Top managers optimistic for 2007

By Business Observer Staff
| 6:00 p.m. December 22, 2006
| 2 Free Articles Remaining!

Entrepreneurs

Jean Gruss, Mark Gordon and Rod Thomson contributed to this report.

The correction in the real estate market has the public's attention, but Gulf Coast business decision-makers do not see rocky times ahead. In fact, most of them expect strong growth in 2007 and are are planning accordingly.

Dennis Gilkey

President and CEO

The Bonita Bay Group

Bonita Springs

• Regional economy: Despite the downturn in residential real estate, Gilkey says the underpinnings of the Southwest Florida economy are sound. "We have a good job base and relatively low interest rates," he says. Gilkey also keeps close tabs on airport traffic and those have held up well. For example, passenger traffic grew 7.1% in October versus the same month ago at Southwest Florida International Airport in Fort Myers.

• Industry: Gilkey doesn't have high expectations for the residential development business in 2007. That's because many homebuyers will likely refrain from buying until they're sure the declining residential market has hit bottom. "We hope it's going to improve by the fourth quarter [of 2007]," he says. "We're very optimistic about the long-term future of the market."

• Business: The Bonita Bay Group is positioning itself for a residential real estate rebound in 2008. "As a company, we're making sure that we have new and existing projects and that we're ready to pull the trigger," he says. The company has been scouting for land opportunities as prices drop and Gilkey says he anticipates there may be land-buying opportunities in 2007 as competitors cancel contracts. "We're positioning ourselves for the upturn." The first sign of an improving market will be stabilizing sales volumes. "We'll know in the next few months," he says.

Pat Neal

President

Neal Communities

Bradenton

• Regional economy: Pat Neal turns to the national economic gurus when projecting the region's economy for next year. Citing recent reports from Federal Reserve Chairman Ben Bernanke that project continued growth in the U.S. economy, Neal says Florida should be no different.

"As Florida has had one of the nation's strongest economies for the last 20 years," Neal says, "I would think things would be strong here, too." Several other factors buoy Neal's projections, including growth in the Sunshine State's commercial real estate, construction and service industries. And the unemployment rate continues to hover near record low numbers.

• Industry: Neal's projection for the maligned homebuilding sector mirrors those of money managers coming off the tech-stock bubble: The mantra back then was things can still be good, but good is a relative term. Says Neal, in an e-mail statement: "We have had the best three years in history in 2004, 2005 and 2006. So we do not expect to do as well in sales in 2007 as we have previously, but we should not expect to."

• Business: Neal says in 2007 he and his staff will be "working hard to do all the things that one has to do during an inventory correction." That includes meeting with trade partners and vendors to find ways to cut costs, refining where and how much the firm pays for land and a general push for more efficiency.

Neal also says the Lakewood Ranch-based firm is making its houses better and less expensive, citing two home styles in the Lakewood Ranch Country Club that are selling for $331,000 and $391,000, respectively. "These are new and exciting low figures," Neal says, adding the prices are more like 2003 prices.

Jerald Wallace

President

J.L. Wallace Inc.

Fort Myers

• Regional economy: Wallace, whose company builds commercial buildings and luxury custom homes, says relatively low interest rates, high consumer confidence and a rebound in the stock market should benefit the regional economy. However, he frets that the cost of living has risen to the point that labor is difficult to recruit and retain. Wallace says he's competing for labor with areas such as Tennessee and Georgia, where housing and other costs are lower. Still, he's confident that the recent residential downturn is temporary. "Overall, I'm very optimistic," he says.

• Industry: Wallace says growth of commercial construction has been starting to move to more inland counties where land is more plentiful and less expensive. Meanwhile, prices for many building materials are stabilizing thanks to a slowdown in residential building. It's also easier to find subcontractors because those who specialized in residential construction are now seeking work from commercial builders.

• Business: Despite the slowdown in residential construction, Wallace says his biggest challenge is finding qualified superintendents for commercial projects. J.L. Wallace has a backlog of $100 million in commercial projects. He mostly recruits from the Midwest, where the economy is in recession. Wallace says projects in 2007 include shopping centers, government-subsidized housing and clubhouses for residential communities. On the residential side, those who are sitting on the sidelines waiting for prices to continue to fall may be in for a surprise. "Once people realize the market has turned it'll be two months too late," Wallace says.

Andrea Tyson

Vice President of Strategic Planning

WilsonMiller

Naples

• Regional economy: The Southwest Florida residential market is driven in large part by second-home buyers, says Tyson. WilsonMiller is an engineering and planning firm with a long resume of residential developments.

"For those [buyers] who have those kinds of assets, there's no question that the outlook for Florida is among the top three states for growth," she says. While the residential market has declined because of the disappearance of speculative buyers, commercial and public infrastructure construction will pick up the slack.

• Industry: As residential development slows, engineering firms are looking at other areas for future business. One promising area is infrastructure such as roads and wastewater treatment plants to accommodate the population growth. Another area of growth is "green" environmental design and companies are poised to spend millions of dollars on buildings that will conserve energy and other natural resources. "It is no longer a granola term," says Tyson, who also chairs the Urban Land Institute's Southwest Florida District Council.

• Business: WilsonMiller has diversified its business beyond the residential developments that have been the hallmark of its success for 50 years. "We have, from a planning standpoint, really made a concerted effort to address infrastructure opportunities," Tyson says.

In particular, Tyson says there are opportunities for business on major regional projects such as roads that slice through many jurisdictions. That's not to say the company is neglecting residential real estate. On the contrary, some clients are taking advantage of the slowdown to take land through the permitting process in order to catch the eventual rebound. "I think good business leaders look further out than one or two years," she says.

William Valenti

President and CEO

Florida Gulf Bank

Fort Myers

• Regional economy: Valenti says one good measure of a region's economy is the rate of deposit growth. This year, the bank's deposits grew by 50% and he anticipates that growth rate will slow by half in 2007. That's because many businesses tied to residential real estate will see shrinking revenues. Nonetheless, growth will be respectable in 2007.

"We're not seeing a banner year, but it's not a bad year either," he says. Some of the slack will be picked up by commercial construction and government infrastructure projects such as schools and roads. "The one big thing that scares me out there is the insurance issue," he says. The high cost of insurance or its unavailability threatens business expansion, he says.

• Industry: Shrinking margins, a slowing residential market and increased competition from out-of-state banks and new startups may spark a round of bank mergers or closures in 2007, Valenti says. "The newest banks will be most affected," he says. That's because they'll have to be more aggressive to attract deposits and make loans, putting pressure on profits.

• Business: Valenti anticipates short-term interest rates will decline in 2007, providing some interest-margin relief. Florida Gulf Bank recently opened two new branches and plans to add another branch and relocate an existing one to larger quarters. It costs about $3 million to build and open a new branch, he estimates. "We're pretty bullish," Valenti says. "We live in a special part of the world."

John Moran

President and CEO

Riverside Bank

Cape Coral

• Regional economy: Moran says he's seeing a pickup in business at companies that cater to the residential real estate market, including title companies and Realtors. "What I hear from my customers is far better news than what the experts are saying," Moran says. He expects the region's economy in 2007 to outpace this year. Moran says population growth will continue to fuel the regional economy, citing as an example Cape Coral's increase of 30,000 residents in the last six years.

• Industry: Moran doesn't expect any great wave of acquisitions or consolidation in light of tightening margins and increased competition. "We've had pressure on margins for a lot of years," Moran says. "If you're taking care of your customers, they'll keep rewarding you with more business." If anything, the rising burden of regulations may be the one reason some banks could close.

• Business: Moran plans to open at least three more Riverside Bank branches in Lee and Sarasota counties next year. "I'd love to be in Port Charlotte," he says. Moran acknowledges business won't be a "Henry VIII table" like it was in previous years, but he still expects growth to continue. He's especially bullish on businesses that cater to the region's growing population.

Ian MacKechnie

President and Founder

Amscot Financial

Tampa

• Regional economy: MacKechnie, the 2006 winner of the Review's Entrepreneur Award, doesn't spend a lot of time predicting the fate of the regional economy. He isn't trying to be cocky, and he while he acknowledges his business isn't totally recession-proof, he says it's close.

MacKechnie says the business model works no matter what the overall economy is doing because of the variety of services, locations and customers. Amscot is built to withstand both good times and bad, MacKechnie says.

Forced to make a prediction, MacKechnie says he has a "quiet confidence" the economy will show slow and steady improvement in 2007, and the residential housing market will begin to crawl out of its slump.

• Industry: The fate of the financial services industry is something MacKechnie spends more time on and is more passionate about. He recently returned from Washington D.C., where he worked with national groups promoting the industry.

The ongoing and most challenging issue is making sure every firm follows strict state disclosure guidelines. That's key, MacKechnie says, because if companies aren't meeting industry and regulatory standards, it leads to a pall for the entire industry, which MacKechnie says is still emerging. "The more we can be seen to be mainstreamed," he says, "the better we can be understood by people who are not using us."

And new for 2007, MacKechnie says national trade groups are going to hire accounting firms to make sure companies are following the rules. The ones that aren't, MacKechnie says, are going be forced out of the groups.

• Business: MacKechnie expects Amscot's staggering growth numbers to remain staggering in 2007. The company, through its 117 stores in 14 Florida counties, serves 2 million customers a year and about 300,000 customers a week. It plans on maintaining its pace of opening a store every 12 days in 2007, adding about 55 new offices, while continuing to offer the core services of cashing checks, selling money orders and offering fee-based cash advances. Says MacKechnie: "We are all about keeping our stores busy and our volume up."

Steve Raney

President and CEO

Raymond James Bank

St. Petersburg

• Regional economy: Raney is bullish on the regional economy. "We see a pretty stable business environment, stable to improving," he says. "Exit the real estate markets, we are seeing improvement."

Industry: Raymond James Bank is so confident about the Gulf Coast economy that it is planning brick-and-mortar expansions in the region before any other areas that the investment bank already has a presence.

Business: The bank is expanding rapidly due to its transfer of cash funds from Raymond James Financial investment clients. But it still needs to make good loans and benefit from stable interest rates. "Our forecast is for rates to stay relatively stable for the next 12 months," Raney says.

Lee Arnold

CEO

Colliers Arnold

Clearwater

• Regional economy: Despite his general optimism, Lee Arnold is still surprised at the one aspect of the regional economy that continues to produce stellar numbers: Jobs. Arnold has investments and board positions in several Bay-area companies and the issue of recruiting and retaining top talent, especially in technology-heavy jobs, is a constant struggle. Some companies he's involved with would be able to grow faster, he says, if they can get more qualified people.

Add that to recent promising consumer confidence reports, and looking at 2007, Arnold says, "I'm rather bullish and hopeful. I'm not pessimistic at all."

• Industry: His chief concerns for 2007 start with property insurance, says Arnold. Anyone even remotely connected with the industry will be waiting and watching to see what - if anything - Florida's legislators do with the budding crisis. An improving issue, he says, is construction costs, which have been coming down. Another trend to watch out for is the fallout from industry consolidation. This comes on the heels of the $1.8 billon deal announced last month between two of the country's biggest commercial real estate firms, CB Richard Ellis and Trammel Crow.

• Business: While Arnold is optimistic on all fronts, he is most bullish when it comes to Colliers Arnold, the 32-year-old Clearwater-based commercial real estate firm. The business continues to expand statewide and hire more personnel. On the hiring front, Arnold says the firm is "bursting at the seams" in its sales and leasing division. He also hopes to take advantage of "disruptions in the marketplace," either from consolidation or developments and projects that run into financial problems.

Still, projections are conservative compared to boom times. Arnold is projecting 10% growth in sales and leasing, 20% growth in property management and 20% growth in the appraisal unit. "We are not budgeting for an off year," he says. "But we are also not budgeting for a 2005 year."

Andrew Greenwell

CEO

Corporate Realty Group

Sarasota

• Regional economy: Andrew Greenwell, co-founder and CEO of commercial real estate firm CRG, predicts the regional economy, specifically the residential housing market, will make a slow comeback in 2007. Appreciation in home values should be in the 5% to 8% range by late 2007, he says. Other parts of the economy, such as tourism, also have growth potential.

But there's a "but" to Greenwell's rosy economic projections. He worries that in 2007, the lack of viable land to build commercial and industrial projects could stunt a robust economy. What's more, the looming possibility of impact fee hikes is another hurdle. In Sarasota County, for example, there's a proposal to nearly triple fees, a potential mistake, says Greenwell. "Working against business has a chain effect," he says. "If area businesses continue to be pressured and pushed beyond reason, then they will simply relocate."

• Industry: Greenwell says the brokers and developers who put forth a strong showing in 2007 will do it via the old axiom of location trumps everything. "People who try to put together projects without a perfect location will be hurting," he says.

Beyond that, Greenwell joins a chorus of other brokers in saying next year will be better than 2006, but not necessarily a return to the glory days of 2005. Deals will be more scrutinized. While the past 12 months were scary at times, Greenwell says, next year will fall short of scary, settling in at merely difficult.

• Business: Greenwell will be utilizing the location mantra to continue to grow the commercial brokerage business he founded with his aunt, Debra Mack Schrock, when he was 21 years old in 2004. With projects in growing North Port and in the Venice area, he hopes to double the value of projects in 2007, from $25 million to $50 million. The firm also has high hopes for its mortgage business, a new unit it started midway through 2006.

Gary Trippe

CEO

Oswald

Trippe & Co.

Fort Myers

• Regional economy: Trippe is concerned that the slowdown in residential real estate might spread to commercial real estate. "What we've heard is that the public sector will be OK, but the private sector will be challenged," he says. Real estate is the engine that drives the Southwest Florida economy, so any downturn worries him. What's more, unemployment rates that hover around 3% and expensive housing are two factors that are putting a lid on growth.

• Industry: Insurance brokers such as Oswald Trippe will be watching closely what legislators decide to do about property insurance in January. "When you look for the government to solve your problem, you've got to be careful what you ask for," Trippe says. "If people are looking for an immediate fix, it's not going to be there."

• Business: Despite the woes in the property insurance market, the outlook for other types of insurance is good. That includes auto, workers' compensation and general commercial liability. "Our plan is to grow by 15%," Trippe says. Trippe plans to open two new offices next year, including one in Port Charlotte and another in Bonita Springs. One of the biggest challenges has been to find employees. Oswald Trippe recently opened a processing center in LaBelle in Hendry County, just east of Fort Myers, where housing is more affordable. "We're very optimistic," he says.

J. Hyatt Brown

Chairman and CEO

Brown & Brown Inc.

Tampa

• Regional economy: Florida is always going to be a growth state, says J. Hyatt Brown, who has run some form of the insurance company for 45 years, in addition to serving as a Florida state representative for eight years, including one term as House Speaker from 1978 to 1980. The weather and tourism will always be a draw.

The housing market is admittedly going through a down period, Brown says, but it won't last forever, or more specifically, much past the next few years, he says. "That's the history of Florida real estate," says Brown. "It ebbs and flows like the tide."

• Industry: While Brown is closely following the statewide industry's number one concern in Florida, the budding property insurance crisis, he realizes there is one thing out of anyone's control, no matter what committee they sit on, or political office they hold. That's Mother Nature. "If we continue to have two or three hurricanes a year," he says, "that's going to be a substantial crisis."

Outside of Florida and certain parts of earthquake-prone California, Brown says there is much more calm in the industry. The industry is going through a soft underwriting period, says Brown, which is a part of a cycle where companies charge less for most insurance products.

• Business: Brown's top goal for the insurance firm, which runs a co-headquarters in Daytona Beach and has 4,700 employees spread over 35 states, is to generate earnings per share growth of at least 15%; it's a benchmark the company has reached the past 14 years, Brown says, and he doesn't expect next year to be different.

The biggest challenge to that growth, says Brown, revolves around hiring, recruiting and training the right people in a variety of positions. Training is an especially key component, Brown says, as the industry becomes more technical.

Ken Pendery Jr.

President and CEO

First Watch Restaurants

Bradenton

• Regional economy: Pendery is looking forward to a solid economy in Florida and the Gulf Coast region next year. First Watch, the breakfast-lunch restaurant chain, is counting on it, too, as about half of the company's growth and expansion plans revolve around the Sunshine State. "If we felt the economy was not doing well here," Pendery says, "we wouldn't be putting so much emphasis on growing here."

• Industry: A big issue facing all restaurants is minimum wage increases, Pendery says. It's an issue because when restaurants with already thin profit margins are paying workers more, those expenses are passed on to customers. "You can't change the business model," Pendery says, "so it's passed on in menu prices."

Minimum wage hikes are trendy nationwide. In Florida, for example, the minimum wage will rise 27 cents in 2007, from $6.40 an hour to $6.67 an hour. The lower minimum wage for servers, who make money from tips, will rise as well. What's more, there are minimum wage increases forthcoming in states, such as Ohio, where First Watch and some competitors, including Bradenton-based Peach's, operate restaurants. And finally, Nancy Pelosi, the incoming U.S. Speaker of the House, has said a nationwide minimum wage increase would be a priority for Congress next year.

• Business: The store expansion plan First Watch started in 2004 will continue in 2007, says Pendery. The chain opened 14 new restaurants in 2006, including ones in new markets, such as the Washington D.C. area, Cleveland and Florida's east coast. He hopes to open another 15 or so stores in 2007, with finding the right location remaining the biggest obstacle to opening a successful store. "We know the markets we want to be in," Pendery says, "but finding the right spot is the toughest challenge."

Tricia Fulton

CFO

Sun Hydraulics

Sarasota

• Regional economy: As a manufacturer of screw-in valves and manifolds that sells and ships to clients worldwide, Sun Hydraulics executives don't normally focus on the regional or even the Sunshine State economy. In fact, no single customer represents more than 7% of total company business.

Still, CFO Trish Fulton says the housing market is a concern, as most of the company's 100-plus employees in its Sarasota headquarters live in the metro area, one of the hot spots in the inflated housing values conversation. Fulton says on an individual basis, the high cost of housing as impacted Sun Hydraulics when trying to recruit employees from out of state.

• Industry: The large valve-manufacturing segment of the industry is heading into a down cycle in 2007, Fulton predicts. Many companies in the sector, including Sun Hydraulics, saw double-digit growth in 2005 and 2006. That will be flat next year industry-wide, she says, as demand slows.

One of the leading indicators of the cycle, Fulton says, is the Purchasing Managers Index (PMI), a composite index based on a variety of factors, such as inventory levels, deliveries and production. When it dipped below 50 recently for the first time since April 2003, Fulton says it was confirmation on the slow-down theory. As a general rule, when the PMI index is more than 50, it indicates a manufacturing expansion, while a below 50 reading usually foreshadows a contraction.

• Business: While revenues might slow from the past two years, Fulton says Sun is still poised to have a good year in other areas. Official 2007 company earnings projections will not be released until March, when fourth quarter 2006 earnings are released.

The company - which already produces parts for a variety of machines, from King Kong's hydraulically lifted arm at Universal Studios in Orlando to Ferris wheels in Shanghai, China - will continue to look to add new products to diversify it's offerings. What's more, Fulton says the company will continue refining its Web site, one of the more established ones in the industry.

Steven Jones

Chairman

T3 Communications

Fort Myers

• Regional economy: Jones says the region's population growth has outstripped the infrastructure, which presents opportunities for companies such as T3 that provide telecommunications services to growing businesses. "The only real drag in the area is that home prices are still expensive," Jones says. That's been a challenge when the company has to help recruit and relocate employees to Southwest Florida.

• Industry: Telecommunications services have not kept up with population growth, so it's easy for companies such as T3 to pick up new business. "We're very bullish for 2007," he says. The telecommunications industry collapse in 2001 and 2002 spelled opportunity for startups such as T3 because equipment was available for pennies on the dollar. With lower costs, these startups can now undercut larger competitors with lower prices.

• Business: Jones expects another year of 100% growth in new business customers, especially professional services such as banks, law firms and accounting practices. "We're approaching 1,000 customers," he says. Data transmission is a strong area for growth. "The Internet is a way of life for everybody," Jones says.

Joy Gendusa

Owner

PostcardMania Inc.

Clearwater

• Regional economy: Joy Gendusa, founder and owner of direct mail marketing firm PostcardMania Inc., projects that the housing market could still be in for rough times in 2007. Part of the projection is anecdotal, as several PostcardMania customers work in the businesses surrounding real estate, such as mortgage brokers and people in the foreclosure industry.

• Industry: For both PostcardMania and other firms in the industry, the 2007 challenge is an oldie but a goodie: Finding a niche in the marketplace. Gendusa says marketing can come at people from all sides - snail mail, e-mail spam, billboards, etc. The businesses that can find what's right for each client are poised for greater success. "Direct mail is not going away," Gendusa says, marking PostcardMania's place in the field.

• Business: In 2007, Gendusa expects PostcardMania's phenomenal growth rate -revenues grew 290% from 2002 to 2005, culminating with a spot on the Inc. 500- to slow down somewhat. But the company she founded in 1997 is still growing, so Gendusa's biggest challenge has been finding space to facilitate the growth.

After spending most of the past year looking for a suitable space to build a warehouse and manufacturing facility, ultimately settling on a former auto parts store near the company's current Clearwater location, Gendusa expects 2007 to be a year of transition. Construction on the $5 million building could begin by spring, and it's expected to be ready by 2008.

Gendusa expects more revenue growth, too. The sales staff will focus on reeling in more corporate accounts, as opposed to entrepreneurs and small businesses. Gendusa projects 2007 revenues of $18 to $20 million, about a 25% increase from 2006 revenues of $15 million.