Bold business owners get in position early for economic upswing

ShareThisBy Dale Kasler
dkasler@sacbee.com

Published: Sunday, Apr. 19, 2009 - 12:00 am | Page 13A
http://www.sacbee.com/business/story/1791340.html

From retailing to real estate and beyond, some businesses are starting to gear up for the next economic growth cycle.

In the face of an epic slump in consumer spending, Dimple Records is nearly doubling the size of its flagship store in Sacramento. Auto dealer George Grinzewitsch Jr. just built a $22 million Mercedes-Benz dealership in Rocklin, a community rocked by foreclosures. Ethan Conrad, a Sacramento real estate investor, has spent millions in recent months buying vacant residential lots throughout the Central Valley, the epicenter of the housing meltdown.

And even after getting burned on a $922 million land deal, CalPERS is looking at investing in a small piece of the project as it emerges from bankruptcy.

This isn’t a mass spree. Most businesses are still hunkering down or just starting to sniff out opportunities. But a few have stepped in and made deals, albeit at discount prices, knowing the payoff might take years.

"If you’re buying (at) 10 or 25 cents on the dollar, and it’s decent real estate, it’ll come back," Conrad said of his land purchases stretching from Yuba County to Merced. "The question mark is not, will I make money on them? The question mark is, how long will it take?"

Investing in something now takes some guts. Most experts believe the overall economy won’t begin to improve for at least several more months.

But timing the market is nearly impossible, and a business investor should jump in now if he or she can pull it off, said Sanjay Varshney, dean of the College of Business Administration at California State University, Sacramento.

He said waiting too long can be counterproductive. Once the recovery becomes obvious, prices for everything will have shot up.

"If this (economy) turns in late 2009 or early 2010, if you wait until 2010, it’s already too late," Varshney said.

That helps explain the recent run-up in the stock market, and the feeding frenzy among speculators for inexpensive foreclosed homes in the Sacramento area: Maybe things haven’t hit bottom yet, but waiting too long carries its own risk.

"You can get a lot of things right now at a very cheap price," said Dilyn Radakovitz, co-owner of Dimple Records. "There’s a lot of opportunity out there right now."

The family-owned chain is taking over 12,000 square feet of space next to its Arden Way store later this spring, and the recession helped make the deal pencil out. Dimple is getting nice deals on rent, store fixtures and other trimmings, saving tens of thousands of dollars, she said.

Expanding in a downturn is a gamble, "but that’s life," she said. "We’ve been through a few of these."


A gamble on luxury

Building a Mercedes dealership in Rocklin seemed like a no-brainer to Grinzewitsch, who’s owned a Mercedes service center there since 1998. Planning has been under way for years.

But when Rocklin became one of the region’s hardest-hit real estate markets, Grinzewitsch, who owns a dealership in El Dorado Hills, thought about hitting the brakes.

Last summer, he talked to some of his staff about delaying the dealership. "It clearly crossed my mind," he said.

Instead, he went ahead with it. Not only that, he stuck with his vision of a $22 million "destination" dealership including a two-story showroom, rooftop parking and, in a daring move for a car dealer, a 75-seat Bistro 33 restaurant and bar.

"We decided to move forward because of my confidence in the brand, and our customer base and our employees frankly, and just the feeling like you can never time a market," he said.

A lot of people are still ducking for cover. Not a single bid was made when the Cal Neva Resort, the Lake Tahoe casino-hotel once owned by Frank Sinatra, went on the auction block recently. It remains the property of the Los Angeles lender that foreclosed on it.

Commercial real estate people remain mostly conservative, particularly when it comes to retail space.

"The current phrase I’m hearing is, ’I don’t want to be early on this one, I’d rather be late,’ " said Scott Crowle of real estate investment firm Marcus & Millichap in Roseville. "There are tremendous deals out there, but we’re not seeing them because there isn’t very much demand."