January 17, 2012

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Southern Utah Regional Report

A Roundtable Discussion Among Local Leaders

Utah Business Editors

January 17, 2012

Southern Utah Regional Roundtable Participants: Scott Hirschi, Economic Development Kent Nobis, Rosenberg Associates Roxie Sherwin, St. George Tourism Office Doug Watts, Watts Construction David Turner, Zion's Bank Brennan Wood, Cedar City, Iron County Office of Economic Development Travis Parry, Commerce Real Estate Solutions Marianne Sorensen, Jones, Waldo, Holbrook & McDonough Jon Pike, Intermountain Healthcare Neil Walter, NAI Utah South Stephen Wade, Stephen Wade Auto Michael Benson, Southern Utah University Tim Anderson; Jones, Waldo, Holbrook & McDonough John Campos, SunFirst Bank Mark Babcock, Les Olson Company Curtis Jensen; Snow, Jensen & Reece Muriel Blake, Southwest Community Credit Union Chip Childs, SkyWest Airlines Chris Peterson, Riverwoods Mill Daren Barney; Barney, McKenna & Olmstead Matt Hamlin, Tonaquint Data Center Brian Tenney, TCS Advertising & Public Relations Where are we economically, and what do you foresee over the next 12 to 18 months? WOOD: In the past 12 months, we have seen a number of local expansions and a relocation of a company—Insituform Technologies—out of the San Francisco Bay area. We've had a number of site visits. Most of them have wanted to wait. They've decided they'd rather be more conservative than aggressive. But I see people finally taking some steps in the expansion process because they've spent the last 12 or 18 months looking, making sure the time is right. WALTER: For the first time in a couple of years, we have some good momentum. Companies are feeling like there's some opportunity to move out of this particular economic environment, and as a result, we're seeing quite a bit of activity. We are very excited about the Lighthouse announcement. And 160 jobs and an 88,000-square-foot industrial building that has been on the market for three years is now occupied, and that's a big deal. We've seen, on a smaller scale, two or three other significant leases done in the last couple of months, which is more than we've had in the last two and a half years. To have some activity and some life in our industrial market, it represents job growth, it represents absorption. It feels like we're turning a corner in our economic cycle. In light of the great recession, how is your business doing today? What are you doing differently today than what you were doing a few years ago—and is it working? PETERSON: We've taken the opportunity to figure out what we used to ignore as far as inefficiencies and problems, and really gotten better at manufacturing more effectively, keeping our costs down, not wasting as much labor as we used to. As a result, we've been able to lower our prices a little bit, and that's resulted in us actually being able to hire about 20 additional employees over the last six months, which represents about 50 percent of our manufacturing workforce. WADE: We've gone through the most tumultuous period of time in the last two years in the history of the auto industry. We had about 18,500 auto dealers, and now we're down in the 17,000 range. We just went back to the basics. It was surprising what we could do with fewer people. We've worked hard on absorption and things like that. Our tie to the Las Vegas market has certainly affected us greatly. When the auto industry is strong, the country is strong, because people buy an automobile with discretionary income. Two years ago, credit dried up to the point where you needed nearly an 800 credit score to buy an automobile, which is unheard of. But credit is coming back into the market, and subprime is coming back into the market. PIKE: A lot of people think health care is pretty recession proof, but that's not the case, especially when it comes to elective things, like knee surgeries and other outpatient things. We definitely saw a downturn, from 2008 to 2009 in particular. During this difficult time, we already have a big project underway, about a $60 million project for an outpatient building. Our industry is just proceeding as best we can and trying to take advantage of our best resource, which is our educated workforce in this area. We have over 2,100 employees, and we haven't had to lay off. We haven't hired as much, but that's starting to return a little bit more now too. Three years ago, the construction industry represented about 15 percent of the greater St. George economy. If you added all of the supporting industries, well over a third of our local economy was somehow tied to construction. Where do you think that industry is today, and where do you see it going in the next couple of years? WATTS: For the past 30 months, we haven't had one private inquiry. It's been pretty tough business. We appreciate the universities and the public sector for what they've done to keep us all rolling, and some of that is going to be running a little slow with governmental spending coming to a halt. It's going to be a little tough the next eight months, but hopefully things will start picking up again. NOBIS: Right now, from the numbers I've looked at, there's a little over 6,900 improved lots in the area. So with the absorption rates, you're looking at about 120 closings right now per month. I can see 2011 being pretty similar to 2010, with some pretty good potential in 2012. But it's going to take a little while to get through the existing residential inventory. PARRY: We're starting to see some very positive signs, especially in the industrial sector. This fourth quarter we're going to see a turn in our vacancy numbers as they start to come down. And based on what we've got in our pipeline, we'll see that continue into the first quarter of next year. There’s a lot of interest right now in the industrial side, but renewed interest in the retail and office sectors as well. It could be an interesting cycle for us. We very well may see commercial take the lead in the recovery, prior to residential, which would be a complete change from the normal cycles we're used to. BARNEY: When the improved lots are gone, it will be interesting to see if the developers are going to be able to develop lots and put them on the market for a price that people will pay. Because lots that were up to $200,000 are now $50,000, and developers are sitting on undeveloped land for which the cost of developing the lot exceeds what lots are now going for. WALTER: Lot prices today don't justify developing lots. It costs $20,000 a lot just to do the improvements. Forget the price of the land. We can't move them, and we won't be able to move them until we start to see some significant absorption that gives people a firm timeline: I know how long I'm going to have to hold this, I know what my carrying costs are going to be, I know what my exit price is going to be and I can determine whether there's an economic incentive to doing that. BLAKE: The rates of foreclosure and trustee's sales are down from where we were the last two years, but there are still a significant number of foreclosures being filed. But a lot more of the foreclosures filed are going all the way through to trustee's sale, rather than being taken out of default status. At least twice as many are going to trustee’s sales than two years ago. First, foreclosures have to stop, and then we've got to get all of these homes sold before we can see a recovery in residential values. And we're not going to see a real recovery here until people see their homes regain some value. It's going to take a few years for us to recover that. What large projects, either underway or in the planning stages, will affect our southwestern Utah economy? BENSON: We're the largest employer in Iron County. As the university goes, so goes the county, and to a certain extent, vice versa. Regarding construction, over the last five years, thanks to state appropriations and federal earmarks, we've gotten a $12 million education building and a $15 million housing complex for our students. We're in the midst of a $19 million science building that will be done in April of next year, and we're $6 million toward an $11 million goal for a Southern Utah Museum of Arts. These construction jobs have been a big boon to Iron County. ANDERSON: There's the Eagle Point Ski Resort underway in Beaver. I’ve been hearing about contracts that are going down for development of that. Anyone that's going to try a ski resort in this economy either knows something we don't know or doesn't know something we know. WOOD: The Iron County Community Development and Renewal Agency has created a specific project area, which has paved the way for a large-scale solar facility. Because of the natural resources that we have available to us in Iron County, it's really just the start of the creation of these large-scale projects. WATTS: Dixie State College is doing the $35 million Centennial Commons, which is a student center. BENSON: The Shakespearean Festival has been talking about a new complex for a while. We're focusing now on a new theater. We got a $3 million gift from the Eccles Foundation recently. By the way, we exceeded $4 million for only the second time in our history in ticket sales this last season with the festival. And next year, with the 50th anniversary, it's going to be even bigger. Our recent admission into the Big Sky Conference will necessitate improving some of our athletic facilities, specifically our football stadium. We intend to expand and improve that facility. What’s the latest news regarding our new airport? CHILDS: We're very excited about the opportunity to upgrade the aircraft that we bring into our hometown. We have a fleet of over 300 aircraft, and only about 40 of them are the size of the aircraft we fly in and out of St. George. The community is going to see a significantly different level of service when we bring the RJs in and cut that time from Salt Lake from an hour and 20 minutes to about 50 minutes. It’s tremendously exciting to have one 50-minute flight from St. George to a hub like Salt Lake City, from where you can go nonstop to Europe and Asia and all over the country. Today we have seven roundtrips from St. George to Salt Lake City on the turbo prop. We'll change that to four roundtrips on an RJ, which has 50 seats as opposed to 30. And with a Brazilia, we'll only go down from seven to five trips, but we'll actually add more capacity into St. George. We are also very committed to developing other markets. We want to go back to LA and other places, but we've got to get a lot more traffic stimulated here in St. George. We promise the community that we'll be on the front end of that. We'll take the risk of putting the capacity in before it may necessarily be there, but do your best to help support the local airport, because it's going to be a significantly different experience What can we anticipate from a tourism standpoint from the opening of the new airport? SHERWIN: The reason our tourism is strong here in Washington County is because we've got really good drive markets. So when you're talking about the airport, you know, LA is a drive market for us, as are Vegas and Salt Lake City. The European visitation was very strong this year, so that comes into play. For the business traveler, the airport will make a big difference. When we talk to groups for meetings and conventions, if there's convenient air service, that makes a big difference. We have talked to groups that have said as soon as you get the airport and we can bring more than 30 people at a time, then we'll talk. Tourism is pretty strong in Washington County. Tourism is strong statewide. Washington County’s transient room tax is up between 10 and 13 percent. Iron County is up 10 percent. Zion National Park had a fabulous summer. The hotels up there were at 95 to 100 percent full from April to November. CAMPOS: I am part owner in La Quinta. This has been a great year for the motel business. We're up probably 17 or 18 percent over last year. Tourism is also very well organized in St. George. Out of 52 weeks, 40 some-odd weeks have major conventions here in St. George. Washington County has the highest unemployment rate in the state and experienced the greatest job losses. That’s moderating some now, but we’ve dug ourselves into a pretty deep hole. What do you see for the future of both unemployment and job growth in Washington County? ANDERSON: We've talked a lot about issues that relate to moving dirt. We have to focus more on moving minds more than we move dirt, or we'll end up back in the same situation, the same cycles with regard to real estate that we've experienced, not just this time but many times in the past. We're sort of in this honeymoon period in higher education where people are going back to school. But if we don't have jobs when these thousands of graduates start coming out the other end and are trying to repay their student loans, if we don't have a substantial increase in the job opportunities, then we're going to have a real backup and slowdown in higher ed as well. SORENSEN: Companies have maxed out on how many people they can let go and still function. The tipping point is coming, where they'll feel comfortable enough to bring one employee back. And the ripple effect from that will just spread through the economy and help us all. At first when people were laid off, they didn't know if it was going to last very long. They just didn't know the extent of it. As the recession went on, people started turning from the employee mentality to maybe an entrepreneurialism outlook. They've realized, well, we can't just wait and hope to get hired, let's do something on our own. There's a huge reservoir of talent and education—and just hard workers who are versatile and adaptable. Why aren't banks making loans to small businesses? CAMPOS: The perception out there is worse than what it actually is. There's a lot of SBA loan programs that are available to businesses, USDA, FHA. Small community banks here in St. George, we're not going to go out and lend 100 percent to a small business. We're going to almost always need to have an SBA guarantee with it. Because of the regulations that we're operating under, we cannot increase our commercial real estate loans that much. The good thing here in St. George, the number of loans going bad—those are really shrinking up. We have definitely gone past the bottom and we're working our way up. Most of our losses are coming from the drop in appraisals. It's not even from actual operational losses. TURNER: Banks do like to lend money. I mean, that's how we stay in business. When people come in to borrow money, we’d like nothing more than to be able to lend it to them. But the worst thing a banker can do is to lend money to someone that's not able to pay it back. We do have guidelines, and we do follow them, and we get in trouble for that. We also get in trouble if we make bad loans. We're all willing to work with people who are able to repay their loans. I see a lot of people who maybe have lost their jobs and think, “Well, I'll start my own business.” It's tough if you don't have a little bit of capital of your own to put into the business. It's just like when you buy a house, you need to put a little bit of your own money into it to make it. But just we rely a lot on SBA, which is a great help for these type of people who are looking to start businesses. But because real estate values have dropped, that makes it difficult. The collateral values are less than what they were. CAMPOS: As far as forecasting next year, with the fiscal policy that's going on right now, I think interest rates are going to stay down for the next six to nine months, and I think we're going to have a big spring here in southern Utah. What is the current activity level for Angel investing, and what are the future prospects? PETERSON: I hope the future looks better than the last year or two. We haven't seen a lot of new pitches from entrepreneurs. But in the last six months, it seems like that's picked up. We're looking at a new method of outside management of the group, which has already had a positive influence. We're trying to find more people to participate from an investment standpoint. We should have that base in southern Utah. There's a lot of retired people here, and our next push is going to be finding more people to infuse some of that Angel investment money and get some of these entrepreneurs funded and started. It wasn't too many years ago that we had some serious challenges from a telecommunications standpoint in both our counties. How is that changing? HAMLIN: The telecommunications industry in southern Utah is starting to grow. We are looking to put an extra $6 million into our data center and build an extra 9,000 square feet. We've got a really good response from a lot of companies outside Utah. We've got some Fortune 200 companies at our facility. With some growth up in Salt Lake, that's going to trickle down here into the southern Utah area. We're really trying to make a big push to get some of these IT jobs here. They're well-paying jobs. The demand for data center space in co-location is very strong right now. JENSEN: In retrospect, Washington County and Iron County have been on the leading edge in bringing advanced technology to these small communities, rivaling any of the metropolitan areas, especially in the western states. It's kind of put us on the map and said to the world that we have the capability and the know-how. WOOD: Fiber optics have enabled small communities to reach the global market. Someone once told me that if you're not an international CEO, you're an unemployed CEO. You can be a small business, but you need to look outside your back yard. That's what the fiber optics at Interlinks has done for our market. It's really put us at the forefront and made us very competitive in not only attracting large-scale corporate projects, but helping our small business grow. Dixie State College has partnered with the state to create a business resource center called the Dixie Business Alliance here. SUU has done the same thing in Iron County. Are those programs assisting the economy? BENSON: We have housed right on Main Street quite a few entities—USTAR, our small business development center. Senator Bennett and Senator Hatch have a space that they've leased out, as well as Congressman Matheson, for their local offices. The Chamber of Commerce is there. It's one-stop shopping for people that are looking for a whole array of services. We try to make it as convenient and accessible as possible. WOOD: It gives small business a one-stop shop. If they need help with networking, they have the Chamber; if they need help with creating their business plan, they have the Business Resource Center. It's two-fold. It's helping people get started. That's one thing. And the second thing is it helps struggling small businesses. I would encourage small business owners to seek help early. One thing that the Business Resource Center conveys to me is that, typically, when people come in, it's too late. They need to come in before they start receiving foreclosure notices or before they start missing bills or can't pay them. A lot of times they can help a small business with their marketing, their financing, their business plan. What are one or two weaknesses you see in our local economy—and what are all the strengths that we've got, all the bright, exciting things in our future? WALTER: We have a lot of very highly educated people here, but our level of educational attainment is still low relative to the state and national averages. But with what's happening at SUU and at Dixie State, that that's going to be a strength for us in the future. One thing that’s going to be a challenge for us is moving up that educational attainment curve as quickly as possible, because if you're an employer that requires highly-skilled jobs—which are the high-paying jobs that we want in our community—if you don't have the right workforce, then those jobs will never show up. ANDERSON: A lack of diversity is still a weakness. There are not enough females at executive and professional levels in our communities, and also we don't see much of an ethnic mix of any substance. Ultimately that adds to the dynamics of problem-solving in a community and enables it to interface more with the outside. That's something that over time needs to improve. WOOD: There are a lot of communities that have interstate access or rail or fiberoptics, a community college or a university, but there are few communities that have all of those. That's what's great about Iron County—we have all those resources and assets. TURNER: I like to visit with people who are moving here and see why they're relocating. A lot of them don't have any ties, any relatives. But they like the climate, the lifestyle, the community, the excellent health care which we have here. People are going to relocate here as things improve, and we can look towards that being very optimistic.
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