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Coffee Talk
Business Observer Friday, Jun. 9, 2006 16 years ago

Coffee Talk

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Due concern: Carl Wise, president of Sarasota-based Preferred Commercial Inc. is eagerly anticipating June 15 as a sort-of D-Day for Sarasota Realtors.Best ever: The Bay Area Manufacturing Association is raving about the recent state legislative session: The group says the session was one of the best ever.Naples money managers to leave?: Coffee Talk hears that Bruce Sherman and Gregg Powers may split from Private Capital Management, the hugely successful Naples-based money management firm they oversee.Builders under pressure: When home sales were booming, investors favored builders that owned large tracts of land for future development.Fred Pezeshkan honored by Ellis Island: Fred Pezeshkan began his life in Naples in 1979 with nothing but his education. Hot Growth: Coffee Talk has long known that the Gulf Coast is a thriving business area, but it's always nice to get a little national recognition.FDIC still edgy: The Federal Deposit Insurance Corp. updated its most recent quarterly economic report for Florida last month.Furniture company turns 75: Larmon Furniture, Tampa's oldest furniture family, is celebrating its 75th anniversary the weekend of June 9 with an all-day party in Ybor City.'Shopping' up nicely: Stemming from its much-hyped Spring Convention in Las Vegas, the International Council of Shopping Centers released both its statewide retail statistics and its current listing of the biggest malls in the s
by: Adam Hughes Staff Writer

Coffee Talk

+ Due concern

Carl Wise, president of Sarasota-based Preferred Commercial Inc. is eagerly anticipating June 15 as a sort-of D-Day for Sarasota Realtors. That's the deadline for members to pay their semi-annual dues to the Sarasota Association of Realtors. The number of people paying dues is a an insight into the market, he says.

"The rule is you have to pay some to make some," Wise says. "Well, if you're not making any and you have to pay dues that's going to provoke some soul searching. It's certainly an interesting time in the life of the association and its brokers."

On the reverse end of real estate, Wise says he is seeing considerably more people at the SAR's Commercial Investment Division meetings. He estimates average attendance is now at about 280 people; in down markets there have been as little as 40 people at meetings.

+ Best ever

The Bay Area Manufacturing Association is raving about the recent state legislative session: The group says the session was one of the best ever.

Top of the list for BAMA is House Bill 69, the Florida Manufacturing Global Competitiveness Act. It eliminates sales tax on capital equipment and machinery purchases used for manufacturing. The current law exempted taxes only on purchases of more than $700,000, which meant many manufacturers couldn't take advantage of the exemption.

The new law eliminates the threshold amount as long as the new equipment will lead to a 10% productivity increase.

BAMA is also touting House Bill 415 that exempts companies from paying sales tax on equipment used for research and development. It was sponsored in the Senate by Mike Fasano of New Port Richey and backed by the Florida Chamber of Commerce.

The group says the bill will encourage more companies to locate or keep highly skilled research efforts in Florida, and, after all, research and development form the backbone of modern manufacturing.

+ Naples money

managers to leave?

Coffee Talk hears that Bruce Sherman and Gregg Powers may split from Private Capital Management, the hugely successful Naples-based money management firm they oversee.

Sherman and Powers have a standing policy of not speaking publicly. A spokeswoman for Baltimore-based Legg Mason, which bought PCM five years ago, says neither Sherman nor Powers plan to leave.

But chatter about the duo's departure has heated up lately, Coffee Talk hears, as the five-year anniversary of Legg Mason's purchase of the Naples firm approaches. Originally established to manage money for the Collier family, PCM was a limited partnership owned by its co-founder, Miles Collier, and by its two operating principals: Sherman, who co-founded the company with Collier in 1985 and serves as PCM's chief executive officer, and Powers, its president. The firm manages money for high-net-worth individuals and institutional investors.

When Legg Mason bought PCM in the fall of 2001, the Baltimore-based firm paid $682 million in cash up front and agreed to two "earn out" payments on the third and fifth anniversaries of the acquisition, based on PCM's growth. At the time, PCM managed $8 billion in assets. Today, the firm manages $31 billion. The total deal, which was announced in May 2001, was capped at $1.382 billion.

PCM's long-term track record is stellar, which accounts for the quadrupling of assets under management in the last five years. For the 10-year period ended March 31, PCM's annualized returns totaled 20%. That compares to 9% for the S&P's 500-stock index. However, its recent short-term performance has slowed, partially because of its weighty investments in struggling newspaper stocks. Its one-year performance through March 31 was 8%, compared with 12% for the S&P 500 index.

+ Builders under pressure

When home sales were booming, investors favored builders that owned large tracts of land for future development. But now that sales are slowing, investors view land holdings as a drag on earnings.

According to a recent analysis of homebuilders by Bank of America's homebuilding analyst Daniel Oppenheim, Bonita Springs-based WCI Communities has one of the largest inventories of land among large homebuilders, with 9.7 years' supply. Oppenheim measures years of supply by the ratio of lots to trailing 12-month closings. Only Virginia-based Comstock Homebuilding has a larger supply, with 10.8 years' worth.

Still, investors may already have taken this fact into account. WCI Communities is one of the few homebuilders whose stock is trading at a discount to its estimated asset value. According to Oppenheim, WCI's stock is trading at a 16% discount to its asset value, the cheapest of all homebuilders by that measure. WCI's stock, which recently traded at $20, is one of Oppenheim's top picks with a target price of $26 a share.

OVERSUPPLY OF LAND?

Builders with the largest supply of lots (Ratio of lot supply to trailing 12-month closings)

Builder Years' supply of lots

Comstock Homebuilding 10.8

WCICommunities 9.7

Toll Brothers 9.6

Pulte Homes 7.7

Lennar 7.7

Centex 7.5

NVR Inc. 7.4

D.R. Horton 7.4

Hovnanian Enterprises 7.2

Meritage Homes 6.4

Standard Pacific 6.3

KB Home 5.1

Ryland Homes 4.9

MDC Holdings 2.7

Source: Bank of America Equity Research

+ Fred Pezeshkan

honored by Ellis Island

Fred Pezeshkan began his life in Naples in 1979 with nothing but his education. Today, he is president and CEO of Naples-based Kraft Construction, one of Southwest Florida's leading construction companies.

For his accomplishments, Pezeshkan, 57, recently received the Ellis Island Medal of Honor. The award is presented annually to Americans for outstanding citizenship and personal achievement. Other recipients have included Rosa Parks, Rudolph Giuliani, Colin Powell, Walter Cronkite and Bob Hope.

"What makes this country great is that it doesn't matter what ethnic background you have and where you come from," Pezeshkan says. "You can make a difference."

Pezeshkan, who was educated in England and the U.S., built a $100-million construction business in Iran in the 1970s. But while he was on vacation in Germany with his German-born wife in 1979, revolutionaries overthrew the Shah and Pezeshkan never returned to his homeland. He lost everything.

Starting all over, Pezeshkan grew Kraft from $3 million in annual revenues and five employees. This year, the 500-employee firm projects $600 million in revenues.

In addition, Pezeshkan has helped raise $100 million for various nonprofit organizations. Pezeshkan says he's particularly fond of education organizations because that was the asset that helped him rebuild his life in the U.S.

+ Hot Growth

Coffee Talk has long known that the Gulf Coast is a thriving business area, but it's always nice to get a little national recognition.

Business Week magazine recently identified the top 100 "sizzling hot growth" companies to watch, and four of the six Florida companies to make the list are headquartered along the Gulf Coast. .

The four sizzlers are Bradenton-based Gevity (in 33rd place), Chico's FAS in Fort Myers (39th), Sun Hydraulics of Sarasota (61st) and Tampa-based Kforce (89th). The other two Florida companies on the list are PetMed Express of Pompano Beach (27th) and Parlux Fragrances of Fort Lauderdale (63rd).

To make the grade, companies must excel in sales growth, earnings growth and return on invested capital. Business Week filtered Standard & Poor's database of more than 10,000 publicly held companies to rank the winners.

+ FDIC still edgy

The Federal Deposit Insurance Corp. updated its most recent quarterly economic report for Florida last month. One thing the FDIC didn't take back was a previously expressed concern with the concentration of construction and development loans at Florida banks.

The federal regulator says 52% of community financial institutions in the state have C&D loans on their books that exceed 100% or more of capital. In contrast, just 12% of Florida community institutions had similar C&D exposure in 1988, the peak of the state's last big real estate building cycle.

Old-timers may recall that some of the banks that were overextended with risky development loans during the late 1980s subsequently failed. To prevent a repeat, federal regulators have issued guidelines for lenders with heavy commercial real estate loan portfolios.

Another FDIC report issued last month shows the share of state-chartered financial institutions in Florida that aren't making money increased during the first quarter. The unprofitable stood at 18.05% of all state charters, up from 13.85% for the first quarter of 2005.

Could the proliferation of startup banks, which usually don't make it into the black for a year or two under the best circumstances, be distorting the picture?

Almost 40% of state-chartered institutions with less than $100 million in assets were unprofitable in the first quarter, up from nearly 36% in the year-earlier period. But the percentage of unprofitable state-chartered institutions with more than $100 million in assets also went up, from 3.05% to 7.3%.

The banks and thrifts that are doing well, perhaps due to those C&D and home-equity loans that so worry regulators, appear to be covering for their weaker brethren in the overall Florida picture.

The average return on assets among state-chartered institutions during the first quarter was 1.18%, up from 1.12% for last year's comparable period.

+ Furniture company turns 75

Larmon Furniture, Tampa's oldest furniture family, is celebrating its 75th anniversary the weekend of June 9 with an all-day party in Ybor City.

Larmon Furniture has stood on the same street corner, at Seventh Avenue and 14th Street in Ybor City, since 1931. The family's third generation now runs the 20,000-square-foot store. Jimmy and Elizabeth Kalamaras took over when her father, Curtis Larmon, retired in 1992.

Elizabeth Kalamaras' grandfather, Rubel Larmon, set up the shop during the Great Depression after leaving Kentucky. Back then, Seventh Avenue was known as "furniture alley."

The free block party begins at 10 a.m. Saturday at 1324 E. 14th Ave., and features carnival games, crafts and Elmo.

'Shopping' up nicely

Stemming from its much-hyped Spring Convention in Las Vegas, the International Council of Shopping Centers released both its statewide retail statistics and its current listing of the biggest malls in the state, ranked by square feet. Shopping center sales growth, although slightly lower than the growth in 2004, was still at a healthy 6.2%. The only Gulf Coast area mall to make the largest list was Tampa-based University, which has been put up for sale by its Ohio-based owner.

FLORIDA 2002 2003 2004 2005

Number of shopping centers 3,603 3,678 3,751 3,839

Total leasable retail area (millions/sq. ft.) 460.7 469.1 476.9 487.7

Number of adults shopping monthly (millions) 11 11.3 11.5 11.7

CONTRIBUTIONS TO LOCAL ECONOMY

Shopping center sales (billions)* $144.3 $150.6 $160.3 $170.3

Year-over-year growth 3.3% 4.4% 6.4% 6.2%

State sales tax revenues (billions) $8.7 $9.0 $9.6 $10.2

Shopping center-related employment 993,684 989,209 1,000,790 1,020,189

Percent of total nonagricultural employment 14% 14% 13% 13%

ECONOMIC INDICATORS

Resident population (thousands) 16,678 16,993 17,385 17,790

Total nonagricultural employment (thousands) 7,180 7,261 7,510 7,810

Unemployment rate 5.7% 5.3% 4.7% 3.8%

Per capita total personal income $29,709 $30,128 $31,469 $33,219

TEN LARGEST SHOPPING CENTERS

Center Location millions/sq. ft. Opened

1. Sawgrass Mills and the Oasis Sunrise 2.7 1990

2. Aventura Mall North Miami Beach 1.9 1983

3. Florida Mall Orlando 1.85 1986

4. Town Center at Boca Raton Boca Raton 1.56 1980

5. Dadeland Mall Miami 1.47 1962

6. Regency Square Mall Jacksonville 1.46 1968

7. The Gardens Palm Beach Gardens 1.35 1988

8. University Mall Tampa 1.32 1974

9. Dolphin Mall Miami 1.31 2001

10. The Galleria Ft Lauderdale 1.3 1980

Sources: BIGresearch, U.S. Census Bureau, U.S. Department of Commerce,

U.S. Department of Labor, National Research Bureau, Sales Tax Institute, ICSC.

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