NORTH BAY BUSINESS JOURNAL EVENT

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Tuesday, August 26, 2008, 8-10:45 a.m., Napa Valley Marriott, Napa

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September 25, 2008, 5:30-7:30 p.m., Doubletree Hotel, Rohnert Park

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Basin Street $270.4 million sale top story for '05

1. Equity Office buys Basin Street property

Chicago-based Equity Office Properties Trust, the nation's largest owner of commercial real estate, made a huge statement about the future of the North Bay economy in early July by agreeing to purchase 1.43 million square feet from Petaluma-based Basin Street Properties, formerly the largest owner of commercial real estate in the North Bay.

Equity Office is paying Basin Street $270.4 million for 36 buildings from Novato to north Santa Rosa. That includes 13 buildings Basin Street owned in Petaluma's Redwood Business Park, where Basin Street helped start a telecommunications products cluster called Telecom Valley.

When the last piece of the portfolio sale is complete in the first quarter of 2006, Equity Office will own 2.1 million square feet in the North Bay or 40 percent of Marin County class A office space and a third of Sonoma County's. The sale accounted for half of Basin Street’s portfolio and 80 percent of its operating assets.

Equity Office said it bought the properties because it sees a bright future for small companies across an array of industries along the Highway 101 corridor.

Basin Street is reinvesting proceeds from the sale into what it sees as the future of the Sonoma County office market – small companies needing less than 10,000 square feet. The company has numerous projects under way, including its Redwood Business Park across from Telecom Valley in Petaluma.

Other Sonoma County projects or acquisitions in the works for Basin Street include branded hotels and retail and residential properties. It also invested $34.6 million in a Class A office building space in downtown Reno, Nev.

2. Supreme Court opens door for direct wine shipments

On May 16, the United States Supreme Court ruled that states cannot prohibit consumers from buying wine directly from out-of-state wineries, handing the wine industry a huge victory in its years-long effort to eliminate bans across the nation.

North Bay winemakers unanimously praised the decision, saying it would open new markets, particularly for smaller entities that lacked distribution leverage.

In making the decision, the court ruled that bans on direct sales to consumers unconstitutionally discriminate against interstate commerce. Defenders of the contested laws argued that states have the power to regulate the sale and distribution of alcoholic beverages.

The wine industry hinged its case on the Michigan and New York laws that banned national direct sales yet permitted direct sales within the states. The court opined that such a condition bestows an unfair competitive advantage.

"We hold that the laws in both states discriminate against interstate commerce in violation of the Commerce Clause and that the discrimination is neither authorized nor permitted by the 21st Amendment, " stated Justice Anthony Kennedy on the day of the decision.

Since the decision, a handful of states across the country have revisited their laws and opened their markets. To gain access, businesses must typically purchase a variety of permits from the state to which it will ship.

3. Huge deals reshuffle premium wine industry

Six months after the $1.36 billion acquisition of Oakville-based pioneer Robert Mondavi Corp. by New York-based drinks giant Constellation Brands, two other conglomerates made heavy investments that touched the North Coast wine business.

On July 26, Illinois-based beverage conglomerate Fortune Brands acquired Geyserville's Clos Du Bois, Sonoma's Buena Vista, William Hill in Napa Valley and Gary Farrell in Russian River Valley as part of a $14 billion merger of Allied Domecq with Pernod Ricard.

In late June, Australia-based beer and wine giant Foster's Group acquired Australian wine rival Southcorp for $2.8 billion and consolidated its domestic sales and marketing into the Napa-based Foster's Wine Estates division.

Fortune Brands has been integrating 700 employees and more than a half dozen wineries into one of the top five superpremium wine companies in the world.

In early November, filmmaker Francis Ford Coppola reached a deal with Foster's to buy the Chateau Souverain facility in Geyserville reportedly for $34 million. The deal is set to close in February.

4. Simon Property buys 50 percent of Coddingtown

Simon Property Group, the nation's largest shopping center owner whose holdings include Santa Rosa Plaza and three others in the North Bay, in November acquired a 50 percent interest in Coddingtown Mall from Rohnert Park-based Codding Enterprises for $37 million.

The joint venture included assumption of $10.5 million in existing mortgage debt, according to Indianapolis-based Simon.

In February, Codding CEO Brad Baker announced he was looking for a joint-venture partner to back a $100 million to $150 million project to bring the four-decade-old, 50-acre property up to date and make Sonoma County's largest mall "more dominant."

Mr. Baker said Codding picked Simon for its national and local market knowledge to capture retail sales dollars currently leaving the county.

"Many Sonoma County residents travel to places such as Marin and San Francisco to purchase merchandise that is currently unavailable locally," he said.

He told the BUSINESS JOURNAL that the main demographic he's targeting is affluent shoppers. A common request he's heard from shoppers is for a local Nordstrom department store. The only one in the North Bay is in Corte Madera.

Mr. Baker said in February that a venture partner needed the clout to draw a tenant like Nordstrom.

Simon spokesman Les Morris declined to comment on the prospects of a Nordstrom store at Coddingtown. Nordstrom is the sixth-largest tenant in Simon's 203 million square foot portfolio of 298 centers in 40 states and Puerto Rico, with 21 stores totaling 3.72 million square feet.

"We're working with Nordstrom on adding more locations," Mr. Morris said.

Partnering on the 827,000-square-foot Coddingtown Mall, with only 1.5 miles between it and 698,000-square-foot Santa Rosa Plaza, is not unusual, Mr. Morris said.

Simon acquired Santa Rosa Plaza outright in 1998 and has owned Premium Outlets malls in Petaluma, Napa and Vacaville since 2004.

5. Boston Scientific purchases fast-expanding TriVascular

In January of 2003, medical-device maker TriVascular entered into a series of agreements with Boston Scientific, including funding, exclusive distribution rights and an option for Boston Scientific to purchase the company, an option it exercised in April 2005.

Analysts expect Boston Scientific to play a hands-off role with its new division, allowing the company to grow in the place it was founded.

The 7-year-old developer of stents for aortic aneurysms grew from 62 to more than 275 employees during the past two years.

In July 2005, it leased one of the former Agilent Technologies buildings near the Charles M. Schulz – Sonoma County Airport, the largest lease of its kind since the height of the tech boom in 2000.

The 110,000-square-foot building next door to another medical products maker, Medtronic Inc., will allow TriVascular to nearly triple its previous space of 36,000-square-feet on North Laughlin Road as it prepares to bring its life-saving device to treat aortic aneurysms to market.

TriVascular’s stent is expected to dominate the market when it receives approval, which could be as early as 2006 in Europe. The market for treatment, driven by an aging population and increased early screening, could reach $1.3 billion in 2008 and grow to $2.8 billion by 2010.

The new location at 9010 Brickway Blvd., built for Agilent and never occupied, was expected to undergo extensive renovation and improvements before TriVascular moved in at the end of 2005, according to co-founder and president Michael Chobotov, Ph.D.

6. Red-hot housing market finally comes to its senses

Realtors and homebuilders began to see it in late summer: The overheated North Bay housing market was beginning to cool off just as many said it needed to.

In the Northern Wine Country, which encompasses Sonoma, Napa and Mendocino counties, sales volume in October was down 23.7 percent from September and 17.4 percent from October 2004, according to the California Association of Realtors. Median price in the area in October was $628,800, down 1.7 percent from $639,390 in September but still up 20.7 percent from $520,980 in the same month last year.

To compensate for the change, Realtors have been prepping their clients to no longer expect scores of offers on a listing and to price the home more conservatively than in the past.

Homebuilders are also adjusting practices, in some cases offering to cover portions of a buyer's closing costs as well as including additional features in new homes without increasing the price.

While most in the industry envision a flattening market in 2006 with tepid sales growth and slowing appreciation, few forecast a significant downturn as interest rates and new home inventory in the North Bay are not expected to rise sharply.

7. Local group wins federal approval for salamander protection

A public-private plan two years in the making to protect the California tiger salamander and four endangered plants in central Sonoma County won the endorsement of the U.S. Fish & Wildlife Service in mid-December. The victory, however, could be short lived.

The Arizona-based Center for Biological Diversity, whose lawsuits since 2001 forced the wildlife service to list the salamander as endangered in 2002 and restore the endangered status this summer, reiterated its opposition to the agency's decision, calling the conservation strategy flawed and the economic impact of habitat designation overblown.

Instead of 3,400 to 4,500 acres of conservation land envisioned in the strategy, the center supports the wildlife service's original proposal of 74,223 acres as "critical habitat" for the amphibian and is considering a court appeal of the ruling.

Wildlife service spokesman Al Donner said an appeal wouldn't automatically halt the conservation strategy pending a court decision.

The strategy calls for eight habitat conservation areas in west Santa Rosa, southwest Cotati and southeast Rohnert Park plus one wildflower area southwest of Windsor. The strategy provides a streamlined regulatory process for dealing with impacts on the species from projects within 1.3 miles of salamander breeding sites.

8. Seven new banks open across the North Bay

Last year witnessed the arrival of at least seven new banks to the North Bay, some as local upstarts, others as out-of-area entrants.

Charter Oak Bank, based in Napa, First Community Bank, based in Santa Rosa, Bank of Napa and Atlantic Pacific Bank, also based in Santa Rosa, lead the list of the locally-grown institutions that opened or filed to open in 2005.

The list of out-of-area banks that made a footprint in the North Bay consists of Portland-based Umpqua Bank, Redding-based North Valley Business Bank and Rancho Cucamonga-based Vineyard Bank.

Bankers generally were bullish on the North Bay, citing Westamerica's successful acquisition National Bank of the Redwoods and the likelihood that the region's growing wealth will fuel enough deposit growth to support new and existing banks.

"The North Bay is a very prosperous region, and deposit growth is very strong here," said Brian Kelly, president and CEO of Charter Oak Bank. "This is no secret, and for this reason there will always be a steady flow of startup banks that fill the much-needed role of community banker."

Established North Bay banks did not remain still in 2005 either. Sonoma National Bank opened three new branches, including its first in Contra Costa County, and listed its shares on the Nasdaq. Meanwhile, Exchange Bank finalized plans to open a full-service business branch in the Sacramento-area city of Roseville, while Bank of Petaluma ironed out plans to open a Santa Rosa office.

9. Doctors lose bid to raise Medicare reimbursements

Physicians in Sonoma County were disappointed when increased payments from Medicare were not approved in November.

The effort to increase reimbursements from the current "rural" schedule was seen as the last non-legislative option available to Sonoma County physicians, who are paid 8 percent less to treat Medicare patients than physicians in Marin, Napa and Solano counties.

The increased payments would have represented about $38 million to county doctors who have long blamed their inability to recruit and retain physicians and decreased access to physicians for Medicare patients on low reimbursements.

An estimated 60 percent of doctors say they won’t take any new Medicare patients, according to the Sonoma County Medical Association.

Representatives from the association, the California Medical Association and other doctors groups have vowed to continue to push for changes to the federal formula, which dictates how doctors are reimbursed.

A planned 4.4 percent across-the-board reduction in Medicare reimbursements that would have added salt to Sonoma County physicians’ wounds was narrowly blocked before Congress adjourned in December.

10. Costs for new Sutter Medical Center double, forcing cuts

Construction costs for Sutter Medical Center of Santa Rosa’s planned 124-bed hospital have more than doubled since plans were drawn due to rapidly rising prices of building materials.

Sutter has had to make changes to its original plans and has whittled the construction cost back down to about $157 million for the new hospital, which is expected to be completed in the spring of 2010 on 25 acres next to the Luther Burbank Center for the Arts.

The total cost of the hospital initially was estimated at $203.4 million in 2003 but has reached more than $250 million now.

Currently the hospital is licensed for 244 beds.

A letter to the Sutter Health trustees from Pat Fry, president and CEO of Sutter Health, the parent organization of Sutter Santa Rosa, said construction costs for Sutter projects have soared by 25 percent in the past year. “We need to reassess our capital plans to ensure we have designed a delivery system that will support our long-term success,” Mr. Fry said in the letter.

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