Top 20 business events, from housing slowdown to hostile bid for Ventana Medical Center
Top 20 business events, from housing slowdown to hostile bid for Ventana Medical Center
Inside Tucson Business
(Edited on Dec. 30, 2007 to correct errors.)
So what will the region remember, business-wise, from 2007? That’s the charge Inside Tucson Business has set out to try to quantify each of the last three years.
These aren’t necessarily the biggest news stories of the year. Instead, we’re more interested in trying to figure out what events of the year will have the longest impact, either positively or negatively.
So here’s what a vote by our staff and contributors believes we’ll be remembering from 2007:
1. Slowdown in the housing market
“Anticipated for more than a year, the housing market downturn finally arrived during the spring, sending sales plummeting to a four-year low, as active listings soared to record highs.”
That was what Inside Tucson Business reported exactly a year ago in the run down of the most impactful events of 2006. It was the No. 3 story of the year. Little did we know.
This year in the Tucson region, building permits and existing home sales have fallen to their lowest levels in 10 years and still declining.
In fact, we’re probably in a full-blown recession, says University of Arizona economist Marshall Vest. But, he points out, economists don’t forecast those kinds of things; they can only see them in after-the-fact data. When that information comes in, Vest says his hunch is that a recession started in August.
Now, the questions now are: When do we hit bottom? And how long will we stay there?
The guesses at the answers to the questions are vague. The optimists among us could hope that we’re at the bottom now and from now on, we’ll be on an upward trend. That may be a little too optimistic.
For his part Vest is suggesting the recession could be relatively short and mild, especially here in Southern Arizona where population growth will continue to play a role in growing the economy. In his annual forecast earlier this month, Vest said things could be back on the upswing by the end of 2008.
What may be the region’s biggest hindrance to pulling out of the housing slowdown is that people who want to come here will have trouble selling their homes elsewhere, which will delay their arrival.
2. Collapse of First Magnus Financial Corp.
There was the shock of waking up the morning of Aug. 16 to the Arizona Daily Star’s front-page headline reading that Tucson-based First Magnus Financial Corp. was suspending all loans. But once that wore off, it appears the long-term negative impact on the region may not be so great. One of our staffers felt this should be combined with the housing slowdown but others disagreed, including one who felt there were other events that will be shown to have had more economic impact. The general consensus was that despite the connection to the housing market, the collapse of First Magnus was an independent issue.
One of the nation’s largest privately-owned mortgage companies, First Magnus depended solely on originating and then selling mortgage loans on the secondary market. It faltered when secondary market buyers stopped buying. As a result, the company that said it originated $30 million in loans in 2006, suddenly shut down. Its 5,000 employees in all 50 states were sent home.
On Aug. 21, First Magnus filed for Chapter 11 bankruptcy protection and is now in the process of winding down operations, with the intent to liquidate.
Attorneys for First Magnus have not found a sympathetic ear in bankruptcy where U.S. District Court Judge James Marlar has often been critical of some of their plans. A lawyer who said he didn’t want to question First Magnus’ expertise, was told by Marlar, “They put the company into bankruptcy, you’re supposed to second-guess them.” On another occasion when lawyers asked the judge to pay out-of-work employees, Marlar said “This is the kind of debtor I am dealing with. If it was really so important to them to have money for their employees, why didn’t they pay them before filing for bankruptcy and petitioning me to pay them when they knew I couldn’t?”
First Magnus is due back in court Jan. 10 to try to close things out.
The biggest immediate impact affected the people who lost their jobs but with unemployment rates b low 4 percent, many did find new ways to earn a paycheck, even if it is smaller than what they had been earning.
The longer term affect may be the amount of vacant office space that was thrown on to the market. Office vacancy rates in the region are running at about 13 percent, more than twice the vacancy rates for other commercial properties. First Magnus former headquarters, 603 N. Wilmot Road, is vacant.
3. State passes Employer
Arizona is finding itself on the front line of the illegal immigration battle in more ways than one. Not only is this a border state but the Legislature brought us what is considered to be the toughest law in the nation when it comes to hiring illegal immigrants.
The Employer Sanctions Law says that a business found to be have knowingly hired an illegal immigrant can have its business license suspended for up to 10 days. If it happens a second time, the business will lose its license permanently.
Business organizations joined together to try to fight the new law but were unsuccessful in getting a court to stop it.
Among arguments against the new law:
-Immigration is a federal issue, not a state issue.
-The whistle-blower aspect requires county attorneys to investigate claims which could be maliciously filed, even by business competitors.
-Businesses may use the law to discriminate when hiring employees.
The law officially takes effect Tuesday (Jan. 1). All employers are required to sign-up and use the federal government’s E-Verify database to confirm an employee’s status.
The most likely next step could occur if a business is able to prove it has been financially harmed trying to abide by the law and files a lawsuit challenging it. Otherwise, the state Legislature could be pressured into addressing what Gov. Janet Napolitano has admitted are some flaws in the law when it convenes starting Jan. 14.
4. Hospitals and their plans
If there were any doubt this region is growing, plans underway at three of the four major operators of acute-care hospitals show the state of care is bring more options and more specialized care.
The biggest announcements in 2007 were:
-Carondelet Health Network’s St. Joseph’s Hospital unveiled development of a state-of-the-art neurology center – only the second of its kind in the world, after one in Singapore. The hospital is also building a multi-story women’s healthcare building. And plans are still in the works to develop a new hospital in Sahuarita and replace Holy Cross Hospital in Nogales.
-University Medical Center, with a gift of $15 million from developer Don Diamond and his wife Joan, announced it will build the Diamond Children’s Medical Center. This will be the first children’s medical center in the state tied to a research center, the University of Arizona’s Steele Children’s Research Center.
-Northwest Medical Centers, the only local hospital group’s operated as part of a for-profit corporation, was bought out by Community Health Systems, but that it didn’t affect its decision to buy property at hospital in Marana to go along with its original Northwest Hospital and two-year-old Oro Valley hospital.
-Tucson Medical Center was the only one of the four major operators not announcing plans for growth and instead focused on its financial challenges. The hospital publicly admitted it was putting off previously announced plans to start work this year on Rincon Valley Hospital on the southeast side. And, after shutting down El Dorado Hospital in 2006, it is reorganizing it into a long-term and specialized care facility.
5. Plans come together
for Bioscience Park
What C-Path and the University of Arizona’s Bio 5 institutes have done in the past two years is put Tucson in a leadership position when it comes to biosciences and the development of future technologies.
The idea for the Arizona Bioscience Research Park, at Kino Parkway and 36th Street, will only further enhance the incubation of companies to keep moving the ball forward.
In August, a land swap was completed to make the bioscience park a reality. The UA gave KB Home 124 acres at its Science and Technology Park, 9040 S. Rita Road in exchange for up to 65 acres at the closer-in location off Kino Parkway.
The bioscience park will be part of a 356-acre mixed-use development called The Bridges that will have a state-of-the-art research center along with homes and a regional shopping center that will include a big box store after the City Council approved waivers of its anti-big box ordinance to allow it.
Planning is due to get underway in 2008 for a 125,000-square-foot building with dry labs and office space as part of the first phase of the UA bioscience park. The next step will will be trying to figure out how to come up with the estimated $30 million to pay for it, which could be problematic if it’s part of Pima County’s proposed $1 billion November bond election. (See item No. 10.)
6. Hotels are hot properties
No matter where you turn, hotel properties were booming this year.
Under the category of new construction, Ritz-Carlton broke ground in October at Dove Mountain in Marana for what is described as its most all-encompassing resort anywhere in the United States. Meanwhile, the City of Tucson began working on what will be a 700-room Sheraton Hotel downtown.
The two-year old JW Marriott Resort and Spa in the Tucson Mountains is up for sale for a price the owners expect will be north of $200 million.
And, this month, the Westin La Paloma Resort and Spa, along with a Westin resort in Hilton Head, S.C., were sold to the Tucson-based NCH Corp.-Transwest Corp., for what they announced was $310 million.
Also, more properties catering to business travelers came online, including an Embassy Suites in the Catalina Foothills, and a revamped Best Western Las Brisas Hotel and a new Residence Inn, both at Tucson International Airport.
7. Strike two for baseball
After 39 consecutive years of minor league baseball, Tucson will lose its team after the summer of 2008 as a result of the sale of the Pacific Coast League Tucson Sidewinders to a group that is moving the team to Reno, Nev.
And 2008 could well be the final year Major League Baseball’s Chicago White Sox hold Spring Training in Tucson, after their 2006 announcement they intend to move to Glendale, as early as 2009 and no later than 2014. The one catch is that the White Sox’ contract with Pima County requires them to find a replacement team to get out of their lease at Tucson Electric Park any earlier than its 2013 expiration.
Nevertheless, it’s clear baseball is on its way out of Tucson. The Colorado Rockies have had some talks about moving from Hi Corbett Field and once that happens, there can be little doubt the Arizona Diamondbacks will quickly follow them.
According to the Metropolitan Tucson Convention and Visitors Bureau, Spring Training brings in $30 million to the local economy each March. The same kind of figures aren’t kept for what the Sidewinders bring in, but former owner Jay Zucker said it took $3 million a year to operate the team and that’s money that won’t be spent in the community after the team is gone.
While there is little doubt that AAA baseball will be gone after the summer of 2008, there is still the chance that Spring Training could survive if the White Sox are able to find a replacement team.
8. Freeway, from one to none
As of June, Interstate 10 was taken out of commission as an access point for downtown Tucson and neighboring environs. It will stay that way for at least another two years as the road is widened.
Whether it’s the inconvenience or the ongoing publicity about the construction project, businesses in the area say they’ve lost customers. Public relations agencies hired by the Arizona Department of Transportation (ADOT) insist most businesses aren’t suffering that much, but then they’re only counting businesses that actually have property touching the frontage road.
For all the current suffering with construction, there remains a need to handle even more traffic on I-10, but rather than consider any more widening of the existing roadway, ADOT is looking at four possible alternative routes that would bypass downtown Tucson.
But that’s another subject.
9. Target’s bulls-eye: Tucson
When it comes to economic development, the region landed two solid hits in 2007: Target selected a site on the southeast side to build a 975,000 square-foot fulfillment center for its online business and, just this month, Stanley Inc. announced it will open a passport production facility in the old Gateway Ice facility on the east side.
A ground-breaking ceremony is set for Jan. 10 for the Target construction, which will be a neighbor to both the University of Arizona Science and Technology Park, 9040 S. Rita Road, and La Costeña Foods cannery, 8755 S. Rita Road. Operations are scheduled to begin in Spring 2009. While exact employment information was not released, company officials expect they will hire up 500 employees with an additional 400 during peak times of the year.
The Tucson Target fulfillment center will be its second, after one in Woodbury, Minn. The new operation will help the company reduce the amount of work it is contracting out to third-party vendors.
Stanley Inc., a provider of systems integration and professional services for the United States government, is fast-tracking its renovation of 52,000 square-feet of the 80,000 square-foot former Gateway Ice Center with an eye to having it in operation producing passports by mid-April, under a contract it has with the Department of State.
The company says it intends to hire between 150 and 200 employees by the summer. As with Target, this will be Stanley’s second passport production facility, after one it has operating in Hot Springs, Ark.
10. Revolting property taxes
This is a simmering issue that could boil over during 2008. In fact, the perfect conditions may be setting themselves up to do just that. Assessed valuations that will be used for tax payments due in October were based on property values in 2005, a year real estate prices went through the roof. Since then, there’s been a housing downturn – a recession (see item No. 1) – and many properties have lost value.
In the meantime, there are efforts afoot to place measures on November’s ballot that would restrict government’s ability to raise taxes, including one that mimics California’s 1978 Proposition 13 that required taxes be rolled back to lower rates.
Tax bills go out in September and the first half payments are due in October. It won’t be enough for taxing entities to proclaim they haven’t raised their tax rate if it still means taxpayers will pay more due to rising valuations at a time of recession. Governments will be forced to find ways to lower property tax bills.
And there’s more. Pima County officials continue to contemplate asking for voters to approve $1 billion worth of bonds in the November election. Also, as of 2008 school districts seeking voter approval of budget overrides and bonds are now required to do it at general elections in November. That means at least one school district that has overrides due for renewal is likely to go before voters in November.
In the midst of a recession, higher property taxes, and requests for even more money may combine to make the perfect storm for a taxpayer revolt.
11. Voters reject
bad water plan
Spending $800,000 to fight a Tucson ballot proposition is like hitting a gnat with a sledge hammer. But voters did as requested and rejected Proposition 200 that would have instituted restrictions on how Tucson Water could distribute water into the future. It also would have done away with a $14 per-month garbage collection fee in the city.
Still, political gadfly John Kromko can take some satisfaction in getting the issue noticed. Earlier this month, Tucson City Manager Mike Hein said the city’s water utility would stop expanding its delivery system outside the city limits to areas it was not already obligated to serve. He said the moratorium would be in effect until the city develops a comprehensive plan for water use.
Tucson Water provides about 74 percent of the water in the region and about 34 percent of it goes to customers outside the city limits to areas in unincorporated Pima County, Oro Valley and Marana.
12. Now, you can get there
People who have whined about the lack of airline service from Tucson International Airport had a whole lot less to complain about after an unprecedented number of new non-stop flights were introduced this year. It’s now possible to fly nonstop to 10 cities – Austin, El Paso, Kansas City, Oakland, Omaha, Ontario, Reno, Sacramento, San Antonio and Spokane – where service didn’t exist a year ago.
Additionally, there are now more choices to other cities – three airlines flying 13 times a day to Los Angeles, Sun Country arrived this month to provide a seasonal second option to Minneapolis-St. Paul and seasonal nonstop flights to Washington, D.C., resume Feb. 14.
All totaled, there are now 89 daily airline departures from Tucson International to 29 destinations.
The increased service has come with reasonable airfares, comparable to what’s available out of Phoenix Sky Harbor Airport, without the two-hour drive.
13. Copper in them thar’ hills
Augusta Resource Corp. submitted its plan to the U.S. Forest Service to open up the Rosemont Copper Mine in the Santa Rita Mountains and it has been met with opposition.
Pima County’s Board of Supervisors and other county officials, both of Southern Arizona’s representatives in Congress and all three representatives from the state legislative district where the mine is located have come out in opposition of the mine.
Undeterred, Augusta Resource Corp. continues to pursue its plan saying it will be a new kind of open-pit copper mine, mostly hidden from view behind a berm. The company is also promising to replace 5 percent more water than it intends to use in its mining operations. Also, Augusta and Community Water of Green Valley have agreed to a plan by which the mining company will pay to build a nine-mile pipeline extension to bring Central Arizona Project water to the Green Valley area for recharge.
As for the economy, Augusta says it will provide 400 to 800 jobs and pay $1.8 billion in taxes over the life of the mine. It also says it would supply about 5 percent of the U.S. demand for copper over the next 20 years.
As things now stand, the U.S. Forest Service has yet to agree to conduct an environmental survey, which would be the next step. In the meantime, U.S. Reps. Gabrielle Giffords and Raúl Grijalva are pushing legislation to try to remove the adjacent public land from mining activity while county officials try to block the water pipeline.
Augusta bought the 2,670-acre Rosemont Ranch for $20.8 million in 2006 from Tucson developers Triangle Ventures, who had bought the property a year earlier from Asarco for $4.8 million. Triangle’s Yoram Levy had offered to sell the land instead to Pima County for $11.5 million but was turned down because the price was too high.
Mining efforts in the area date back to at least 1850. There are several abandoned mines and a slag heap on the property.
14. Arizona establishes
Arizona got a minimum wage in 2007, starting at $6.75 per hour. Based on annual inflation it can be changed each year. In 2008, it goes to $6.90 per hour.
As a share of the state’s economy, the impact of the minimum wage has been negligible, probably for a variety of reasons:
-Teen-agers are among the most affected and they aren’t counted in unemployment numbers. But they are now finding it more difficult to find jobs because employers are eliminating positions they might have filled with teen-agers.
-Unemployment remains extremely low in Arizona, which can allow people to more readily accept product price increases.
-The Federal Government raised its minimum wage, although at $5.85 per hour, it is less than Arizona’s wage.
Businesses that paid the miniumum wage either increased costs or cut in other areas.
15. JTED becomes reality
High school students throughout Pima County can look forward to state-of-the-art career and technical education courses now that the Joint Technological Education District became a reality as of July 1. Voters in all 15 school districts in Pima County approved of the JTED, and its property tax, in November 2006.
This year, Alan Storm, formerly of the Sunnyside Unified School District, was named superintendent of the district.
Having a well-trained, educated workforce is crucial to economic development. JTED’s program are integral to that effort. Classes take place on school campuses throughout the region.
In November 2008, voters will be asked once again to vote on a JTED issue, this time to elect members to its board of directors.
16. Pro Fore!-ma
Tucson may have been the oldest continuing stop of the PGA golf tour but from 1999 to 2006, it took a backseat to another, much bigger golfing event. In 2007 that other event – World Golf Championships – Accenture Match Play Championship – decided to bring the world’s top 64 pro golfers to Marana’s Dove Mountain, where it will stay for at least the next three years.
For spectators, match play presents a bigger challenge than the more popular medal play – you can’t predict what hole players will finish up on. But with an $8 million purse at stake, it’s not difficult to find a player worth watching. Southern Arizonans turned out in droves last year. The accompanying TV coverage on both the Golf Channel and NBC is worth multiple millions of dollars in publicity.
The 2008 championship will be Feb. 20 – 24 at the Gallery Golf Club.
17. No smoking
On May 1, Arizona became one of 14 states where smoking in almost any public building is outlawed. The new law was approved by nearly 55 percent of voters in November 2006. The new law was implemented with relatively little negative impact despite some bar owners who were concerned that it might hurt their businesses.
For the upcoming session of the Legislature, Rep. David Schapira, D-Tempe, has filed a bill to make it illegal to smoke in a car in which anyone 17 or younger is a passenger. The fine would $50 for each child in the car. California has a similar law that goes into effect Tuesday (Jan. 1).
18. How much for
Luxury homes got a big boost in late October when Michael Henry bought a Ventana Canyon area home for $8 million, setting a record for the most expensive home ever sold in the region.
The sale, $1 million of which was for the interior furnishings, topped the previous record of $4.95 million, which had been set just seven months earlier.
The $8 million home had not been on the market but the buyer and seller were put together by real estate agent Janell Jellison of Long Realty.
The record could be in jeopardy, though. Multiple Listing Service currently has a home on the market listed for $22 million.
19. Setting goals
Tucson Regional Economic Opportunities (TREO) released its economic blueprint in March and the Southern Arizona Leadership Council (SALC) conducted a four-day Regional Town Hall, from which a report was released in June, both of which set agreed upon goals for the future of the Tucson region.
This isn’t the first time such efforts have been put forth but the efforts to gather diverse opinions and come to common agreements makes these two of the best efforts at getting wide-spread buy-in.
Despite that, both could go by the wayside just like any the preceded them if both TREO and SALC don’t stick to their promise to keep the goals front-burner issues. For its part TREO is forming committees to continue working on goals and action plans.
20. Going hostile
Swiss pharmaceutical firm Roche launched a $3 billion hostile takeover for Ventana Medical Systems, which the board of directors of the Oro Valley company has urged shareholders to reject. Roche has extended the deadline for that offer four times and it is next due to expire on Jan. 17.
In November, Ventana Medical and Roche signed a confidentiality agreement allowing Roche to peform due diligence. Roche has also notified Ventana Medical that it will seek to replace all of its directors at its annual stockholder meeting in June.