Power supply manufacturer Pioneer Magnetics Inc. has operated in Santa Monica since 1960, but as tech and entertainment startups move into the area driving up rent and eating up parking, the company fears it might be pushed out.
“The key question for me is: How do we keep our business in Santa Monica?” said Jerry Rosenstein, 72, chief operations officer. “We’ve been longtime tenants in Santa Monica, 57 years to be exact, and we’d like to stay.”
But the company, founded by his father, sits amid a neighborhood transformed in recent years as manufacturing companies have fled while new neighbors, both startups and industry giants Yahoo Inc., Revolution Studios, Lionsgate Entertainment Corp., and HBO, have moved in.
That transition was hastened when the city rezoned the district, known as Bergamot, to mixed-use creative in 2013. The result was that Santa Monica’s few remaining manufacturers, already facing the challenges of a changing and modernizing industry, were further squeezed as rents rose.
Rosenstein said his 45,000-square-foot manufacturing and office building, at Berkeley Street and Nebraska Avenue, is now the only traditional manufacturing facility in the area.
The office influx has also squeezed parking in the area.
The number of available spaces has dwindled as parking lots were converted into office buildings, and Pioneer, which employs 100 people, has just five spots allocated for its staff of 100.
Rosenstein said the situation has become so dire the lack of parking has been cited as a reason potential hires have turned down engineering jobs at the company.
“There was a time where I could say we had unlimited parking. Just 10 years ago we shared parking spaces with a school nearby, there was a double-story building down the street for parking, but now that space is business offices,” he said.
Old factory buildings are being converted into creative spaces, according to Rick Buckley, principal at L.A. Realty Partners.
“There are 500 tech startups that have come into the area since 2014 with a total of $7 billion commitment from tech venture firms,” he said. “A lot of companies like Pioneer are facing this issue not just in Santa Monica, but in the Silicon Beach region.”
Buckley said that while it’s unfortunate that Pioneer is facing displacement, more jobs are being brought in due to the tech and media startups in the area.
Manufacturing decline
Pioneer was co-founded in Van Nuys 60 years ago by Rosenstein’s father, Allen Rosenstein, and a friend, before moving three years later to a 5,000-square-foot Santa Monica facility, which the company expanded and continues to use today.
The manufacturer, which is still owned by the Rosenstein family, makes power supplies for telecommunication companies, public utilities, hospitals, and the military. Power supplies are hardware built internally in a device or, in Pioneer’s case, retrofitted into larger machines to safely distribute electricity from a power cord.
In the company’s early days, manufacturing had a much larger presence in the city.
“McDonnell Douglas, the airline company, had a big manufacturing base in Santa Monica,” said Jason Harris, the city’s economic development manager.
It merged with Boeing in 1997 and eventually shut down operations in Santa Monica.
Other manufacturers that called Santa Monica home but have since left include Teledyne Reynolds Inc., now located in Del Rey, and Burroughs Corp., which was renamed Unisys Corp. and now has offices in Downey.
Manufacturing today makes up less than 1 percent of businesses in the city. Santa Monica had 93 companies with 1,140 employees in the manufacturing sector in 2015 out of a total of 9,500 businesses that accounted for 96,000 jobs, according to the latest data from the California Department of Labor.
Pioneer’s heyday has passed as well, after peaking about 20 years ago with close to 650 employees, Rosenstein said. Today, it generates revenue of between $6 million to $8 million a year, and the average product cost is around $2,000.
Rising rents
The changing face of the neighborhood as an entertainment and technology hub has driven up rents, and that, coupled with the scarcity of parking, has Rosenstein concerned that Pioneer might be forced out of its longtime home.
“I can’t afford the $4-a-square-foot rent on commercial properties in Santa Monica,” said Rosenstein, who would not disclose how much he pays for rent.
His 45,000-square-foot facility would be around $180,000 a month if rented at market rate – more than $2 million a year, or a quarter of his annual revenue.
Asking rents in the surrounding are even higher – Santa Monica’s average asking rent in the first quarter was $5.68 a square foot, the highest among Westside cities.
City officials said they recognize Pioneer’s history in Santa Monica and have been helping it and similar companies by linking them to resources that have helped lower their overhead.
“The Sustainable Santa Monica Business support … has helped them lower their overall operation costs through energy-saving activities, grants, and rebates,” Jennifer Taylor, the city’s economic development administrator, said via email.
Rosenstein called the support from the city “zilch.”
If location issues weren’t enough, Rosenstein is worried about the future of the company due to automation, competitiveness, and minimum-wage hikes, concerns shared by many U.S. manufacturers.
“I’m all for people making more money, but I will have to take a hard look at the business in trying to comply with the minimum-wage increase,” he said. “It will make companies like ours go further off shore.”
Pioneer has shifted some manufacturing to China and Mexico over the last five to seven years, at a cost of 200 jobs in Santa Monica, according to Rosenstein.
As with other manufacturers, Pioneer is faced with an opportunity to automate, a change that will require more highly skilled employees.
That poses a problem as Rosenstein seeks to maintain the culture of the company his father built, noting that 10 percent to 15 percent of its workforce is related to each other.
“This is very much a family business on so many levels, I have to think about everyone, especially my employees who make their bread and butter here,” he said.
One option he said might keep Pioneer in Santa Monica is changing the business model by becoming a repair shop for the power supplies. The company does some of that now but such a switch in focus would simplify constraints on the business and maintain the majority of its workforce.
“That’s one of the options, but yes, a simple repair shop could be the answer,” Rosenstein said.
Santa Monica is no stranger to parking issues, and businesses including Pioneer Magnetics Inc. are no exception to the problem.
“We have only five parking spaces for a staff of up to 100,” said Jerry Rosenstein, chief operations officer, said. “There is tons of residential street parking around our business that’s available during the day but we can’t use them.”
The Bergamot mixed-use creative district where the company is located is mostly surrounded by residential streets where permits are required to park.
“There’s been a successful resident advocacy movement that’s helped with residential parking permits over time, and yes, it has impacted businesses like Pioneer that are located close to residential streets,” said Constance Farrell, public information coordinator for the city.
Farrell noted that “when Pioneer bought its buildings, it did so without purchasing parking, and we can’t change that.”
That’s the case across much of the city.
To try to alleviate some of the issues, the city implemented a bike-sharing system in November 2014 called Breeze Bike Share, Los Angeles County’s first such program.
But that mostly benefits tourists and Santa Monica residents who work in the city.
Rosenstein said some of his employees commute from as far as Palmdale, Valencia, and Alhambra. Even with the Expo Line light-rail extension into downtown Santa Monica, which began service in May, the majority of his employees don’t benefit because they don’t live close to rail stations.
Older manufacturing firms aren’t the only ones affected.
Papermate Co.’s manufacturing facility, just west of the Pioneer location, was purchased by New York real estate firm Clarion Partners last year and is being redeveloped into a 220,000-square-foot creative office project called the Pen Factory.
Clarion addressed the lack of parking in the area by building an underground garage that can house around 100 spots, said Rick Buckley, a principal at L.A. Realty Partners and leasing agent for the site. The property, which is scheduled to open later this year, is to have 700 parking places. – Shwanika Narayan
