How’s business on the Seacoast?

NHBR’s editors recently met with Portsmouth area businesspeople at the new Portsmouth Harbor Events and Conference Center at Portwalk Place in downtown Portsmouth. The topic under discussion: How is the area’s economy faring and what are the expectations for the future?The participants were:Doug Bates, president, Greater Portsmouth Chamber of CommercePam Cameron, Realtor, The Masiello GroupJay Finney, general manager of the new Residence Inn Portsmouth/DowntownZack Gregg, entrepreneur and developerWendy Fracassi, vice president, business banking, People’s United BankDavid McClung, chief financial officer, Portsmouth Regional HospitalJay McSharry, restaurateur and developerDavid Mullen, executive director, Pease Development AuthorityDeborah Smith, owner, Maine-ly New HampshireQ. So what do you see right now going on economically?Wendy Fracassi: We’ve had some bumpy years the past two years. I work with small-business customers typically with financing needs up to $750,000. What I’ve seen over the past few years is that revenue has remained either flat or decreased, and while some have come back a little bit, it really depends on the industry.Going forward in 2010, I can see things coming back in their numbers, in their profit and loss statements and their balance sheets. They’ve been reducing their debt to the point where they’re becoming more profitable, and their cash flow is becoming something that banks can work with.Now I’m having one of my busiest years. Customers are coming in for commercial loans, small-business loans, for second locations, lines of credit to support working capital.Zack Gregg: You sounded like there’s a very diverse amount of areas that you’re doing loans in, but do you find that one is a bigger part of that diversification than others? Is it real estates like it usually is or are you really seeing it all over the board?Fracassi: I think one that stands out is multi-family purchases, because the real estate market, I feel, has bottomed out, and I think that a lot of the business owners are purchasing properties at a very good value right now. I have a lot of those – I’m typically working on two or three a month.Pam Cameron: Just to give you a quick overview, the residential market has been slow – there are a lot of buyers out there looking, but the tough part is, although interest rates are great, employment is not great, and that really does affect the housing market.We have our share of foreclosures and short sales, and that has kind of slowed things down, but because of our location we’ve been somewhat insulated. But the condo market is very flat – it has been for a while. I don’t do commercial, but all the commercial agents in our company have had a couple tough years.Doug Bates: We have scarcity in Portsmouth that other places don’t have, so I think that has helped to prop up a lot of those real estate prices. We are a destination for the summer, and the quality of life is a big deal here. That’s sort of an indicator of why Portsmouth prices have held pretty strong, but I’m a believer in the concentric circle theory.Two hotels have opened in one year in Exeter, which is pretty amazing. Dickinson Development is about to start a project in Dover – permitting is this year, probably starting next year. All this is sort of a result of the growth here and the inability to buy property at a reasonable value in Portsmouth.We benefit by Route 95 on this side of the state – we’ve benefited for years, and it can be the bane of our existence if you’re trying to promote an airport, but on the other side of that coin we are enjoying this huge growth because we are in that corridor. I love to live here, personally – I wouldn’t live anywhere else, but I think we have a long way to go, and I think the conversation now is the word “collaboration” – how can we find ways to work together? The fact that they even mention the word “regionalism” around here, and I’ve heard it come up several times in conversations, whereas 10 years ago you would never hear that word. I think that speaks well.Jay McSharry: From my perspective, things look great. We just opened a Dos Amigos in Rochester. We got a loan from Citizens in May after a year of him saying, “I can’t do anything, my hands are tied.”All of a sudden he called one day and said, “OK, we’re back in business – bring whatever you’ve got.”And so I came in and he funded a loan just like that.Our restaurants in Portsmouth had a great summer, and we’re up for the year about 10 percent. We have offices that are all full, and there are probably one or two people who want to know when availability comes up. I feel pretty good about Portsmouth housing and condos and development.But one of things I would say in real estate is that a lot of things are overvalued here, so if they come down to $250,000 for a condo, that’s great, but these are some at $350,000 for a two-bedroom, one-bathroom condo, which is a bit insane. So coming down a little might be even healthier for the long run.Bates: There’s a big word that came into play this year for our wonderful summer economy, and I don’t think Jay will disagree, and that word is weather.Last year was dismal and this year is like, all of sudden in July rather than everyone scowling at you everybody’s walking around with big smiles on their face because they’ve done so well this year.Deborah Smith: June, July and August have been our best months on record – they’ve been spectacular.All of us retailers talk to each other all the time – we have an association where we talk about reining in expenses, collaborating with your peers and diversifying your business. As a retailer those are three really key elements.As far as banking goes, it’s been a very difficult couple of years because two years ago when we wanted to move our business there wasn’t a bank interested.You could understand why the sky was falling. We were not able to get a loan, and the loan that we did have was reduced because of, I think the words that were used to us were “to limit their exposure for small businesses like myself going out of business.” The cool part is reining in your expenses, which are all still growing, so you become very smart about how you spend your money.So here I am, we’re at about 15 percent growth over last year, still growing, still diversifying, but in two years we’re not going to have any debt, because we’re paying off our debt every single month. We couldn’t get more debt, so now we have the debt that we have and we’re paying it off. We have big plans for our store, but we probably won’t need a bank.Fracassi: I think in general the banking atmosphere hasn’t changed as far as what our guidelines are.Our guidelines are cash flow, collateral and guarantor strength. It’s always been that. What I’ve seen is 2003,4,5,6, you could be light on one or not have one. It’s starting to lighten up a bit again.What I see is a lot of competition starting, and that’s when you know things are starting to turn around, when bankers start to visit you a lot more.Gregg: Since about 2001, we’ve been seeing a kind of a revolution in the real estate market, and I think maybe International Office Suites has a part in that. We saw that a lot of people went out and said they didn’t want to sign a five-year lease and have a 3,000-square-foot minimum. They didn’t want to be trapped in it.We have a monthly flexible program which people can take space that works for them for that day and switch out of it a month later. That has forced other landlords to start thinking they need to be more flexible. Today you see all sorts of people on flexible terms and arrangements, and now this is the norm. Office space for the most part is going to continue to go in this direction.I once read that the office is a necessary evil because you needed to be near your equipment. So an office was always around your equipment, and now your equipment tends not to be the equipment at all, it tends to be a laptop, a netbook, it tends to be a camera – things that are portable.We’re staying 100 percent occupied in horrible economies. Did we get top rates for our units? No. We had to change our product and be innovative and we had to even see if we were flexible enough and offering the right products. I would say from a commercial real estate point of view, things stink out there and the buildings that are for sale are way overpriced still. The quality tenants are less and less available and what they’re looking for is less and less of what the traditional offerings are out there.David Mullen: Pease is sort of a world in itself because it does have many, many benefits. There are 7,000 employees at 256 companies. Then the indirect hires – employees of companies that supply services to companies located at Pease – is another 3,500.The estimated wages from all of that is about $500 million.I’ve been in this business of real estate development and job creation for 30 years. I can point to four recessions that I’ve lived through since 1980. They’re coming every seven to 10 years it seems, and they take three or four years to work their way out. Each recession has stages to it and the first one is where everything stops and drives everybody to where the sky is falling. The second stage is consolidation, and we’ve had that at Pease – companies moving elsewhere. That frees up space, and that makes opportunities for the next phase – reabsorption. There are opportunities out there, and when people start to see them, they start taking advantage of them.That actually is the silver lining for a lot of companies. We have a company at Pease who I can’t mention at the moment, but they’re currently in 12,000 square feet and they have another facility in another town. They’re going to take a 56,000-square-foot facility and put it all under one roof and cut their rent by one-third.So 2010 is the reabsorption, and 2011 through 2012 is the economic expansion. The only hindrance is confidence and credit – that’s basically it. One will help the other.Dave McClung: The hospital also is a major economic engine. We have about 1,000 employees and then associated with us is a physicians group of a variety of specialties, and they have another 250 employees across locations in Portsmouth, Stratham, Hampton, North Hampton – all over the Seacoast, and we’re on the tail end of a $63 million building project.From an operations standpoint, it has been a very interesting year, some economic challenges, good and bad, but certainly what we’ve seen is you’ve got a lot less people who don’t have health-care coverage.They’re either not coming to the hospital, deferring tests – outpatient services is certainly a major part of our business, and there’s been a drop-off in that this year.If you look at the numbers, the volume of Medicare patients is up a little bit, Medicaid volume is up, but we’ve seen major volume drops in the number of people who have Anthem or Aetna or Cigna or Harvard – those numbers are down.I think we’re seeing some bounce-back in the second half of the year, and I think most people are certainly bullish on the long term. We’ve added about 25 percent more square feet, which gives us capacity to grow to accommodate what we need now.We’ve got some areas where we need some more space for physicians around our campus and we’re looking at that right now. We continue to recruit physicians for a lot of specialties – some primary care, but a lot in the specialty areas. So I think we’re very optimistic about the long term and really recruiting docs to Portsmouth. Let’s face it, we are really blessed with a great place to recruit people to. It really does sell itself when you’ve got to contemplate to come here or maybe Boston or somewhere else on the East Coast. Wow, Portsmouth, N.H., the Seacoast is just an incredible area.Jay Finney: Unfortunately, I haven’t been on the Seacoast long, but what I’ve seen so far just this past August we ran at 98 percent occupancy – the expectation was about 82 percent occupancy. The other hotels were in the high 90s as well. I think the reason for a lot of that is that there’s a lot of government rates. We were getting calls for government rates left and right as soon as I walked in the door.It’s people working at the Portsmouth Naval Shipyard, FEMA was in the area, the air show, vendors, and some other government agencies in the area. I don’t see that really slowing down.Especially with the shipyard here, you’re going to have a lot of action over there. Obviously they can’t get into details and a schedule with us, but I think that’s going to be continuing over the next couple years, and it’s going to bring a lot of government funding.From what I’ve seen so far, I don’t anticipate the hotel industry slowing down too much in the near future. I joined Colwen Management when the sky began to fall. Basically, it was crunch time so everybody was cutting expenses so they could become more efficient. I think that’s going to help a lot, not only in the hotel industry, but a lot of industries. Now that people are running so efficiently, cutting their expenses, that means they’re going to be that much more successful when it does recover. Looks like we’re starting to dive into the start of that.Bates: We’re all running efficiently, but I will tell you from my experience at the chamber, we’re starting to get tired, because we run a chamber of 975 people with five people. You can bring technology to the table, you can push it to the nth degree, but after a while you get tired, and you get more tired. We’re going to have to do something, and the revenue will have to break to allow us to come forward a little bit. That’s what I’m struggling to do now – to be able to pay people who work very hard more money.I know a lot of businesses that are stretched thin.Smith: We have no employees, just my husband and I five years later. I have a huge bridal business that is just completely taking off because I’m the only one doing what I’m doing in the area. I have a huge gift basket business because I’m the only one doing gift baskets in the area. Because we have no working capital we can’t afford to hire an employee. Most of downtown Portsmouth is sole proprietorships, a husband and wife running and changing off times.Cameron: I do a lot with the Exeter chamber. Doug, I don’t know if it’s the same here as it is there, but membership is down, a lot of small businesses are not renewing. We’ve seen a little bit of a resurgence but not a lot. I think that directly gives you an indication of what’s happening globally.What I’m finding, more now over the past few years, is people are trying to reconnect and figure out partnerships and figure out ways to work together.It’s becoming kind of the circle like the way it used to be, where businesses did care what your neighbor was doing and how you can help each other succeed. Before, when business was good, and people were doing well, it was like, “OK, good to see you. Life is good, don’t bother me.”Bates: That was Jay’s idea of Restaurant Week, that collaboration of restaurants. We looked at the model – it’s very successful- and we’re starting another one called Shop Portsmouth, to start to raise the awareness in the shopping community because we have a unique shopping experience downtown, and we want everyone to be at the table.Bottom line is there’s a positive energy, certainly it has been fueled by a better summer and nice weather, but still the conversations are there and the conversations in my mind should be about the bigger thing as Portsmouth as a brand or the Seacoast as a brand – an umbrella from which we can build our businesses but we’re going to have to do it together.Gregg: Portsmouth is so incredibly resilient in that it is so desirable. When there is a dip with anything in Portsmouth, people see it as an opportunity, whereas a dip in Michigan or a dip in Ohio is not something you’re going to invest into and out of. You can even say that for the middle of the state.I own a company call Sperry Tents. We do tents up and down the Eastern Seaboard, and most people choose Portsmouth, Rye – this area – to do a wedding in. Those people bring hundreds of people here. There’s always someone at the wedding who says, “I’m going to move here to Portsmouth.” They wouldn’t say that if the wedding was in Concord, they wouldn’t say that in Manchester. The reality is everyone invests in Portsmouth – as soon as somebody gets taken out in Portsmouth someone else moves in to fill that void.Portsmouth, the Seacoast, whatever you want to call it – it’s an incredible, vibrant community.I think when you see the weddings, events, restaurants, when you see all this stuff, the investment in the town, what you’re seeing is a community that has cut through the problem that our entire region has been facing. We are the tide that’s risen to help out our entire Seacoast. When you come into to downtown now and you see this hotel sitting here on this piece of property – this hotel wasn’t going into other cities. Other cities’ hotels are getting bought and resold and bought and resold and nobody wants to make the investments into there – no banks to fund them. But here in Portsmouth it’s happening, and at the end of the day these small banks and large banks are willing to invest, the city is willing to invest and we don’t see that there’s going to be a dip that’s un-investable.Jay and I and the hospital and everyone here sees it as an opportunity to do more business. Those of us who are in the know don’t want anybody else to know about it.I wish Anthony DiLorenzo was here. He’s a local investor who doesn’t think there’s a bad price to pay for a piece of property in Portsmouth. Here’s a guy who has the properties to back that up. He’s bought just about every piece of property here and he’ll tell you there’s one he wishes he couldn’t have. That’s a pretty sophisticated investor saying a pretty bold thing.Q. Can you give your impressions of what you think things will be like four or five years down the road?Bates: I think we haven’t seen the end of this Great Recession just yet. I’m a little nervous that there’s so much money in the bond market, and there’s so much money sitting on the side of the table.But if I were to be anywhere I would rather be here, because we’re not going to go as deep as others, we depend and we partner with each other to be innovative. That’s the biggest strength of this community. We have lots of people who work hard to create events that make this city a focal point.McSharry: I would put my money on Portsmouth than anywhere else.Gregg: If you think about it, we may have had a recession here, but Portsmouth has grown, the city has gotten better, more businesses started, more hotels brought into town. The prices didn’t fall to the rate in which they have in the rest of the state. We’re talking about when things are going to get better – well, if they didn’t get worse when things were horrible, we’re in 10 times better shape than anyone else in the state, and we’ve got to thank our lucky stars that we’re having discussions like this and really the story is things are getting better.Smith: Retail-wise, everything Zack said, absolutely retail wise, we only see growth. If we’ve grown and moved even in the very worst of times we’re going to be just fine. But, we did get in the Farmer’s Almanac at my store two days ago, and it looks amazing for next year.McClung: On the health-care side I think there’s a lot of unknowns about what health-care reform is going to look like, how it’s going to impact our industry, how it will impact the consumers. That’s a little bit of a storm cloud. We’ve got great demographics here, and for the most par we’re going to be fine, but that unknown is a little scary.Then from my perspective, I moved here two years ago, and what’s impressed me is that it is a working class town. You’ve got the Seacoast, the Piscataqua River and it’s a tourist town then if you add to that, we’re obviously a tenant at Pease and I drive around and it is just an amazing place to me. How it’s set up and what it does and what it’s brought as an economic engine.When I walk outside after dinner and look at the views I say, “Wow, I can’t believe I live here.”That’s the newcomer’s perspective – we’ve got the fundamentals.

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