On the seventh anniversary of the start of the Great Recession, it is important to see how far we have come and the crucial investments that are needed to continue to move forward.

After suffering severe job losses during the recession, Oregon is now experiencing above-average job growth of 2.4 percent. The Portland area was the first to start adding jobs in 2010, and has grown steadily ever since. Once the recovery and job gains became more broad-based across the state, employment growth began to accelerate in 2013 and continued into 2014.

And yet, even with these improvements, one in five of the state’s counties – mostly rural ones – has yet to experience job growth. In general, Oregon’s largest population centers have fared best during the recovery. However, with public-sector payrolls stabilizing, rural communities began netting a few jobs over the past year.

Looking back on 2014, we can see that our industry as a whole is beginning to emerge from one of the darkest economic downturns in recent history and is finally on the upswing. As of last year, the average annual wage of a construction worker in Oregon was $51,852 – 16 percent more than all private-sector employees in the state. Over the past five years (from 2009–2014), we have seen a 10.6 percent increase in average construction wages across the state with specialty trade contractors seeing the highest increase over that time period at 16.1 percent.

In line with an increase in average annual wages, unemployment within Oregon’s construction industry fell by 0.8 percent over the past year while employment grew by over 7.5 percent. In the Portland-Vancouver, Wash.-Hillsboro metro areas alone, 1,700 jobs were added from November 2013 to November 2014 – nearly a 5 percent increase.

With 2015 already in high gear, Oregon’s construction industry has hit the ground running. Accounting for nearly 80,000 of the state’s non-farm employees, the construction industry makes up 4.6 percent of the state’s workforce and continues to grow.

From 2012–2020, the Oregon Employment Department predicts the construction industry will grow by over 15,000 new jobs. With 21 percent of the state’s construction industry over the age of 55, there are a large number of baby boomers reaching retirement age as well. When the number of baby boomers retiring are factored in with the need to add skilled workers to a growing industry, over 25,000 workers will be needed by the year 2020. That approaches a net growth of over 26 percent. With construction companies facing more retirements and a lack of skilled workers than ever before, wages will continue to increase as those skills become more and more essential.

This very apparent need to add more skilled workers to our industry highlights an issue that will be a focus of AGC‘s efforts at the legislative level when the “long” 2015 session begins in just a few short weeks: a very shallow pool from which to hire these highly-skilled workers. Contractors know that quality and comprehensive craft training is fundamental to the development of a skilled workforce. In turn, a skilled workforce is essential to a productive and sustainable construction industry as it climbs its way out of this recession.

Over the years and since 2008, over 50 percent of Oregon career and technical education (CTE) programs have disappeared from public schools. As these programs disappeared, Oregon’s high school graduation rate plummeted to a staggering 68 percent. In the Portland area, dropout rates are approaching 50 percent. While there are multiple reasons for such high dropout rates, there can be no question that one clear reason is the lack of an education path for students who are looking for something other than college.

To a recovering state and an industry that relies so heavily on this education pipeline for skilled work, these conditions are simply unacceptable. CTE programs hold untapped potential as an economic and education strategy in strengthening our workforce and Oregon’s economy by preparing students for both college and careers. Because of this, AGC and a broad range of coalitions will focus on continuing the work we started with the first CTE grants in 2011 by working to secure a permanent and sustainable investment in career and technical education throughout the 2015 legislative session.

As well as working for CTE investments, AGC will continue working for commonsense solutions to the challenges facing our industry and its workforce. As we have seen coming out of this recession, highly-skilled workers are needed and rewarded – when the work is there. As our state begins bouncing back, the effects of the lack of a viable, long-term transportation funding package are being felt.

The short-term fixes that were passed at the federal level last year failed to produce the predictability our contractors need to bid for work and actually build projects. As the federal faucet stopped flowing, so too did long-term state and local transportation planning programs, such as Oregon’s Surface Transportation Investment Program (STIP). Because of uncertainty about available federal funds, state and local planning work was suspended. This suspension has halted the ability to get work into the pipeline, has further added to the nearly $12 billion backlog in work, and has even forced a number of contractors to close their doors or look outside Oregon for work.

AGC is hopeful that this Legislature is able to see that essential investments in transportation – and more broadly, infrastructure – are desperately needed across the state. As the official start of the session approaches, we will continue to push an agenda that focuses on growing the economy and producing jobs.

Our industry has time and again demonstrated resilience in the face of incredibly difficult economic times. Now, all eyes are on Feb. 2, when the 2015 Legislature convenes and begins to shape the Oregon of the future.

Mike Salsgiver is the executive director of Associated General Contractors’ Oregon-Columbia chapter. Contact him at 503-685-8305 or mikes@agc-oregon.org.

The post OP-ED: Gearing up for more growth in 2015 appeared first on Daily Journal of Commerce.

It’s a new year and the right time to take up a new topic in this space. Previously I discussed projects and market issues in Portland’s South Waterfront District. But with the start of the new year, I am pivoting my gaze beyond the city center to new horizons. I will spend 2015 delving into just what exactly is happening with the urban growth boundary in the Portland-metro area.

For those uninitiated in the legal framework for UGB amendments, some context is in order. State law mandates that Metro Council review and amend the UGB every six years in order to meet the region’s residential and industrial land needs for the next 20 years. This is one of those decisive years; the next decision on whether to add more land to the UGB is scheduled to be made toward the end of this year.

In the coming months Metro will mull over considerations such as how much acreage to bring into the UGB. How much of that acreage should be for residential or employment uses? And which particular tracts of land should be included?

Metro’s decision-making process is guided by state law intended to balance the need for urban land with protection and retention of high-value agricultural and forest lands. which land has first priority for inclusion in the UGB over the next 50 years (the urban reserves) and which land is protected from inclusion in the UGB over the next 50 years (the rural reserves).

Metro will determine which urban reserves, if any, will be brought into the UGB. In order to do so, Metro must forecast the land needs for the entire region for the next 20 years. Such forecasting is necessarily uncertain and based on any number of policy decisions that are less than scientific.

To assist in this process, Metro Council adopted the , which provides copious amounts of information and analysis of the scenarios under which the region can grow, and ultimately suggests that Metro not include any additional acreage in the UGB until the next six-year decision cycle.

The recommendation to stand pat is contentious and not favored by many stakeholders, including cities, counties and industry groups. Each has its own set of interests, which Metro will attempt to balance to determine what is best for the region as a whole. The methodologies used to come to the stand-pat recommendation are also malleable, so the Urban Growth Report is far from the final word on the subject.

I will use this space to follow the UGB amendment process throughout the year, and touch on the following topics:

• What housing development trends does Metro project?

• On what issues do Portland and the suburbs have diverging interests?

• Is there an adequate industrial land supply to support employment growth commensurate with projected population growth?

• Will there be another UGB-related “Grand Bargain” at the Legislature?

• Is the future of the Stafford triangle rural or urban?

• What will be done with Damascus?

In 2015, the UGB amendment process is likely to provide contentious debate among a broad constituency of regional interests. Contact me if there are specific topics you’d like me to address.

Damien Hall focuses on land use and real estate law as an attorney at Ball Janik LLP. Contact him at 503-944-6138 or dhall@balljanik.com.

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Dear Mr. Berko: In January 2014, my adviser had me buy 50 shares of Intercept Pharmaceuticals at $476, and it fell to $305 in February. In March, it began to zoom up, and my adviser had me buy 50 more shares at $422 because he thought it would go to $600. It’s now down to $158, and my adviser wants me to buy 100 shares. He insists that Intercept will get approval on a blockbuster drug this year, which could move the stock higher than $600. Is my adviser giving me the right advice? Please advise by email, because I need your answer right away.

C.R.

Akron, Ohio

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Dear C.R.: You have to be dumb, deaf and blind to pay over $400 a share for a company that doesn’t have sales or earnings and that probably won’t have sales or earnings for three years. Wow! C.R., you really take the cupcake!

Intercept Pharmaceuticals (ICPT-$158) came public at $15 in October 2012. Then, with a steady stream of engineered hype and hyperbole, the share price began to rise. The market-makers were able to unload their Intercept shares in the $40 range to the pros, who took their profits by selling them in the $70s to the hedge funds. Months later, the hedgies booked profits by dumping their shares in the $160s to the mutual funds. Months later, the funds took their piece of the pie, selling shares to the traders between $200 and $240. The traders then resold shares to the pros when the price was about 100 points higher (the mid-$300s), and the pros offloaded their shares to the stupids at $476, banking their gains. So, you’re the last man standing. As Bernie Madoff would say, you’ve been raptus regaliter!

Investors who paid more than the initial public offering price for this obscure, development-stage pharmaceutical company represent the waxing stupidity of a growing class of American investors that Wall Street calls “the stupids.” Psychologists suspect that this condition, a genetic defect in development, is peculiar to a species of investors whose mothers refused to breast-feed them. What else could account for assigning a $9 billion market value to a company with no earnings or sales? Only a stupid would pay $476 a share for a company with an iffy drug, called obeticholic acid, that won’t get Food and Drug Administration approval until 2018 – maybe! The feckless Financial Industry Regulatory Authority recommends a regimen of waterboarding, electroconvulsive therapy and group prayer sessions for investors who paid 25 percent over the IPO price.

There’s nothing evident to support Intercept’s $158 market price. The company is unlikely to report a cent of earnings until 2018 or 2019. In a small government-funded study in 2013 and 2014, Intercept’s obeticholic acid demonstrated very impressive results. During phase three clinical trials, the drug significantly reduced inflammation and other symptoms in patients with a type of fatty liver disease called nonalcoholic steatohepatitis. And because test results, which were probably leaked accidentally on purpose, demonstrated impressive results, investors entered a feeding frenzy and piled on. But when the National Institutes of Health discovered that obeticholic acid dangerously raises cholesterol levels and significantly increases the risk of heart attack, the funding stopped. Nevertheless, anxious stupids, fearful of missing the party, pushed Intercept to $497 a share last year.

C.R., I doubt that Intercept will ever return to either of your purchase prices of $476 and $422. I also believe that its current $3.3 billion value at $158 a share is a sucker’s bet. There is nothing on this fertile earth that supports this value. Intercept has $256 million in cash, no revenues except for research grants, 122 employees and high operating costs (rent, utilities, legal, salaries, insurance, accounting, equipment, supplies, etc.), which will burn through cash reserves like thermite. Those two purchases give you a basis of $449 and a loss of $29,000 if you sell at $158. And in my opinion, that price should continue to fall, so sell your shares. Then on sheets of notebook paper, write the following sentence 1,000 times: I shall never buy a stock that doesn’t have sales or earnings.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. © 2015 Creators.com

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A review of the headlines suggests that anyone connected to the real estate and construction industries is cautiously watching the markets for a new “boom.” Those of us who have been around for more than one economic swing, however, are also thinking about the corresponding “bust” that comes with a rapid increase in projects: the real possibility of widespread claims and lawsuits.

A fixed economic reality was borne out during the recent Great Recession, when many longtime contractors either did not survive or barely survived by working lean while marketing their skills and niche effectively. Those contractors that have made it through are balancing the need to ramp up more quickly than anticipated. This is happening when many senior-level employees or well-experienced field personnel may have retired or moved on to more secure paychecks in other fields or other states.

So, where does this leave the parties that are looking to start a new project? With less-than-optimal staffing, fewer skilled personnel, and less experience as to how to realistically bid and perform the work than they had a decade ago. And there is greater competition for the reduced number of subcontractors that did survive the downturn (many are facing the same issues at the lower levels).

Therefore, both owners and contractors must look not just to the current project or short-term effort to get and complete “this job,” but view the long-term protection of their entities and assets in a cost-effective manner to sustain growth and survive the next inevitable lull. So, how does one use “lean and mean” recession-developed skills? By following these five core points with diligence:

1. Pick the right partner. Nothing is more important than selecting a project partner with integrity. All must view the project as a true, united team effort: design and build it well, for a fair cost and profit, and know goals for delivery. The idea is for all parties to keep the reasonable profits they rightly have earned through their diligent work.��No shortcuts. No one makes a quick buck. Through well-set-out expectations and balanced contracts, everyone makes the project “pencil out.” Partnering should be with a long-term view. If the parties perform well and fairly, everyone benefits and does well. Trust is critical.

2. The devil is in the design details. As the market moves to different trends in projects and designs to accommodate sustainability, demographic desires and needs, and provides protection for entities in the legal liability structure, it is ever more critical to vet the designs for both constructability and to ensure they have reasonable maintenance and operational expectations. Also, the design should consider from available historic information in light of the type and nature of the project what potential claims may arise in the two- and five-year window as well as within the statute of limitations period.

For instance, has the project/design been built in this locale and this climate (including microclimate), and what lessons were learned during prior construction of this type of project? If it involves residential spaces, what have been the top 10 complaints or concerns during the sales/leasing period and/or the common warranty claims? Have livability issues – such as sounds, smells and interactions with demographics (common walls/floor/ceiling) – been addressed? On all projects, has facilities management or O&M responsibility been properly laid out in writing and disclosed (with training where appropriate)? Is there an ability by both the contractor and the owner or subsequent owners to reasonably maintain and repair the project?

3. Determine the risk assessment for the project. How does the risk affect the nature and type of insurance coverage or other asset and entity protection? Do the parties need to consider risk based on the entity model that owns the project? Is entity windup considered? Where will the risks go, or where will it try to follow if there are claims and lawsuits? Is there a need for bonding, and is that consistent with the contract terms?

4. Consider contract integration and flow-down. Too often projects are put together piecemeal, and a global “front to back” view of the component parts, which includes the field-level daily operation, is not performed. Are the contracts integrated for coordination and flow-down obligations from the owner to the contractor to the subcontractors?

Are there state restrictions to the terms? How does that impact the contract expectations and course of construction management of the work, documentation and warranties?��Who is obligated to determine the cause and repair for a claim or defect? As to third parties that could be harmed, does the state law have differing liability standards as against the owner and the contractor? How is that risk addressed in the contract and insurance/bond structure?

5. Don’t neglect post-construction coordination. The partnering must continue through the completion of construction and into operation in order to ensure proper transition, reduction of claims, and correct operation and maintenance of the project. Have the owner and the contractor established a course of construction and post-construction risk management process and QA/QC? How do the owner and the contractor verify that the project is built properly, and is there an incentive to report and remedy the natural challenges that arise during construction? Or is there a pervasive practice to avoid or cover up the problem (e.g., “not my scope,” “just get this finished”)? It is virtually always less costly to do it right and fix it during construction than to do so after the fact.

Risk rarely disappears; it just gets managed or moved. Each of these core points is intended to translate into an integrated project program designed to give the owner and the contractor (as well as the subcontractors and the project investors) confidence that reasonable risks are properly and economically managed to protect the entities and assets, both short term when it is more economical and post-project, by significantly mitigating against manageable claims.

Tamara Boeck is an attorney in the construction and design practice group of Stoel Rives LLP. Contact her at 208-387-4256, or tami.boeck@stoel.com.

The post OP-ED: Five keys of project risk management appeared first on Daily Journal of Commerce.

Dear Mr. Berko: I have been watching Amazon.com Inc. for almost a year and have seen its stock price drop from over $408 last year all the way down to $290, but now it’s back over $300. Do you think the stock could move back to $400, and if so, would you recommend 50 shares of Amazon as a good short-term speculation? And could you please tell me about American First Multifamily Investors, which pays a 9.7 percent tax-free yield? I’d like to buy 3,000 shares.

G.K.

Port Charlotte, Fla.

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Dear G.K.: I think Amazon.com could trade back at the $400 level in the next six months because there are enough fools and dreamers out there to move it up again. If it runs back to $400, the reason won’t be potential earnings of $2; frankly, there’s no investment in the galaxy worth a price-earnings ratio of 200-to-1. If it returns to $400, it will only be because Dr. Pangloss and his legion of loonies who worship the Wizard of Oz, the Great Pumpkin and the Jolly Green Giant will have made it so.

Amazon.com (AMZN-$297.50) is an $89 billion-revenue company that will report a loss again in 2014. And this year, revenues may rise to $96 billion. Wall Street believes that Amazon’s earnings will be between a profit of $2.30 a share and a loss of $1 a share. This wide range is an indication of Amazon’s uncertain earnings prospects and casts doubts on CEO Jeff Bezos’ management expertise.

At the beginning of last year, when Amazon was trading at $400, I advised a reader not to buy the stock, suggesting that it was priced for stupids and not investors. And today, some 90 points lower, Amazon is still priced for stupids. I can’t imagine paying $300 for a stock that had no earnings last year and may lose big money this year. Bezos must have similar thoughts, because records show him selling 1 million shares in February 2014 at $357 and pocketing over $360 million. In all fairness, Bezos still owns 84 million shares; perhaps he just needed some walking-around money. But all of us are thankful for the federal taxes he paid (we hope) on the gain. Some observers suggest that Bezos may purchase another newspaper (he recently bought The Washington Post), and I’ve heard talk from two sources that he is in the market to buy a professional football or baseball team and an airline too. Meanwhile, what do you think could happen to Amazon’s stock price if management reported unexpectedly higher operating expenses on its various business sectors as it did earlier in 2014? I don’t think the reward justifies the risk, but if you have idle money that’s growing restless, try buying 50 shares. There are still stupids who might buy Amazon from you at a higher price.

America First Multifamily Investors (ATAX-$5.31), which came public at $20 in 1998, is followed by only one brokerage. Oppenheimer came out with a buy recommendation in February 2014, when the stock traded at $6. And the Oppenheimer lads still recommend its purchase. No one else on the Street follows ATAX, though Deutsche Bank early last year acquired a block for its own account. The current 12.5-cent quarterly dividend has been steady since 2010; it yields 9.7 percent and is tax-free. Yep, tax-free. Oppenheimer and Deutsche Bank in 1998 took ATAX public at $20 to acquire, hold and trade a portfolio of federally tax-exempt revenue mortgage bonds. These bonds were issued to provide construction and permanent financing for 32 Section 8 multifamily residential properties. ATAX owns a portfolio of 42 revenue mortgage bonds, issued by states and local housing authorities for the construction of over 5,100 living units. The 32 facilities are located in California, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, both Carolinas, Ohio, Tennessee and Texas. ATAX has 60 million shares, revenues of $34 million, net profits of $13 million and a book value of $5.10, and it has paid a 50-cent dividend since 2009. I prefer a 3,000-share purchase of ATAX to a 50-share purchase of Amazon.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. © 2015 Creators.com

The post OP-ED: Amazon.com stock still priced too high appeared first on Daily Journal of Commerce.

It is often easy to point the finger at land use decision-makers as biased, especially when it comes to highly charged development projects that require multiple election cycles to obtain approval.

Candidates run on particular platforms such as opposing big-box retail, liquid natural gas and public transit. Once elected, these local representatives must then consider quasi-judicial land use applications, decisions that require application of adopted approval criteria in an impartial manner, on issues that they have strenuously taken a general position. The question then becomes whether these elected decision-makers must step down because they cannot make an impartial decision.

The Oregon Court of Appeals considered this question in Columbia Riverkeeper v. Clatsop County, reversing the Land Use Board of Appeals’ ruling that a decision-maker’s statements and actions, taken together, indicated prejudgment bias that required recusal.

The Clatsop County Board of Commissioners in 2010 approved an application for a natural gas pipeline; this decision was appealed to LUBA. While the decision was pending, the Clatsop County board, with three newly elected commissioners, voted to withdraw the approval and reconsider its decision. Thereafter, the Clatsop County board denied the application. The applicant, Oregon Pipeline Company LLC appealed the denial, arguing that, among other things, Commissioner Peter Huhtala, one of the newly elected commissioners, had demonstrated disqualifying bias against OPC’s application.

The general rule announced by the Oregon Supreme Court in Fasano v. Board of County Commissioners of Washington is that parties to a quasi-judicial land use proceeding are entitled to a “tribunal which is impartial in the matter.” Impartiality can be destroyed through acts of self-dealing, bias and ex parte contacts. Bias can be the result of either a personal or pecuniary interest in the outcome or prejudgment of the matter.

That said, the court in the Fasano case did not explore what “impartiality” means when it comes to activities that rise to the level of prejudgment. Subsequently, the courts have clarified that impartiality relates to the parties and issues “in the matter” only and not to intense involvement in community planning or unrelated governmental activities more generally.

Further, as a result of being politically elected to both legislate as well as make adjudicative decisions, a party challenging impartiality must prove “actual bias” rather than just the appearance of such bias. An elected official is not expected to have no views on matters of community interest.

Finally, the courts have found that actual bias requires a finding that the decision-maker has so prejudged the matter as to be incapable of making a decision on the merits based on the evidence and arguments presented.

With this background, LUBA considered Huhtala’s activities. In reviewing the commissioner’s public statements and campaigning back to 2005 based on opposition of the construction of liquefied natural gas facilities anywhere in the Columbia River Estuary, LUBA found general statements of policy that did not require recusal. However, with respect to Huhtala’s opposition to an LNG terminal in Warrenton (including his participation in appeals to both LUBA and the Court of Appeals, although not technically the same project as the pipeline project at issue here), LUBA found that “the pipeline and terminal were parts of the same overall project and proposal” and therefore qualified as the same “matter.”

Further, LUBA found that Huhtala’s campaign statements made while the Clatsop County board considered this decision coupled with his participation in the board’s decision to withdraw its initial approval, when Huhtala’s vote was not necessary to make a decision indicated that his actions were driven by past opposition to LNG facilities and less by concern for proper application of the approval standards. Taken together, LUBA found that Huhtala was not capable of being impartial and should have refrained from voting.

The Court of Appeals disagreed with LUBA’s approach and found that although Oregon Pipeline Company’s application was part of a larger project involving multiple jurisdictions and facilities, the sole matter before the Clatsop County board was OPC’s pipeline application. The “matter” is prescribed solely by the discrete request subject to review. Huhtala’s opposition to other aspects of the larger LNG project or different LNG projects is entirely collateral to any actual bias to the subject application.

Further, the court found that none of Huhtala’s critical statements against LNG “explicitly, or by necessary implications, commit to an irrevocable position on the merits of OPC’s application.” The court could find no explicit statements that Huhtala prejudged the specific matter and LUBA’s reliance on Huhtala’s vote to withdraw the application was nothing more that circumstantial evidence of political predisposition providing the appearance of bias but not actual bias.

The lessons here are twofold. First, decision-makers are expected to be political, take strong positions and set those convictions aside as necessary to adjudicate matters based solely on the facts presented and the criteria at issue. Fairness occurs when decisions are correctly rendered and not when decision-making is delayed based on invalidation based on appearance alone.

Second, the bar for raising a claim for prejudgment bias is incredibly high. For example, statements by an elected official that he does not need to be objective or that when elected he will vote against a particular proposal are, as a practical matter, the only types of disqualifying bias that will suffice.

Edward Sullivan is a retired owner in the Portland office of Garvey Schubert Barer. He has specialized in land use law for more than 45 years. Contact him at esulliva@gmail.com.

Carrie Richter is an owner specializing in land use and municipal law in the Portland office of Garvey Schubert Barer. Contact her at 503-553-3118 or at crichter@gsblaw.com.

The post OP-ED: High bar re-established for bias challenges appeared first on Daily Journal of Commerce.

Dear Mr. Berko: Our first grandchild was born several weeks ago, and we’re thrilled. We want to invest $30,000 for his future in some stocks that he can keep forever and not have to watch. I remember that about 25 years ago (we’ve been reading your column for 30 years), you recommended a portfolio of 10 medical stocks, which you said did not have to be watched, and said they would do better than the Dow Jones industrial average if all the dividends were reinvested. I think two of the stocks were Amgen and Biomet. Could you please put together a list for us?

L.D.

Jonesboro, Ark.

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Dear L.D.: You have an excellent memory. Yes, Amgen and Biomet were two of those recommendations. Biomet was just acquired by Zimmer Holdings (ZMH-$113.42). I remember those stocks well because my sister, who put $2,000 in each, enjoys reminding me that I didn’t take my own advice. And darn, I wish I had. She still owns each of those issues, and with all dividends reinvested, the cumulative value of her 10 stocks is almost $250,000. Meanwhile, including Amgen and Zimmer, the following medical issues are still tops on my list of compelling, nearly foolproof, long-term investments: Becton, Dickinson and Co. (BDX-$139.16), Baxter International (BAX-$73.29), C.R. Bard (BCR-$166.62), Bio-Rad Laboratories (BIO-$120.56), Varian Medical Systems (VAR-$86.51), Medtronic (MDT-$72.20), The Cooper Companies (COO-$162.09) and Cardinal Health (CAH-$80.73).

The Affordable Care Act has opened Washington’s money spigots to the max. And because health care spending is perceived to be free, it has become the fastest-growing sector of our economy. In 2011, we spent $2.8 trillion on health care, and in 2015, we’ll spend $3.8 trillion, or about 22 percent of our $17.4 trillion gross domestic product. In the coming 10 years, health care spending may exceed $9 trillion, or 27 percent of our expected GDP. Sloppy accounting, purposeful waste, clever fraud, intentional abuses, overcharges for X-rays and tests, billings for procedures never performed and supplies never received, and accounting systems that maximize billing charges will cause care costs to explode. The graft and fraud in America’s health care system will put military spending, $90 hammers and $700 toilet seats to shame. Meanwhile, crazy, wild companies with names you’d never recognize will be making huge bucks, and their shares will be testing new highs. Risky investments in ArQule, Sangamo BioSciences, Ardelyx, MacroGenics, Ignyta, Agenus, Insmed, Dynex Technologies, CorVel, Landauer and other companies with strange-sounding names will become vacuums for the swirling gold dust in the health care air. They’re too insanely risky for your grandson.

The 10 issues I previously recommended will continue to do well, and there are compelling reasons to own each of them. However, I’m as certain as sunshine and blue skies that speculative opportunities exist for your grandson with the following volatile stocks: Cerner, Genmab, Kite Pharma, Relypsa, Egalet, Alkermes, Intrexon, Versatis and Endocyte. And there are five no-load Fidelity funds that own these issues, as well as others, and each of these five funds has prospered uncommonly well. So I’d recommend that you invest $6,000 in each of the following:

• Fidelity Select Biotechnology Portfolio (FBIOX-$223), a $9.2 billion fund, has one-, three-, five- and 10-year total returns of 38 percent, 45 percent, 34 percent and 11 percent, respectively.

• Fidelity Select Health Care Portfolio (FSPHX-$219), with $7 billion, has one-, three-, five- and 10-year total returns of 40 percent, 36 percent, 28 percent and 15 percent, respectively.

• Fidelity Select Medical Delivery Portfolio (FSHCX-$83) is a small portfolio ($900 million) with total returns of 28 percent, 22 percent, 21 percent and 15 percent.

• Fidelity Select Medical Equipment and Systems Portfolio (FSMEX-$39) is a $1.6 billion portfolio with total returns of 26 percent, 24 percent, 19 percent and 11 percent.

• Fidelity Select Pharmaceuticals Portfolio (FPHAX-$21), with $1.5 billion, has total returns of 32 percent, 27 percent, 24 percent and 15 percent for the one-, three-, five- and 10-year periods.

If the total return on those funds averages 12 percent over the next 25 years, that $30,000 would grow to $510,000 when your grandson is 25.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. © 2014 Creators.com

The post OP-ED: Look at medical stocks for healthy returns appeared first on Daily Journal of Commerce.

With the recent passage of Measure 91, the sale of marijuana for recreational use will soon be legal in Oregon under state law. As when any new market emerges, even businesses with no existing connection to the marijuana industry will be eager to identify new ways to make money. Some landlords, for example, will be interested in leasing property to marijuana producers or distributors, who may be attractive lessees with steady cash flow and few tenant improvement requirements.

Banks and private lenders may find marijuana growers and dispensaries, with high profit margins and a ready market for their product, to be worthwhile credit risks. However, doing business with marijuana producers or distributors necessarily involves unique risks and considerations, including the fact that marijuana remains an illegal controlled substance under federal law. As a result, certain creditors’ remedies created by federal law – such as involuntary bankruptcy proceedings and federal court receiverships – are unlikely to be available to creditors of marijuana businesses. Landlords and lenders should seek competent counsel to fully understand these special risks involved, and others, before leasing or providing financing to a marijuana business.

As a general rule, when businesses experience financial difficulties, one of the first considerations for debtors and creditors alike is the possibility of bankruptcy. However, the emerging trend among bankruptcy courts (federal courts that apply federal bankruptcy laws) is to refuse to allow marijuana-related businesses (including those that lease property to marijuana operations) to avail themselves of bankruptcy protection on this basis.

For example, a federal bankruptcy court in Oregon recently refused to confirm a bankruptcy plan that would have relied on rental income from a medical marijuana business as well as profits from its own marijuana grow operation to pay creditors. In Colorado (which also has legalized recreational marijuana), a federal bankruptcy court took an even harder line, summarily dismissing both a business and an individual bankruptcy case because the debtors in each instance derived income from marijuana operations (one was a landlord, and the other was a grower).

Other federal remedies are also likely foreclosed.�� For example, although no federal courts seem to have addressed the issue yet, creditors are unlikely to be able to place marijuana debtors into federal receiverships, for the same reasons that bankruptcy courts are unwilling to preside over such cases.

Landlords and lenders (and any other parties owed money by marijuana businesses) are therefore probably unable to force marijuana business debtors into involuntary bankruptcy proceedings or federal receiverships. Landlords whose tenants are engaged in marijuana businesses may also find themselves barred from seeking relief in federal bankruptcy courts. Thus, doing business with a marijuana producer may limit not only a landlord’s remedies against that party, but may also have far-reaching consequences for a landlord’s own ability to file for federal bankruptcy protection, should the creditor seek to do so.

Creditors will need to look to options in state courts and through self-help remedies available under state law with options in federal court limited. One option available to a secured creditor is to foreclose on the business’ assets and liquidate them, or even operate the business itself. Oregon’s new marijuana law explicitly provides for foreclosure of security interests in marijuana, and for the operation of a marijuana-related business for a secured party for a “reasonable period” after a debtor’s default.

Most secured creditors are not likely to want to take possession of the marijuana-related business because of the numerous potential risks, including knowingly engaging in a business that is illegal under federal law. Alternatively, a creditor may seek to reorganize or liquidate an insolvent marijuana business by suing for appointment of a state court receiver.

Until the Oregon Liquor Control Commission (which will regulate marijuana businesses) provides specific rules for marijuana licenses, it is unclear what conditions would have to be satisfied to appoint a receiver for a marijuana-related business. Even after such rules are established, however, it still is not clear whether many receivers and turnaround managers will be willing to take the risks associated with operating marijuana businesses or if their insurance and bonding companies will permit them to do so. But it seems likely that if enough landlords and lenders need their services in this context, some receivers will find a way to serve those needs.

It is also not clear whether state court judges will be willing to oversee marijuana receiverships, notwithstanding the passage of Measure 91, but clear rules from the OLCC or amendment to the law could provide state court judges with the necessary guidance to do so.

Another strategy that may provide some measure of protection to a landlord is to create a special purpose entity to engage in marijuana-related business. However, doing so will not expand the remedies available to such an entity in the event of the lessee’s default.

Finally, any secured creditor should keep in mind that civil forfeiture of the debtor’s collateral under federal law is also a possibility. The Justice Department has provided guidance as to when it will pursue federal charges against businesses selling or distributing marijuana in ways that are otherwise legal in the laws of their states. But that guidance expressly states that it is subject to change at any time, and there is no guarantee that this administration, or any subsequent one, will continue the present policy.

In sum, lenders and landlords considering entering into business relationships with marijuana producers or distributors must understand that, in addition to the potential benefits of such business relationships, there are significant and unique risks in the event the marijuana business falters – especially in terms of available remedies. Based on the complexity and relatively untested-nature of this area of the law, and the likelihood for additional developments on both the state and federal levels, it is extremely important to consult with competent legal counsel before entering into any business relationship involving marijuana.

Victor��J. Roehm is a partner in Sussman Shank‘s business group with more than 10 years of experience in��finance, real estate and corporate transactional work. Contact him at 503-227-1111 or��vroehm@sussmanshank.com.

Timothy A. Solomon is an attorney in Sussman Shank’s bankruptcy and creditors’ rights group with more than 12 years of experience in bankruptcy, corporate restructuring and receivership matters. Contact him at 503-227-1111 or tsolomon@sussmanshank.com.

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Dear Mr. Berko: You once recommended General Electric at $25. I didn’t buy the stock, because the company was so big that it reminded me of the Pentagon. Would you still recommend a 200-share purchase? Also, what is your opinion of Synchrony Financial, which GE spun off in July?

G.S.

Kankakee, Ill.

��

Dear G.S.: General Electric (GE-$25.40) is slimming down and becoming better-focused. In the past decade, GE has been one of the worst-performing stocks included in the Dow Jones industrial average. An October survey of several dozen fund managers revealed that they believed that GE was “uninvestable, unmanageable, too complicated, too diverse (and) too slow.” And several “buy and hold” fund managers admitted that they’re frustrated with the stock’s performance. It seems that they and other investors are shunning GE in favor of smaller, less convoluted conglomerates, such as Textron, Honeywell, Danaher and 3M. And Scott Davis, an analyst at Barclays, told investors in November that GE’s earnings reports are so confusing that it takes him “days to fully digest them.” I recall a frustrating hour trudging through those reports in March, when I recommended GE at $25.

Though in fairness, GE did spin off Genworth Financial (GNW-$8.50), its $10 billion-revenue life insurance and financial services company, at $19.50 a share in 2004. Three years later, GE got out of the plastics business, selling it lock, stock and barrel to a Saudi firm for $11.9 billion. Then, in 2013, GE sold its media business, NBCUniversal, to Comcast (CMCSA-$58.92) in a deal valued at $40 billion. And recently, GE sold its iconic appliance business to Electrolux in Sweden and simultaneously purchased the power generation business of the French conglomerate Alstom. If the board decides to go the full monty, Barclays says GE should spin off everything not related to its global infrastructure-related businesses – energy, aviation and transportation. So another spin-off may be GE’s medical devices business. This unit should be worth enormously more as a stand-alone entity, and Wall Street believes that it will trade at higher multiples than competitors Johnson & Johnson, Stryker and Medtronic.

GE may have most of its spinning out of the way. Still, its share price did diddly-squat last year, as it had in the dozen previous years. Meanwhile, 21 percent of GE’s industrial revenue is exposed to plunging energy prices – primarily those divisions making equipment that drills, pumps, measures and transports oil. So GE’s power generation business will be hit hard if oil prices remain weak. And continued lower oil prices will slam the fortunes of oil-producing countries where GE hopes to grow its revenues. However, the 88-cent dividend may be raised to $1 in 2015, and with alacrity, I’d buy GE as a conservative long-term investment yielding 3.5 percent.

Synchrony Financial (SYF-$29.75) was previously a part of GE Capital. GE hired Goldman Sachs, Morgan Stanley, J.P. Morgan and Citigroup to take 20 percent of Synchrony public at $23. The underwriters did a yeoman’s job, off-loading 125 million shares, which steadily rose to $30 a few months later. GE still owns 80 percent of Synchrony’s shares, which may be distributed to shareholders at some point in 2015. Synchrony is the largest provider of private-label credit cards in the U.S., based upon purchase volume and receivables. Synchrony also has an inventory of credit products (personal loan plans) through programs established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, veterinarians and health care providers. In 2014, Synchrony posted $6.2 billion in revenues, with net profit margins of 32 percent, and earned just under $2 billion, or $2.20 a share. Low oil prices, which may continue for 12 to 18 months, are bullish for Synchrony because most Americans don’t bank their savings; they usually spend and borrow more. And Synchrony will be Johnny on the spot, assisting buyers and sellers in financing their transactions. Synchrony doesn’t pay a dividend, but that may change soon because the balance sheet has $14.8 billion in cash, which is equivalent to $17.50 a share.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. © 2014 Creators.com

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Financing infrastructure is always a challenge – and nowhere more than in Portland where we are in front-row seats to a slugfest led by Mayor Charlie Hales and City Councilman Steve Novick.

The challenges that are being dealt with by the interested parties demonstrate that this issue is not a slam dunk. The inability to quickly pass an additional source of revenue for repair of infrastructure that everybody uses tells us that Portlanders don’t see this as an issue worthy of significant public support.

This additional funding request is not a particularly forward-thinking concept. It is needed to take care of matters of immediate concern, such as sidewalks on busy streets to be sure that our children can get safely to school. Walking is, after all, a legitimate form of transportation.

The contradiction between providing for fundamental maintenance of an existing infrastructure system and the spending of additional dollars for new systems is glaring. The Portland-Milwaukie Light Rail Project is a multibillion-dollar investment in forward-thinking transportation planning. Once built, however, will it fall victim to a similar attitude on maintenance and capital reinvestment as the street system has? Will it also not be upgraded in the future when new planning strategies suggest that the existing system does not meet the contemporary requirements of its future day?

After all, that is exactly what the street fee issue is all about. It is about upgrading a system put in place perhaps a half a century ago to meet the lifestyle and economic requirements of 2015.

The history of the construction of major projects has always been that projects are permanent. It may be, however, that this premise is itself obsolete. Systems and projects may not decay or wear out, but become functionally obsolete. They simply don’t suit people in the way that they choose to live today. Furthermore, the one-size-fits-all approach is not capable of meeting the diverse needs of today’s Oregonians.

The mindset deriving from the difficult economic conditions of the past several years has appropriately conditioned Portlanders to examine expenditures more carefully and to demand accountability from those who are in charge. Recent economic trends, however, indicate that the national economy is on a significant recovery trajectory. The challenges of the last few years must not be forgotten, but put in context.

The very nature of our technological advances has disrupted the funding source that has traditionally been a reliable foundation for infrastructure maintenance. As technology reduces gasoline consumption, a significant revenue source will no longer be able to provide the support it has. While tolls are not acceptable as a revenue source to this local population, the current conversation about fees is no different. The questions are the same: how much must be paid, what will be spent, how much will be spent and who will look over the expenditures.

Christian Steinbrecher is president of Columbia River Port Engineers Inc. and the immediate past president of the Oregon Section of the American Society of Civil Engineers. He is the editor of ASCE Oregon’s Report Card on Oregon’s Infrastructure. Contact him at cfs@carpengrs@.com.

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