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What’s Ahead in ’09



Steve Doyle, president, Brookfield Homes

The good news for today is that new home inventories are down dramatically. Resale inventories are down dramatically and home sales are up significantly. Sales of foreclosures exceed new homes foreclosed on a monthly basis. Interest rates are at historic lows. A new administration takes over in January, optimism is rising. First quarter of 2007 and 2008 were very strong quarters for new home sales.

The bad news for today is that job losses are mounting, but focused on trade and construction jobs. Prices are still falling, but at a much lower rate of decrease, and consumer confidence is very low.

2009 will be the “bottom” of the recession for San Diego real estate. Prices will stabilize. Absorptions will increase. Confidence will begin to return. Mortgage rates will remain very low. Government incentives will be applied to shore up values. Jobs in construction will return through stimulus packages, which in turn will halt the job losses in other sectors. Inventories will remain low for both new homes and resales. Total sales will continue to increase. Foreclosures will decrease. Notices of default will decrease. Lenders will find a balance for qualifying criteria and loan products will stabilize. The real estate industry will stabilize and prepare for better days in 2010 and beyond.


David Gollaher, president and CEO, California Healthcare Institute

The present financial crisis, at its most basic level, reflects a global re-evaluation of risk. This has profound implications for the biotechnology industry, which from inception has been characterized by high risks and high rewards.

As investors across the spectrum , from institutions to venture capitalists to individuals , try to squeeze risk out of their portfolios, less capital is available for early stage companies with unproven science or uncertain paths to market. The difficulty of attracting risk capital into biotech is compounded by today’s aversion of the public stock markets to initial public offerings.

Absent the opportunity to take companies public, early investors have limited opportunities to capture returns on their capital.

Over the next year, I expect the financial model for biotech to adjust to these new financial realities. This will mean serious consolidation, with smaller, cash-strapped companies being acquired by larger players, and venture investments

flowing toward fewer startups and more proven businesses.


Adam Robinson, principal, Lee & Associates

Tight credit markets and an uncertain economy going into 2009 are currently causing severe refinancing and restructuring stresses on commercial real estate and commercial mortgages.

As a result, compelling investment opportunities have begun to surface for nimble and opportunistic operators. It is likely that these opportunities will continue to present themselves as traditional investors’ tolerance for risk abates.

In the years of the booming housing market, individual and small syndicate owners of well-located commercial real estate over-leveraged their quality assets and overextended themselves in order to fuel acquisitions.

The current financial crisis has finally forced investors and banks to re-price risk, resulting in more expensive, and less available, debt and equity. This lack of liquidity has created a huge slowdown in the number of sales and, ultimately, has negatively impacted the values in even the best Southern California commercial real estate markets.

Presently, tight credit markets, massive losses in the public debt and equity markets, a stock market that continues to test record lows, and an overall slowing economy are putting many owners under extreme pressure to sell their assets , some of which have not traded in decades.


Joe Panetta, president and CEO, Biocom

The local life sciences community, an integral part of the largest tech cluster in the region, is in for a year in which competition for investment capital will be the fiercest ever.

The emerging biotech, medical device and clean-tech businesses that don’t have the cash to make it through this time of trial will face challenges, and the ones that do will need to do everything they can to most efficiently keep their lead drugs and devices under continued development.

While this downturn is the most difficult economic climate the industry has ever faced, there are some bright spots on the horizon.

We’re expecting to see some major new players enter the region, with (Eli) Lilly’s new 125,000-square-foot research facility opening in March, the relocation of Volcano here as well as the re-emergence of two major medical device leaders , Alaris Medical and Pyxis , both of which were acquired by Cardinal Health but will be spun out as an independent company in 2009.

San Diego is an innovation center in science with a strong mix of businesses that will lead the region to success today and in the future. Next year will set the stage for continued progress and strength in the quality of life science research and development that San Diego exemplifies.


Sami Ladeki, owner, Ladeki Restaurant Group

The current economic decline is a correction. It’s not all gloom and doom. This country is going to keep going.

Some restaurants went out of business this year and more will follow next year. But Americans are used to eating out, so instead of going out three times a week, they may be going out once a week. Some steak restaurants will have to adjust their prices to attract customers. People won’t go out for a $40 steak, plus, plus. They want a meal with three items for less.

I think by this time next year, the restaurant industry will be in good shape again. I think that by August, we’ll begin to see a turnaround.


Frank Mercardante, CEO, Discovery Bancorp

We’re continuing to weather the storm, but the storm isn’t over , and by all indications hasn’t halfway passed by. Unemployment continues to rise and other sectors are being impacted. Recently we’ve seen commercial real estate affected.

This recession is unlike any I’ve seen before, and the reason is that where the recoveries in the past were led by consumers, the consumers were able to spend us out of it. That’s not happening this time.

For 2009, at best it’ll be more of the same, and if we’re able to pull out of this, it won’t come until the later part of 2010. We’re in for a long, hard winter. I think we have about 12 to 18 months left to go.


Richard Blaylock, attorney, Pillsbury Winthrop Shaw Pittman

We can expect a shakeout year for biotech in San Diego and nationwide. The challenging funding environment should be expected to continue through at least the first half of the year and perhaps much longer. Investment in both public and private biotech companies is down by about a third in 2008 compared to 2007 and we shouldn’t expect an uptick before the markets have had a chance to assess the plans of the new Obama administration together with the unfolding financial crisis.

Some biotechs unable to gain access to needed funds will look to mergers and, in some cases, bankruptcy. The recent Artes bankruptcy may be a harbinger for other weak companies.

Meanwhile, all need not be gloom for early stage biotechs; venture money , though scarce , will still fund compelling opportunities. In this more crowded market, fundamentals will be important. Careful attention to executing your business plan and thorough attention to all the areas where you can control risk before pitching your company, whether for funding, merger or partnering, will be critical for success.

In the new Congress, watch for renewed discussion of so-called bio-generics, patent reform, medical reimbursement rates, and funding or subsidies for bio-fuels and other green technologies.


Jeremy Glaser, board member, San Diego Venture Group

Venture capitalists are going to end up selling a lot of startup companies earlier than they otherwise would have. There will be fewer independent companies (here), which is unfortunate. We’re more likely to have divisions of larger companies based out of the area instead of growing companies like Qualcomm and DivX and even Entropic (Communications). The positive is that they will be hooked up with larger companies with more financing and staying power.


Joe Schroeder, president, San Diego Metropolitan Credit Union

About a year and a half to two years ago we were approving 19 out of every 20 home equity lines of credit applications we were getting. Today we’re approving less than half of what we get. It has to do with the equity in people’s homes.

The credit profile of consumers in Southern California has changed significantly in the last 18 months.


Mike Perry, chairman and CEO, San Diego Trust Bank

It’s hard to forecast the severity of this recession, but certainly there are no signs in the near term that we’re coming out of this downturn. At this juncture it’s hard to imagine any kind of meaningful upturn in 2009. And when the recovery ultimately begins, it will be a rather slow recovery.

Recently, we’re seeing some cracks in the commercial real estate markets. Up to this point, commercial real estate loans have been performing pretty well. Before, if you had a Mervyn’s or a Circuit City in your shopping center, you think you’d be in pretty good shape. They’re gone after the first of the year.

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