BANKING
Highlights:
Persistent low interest rates helped local institutions post record revenues and earnings. Banks continue to be among the best stock performers, with the LABJ 200 financial services sector averaging gains of nearly 40 percent this year. Mortgage lenders and ethnic Chinese and Korean banks had another great year. Hanmi Financial Corp.’s purchase of Pacific Union Bank sent its shares up 84 percent. Specialty investment banks and lenders into distressed markets are also doing well. Generally, the Check 21 initiative to eliminate paper check processing went off without a hitch.
Lowlights:
Banks have been forced to allocate more resources to their compliance departments because of antiterrorism measures that were included in the Patriot Act and the Bank Secrecy Act, which require that all banks make detailed reports on their customers. Elsewhere, JB Oxford Holdings Inc., the brokerage firm under scrutiny by the Securities and Exchange Commission, moved out of its offices in Beverly Hills. The much-anticipated initial public offering of investment firm Ares Capital Corp. fell flat.
Outlook:
Expect slower earnings and sales growth with increased costs as banks try to boost market share. Deposits are expected to grow at a slower pace. Regulatory compliance issues will also begin to weigh on banks. Many banks are expected to have a tougher time in 2005 because of rising interest rates and a slower market for real estate financings. In the investment banking world, there is optimism for more hiring, as the mergers and acquisition market kicks into gear. Countrywide Financial Corp., the $19 billion mortgage lender, could be a beneficiary of robust market activity through its Capital Markets subsidiary.
Prospects:
Good
COMMERCIAL REAL ESTATE
Highlights:
The year brought one blockbuster deal after another, turning long-held assumptions about the L.A. market on their head. Office towers in downtown Los Angeles traded at per-foot prices that had previously only been seen on the Westside. Investor confidence was buoyed by large-scale residential and commercial development coming to fruition. In one of the highest price per-square-foot deals for a downtown property in a decade, Trizec Properties Inc. paid $435 million for 333 S. Hope Street, or Bank of America Plaza. Undeveloped vacant downtown lots also drew attention, with a 100,000-square-foot parcel near the Staples Center fetching nearly $300 a foot. On the Westside, investors continue to pay top dollar for office properties despite the threat of a looming glut of space coming to the market. Equity Office Properties Trust, in partnership with pension fund giant TIAA-CREF, paid $434.6 million, or $395.50 a foot, for the 1.1 million-square-foot Colorado Center in Santa Monica.
Lowlights:
Leasing activity and asking rents continue to lag the high prices investors are willing to spend on properties. While overall vacancies dropped, the improvement was minimal. In the third quarter, countywide vacancy rates fell to 15 percent from 15.8 percent a year earlier. Meanwhile, rents had stabilized and in a few sub-markets posted moderate increases. Through much of the year, landlords continued to sweeten leases with generous improvement budgets allowances given to tenants for making modifications to their offices.
Outlook:
As long as interest rates remain low and real estate continues to generate better returns than the stock market, the investment frenzy will likely continue. Leasing activity will largely hinge on locally based companies growing in size and needing more space. If L.A. County continues to outpace the nation in job growth, more leases are likely to be inked and a higher demand for office space realized.
Prospects:
Good
DEFENSE
Highlights:
Southern California contractors benefited from the war in Iraq and President Bush’s appropriation of $10 billion for missile defense programs. Boeing Co.’s satellite making unit in El Segundo and Northrop Grumman Corp.’s TRW unit in Redondo Beach will see some Star Wars funding. Meanwhile, money continued to pour in for local programs, including the F-35 Joint Strike Fighter, F/A-18 Super Hornet, C-17 and F-22 Raptor warplanes. The Raptor is nearing completion of the first phase of operational testing at Edwards Air Force Base after years of glitches, rising costs and reduced procurement numbers. Bush’s $416 billion defense budget for the fiscal year ended Sept. 30 which doesn’t include funding for wars in Iraq and Afghanistan is $100 billion higher than President Bill Clinton’s final defense budget.
Lowlights:
In the commercial aerospace market, L.A. County lost 1,100 jobs in 2004. Boeing’s 717 100-seat class plane continued to be dogged by slow sales, while other aerospace programs began winding down. Boeing began shutting down its Rocketdyne facility in Canoga Park to consolidate those operations in Chatsworth, although significant job losses are not expected. Development of the Marine’s vertical takeoff and landing version of the F-35 was slowed after engineers discovered it weighed too much.
Outlook:
Bush’s proposed defense budget for 2005-2006 is expected to increase by at least 5 percent, with $11 billion earmarked for local programs. As major programs get closer to the full production stage, defense firms will ramp up their payrolls with 1,500 to 2,000 new employees. In May 2005, however, the Defense Department’s Base Realignment and Closure unit will begin its next round of consolidations. Local officials are concerned that Los Angeles Air Force Base, a large recipient of research money for top-secret projects, could be on the list. Gov. Arnold Schwarzenegger established the Base Support and Retention Council, chaired by former Clinton Chief of Staff Leon Panetta, to protect the facilities.
Prospects:
Fair to good
FILM
Highlights:
As usual, the box office winners were a mix of predictable hits and a few surprises. Animated blockbusters “Shrek 2” (DreamWorks SKG) and “The Incredibles” (Disney/Pixar) lived up to expectations, while Mel Gibson’s “The Passion of the Christ” was the indie hit of the year, grossing more than $370 million. Michael Moore’s “Fahrenheit 9/11” grossed $119.1 million in domestic box office, the biggest number ever for a documentary. The Writers Guild of America West approved a three-year contract with studios, producers and TV networks, for double the value of what had been offered six months earlier. DreamWorks spun off its animation unit in an $812 million public offering. General Electric Co. closed on its purchase of Vivendi Universal’s TV, film and theme park assets.
Lowlights:
Flops galore as several big-budget films failed to produce. Warner Bros. put out two of the year’s biggest losers: “Cat Woman” and “Polar Express.” Buena Vista’s “The Alamo” pulled in a scant $22.4 domestically. Sherry Lansing, chairwoman of the motion picture group at Viacom Inc.’s Paramount Pictures and the first woman to head production at a major studio, announced she would step down next year. Writers Guild President Victoria Riskin resigned as president after it was revealed she was ineligible to hold the post. Her replacement, Charles Holland, resigned after it was revealed that he had lied on his resume. He was replaced by Daniel Petrie Jr.
Outlook:
Much of the attention will focus on the competition between DreamWorks Animation and Pixar. The latter will not release a major film in 2005. Disney’s Miramax Films division, meanwhile, will be without co-chairs Harvey and Bob Weinstein once their contracts expire in September. All that will pale next to growing speculation about who will replace Michael Eisner as Disney CEO.
Prospects:
Fair
HEALTH CARE
Highlights:
Californians opened their pocketbooks Nov. 2 and passed three big-money ballot initiatives that will boost state spending on stem cell research, community mental health services and capital projects at children’s hospitals. Anthem Inc. and WellPoint Health Networks Inc. completed their $16.4 billion merger, creating the nation’s largest managed care company, and Alfred Mann took another company public with an $87.5 million initial public offering for MannKind Corp. Doctor-led groups scooped up nine of the 14 hospitals that Tenet Healthcare Corp. put up for sale in Los Angeles County. And health care inflation finally slowed into the single digits.
Lowlights:
Several public companies ran into problems with government regulators. Diagnostic Products Corp. was banned from submitting new lab test products to the Food and Drug Administration, pending completion of a probe into its clinical trial practices. Staar Surgical Co. had to delay introduction of its implantable contact lens pending its own FDA probe. And DaVita Inc. faced a criminal probe by the Justice Department related to how it administers vitamin D drugs to patients even as it completed a $3 billion acquisition that made it the nation’s largest dialysis operator. A scandal involving the sale of body parts donated to the David Geffen School of Medicine embarrassed UCLA, and patient deaths and injuries from poor care at Martin Luther King Jr. Medical Center finally prompted the Board of Supervisors to take action to reform the hospital.
Outlook:
Companies are waiting to see whether workers’ comp reform will significantly reduce insurance premiums. Health care costs in general will likely keep climbing at single digit rates. Meanwhile, the brawl between the hospital industry and the state’s nurses looks like it’s just getting warmed up. And the poor will be squeezed when Gov. Arnold Schwarzenegger finally releases his reform of the Medi-Cal system.
Prospects:
Fair
LABOR
Highlights:
The merger of the Union of Needletrades, Industrial and Textile Employees with the Hotel Employees and Restaurant Employees created a nationwide bargaining unit of 440,000 workers and assets of nearly $200 million. Locally, the creation of Unite HERE shored up membership losses in textile and apparel employment, which has eroded over the past two decades. In Inglewood, a ballot initiative that would have allowed Wal-Mart Stores Inc. to bypass the permitting process and construct a supercenter was rejected, and the L.A. City Council passed an ordinance restricting how and where big box retailers selling groceries may open. In response to the labor shortage at the ports of Los Angeles and Long Beach, 5,000 new casual longshore positions were filled, while 1,000 existing casuals were registered as members of the International Longshore and Warehouse Union.
Lowlights:
The United Food and Commercial Workers union ended a 4 & #733; month strike and lockout with, at best, mixed results leading hotel workers to shy away from a walkout during its current contract negotiations. The National Hockey League lockout of its players, including the L.A. Kings, shows no sign of a settlement. Efforts to unionize apparel factories went virtually nowhere.
Outlook:
While Unite HERE might be a more powerful union overall, the 2,800 hotel workers belonging to L.A.-based Local 11 have yet to see the benefits. The union has softened its stance on a two-year contract aligning its expiration date with agreements in as many as nine other cities that would have imbued it with national bargaining strength. Additional longshoremen are expected to be hired as trade growth continues to increase. Supermarket chains will continue to push for cost savings because their earnings continue to be lower than pre-strike levels.
Prospects:
Fair to poor
LAW
Highlights:
Litigation and corporate work, combined with an increase in intellectual property disputes, are expected to boost 2004 revenues well above last year’s levels. That, in turn, should help increase the profits-per-partner measure, which last year saw five firms break the $1 million mark. Piper Rudnick ended the year announcing it would complete two mergers on Jan. 1 to become one of the largest firms in the United States. Gibson Dunn & Crutcher welcomed back prominent constitutional lawyer Theodore Olson from his three-year post as U.S. Solicitor General. Some of L.A.’s biggest investor scandals ended this year with more than $400 million in settlements by Global Crossing and Homestore. The 13-year-old case over Disney’s “Winnie the Pooh” ended after the Slesinger family lost their demand for millions of dollars in royalties.
Lowlights:
Clifford Chance ended its brief stint in California by closing three offices, including one in Los Angeles. The District Attorney’s Office charged rainmaker Pierce O’Donnell with laundering $25,500 in political contributions to Los Angeles Mayor James Hahn’s 2001 mayoral campaign. In November, voters approved a ballot initiative curbing consumer attorneys’ use of California Business and Professions Code 17200 (trial attorneys had lobbied against the measure).
Outlook:
Expect strong success from litigation boutiques Quinn Emanuel Urquhart Oliver & Hedges, Alschuler Grossman Stein & Kahan and Munger Tolles & Olson. Also, Irell & Manella may continue to excel in intellectual property work this year. Expect more mergers as business clients continue to demand multiple offices and firms restructure like corporations.
Prospects:
Very good
LOCAL MEDIA
Highlights:
Spanish-language radio and television continued to carve out large audiences (radio revenues grew 12 percent, outpacing the market as a whole). La Opini & #243;n emerged victorious in its newspaper war with Tribune Co.-owned Hoy, which announced it would go to free circulation next year after struggling to gain share. After two years of gradual recovery from the economic downturn in 2001, advertising and marketing nationwide grew at about 6.3 percent, the fastest rate in four years.
Lowlights:
Despite modest improvements, newspapers are still weakened by unstable ad spending. The credibility of the industry was not helped by revelations that papers owned by Tribune and Belo Corp. inflated their circulation. But circulation was either flat or down most everywhere. The Los Angeles Times’ circulation for the six months ended Sept. 30 was down 5.6 percent over last year. L.A. radio revenues were projected to be only 1 percent higher than 2003, which pales next to the 7 percent jump of the previous year.
Outlook:
Cable and satellite TV providers competing for subscribers will be rolling out new wireless phone services. The Federal Communication Commission’s indecency crackdown may extend into regulation of subscription cable and satellite content, which it has long left alone. The L.A. radio market is expected to grow by about 5 percent in 2005. Traditional newspapers, meanwhile, will show little or no growth, although Web-related advertising is likely to do very well.
Prospects:
Good
RESIDENTIAL REAL ESTATE
Highlights:
As of October, the median price of a single-family home in L.A. County was $425,000 a long way from the $170,000 level of seven years ago. While the county median price has been stagnant the last four months, many areas continue to enjoy year-over-year home value growth in the 20 percent range. Homebuyers have ample access to debt, which they still use to bid up home prices, although with more caution than a year ago. Demand for homeownership still appears bottomless. Developers are nearly selling out new condominium buildings before construction. Rapid growth in demand has continued to push housing into areas before deemed undesirable, whether it’s industrial zones near Marina del Rey or lofts a few blocks from downtown’s Skid Row.
Lowlights:
The price frenzy has locked out a great number of families from the ranks of home ownership. By the end of September, less than 18 percent of L.A. County households were able to afford the median priced home. Even condominiums, which had become an entry point for new homebuyers, have soared to record heights, outpacing the value gains made by single-family homes.
Outlook:
The big question: Is there a bubble? Economists at UCLA’s Anderson Forecast recently said there is. Others disagree. Either way, homebuilders in L.A. County cannot keep pace with the region’s burgeoning population. Many communities continue to fight construction of high density housing, pushing builders out to the Inland Empire or other markets in the country. With affordability tough for first-time homebuyers, home values may grow at a smaller clip or plateau for a while. An area to watch out for: highly leveraged homeowners who have little to no equity in their home. If values sink, even by as little as 5 percent, then they could end up owing more on their properties than they’re worth.
Prospects:
Fair
RETAIL
Highlights:
Generally, a very solid year, especially at the higher end, as L.A. County’s taxable retail sales in 2004 were projected to increase 6.8 percent over the year earlier. Mall developers embraced lifestyle centers, with Westfield Century City beginning a $127 million renovation, Glendale voters approving developer Rick Caruso’s $264 million outdoor Town Center mall, and Macerich Co. pursuing a plan to redesign its Santa Monica Place. Retailers such as American Apparel, Cherokee and Guess soared. Supermarket chains began to recover from the grocery strike. Oaktree Capital Management LLC sold the 11-store Bristol Farms Inc. grocery chain to Albertson’s Inc., which has plans to expand the brand.
Lowlights:
High gasoline prices, a weak job market and high consumer debt constrained growth for mid-level department stores. A backup at the ports prevented some retailers from getting their holiday shipments on time. The big supermarket chains may have won the skirmish with their union, but earnings failed to rebound fully in the wake of the settlement.
Outlook:
Taxable retail sales are expected to grow 6.2 percent in 2005. The slower growth will result from rising interest rates, which will cool home sales. Kmart Holding Corp.’s acquisition of Sears Roebuck & Co. is expected to result in the closure of some underperforming Kmart locations and the conversion of others to Sears.
Prospects:
Fair
TECHNOLOGY
Highlights:
The return of telecom meant a pickup for companies such as Calabasas-based Tekelec, which makes equipment for sending voice signals over digital networks. Also making a comeback were dot-coms. Youbet.com, an online gambling site, j2 Global Communications Inc., a provider of e-mail and faxing services, and Stamps.com Inc., the online postage stamp company, all posted stock gains of 50 percent or more. And after several years of near dormancy, the IPO gates were crashed in August by Mountain View-based Google Inc. The search engine’s $1.92 billion initial public offering was followed by local tech names Cogent Inc. (fingerprint identification) and Jamdat Mobile Inc. (mobile phone games).
Lowlights:
After a solid 2003, semiconductors faltered thanks to a slowing global economy. Declines in Intel Corp. shares filtered down to local chip makers Semtech Corp. and International Rectifier Corp. And the IPO market’s revival wasn’t strong enough to pull up venture capital. Since rebounding from its lows in the past year or two, the VC market hasn’t been able to shift out of first gear although early stage investments, a key harbinger of future activity, have picked up.
Outlook:
The big question remains capital spending. Companies have money to purchase computers and other equipment but until they see solid growth, they’re keeping much of it in their pockets. Still, a net 14 percent of chief information officers polled in Los Angeles say they plan to hire technology professionals this year better than in other parts of the country. Bottom line: Companies are taking a slow and steady approach.
Prospects:
Fair
TELEVISION
Highlights:
A tight presidential campaign, a thrilling World Series and the quadrennial Summer Olympics made for great drama and ratings. Viacom Inc.’s CBS network was the big winner in the spring upfront ad sales derby, although by the end of the year, Walt Disney Co.’s ailing ABC network was showing signs of a rebound as hit shows “Lost” and “Desperate Housewives” could help the network post its first profit after three years of losses. NBC completed its acquisition of Universal.
Lowlights:
The year opened with Janet Jackson’s breast popping out during CBS’ Super Bowl broadcast, sending the Federal Communications Commission on a fining binge. NBC’s perennial Top 10 shows “Friends” and “Frasier” both left the air with no replacement of comparable popularity stepping in to replace them. HBO lost its hit “Sex and the City.” ABC and CBS saw shakeups in their executive suites. Viacom’s restive president Mel Karmazin resigned, leaving Les Moonves and Tom Freston to take over as co-presidents and co-chief operating officers.
Outlook:
HBO will lose two acclaimed favorites as “The Sopranos” and “Six Feet Under” enter their final seasons. Meantime, the ad market has been slow to rebound and the major networks have been relying on franchise programming (“CSI,” “Law & Order,” anything from Mark Burnett), a risky proposition if the audience turns fickle.
Prospects:
Fair
TOURISM
Highlights:
A full-scale recovery took place in 2004, with notable gains in international visitors and business travelers. Preliminary results showed 24.3 million visiting L.A. more than the record high of 24.2 million in 2000. Reversing three years of declines, the number of international visitors rose to roughly 4.2 million, with some of the largest increases coming from China, Taiwan, Australia and Japan. Travelers also upped spending by 7.8 percent, to $12 billion, with spending by international visitors marking a nearly 12 percent increase over the year earlier. Hotel occupancy in the county was up 7.5 percent, and room rates were projected to be 4.5 percent higher than in 2003. L.A. Inc, the convention and visitors bureau, launched its celebrity-laden “See My LA” advertising campaign.
Lowlights:
Museum attendance through October declined 5.7 percent compared with the first 10 months of 2003. Downtown is still unable to provide enough rooms in close proximity to the Convention Center a problem that’s not likely to improve until late 2007, assuming the convention center hotel is completed according to schedule.
Outlook:
With 2004 hotel occupancy for the county surpassing the region’s high-water mark of 75 percent, growth in 2005 is likely to slow to just 2 percent. Room rates are projected to rise 4.5 percent. And assuming the dollar stays weak, more international travelers may be coming to visit L.A.
Prospects:
Very good
*Compiled by Kate Berry, Laurence Darmiento, David Greenberg, Anthony Palazzo, Jonathan Diamond, Rebecca Flass, Matt Myerhoff, Andy Fixmer and Amanda Bronstad.
