Economy Faces Challenges Ahead

Pasadena Star News

By: Cynthia Kurtz

Published: 12/31/2014 

Time to wave good-by to 2014 and start planning for 2015. Reliable crystal balls are hard to come by these days. But even so there are some indications of what to expect in the New Year.

Let’s start with the stock market. While it isn’t the most important indicator of the economy’s direction, higher stock prices can indicate strong earnings estimates for companies. Strong corporate profits correlate with a rise in GDP and job growth. 2014 is ending with a record high stock market and predictions that the trend will continue.

Consumer confidence - the 800 lb. gorilla in the economy - is up. When consumers are concerned about spending money there is a chain reaction that reverberates throughout the economy. Retail sales slump, manufacturing activity slows, hiring stops, and the unemployment rate increases. 

Lower gasoline prices are leaving extra cash in consumers’ pockets and they seem willing and ready to spend it. Predictions are that gas prices may go even lower before stabilizing. Many workers are expecting wage increases in 2015 so confidence and spending should continue.

Unfortunately drought conditions are also expected to continue. Even with a few early winter storms, the levels of the state’s reservoirs and groundwater tables remain alarmingly low. A wet winter might prevent a crisis but water is going to remain scarce and the cost for it will go up. Making capital investments and operating changes now to conserve water will pay off for businesses and consumers in the long run. 

Closely related to water costs are energy costs. With less water, in-state hydro power generation slowed to a trickle this summer. Electric utilities had to purchase power from sources further away and bring it long distances to meet consumer demands. That costs money.

The 2014 summer fires and the closing of the San Onofre Nuclear Generating Station (SONGS) increased transmission costs. Power rate increases lag behind commodity cost increases so residents and businesses alike should expect higher rates in 2015.

Economists are predicting the price of housing will also rise in 2015 but that 30-year mortgage rates will remain low. The housing market has not been able to stabilize as it climbs slowly out of the 2008 crash. 

The wild card for the recovery of the housing market is the Millennials. The U.S. Census reported that 23 year-olds are now the largest population group followed by 24 year-olds and in third place 22 year-olds. The Census Bureau also says that rather than becoming smaller, as one might assume, immigrants tend to be younger so the size of U.S. age groups increase until about the age of 40. That means there will be even more young adults in their mid-20’s in the next few years.

When the majority of Millennials begin to set up their own households, demand for housing will increase dramatically.  With increased demand, developers will step up production.  Manufacturing of furnishings, appliances and other household goods will also increase.  2015 just might be the year that this trend begins.

Overall the U.S. economic recovery will continue with bumps in the road when international incidents send financial shocks through global markets.  But at home we can expect relative economic calm.  The SGV will continue to benefit from this recovery. 

Regardless of how well the economy does, my wish for 2015 is health and happiness for you.

SGV attracts chinese investment

Pasadena Star News

By: Cynthia Kurtz

Posted: 12/24/2014 

It is no secret that Chinese visitors, immigrants and investors are attracted to the San Gabriel Valley.  The number of Chinese businesses is growing and more and more signs are in Chinese. Not to mention we have some of the best Chinese restaurants in the country.  But what is attracting this investment to the SGV?

An estimated 498 million Chinese live outside of China. Thailand is the number one destination with 9.4 Chinese residents.  Malaysia is number two with 6.9 million followed by the United States with 3.8 million Chinese immigrants.

Within the U.S., the largest concentration is in the New York City Metropolitan Area where 3/4 million Chinese reside.  Next is the San Jose/San Francisco/Oakland area with around 630,000 followed by the Greater Los Angeles region with 567,000 Chinese residents.  Within the LA region the SGV is ground zero, claiming two-thirds of LA’s Chinese population and growing.

History tells us that the Chinese people have a history of traveling throughout the world.  They traveled to foreign lands for trade in silk and porcelain.  They emigrated for work and adventure.

China does not make it difficult to get a passport and their citizens take advantage of opportunities to see the world.  In 2013, more that 100 million Chinese traveled outside of the country.  And some of those travelers found lands that tempted them to stay.

Adventure aside, there are a number of very practical reasons why the Chinese are moving to new countries.  They seek a better quality of life starting with clean air and safe food.  Beijing and other cities are notorious for bad air days when locals must don masks before heading outside.  Consumers dying from tainted food are not an unusual occurrence. People of means – and there are a lot of them in China – want to protect their family’s health. 

According to the Swiss bank, UBS, there are 190 billionaires in mainland China and an additional 82 in Hong Kong.  Add to that a combined 2.6 million millionaires in the two economies (according to BGC Global Wealth Market-Sizing Database) and that’s a lot of people who can afford to care about having clean air and safe food.

With that much money in play, the Chinese are also looking for safe investments.  Safe doesn’t always mean that you know there will be a big pay-back.  It also can mean that laws apply to everyone, contracts are enforceable, and business isn’t done with one hand under the table.  When there is big money involved, investors want assurances that there is a level playing field.

Education has always been a top priority for Chinese families and many move to find good schools. The U.S. EB5 program - an economic stimulus program that provides green cards for investors’ families in return for creating American jobs - has offered investors direct access to American schools. Chinese investors are by far the biggest users of the program. 

Foreign investment has played a positive role in the SGV’s economic recovery.  Economists predict the investments will continue but they should not be taken for granted.  Others countries and states are watching and would enjoying nothing more than enticing this money to their locales.  We need to help these investors succeed here.

The SGV's industrial market is hot

Pasadena Star News

By: Cynthia Kurtz

Posted: 12/17/2014 

The industrial market in the San Gabriel Valley is hot. According to a special Real Estate Report written by Karen Klein for the Los Angeles Business Journal in April, in the first quarter of 2014 the SGV “outperformed every other regional market in Southern California” for industrial properties. And since then it has only gotten better.

There were 131 million square feet of industrial space available and an additional 628,000 square feet under construction in the first quarter of 2014. Buyers were looking for older small and midsize buildings - ranging from 10,000 square feet to 200,000 square feet - primarily for import-export distribution warehouses. 

The Kyser Center for Economic Research at the Los Angeles Economic Development Corporation reported that container traffic at the Los Angeles and Long Beach Ports increased 3.0 percent last year and gained an additional 4.8 percent by the end of October 2014. That means more importing and exporting and more demand for these facilities.

The growth in activity at the Ports is also increasing transportation and warehousing employment. A reported 2,200 jobs had been added in Los Angeles County year to year as of October 31, 2014.  The San Gabriel Valley is a big winner as the SGV has a high concentration of jobs related to international trade - 6.7 percent of jobs in the SGV compared to 5.3 percent in Los Angeles County.

The San Gabriel Valley’s available inventory for industrial facilities opened up last year after the California Legislature eliminated redevelopment forcing cities to sell properties that redevelopment agencies had owned.

By March 2014, the SGV vacancy rate for industrial properties in the SGV had dropped to 3.5 percent, far below the almost 7 percent from two years ago and a full percentage point below Los Angeles County’s average rate of 4.5 percent.

According to the Colliers International Report, in the first quarter of 2014, 1,220,000 of industrial space in the SGV traded hands. In the second quarter the number increased to 2,185,700 sq. feet. Lease prices steadily grew as inventory became tighter. SGV rents averaged $0.46 per sq. foot in the first quarter and moved to $0.49 per sq. foot and $0.54 per sq. foot in the second and third quarters.

Activity in the industrial sector was also influenced positively by an easing of lending standards for commercial and industrial loans according to the Federal Reserve’s October 2014 Senior Loan Officer Survey on Lending Practices.

The fourth quarter looks like it will continue this strong growth. The Real Estate Rama - a newsletter on government and real estate - reported that four SGV industrial properties totaling over 49,000 sq. feet with a total value of $4.8 million were sold or leased in November. Two of the properties were in Irwindale and two in Azusa. Two of the properties will be used for machine shop operations, a third for warehousing, and the fourth, which had previously been vacant, will become an asphalt/striping facility. If the trend continues, it will mark the 17th consecutive quarter of positive net absorption for SGV industrial properties.

This is quite a turnaround from 2008 when industrial facility projects were stopping in mid-construction as demand drop dramatically. The new numbers are a great indicator for positive job growth in 2015. 

Bidding farewell to Supervisor Molina

Pasadena Star News

By: Cynthia Kurtz

Posted: 12/03/2014 

If you are not a political junkie, you might not have paid much attention to the transition of leadership that occurred on December 1 when Hilda Solis became the Los Angeles County Supervisor representing the First District which includes a large portion of the San Gabriel Valley. She is replacing Supervisor Gloria Molina who has represented our region for 23 years. 

Being a County Supervisor is hard work. The County provides much of the police and fire serves in the SGV. It oversees storm and waste water management, county street and transportation services, disaster preparedness and response, and even manages airports like the San Gabriel Valley Airport in El Monte.

The County also provides a wide array of services that improve our quality of life including museums, parks, recreation centers, libraries, and health services.

The recent elections of Hilda Solis in the First District and Sheila Kuehl in the Third District mark first changes on the Board of Supervisors based on the passage of Measure B in 2002 that limited Supervisors to three 4-year terms. Prior transitions only occurred when a Supervisor retired so the make-up of the Board changed very slowly. 

After 23 years as a SGV Supervisor it is appropriate to take a moment to recognize Supervisor Molina. She began her career in public service 40 years ago as a deputy for State Assemblyman Art Torres and Assembly Speaker Willie Brown. She served in the Carter White House in the Office of Presidential Personnel which oversees Presidential appointments.

Her first elected office was representing the 56th District in the State Assembly. Her opponent was better financed but Supervisor Molina demonstrated her inherent tenacity becoming the first Latina elected to the State Assembly. 

As a legislator she won numerous awards including Woman of the Year from the Mexican American Opportunity Foundation and appeared on the cover of Ms. Magazine. She fought against discrimination and sponsored legislation to protect tuition-free community colleges.

In 1987 she won a seat on the Los Angeles City Council and in 1991 became the first woman elected to the Los Angeles County Board of Supervisors. She has championed fiscal responsibility by eliminating pension spiking - which saved the County nearly $100 million - and resisted the use of one-time revenues for on-going programs. 

Her insistence on open and equitable government resulted in strengthening the county’s conflict of interest rules, opening competitive processes for all county contracts, and adopting tougher scrutiny of the county’s litigation costs.

And she fought tirelessly for the San Gabriel Valley to get its fair share of transportation funding. Her clear-thinking and committed political leadership will be missed.

Thank you Supervisor Molina. We are grateful for your years of service. Welcome Supervisor Solis. We look forward to working with you.