today is "slim pickings."

HEALTH CARE

Daniel Dosoretz

President and CEO

Radiation Therapy Services

Fort Myers

• Regional economy: Dosoretz runs the country's largest chain of radiation therapy centers to treat cancer patients. The company has 12 centers in Southwest Florida, including its corporate headquarters. "People don't realize the depth of the crisis in real estate," he says. That's making it difficult to recruit and retain employees. "My nurse quit because her husband is an electrician. They moved to Kentucky," he says. "There's a significant crisis in the area," Dosoretz says. "I sit on the board of a bank and they're not making a lot of loans." While the elderly population will continue to migrate to Florida, Dosoretz is concerned that younger people are leaving because of the real estate slowdown.

Industry: Health care is either elective or necessary. Cancer patients need radiation therapy whether the economy is good or not. However, people whose incomes have declined are more likely to postpone elective surgery. Still, continued elderly migration to Southwest Florida bodes well for the industry as older people generally need more medical care than younger folks.

Business: Radiation Therapy continues to grow its operations and now includes 83 centers in 16 states. Because it treats cancer patients and 50% of its collections are from Medicare, the company is somewhat insulated from economic shifts. "We're kind of like Washington, D.C.," Dosoretz says. Still, the company's Southwest Florida centers sees a 30% jump in patients in the first quarter of each year as temporary northern residents flock south for the winter. "Population growth slowing may affect us a little bit," Dosoretz says. "I think the [2008] outlook will depend on migration."

construction

Bill Robey

President

DooleyMack Constructors, Inc.

Lakewood Ranch

• Regional economy: Robey, whose company has offices in several Florida cities as well as in Atlanta and Dallas, sees infrastructure and transportation needs as the most pressing economic issues for 2008. At the same time, Robey points out, some of the key decision makers behind things such as new and expanded roads and highways seem to be constantly bickering with each other. "It's a boxing mentality," says Robey. He thinks the situation will improve someday, falling on both the development community and government officials to figure out a way to work together.

• Industry: The dried-up housing and condo market has forced several construction companies with multiple business lines, including DooleyMack, to be even more aggressive in other areas, a situation Robey says will continue well into 2008. A dead condo market, says Robey, doesn't necessarily hold for other markets, such as medical buildings or government and school offices. Still, winning contracts for county, city or state construction work will be an industry-wide challenge in 2008, as public entities will hold off on making big capital decisions in order to see how the housing market fares. "A lot of funding on the public sector side is up in the air," Robey says. "That's created a lot of uncertainty in the marketplace."

• Business: From a volume standpoint, Robey says 2008 will be about the same as 2007 for DooleyMack - good, not great, at least when compared to several years ago. The company, which turned 30 years old last year, has several statewide hotel and hospital projects lined up for 2008, Robey says.

MISC.

John Cauthen

CEO, Forestry Resources

Fort Myers

• Regional economy: Widening of Interstate 75 in Lee and Collier counties is going to help a struggling construction-industry sector. "Construction is going to be nonexistent in the not-too-distant future. There's not a lot of stuff beyond a year or so," Cauthen says. That's why municipal projects such as the widening of I-75 are so critical. "That's going to pick up a lot of slack, I think." While the outlook for construction is bleak, Cauthen says the rising number of passengers passing through Southwest Florida International Airport is a good sign. "Those numbers are up and continue to grow," he says.

Industry: The landscaping and maintenance industry is not completely dependent on new construction. Consumers are a big part of the industry's growth in recent years. "Gardening and landscaping is a rather low-cost activity," Cauthen says. "Nobody's bulletproof or recession-proof, but our overall sales haven't decreased that much."

Business: Forestry Resources supplies mulch and other landscaping materials to the industry and retail stores through six locations from Englewood to Naples. The company plans to continue growing in 2008 by acquisition and has targeted Tampa, Sarasota and Charlotte counties for expansion. "We have three or four other possible acquisitions in the hopper," Cauthen says. "We've identified 30 markets in the I-75 corridor that we'd like to be in," Cauthen says. Exclusive of acquisitions, Cauthen says he estimates the company's revenues will reach $21 million in 2008, up from $19 million.

HEALTH CARE

Moody Chisholm

CEO

Manatee Healthcare System

Bradenton

• Regional economy: Chisholm, who was hired to run the two-hospital system in 2006, thinks the Gulf Coast economy might not show serious growth again until 2009. That's a theory derived from both listening to statewide economists such as Hank Fishkind and his own travels within the area and state. And the top issues concerning Chisholm are no different than just about every other Gulf Coast business leader: Insurance and property taxes.

• Industry: The nationwide nursing shortage has long dominated headlines in the hospital and greater health care industry. And while Chisholm says that problem still exists, a developing trend for 2007 will be a doctor shortage. That is true for many areas of the country, but Chisholm sees it happening especially along the Gulf Coast. The shortage, he says, covers a wide range of specialties, from gastrointologists to surgeons to pediatricians. And the reasons for the shortage are just as plentiful. Malpractice insurance costs are at all-time highs and health insurance reimbursements continue decreasing. Doctors in the Greater Bradenton area make about 30% less than their peers in other parts of the country, Chisholm says. With the challenges insurance and taxes: "It's tough to get doctors to come here, if they don't have too."

• Business: Chisholm falls under the cautiously optimistic banner when looking at 2008 for the Manatee Healthcare System, which includes Manatee Memorial Hospital in downtown Bradenton and Lakewood Ranch Medical Center. Revenues should grow, albeit at a small, single-digit rate. His optimism comes mostly from a $37 million, 165,000-square-foot patient medical tower that opened at Manatee Memorial earlier this year. In the past, the hospital had rooms with as many as three or four patients. With the new building, Chisholm says, 75% of the hospital's rooms are now private, with the others having no more than two beds. Chisholm's cautious side stems from looking at any hospitals' greatest financial challenge: Treating patients with no medical insurance. Chisholm says Manatee Memorial spent $51 million on care for people without insurance last year, a number he doesn't expect to shrink in 2008. Indeed, the hospital's goal, he says, is simply to not let that amount grow.

MANUFACTURING

Saade Chibani

CEO, Carter-VerPlanck Inc.

Tampa

• Regional economy: From his standpoint, the property tax issue in Florida has delayed economic growth in 2007 which may affect 2008.

Industry: Carter-VerPlanck sells equipment for water and wastewater treatment plants. Many cities and counties are holding back on releasing some projects because they derive income from water hookup fees, which have declined because of property tax increases and the slowdown in the housing market. They may affect 2008 as well, Chibani says. "We see that slowdown continuing, unless there's a permanent solution," he says. "Counties don't like uncertainties. Water and wastewater plants are a little immune, although they are still affected. There will likely be a flatness, if not a slight turndown in the industry in 2008."

Business: "I think we'll follow the market, which probably means a flat year in 2008," Chibani says. "Projects take so long. The flattening out may result in a better '09. It doesn't mean it will go away. The projects will get deferred to another year. But it's not a really rosy picture for next year."

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