The national and Arizona economies are expected to begin feeling the effects of a recovery during the last quarter of 2009. But over the next year the recovery will be slow, with unemployment continuing to rise and economic growth anemic at best. Meanwhile, the state’s expenditures are rising, even as revenue continues to fall, setting the stage for future budget cuts and an expected tax increase.

That was the consensus unveiled by top economic experts from the W. P. Carey School of Business and the Arizona governor’s office at the annual Economic Outlook Luncheon on May 20. Addressing the audience of business and community leaders were Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at W. P. Carey and editor of Economy@W. P. Carey; Dennis Hoffman, director of the L. William Seidman Research Institute at W. P. Carey; and Eileen Klein, director of the Arizona Governor’s Office of Strategic Planning and Budgeting.

McPheters provided an overview of current economic conditions on the state and national level, and offered a forecast for the coming year.

The U-shaped recovery

“The economy is going to show some signs of recovery in the last part of 2009, but the way I like to look at this is that lots of our economic indicators will still be underwater, in a sense — they just won’t be as far underwater,” he said. “We’ll probably see positive growth in GDP, we will see job losses getting smaller, but there will still be job losses. There will still be people claiming unemployment insurance and, of course, unemployment rates will still be going up.

“It’s going to be a deep, sort of U-shaped recovery and 2011 will probably be a pretty good year of job growth,” McPheters added.

In the meantime, job losses will continue to mount. In March, with an over-the-year employment decline of 7.1 percent and 136,000 jobs lost, the Valley just edged out Detroit as the weakest large metro labor market in the nation. And even as the economy begins to recover, the Greater Phoenix area will still see its labor market contract by 1 percent in 2010, according to McPheters.

Nationally, McPheters stressed that while the current recession has been painful, it still is not on par with the Great Depression. The Great Depression was marked by four consecutive years of decreases in Gross Domestic Product (GDP), while the current recession is expected to result in four consecutive quarters of decrease in inflation-adjusted GDP. In fact, in the first year of the recession, the national GDP actually increased by 1.1 percent.

“During 2008, the first year of the recession, you would expect that the GDP would be decreasing,” he said. “Well, one of the factors holding it up was exports. Exports continued strong in the United States through 2008.”

This year, however, exports are expected to drop by 10 percent. That’s just one example of how the national and state economies will continue to struggle as the recovery begins to take hold. Another example is the expected freefall in the commercial real estate market, especially in Arizona.

“Commercial is the next shoe to drop and we have seen this pattern before,” McPheters said. “Even as you see residential [construction] begin to pick up, I think you can expect that commercial building is going to be very, very weak all the way through 2010 and probably 2011, because what we need to see is population growth come back and job growth to come back. There’s no point in building retail space and office space if the jobs are not there and the consumer is not coming out to shop.”

And it is consumers, who account for 71 percent of GDP, who really hold the key to the economic recovery.

“The consumer is the only part of this economy that can bring us back,” McPheters said. “Consumers are not going to come back into the game until home prices stop falling, until the stock market stabilizes, until they see unemployment rates have peaked out and job losses start to get smaller and smaller. And the consumer has to have confidence to buy, and believe it or not, the consumer has to back off of their inclination to save their money.”

In March, the savings rate as a percent of disposable income was 4.2 percent, up from 2.6 percent six months earlier. While increased savings are considered a good thing in robust economic times, a pullback by consumers as an economy tanks can have devastating effects. McPheters pointed out that for each 1 percent increase in the savings rate, approximately $100 billion are being pulled out of the consumer-spending stream. 

However, McPheters expressed confidence that the very calamity that sent our state and national economies reeling will eventually add to Arizona’s attractiveness to new residents and businesses — falling home prices.

“Housing prices have now returned to the traditional level, where Arizona housing prices are now more affordable than the national average,” he said. “In 2005 and 2006, we had come to the point where we were one of the least affordable markets. That has turned around and it has turned around very quickly. Of course that has been very painful.”

How to close the gap

Hoffman agreed with McPheters, adding that he believes the state’s economic rebound will be strong.

“This of course is the big question: What kind of bounce will take place? Now, I’ll have to say that the dramatic shakeout in prices in housing, while it has been absolutely disastrous for a number of folks and put a lot of pressure in a lot of different places, it might set us up for a more robust recovery than I would have thought six to nine months ago,” he said. “The thinking is really very, very simple; an attractive attribute of Arizona has historically been great climate, affordable housing and a place to get a job. That third aspect really doesn’t exist right now, but it could exist if our economy recovers at a little faster pace.”

In the economic downturns of the past four decades, Arizona has bounced back strongly, and Hoffman is confident history will repeat itself, especially if the state and Valley can re-create the environments that people from around the country have found so attractive.

But Arizona’s current budget crunch casts a long shadow over the prospects for recovery. In fiscal year 2009, the state’s budget gap stands at $1.6 billion. In fiscal year 2010, that’s expected to almost double to $3 billion dollars. As the economy has worsened, unemployment has soared to almost 8 percent, foreclosures have skyrocketed and businesses have closed their doors. As a result, billions of dollars in revenue from income, property, sales and business taxes have evaporated. Conversely, the need for state services has exploded.

“We’re really seeing the effects of the downturn in the economy. Not only are the state revenues significantly down, but also more citizens are in need of services,” said Eileen Klein of the Arizona Governor’s Office. In the past two months alone, the Arizona Health Care Cost Containment System (AHCCCS) has enrolled 50,000 people, she said.

Hoffman pointed out that in the past, $48 to $50 out of every $1,000 of personal income had gone into the state’s general fund. Since 2006, that amount has been plummeting and is expected to hit around $33 by the end of this year.

The state is now walking a tightrope of trying to increase revenues by raising taxes, while trying to woo out-of-state residents and businesses.

“I would argue that the state needs to be much more business friendly in terms of its tax structure, the quality of its work force, its job training programs. You can be business friendly in a number of ways. Having a lucrative market to sell into is probably the friendliest thing you can do for businesses,” Hoffman said. “Businesses look to where they can locate to make money, where they can produce at a reasonable cost, and sell and make profits. We need a more lucrative market here, we need higher incomes, we need higher income people residing here in the state of Arizona, [and] we need a friendly tax code for business.”

Hoffman detailed what the state should and should not do as it attempts to plug the budget gap:

•The state should not impose taxes that distort the economy and create disincentives for business creation and expansion.

•Undue burden should not be placed on businesses, especially export-based businesses that are mobile.

•The state should focus on broad-based taxes with modest rates (compared with competitor states) that create the least distortion.

“If we had the income tax rates that we had in 1993, there wouldn’t be a $3 billion hole; that’d fix it right there,” Hoffman said.

For now, Arizona Governor Jan Brewer has called for a temporary tax increase to bridge the budget shortfall. However, she has yet to say exactly where the tax increase will take place.

“There has been a lot of conversation over which tax would be best. We are certainly looking for the tax that will have the least negative effect on the economy while still providing the additional revenue needed to sustain us through the downturn,” Klein said.

To underscore just how hard the recession has hit Arizona, McPheters pointed out that the state is now ranked last in job creation — and climbing back to the top won’t be easy.

“Can we come back from 50 to one? It can happen. We’ll be a leader post-recession,” he said. “Every recession, the Arizona economy rebounds much stronger than the nation as a whole. You have 50 years of evidence of that. Unfortunately, getting there will not be pretty; we have two ugly years ahead.”

Wednesday, April 29, 2009, 11:05am MST 

The city of Phoenix and the Persian Gulf emirate of Dubai are signing a trade, transport and solar energy pact Wednesday.

The agreement has been in the works since last year and includes promise to promote trade, develop solar energy sources in both places and to try to bring direct commercial flights between Dubai and Phoenix.

Phoenix Mayor Phil Gordon will sign the pact with Dubai officials Wednesday in downtown Phoenix. Gordon has led the Dubai effort, including visiting their with business executives. Cash-rich Dubai is part of the United Arab Emirates. It is a financial center in the Middle East and tends to have very Western business practices.

There is also hope the Dubai will invest in the Valley economy including real estate, energy and businesses. Arizona State University president Michael Crow has also been part of Phoenix’s Dubai efforts and the pact includes provisions for university research and resources exchanges.

Edward Gately, May 5, 2009 – 6:00PM

Commercial real estate brokers, developers and others believe the commercial real estate downturn is severe enough to warrant federal assistance.

Phoenix, AZ, March 26, 2009 –(PR.com)– In today’s economy, old business models do not work. Companies that continue to succeed are those that can redefine their business model in order to find new revenue channels available in this stale market.

LGE Design Build, Arizona’s top Build to Suit firm, is one such company that has been around and knows how to be flexible in fluctuating markets. Given the current economy and the state of what was once considered a high growth market in Arizona, the commercial real estate market as a whole has slowed. Everyone has experienced depleting demand and the high supply of unoccupied space which, combined with defaulting loans, has made new construction rare.

To stay afloat companies cannot complain – they must adapt. LGE continues to lead the charge in defining what commercial real estate companies are capable of by expanding its large list of services to handle the current conditions.

“With the value and availability of existing property, it makes sense that our clients are looking to this surplus to fill their need for new space,” said David E. Sellers, President of LGE. “We are happy to be able to fulfill our clients’ specific needs regardless if it involves designing new property or improving existing ones. While we have had success over the past 15 years, we must continue to stay lean and readjust based on the market and our clients’ goals.”

As an adjustment in strategy, LGE has begun focusing more on tenant improvements as well as offering clients the ability to remodel existing property. While remodels are somewhat of a new offering, LGE has been a part of tenant improvements for years, completing hundreds of these projects in numerous sectors including retail, medical and office space.

Besides offering these services, LGE is also branching into new industries, providing design-build services in hospitality and independent living facilities.

“It is important to note that while we are focusing on alternative services, we are not losing sight of our approach of guiding our clients through the entire process, from design to completion,” said Sellers.

All of LGE’s offerings are designed to help clients get into the commercial real estate of their choice and they continue to work to accomplish this feat, something they have been doing for 15 years.

Celebrating a decade and a half in the business, LGE has seen both the highs of Arizona’s expansion and the lows of today’s slumping market. Since their birth in 1994, LGE has overseen the entire process from design to construction of 850 buildings totaling more than 17 million square feet, further than the distance from one coast of the continental US to the other.

Most recently, and despite the slowing economy, LGE remained stable in 2008, completing 31 projects representing 1,141,287 square feet valued at over $147 million. They were also able to sign and/or break ground on 27 more projects across the valley.

Due to this continued success and as a testament to their quality of work, LGE was recently awarded general contractor of the year and the industrial build-to-suit property of the year by the Arizona chapter of the National Association of Industrial and Office Properties, a commercial real estate development association.

About LGE Design Build
LGE Design Build is Arizona’s top Build to Suit firm and an exclusive build contractor and development firm. From original concepts to architecture and all the details involved to move from construction to completion, LGE makes sure their clients achieve the highest in quality and functionality. With completed projects ranging from 3,700 to nearly 500,000 square feet, LGE is the valley’s premier design-build contractor for businesses of any size. For more information, please visit www.lgedesignbuild.com.

Greater Phoenix Economic Council / Phoenix, AZ

Monday, March 02, 2009

Phoenix Mayor Phil Gordon is springing into March by leading an Arizona delegation to California’s East Bay area. As part of a joint economic partnership with Tucson announced earlier in this month, Mayor Gordon and the Greater Phoenix Economic Council (GPEC) are looking for opportunities that will advance the Arizona Sun Corridor. This megapolitan stretch uniting Phoenix and Tucson will be one of 10 U.S. markets expected to see most of the nation’s growth in the next 35 years.

“Arizona Sun Corridor: Open for Business” is a pilot program between GPEC and Tucson Regional Economic Opportunities (TREO) that is designed to stimulate California business interest among  targeted industries such as aerospace/defense, healthcare/bioscience, transportation/logistics, renewable energy and information communications technology.

“California and Arizona share key strengths in these industries,” said Phoenix Mayor Phil Gordon. “The collaboration between GPEC and TREO will uncover opportunities that will benefit Arizona through new investments and strategic partnerships.”

“Arizona’s Sun Corridor offers a strong value proposition for California companies,” said Joe Snell, TREO President and CEO. ”Arizona and California share a similar makeup of high-wage industries, resulting in similar skill sets among our workforce.” 

The one-day trip entails meetings with companies considering expansion or investment plans. Mayor Gordon and GPEC will focus on how the Arizona Sun Corridor can benefit these firms and also explore synergies that will enable Arizona and California to work together.

Arizona has been successful in being a repeat recipient for California investment. Los Angeles-based Abraxis BioScience recently solidified a $14 million investment to launch Catapult Bio, which will accelerate the commercialization of discoveries into business. GPEC helped to facilitate this investment, which expands California’s entrepreneurial reach and shapes Arizona’s bioscience industry.

“California and Arizona have a strategic economic relationship,” said GPEC President and CEO Barry Broome. “Innovation is seeded in California, and the manufacturing occurs in Arizona. States like Colorado and Nevada are using California as a recruitment tactic, whereas the Arizona Sun Corridor will work in concert with the Golden state. Arizona’s economic future is tied to California.”

Independently owned community banks that once may have deemed government-backed Small Business Administration loans too cumbersome now are rushing to become SBA lenders in anticipation of economic-stimulus incentives.

That could mean new financing options for entrepreneurs, particularly in metro Phoenix’s fringe suburbs and Arizona’s rural communities, at a time when many large banks have shut the door on less-experienced loan applicants.

The government guarantees a portion of each SBA loan, meaning less risk for the lender. “Smaller, community banks are coming into the program and filling . . . gaps,” said Robert Blaney, SBA district director for Arizona.

Arizona SBA loan volume and total dollars lent in 2009 are down 62 percent and 65 percent, respectively, over the first quarter last year. The Arizona SBA office has seen a net loss of 25 lenders since September, the majority of which are, or were before mergers or failures, large banks with a national presence.

The only new lenders to replace those lost are small operations such as Avondale-based West Valley National Bank, also serving Buckeye, and soon, the two-branch Yuma Community Bank.

Many community banks are in a good position to make SBA-backed loans because they did not make risky commitments, or participate in the derivatives and mortgage markets the way large banks did.

“(They) were prudent in their lending. They didn’t rely on hot money to fund growth . . . and the vast majority are well-capitalized,” said Bob Seiwert, a senior vice president with the American Bankers Association.

However, many also lack the training required to participate in SBA programs.

That started to change in fall, after early stimulus discussions, said Bruce Hodgman, deputy director of Arizona’s SBA office. Since, he said the Arizona SBA office has enlisted a record number of new trainees. All are small, community lenders.

“I can’t think of any other time there has been such a recent request or demand for (training),” Hodgeman said.

New incentives

In the past, the SBA had a tough time getting small lenders to use its products. Seiwert said fees of up to 3.5 percent of a loan’s value, as well as time-consuming paperwork, were turnoffs.

The stimulus bill awaiting President Barack Obama’s signature today would temporarily waive SBA loan fees and pump millions of dollars into current programs.

Although SBA lender training is free, it can drain time and resources that not all community banks have to spare. Now, some are sinking their own money into that investment if it means nabbing new clients later this year.

“It’s a little short-term pain for a long-term gain. I don’t know how you can serve the business community and not participate with the SBA in this economy,” said Candace Wiest, West Valley National Bank president and CEO.

In addition to the training, Wiest invested close to $10,000 for a consultant to help her write out West Valley National Bank’s SBA loan policies, specifically those related to 504 loans. The 504 loans help small businesses buy their offices, land or storefronts and is a category Wiest hopes to specialize in.

“There has never been a better time for small-business owners to buy their own building. Prices are low, and if we get an SBA loan for them the borrower only has to put 10 percent down,” she said.

Twice a month, Wiest selects CEOs from 10 local companies and invites them to a private steak dinner to spread the word about West Valley National Bank’s new offerings. She prompts a discussion about the state of the economy to gauge their hopes and concerns, then casually mentions the bank’s new SBA lending abilities.

Business beneficiaries

Goodyear resident Debra Kent heard about the SBA loan program from a friend of a friend. She opened Golden Apple Skin Laser and Vein Center in 2004, and started shopping for a loan to buy an office suite in October. She currently rents medical space in Litchfield Park.

“I had no idea SBA loans would even be available,” she said. “The thing that really shook me up is when my attorney (sarcastically) said, ‘Good luck.’ “

Golden Apple offers mostly cosmetic treatments, and Kent said business has taken a hit during the recession.

A varicose vein-removal procedure covered by many insurance companies has helped keep her business afloat.

When the economy turns, Kent said Golden Apple would be in a good position to grow. West Valley National Bank is helping her close on a $1 million office space in Goodyear.

Despite increased interest in SBA programs from community lenders, Hodgman said the small outlets are not likely to generate the same amount of loan volume lost over last year.

But Wiest notes, they could make loan money more available to small-business owners on big-city fringes, such as Kent. The lenders often favor clients in their own backyards.

“We see it as economic development,” Wiest said.

Last update: 10:00 a.m. EST Feb. 19, 2009

MIAMI, FL, Feb 19, 2009 (MARKET WIRE via COMTEX) — Blue Dasher Technologies today announced that the Phoenix, Arizona metropolitan region is being added to its database of high-density 360-degree street-level images. The company’s database of panoramic images of major U.S. population centers is licensed to third-party providers of commercial, industrial, government and consumer applications.

Blue Dasher’s fleet of image capture vehicles will photograph every public street and highway in Phoenix, Scottsdale, and throughout Maricopa County during February. Launched in 2008, Blue Dasher has created the most advanced searchable database that allows users to explore and navigate a neighborhood from their PC.

Blue Dasher’s image capture vehicles are equipped with digital camera arrays and sophisticated proprietary software for image geo-coding. Because images are recorded every eight to ten feet, the result is high-density photography that gives users unparalleled accuracy. When viewed online, the 360-degree images from Blue Dasher Technologies are seamless, creating an experience similar to driving down the street.

In addition, with Blue Dasher, users have access to exact addresses, which results in a much more useful tool for a host of applications, from economic development, commercial real estate research, zoning and code enforcement, and residential real estate assessment, to consumer applications, such as planning a trip online.

“Our street-level image technology was designed from the ground up to deliver a superior solution to both businesses and government agencies,” said Michael Reidbord, president & CEO, Blue Dasher Technologies. “We continue to add metro areas across the country, and as elsewhere, are driving every single street in Maricopa County, including all 24 municipalities.”

Blue Dasher is currently licensing its database of major metropolitan areas in several states including Florida, California, Nevada and Colorado.

Blue Dasher Technologies draws on more than 20 years of work in the GIS and real estate industries. Previous companies founded by Blue Dasher principals built GIS solutions for the oil and gas industry and state and local governments, including the Port Authority of New York and New Jersey, Los Alamos National Laboratory, and the states of Louisiana and Florida.

Blue Dasher Technologies

Founded in 2007, Blue Dasher Technologies provides high quality, geo-coded, street-level, panoramic imagery and advanced image viewing technology. Expanding beyond the capabilities of first generation street-level imaging, Blue Dasher’s patented technology delivers exact address matching and high-density photography that enables a realistic street drive. These features enable buildings and properties to be pinpointed for increased efficiency and permit true-to-life tours of residential and commercial areas. In addition, licensees have the ability to embed detailed information, such as multimedia, property data, or advertising into specific points within a geographic area. The company is based in Miami and is privately held. More information, including online demos, may be viewed at www.BlueDasherTech.com.