Also: Casino opens doors; health care reshuffled; mergers, better bottom lines in banking
By Jeff Quackenbush, Dan Verel, Eric Gneckow, Staff Writers and Loralee Stevens for the Business Journal
From the most extensive transformation of Sonoma County’s energy sector ever to the construction of the $800 million Graton Resort & Casino in Rohnert Park to the reshuffling of health care to major wine M&A deals in Sonoma and Napa, 2013 could very well be viewed a decade from now as a pivotal year for the region.
Like this time every year, we look forward to reporting more big stories in 2014. For now, here are the Top 10 Stories of 2013 as selected by the Business Journal editorial staff:
1. Sonoma Clean Power launches
SONOMA COUNTY — It was a vote that marked one of the most pivotal moments in the formation of a new renewable energy-focused power agency in Sonoma County, a moment when the county’s largest municipality would decide whether it would allow the agency to serve its residents and businesses.
That favorable decision by Santa Rosa to join other municipalities in Sonoma Clean Power’s first year of operation was in July 2013, adding hundreds of thousands of potential customers and major momentum to the agency’s launch phase. The agency will begin serving its first round of 20,000 customers in May of 2014, aiming to give ratepayers an alternative to Pacific Gas & Electric Co.
The agency has celebrated other milestones throughout the year, including the hiring of its first CEO and the finalization of its first two contracts for wholesale electricity.
Yet the decision by Santa Rosa and other municipalities was key in outlining the scope of the program, with a looming deadline for securing discounted wholesale electricity rates adding additional pressure for city governments. Around 80 percent of Sonoma County ratepayers will be eligible for service as the program phases in over three years, with Petaluma, Healdsburg and Cotati opting out in the first year. Participating municipalities are represented on the agency’s joint powers authority.
Sonoma Clean Power entered into its primary three-year power supply contract with Baltimore, Md.-based Constellation Energy in November, which will allow a power supply that is at least one-third from renewable sources and 70 percent from low greenhouse gas-emitting sources. The agency also entered into a smaller 10-year contract with Calpine Energy Services, which operates a network of geothermal power plants on the Sonoma and Lake County border.
Those contracts are expected to allow retail power rates that are between 2 percent and 3 percent less than comparable prices from PG&E.
The agency also entered into a $10 million financing arrangement with Santa Rosa’s First Community Bank for startup costs and power purchases prior to receipt of ratepayer payments in 2013.
2. Graton Resort & Casino
ROHNERT PARK — After years of debate, legal battles and continuing questions about its potential impact, the Graton Resort and Casino officially opened to the public in November to massive crowds from the Bay Area and beyond.
Major construction began in 2012 and ended in 2013 on the 3,000-slot, 320,000 square-foot, $820 million facility, which proponents say will be a significant boon to the city of Ronhert Park, Sonoma County and the North Bay in general.
Indeed, on opening day, thousands of eager gamblers flocked to the casino, operated by Las Vegas-based Station Casinos and owned by the Federated Indians of Graton Rancheria, snarling traffic along Highway 101.
Proponents point to the hiring figures of the massive structure, which now employs some 2,000 people and employed 700 construction workers during the building phase. Casino officials and other proponents also say the casino is yet another attraction for Sonoma County, luring tourists from the Bay Area and further increasing the already-strong tourism sector.
But the casino is not without its critics. A local group, Stop the Casino 101 Coalition, has filed suite to block development but has so far been unsuccessful. The Coalitions says it has a current suite pending that could shutter the casino. Critics say the sight is ill-suited for a large-scale casino and say that quality of life in Rohnert Park will decline.
Nevertheless, the casino said it is confident it will prevail in court. In addition to the 3,000 slot machines, the facility is also home to a number of well-known restaurateurs, adding further depth to Sonoma County’s growing hospitality sector. Among them: 630 Park Steakhouse, owned and operated by the casino, Daily Grill, M.Y. China and Tony’s of North Beach.
3. Agilent spinoff to be based in Santa Rosa
SANTA ROSA — Agilent Technologies Inc. (NYSE: A) announced in September it will spin off the Electronic Measurement Group headquartered in Santa Rosa. The separation is slated to be complete by November 2014.
Ron Nersesian, formerly president of the group and most recently executive vice president and chief operating officer of Agilent Technologies, will be chief executive officer of what will be the world’s leading electronic test and measurement company.
“I’m excited. The employees are excited. This is going to be a great company and it couldn’t be in a better spot than Santa Rosa,” he said.
Agilent shareholders were reportedly unhappy with the volatile nature of communications and aerospace, which are currently in a slump — the electronic measurement group reported a 17 percent drop in revenues for the last quarter.
However, according to Mr. Nersesian the electronic measurement group has brought in lots of money over the years that was spent to grow other parts of the business.
“Now that money can be spent on growing our own business,” said Mr. Nersesian. “We have new product platforms and projects underway.”
Before next November there’s a new board of directors to choose as well as a name and logo and countless details to be worked out separating the two companies.
About 80 new positions will be filled with Agilent workers who will relocate to the area, said Mr. Nersesian. “Then as we fill out functions now shared with Santa Clara, we’ll be doing some local hiring.”
EMG has 9,500 employees worldwide, in Japan, Korea, Taiwan, Malaysia, Germany and several states in the U.S.
Guy Séné, currently president of the group, will lead the R&D, sales and marketing teams of the new company.
EMG pays close to $100,000 per employee and pumps a significant amount of money into the local economy in addition to its many philanthropic and educational enterprises.
—Loralee Stevens, Special to the Business Journal
4. Health care reshuffled
With most of the major provisions of the Affordable Care Act taking effect in this coming year, 2013 was, unsurprisingly, a busy year in health care. From Washington D.C. to state capitals to local hospitals, the ACA was and will continue to be on everyone’s mind.
Across the North Bay, there has been noticeable movement toward more coordinated care that seeks to reduce hospital readmission. The most notable, and likely the most unique, of 2013 was the formation of an accountable care organization by the region’s federally qualified health centers — one of two such FQHC, nonprofit-driven ACOs established under the ACA.
Known as the Redwood Community Care Organization, it consists of Santa Rosa Community Health Centers, Petaluma Health Center, West County Health Centers, Clinic Ole in Napa and other centers that are all part of the Redwood Community Health Coalition.
It’s among the only ACOs in the country to consist of federally qualified health centers focused on primary care. Typically, ACOs throughout the state have involved either physician groups or independent physician associations partnering with hospitals and an insurance product, such as the Meritage Medical Network, which was approved as the North Bay’s first ACO earlier in 2013.
Last year also saw the development of and the eventual launch of Covered California, the state’s online health exchange established under health care reform for consumers to enroll into health plans with possible federal subsidies. Compared to other states and the federal government, California’s exchange fared relatively well, though it was not without its own challenges, including slow loading times and technical issues.
In the North Bay, region 2 out of 19 for the exchange that includes Marin, Sonoma, Napa and Solano coutnies, more than 5,200 individuals had signed up for health plans in the exchange as of November, a number that is likely to increase. Mendocino and Lake counties are part of region 1.
Another development related to health care reform was the rush for early renewal by the region’s small employers, a trend that was noted by North Bay brokers that caught on nationally. Employers with 50 or fewer workers were give the option by carriers to renew before Jan. 1, 2014. If they did so, employers were able to roll-over their current health plans that avoided both rate increases and significant plan design changes stipulated by the Affordable Care Act.
Meanwhile, more health systems are getting into the HMO business, with Sutter Health expected to offer its own HMO in 2014 and Adventist Health set to offer an HMO in limited counties, including Mendocino. Other health systems are likely to explore the option in the coming year.
5. Rise of tourism
The North Bay saw significant gains in tourism over 2013, boosted in part by a series of high-profile events and continued outreach efforts.
Napa County continued to post strong gains, with spikes in tourism spending coming from Visit Napa Valley and the Napa Valley Vintners being named the official wine region of America’s Cup and the high-profile Bottle Rock music festival that drew thousands to the city of Napa. The America’s Cup alone contributed $6.3 million just to lodging in the Napa Valley — 6.5 percent more than expected — for a total economic impact of $26.7 million in direct spending.
In November, the most recent month for available figures, revenue per available room in the Napa Valley was up by 22.2 percent, while revenues were up by nearly 22 percent, according to Smith Travel Research. Occupancy was up by 15.3 percent in November, while the average daily room rate was up 6 percent. Year-to-date, RevPAR was up by nearly 12 percent, revenues were up by 12.8 percent, occupancy was up by nearly 4 percent and average daily room rates were up by 7.7 percent.
In Sonoma County, tourism accelerated as well, boosted by a number of factors, among them an increasingly popular craft beer and beverage industry. For the month of November, occupancy in Sonoma County reached 75 percent — a nearly 17 percent increase from the prior November, according to Smith Travel. Average daily room rates reached $119.08, up 6.5 percent. RevPAR in Sonoma County reached $89.29 — increase of 24.5 percent.
Year-to-date, Sonoma County occupancy was up by 9 percent — tops among its competitive set. Average daily room rates were $126.25, an increase of 5 percent, while RevPAR reached $94.36, an increase of 14.5 percent.
Marin County was similarly boosted by its proximity to the America’s Cup. In October, the most recent month for available statistics, average daily room rates were up 6 percent from the previous October, according to PKF Consulting.
Occupancy was up to 85 percent, a 2.4 percent increase, while RevPAR reached $133, up 8.5 percent.
For the 10 months ended in October, average daily room rates were $144.80, up 8.8 percent. Occupancy reached 79.5 percent, up nearly 7 percent, while RevPAR reached $115.17, up 16.3 percent.
6. Charles M. Schulz–Sonoma County Airport runway extension project
SANTA ROSA — A 12-year effort to bring the runways at the Charles M. Schulz — Sonoma County Airport up to new federal stands officially broke ground in August 2013, inspiring widespread hope that longer runways could help attract new commercial carriers and routes.
Those extensions could give heavier, longer-range commercial aircraft the distance necessary for takeoff and landing, opening up direct-flight possibilities that include Denver, Phoenix, Las Vegas, Salt Lake City, Reno, Palm Springs, Orange County, Long Beach and Hawaii, with international service to Guadalajara.
The airport currently offers direct flights to San Diego, Los Angeles, Portland and Seattle.
Work had originally been slated for completion in November of 2013, before the U.S. Fish & Wildlife Service required additional environmental mitigation for nearby habitat that could theoretically host an endangered flower seen elsewhere on the property. That mitigation added approximately $10 million to the overall project cost and delayed construction by around one year.
Federal aviation grants will pay for the majority of the project. The county is responsible for matching 10 percent of the project cost, which will be paid for by a $5 million loan from the California Department of Transportation.
Alaska Air Group subsidiary Horizon Airlines is currently the only commercial carrier operating out of Sonoma County Airport. The airline has seen commercial ridership climb steadily over the past few years, exceeding pre-recession levels in September of 2013.
7. Marin General Hospital bond approved
GREENBRAE — Voters in Marin this year showed significant and important support for Marin General Hospital when they backed a general obligation bond of $350 million to help support the rebuild of the 235-bed level 3 trauma center.
The rebuild, expected to total $500 million, is needed to make the facility seismically safe in the event of an earthquake. It caps years of extended deadlines with the state, and it proved once and for all that the hospital, overseen by the Marin Healthcare District, is a viable entity now that it’s fully removed from Sutter Health. Declared the winner in the old and now settled dispute with Sutter, Marin General has wasted little time in moving forward with what will be the North Bay’s biggest hospital construction project
The state extended the hospital’s deadline to 2030, which officials said will afford flexibility in designing the rebuild.
8. Banking: Mergers and improved financials
SANTA ROSA — Umpqua Holdings Corp., parent of Portland-based Umpqua Bank, continued its recent wave of North Bay acquisitions in 2013 with the announcement that it would acquire the parent company of Santa Rosa-based Argent Bank.
It was the second North Bay acquisition for Umpqua since completing its merger with Novato-based Circle Bank in 2012. Valued at around $2 billion, the transaction is expected to be completed in the first half of 2014.
The merger with Sterling Financial Corporation will create a combined company with around $15 billion in loans, $16 billion in deposits and 5,000 employees. Sterling has banking operations throughout the western United States, operating largely under its primary subsidiary, Sterling Bank.
The Spokane-based Sterling Financial first entered the North Bay market through the acquisition of the formerly-named Sonoma National Bank in 2007. That bank was founded in 1985, and continued to operate under the name Sonoma Bank in California until transitioning to the name “Argent Bank” in late 2013.
The bank’s office remained a major commercial lending hub for Sterling as a while, including operating as the administrative center for a U.S. Small Business Administration program that is among the most active in the United States.
Sterling was among the banks hard-hit during the recession, and raised more than $700 million in additional capital following a regulatory order in October 2009. The bank succeeded with investment from around 30 accredited investors, including around $171 million from each of the funds that became its two largest shareholders.
Sterling’s sustained turnaround was itself among the most notable stories of the improving economy, joining the path of other institutions that have seen improving portfolio quality following the worst of the recession.
Santa Rosa’s Exchange Bank, for example, reported a 27 percent increase in after-tax profit comparing the first nine months of 2013 to the same period in the prior year. The bank increased its shareholder dividend by 20 percent that August.
Yet an enduring low interest-rate environment is among the factors that are likely to add up to continuing challenges for lenders in 2014, with many keeping an close eye on the improving economy as an anticipated driver of future loan demand.
9. Bumper crop of wine M&A deals
Amid back-to-back huge winegrape crops following the small crops of 2010–2011 and made securing and handling supply a focus of strategy and action in 2013.
Wine industry mergers-and-acquisitions brokers noted an unusual spike in purchases of production facilities. Entertainment Properties Trust, which has been unwinding its winery and vineyard investments for the past several years, sold four wineries this year: one to Jackson Family Wines; the Rack & Riddle facility in Hopland to Duckhorn Wine Co.; Geyser Peak Winery in Alexander Valley to Francis Ford Coppola Presents, and Ramal Road winery in Los Carneros to Lodi Vintners/Carneros Vintners. Rack & Riddle Wine Services leased a production facility in Healdsburg.
Artemis Group, a France-based owner of Chateau Latour winery in Bordeaux and luxury hotel and consumer brands, purchased Araujo Estate Wines in Napa Valley. Golden Equity Investments, an affiliated investment arm of members of the Coors family, took its first step into the wine business with the acquisition of Yountville-based Goosecross Cellars.
Charles Banks, former owner of the “cult” Screaming Eagle brand, bought Mayacamas Vineyards, with backing from the Schottenstein family. Vintage Wine Estates acquired Clos Pegase in Napa Valley and Viansa Winery & Italian Marketplace at the gateway to Sonoma Valley.
10. Retail construction booms
Retail was a hot sector for construction activity. A number of projects, many years in the making, got underway or opened for business.
Several years coming, the city’s newest and largest shopping center, 342,661-square-foot East Washington Place regional mall, had its first store openings in early June by junior anchor tenants Dick’s Sporting Goods and Sprouts Farmers Market. Anchor tenant Target, which purchased its land in the center, opened July 24. Joining them through the center and fall have been Beverages & More in a freestanding building, T.J. Maxx and HomeGoods in the same building as Dick’s and Sprouts. With nearly all the space leased, smaller retailers have had scheduling openings throughout the latter part of this year.
Under construction at the county’s largest shopping center, Coddingtown in Santa Rosa, is a 143,000-square-foot Target department store, which replaces a former two-story former Gottschalks store. Target is set to open there in July. Codding Investments, which owns the former Los Robles Lodge site just south of Coddingtown, plans to build a 50,000-square-foot store of Dick’s Sporting Goods there.
Arkansas-based Wal-Mart, which has been trying to expand grocery selections at its existing west Rohnert Park store, plans to open one of its smaller-format stores in the northeast part of the city. A 33,000-square-foot “Wal-Mart Neighborhood Market” store is targeted to open in fall 2014 in the former Pacific Market space in the Mountain Shadows Shopping Plaza at Golf Course and Country Club drives. Pacific Market closed about two years ago and was the anchor tenant. The smaller Wal-Mart store would employ 65 full- and part-time. The company recently opened one in Vallejo.
The return of Friedman’s Home Improvement to Petaluma after nearly four decades is moving forward as a new 315,000-square-foot mixed-use center in the city comes out of the ground. Santa Rosa-based Ghilotti Construction Company in early July started preparing the 9.5-acre site for a Friedman’s store at Deer Creek Village. The store is scheduled to open in March 2014. Deer Creek Village, being developed by San Francisco-based Merlone Geier Partners, covers 36.5 acres at the southwest corner of Rainier Avenue and North McDowell Boulevard adjacent to Highway 101.
Aldridge Management and Highway Partners completed 120,000 square feet in 11 food-and-beverage production and retail space at The Barlow in Sebastopol. The development is now home to a couple dozen tenants, including local wine makers, brewers, distillers, a community market, coffee shops, food producers, artisan manufacturers, retailers and restaurants. A boutique hotel there also is in the works.
Like the Deer Creek Village and East Washington Place projects, the Target department store that opened in east San Rafael in October was six years in progress. The project cost an estimated $24 million and employs about 300.
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