O.C. Regaining Luster Lost With Bankruptcy

A year after bankruptcy cast a pall over the region, Orange County has emerged in its best economic shape in years.

The prosperity can be read in the bottom line of many companies as well as personal observations and an accumulation of economic data released in the last few weeks.

The county’s jobless rate is the lowest in five years. Business executives are more confident than at any other time since 1986, according to a survey released Tuesday. Hotel occupancy is at a five-year high. And Orange County’s long-sluggish real estate market finally appears to be coming around.

Home sales are climbing, and commercial developers and investors are buying properties again as office vacancy rates have dropped and rents have begun to rise. Major businesses such as Fluor Corp. are looking for more space. Builders are even talking about erecting speculative properties, which the county has not seen this decade.

But the one major trouble spot is the consumer. Many households throughout the region, faced with rising personal debts and stagnant wages, have yet to share the fruits of the recovery. And until they do, car dealerships and other retailers aren’t likely to see a resurgence of sales.

Tony Cherbak, a partner at Deloitte & Touche in Costa Mesa who specializes in retail, thinks that has created a sort of split economy at the moment, with jubilant corporate executives on the one hand and ho-hum consumers on the other. But Cherbak and others believe that if current economic trends continue, consumer confidence and spending will catch up.

“The overall mood of the economy is more upbeat,” said Joe Stafford, chief financial officer at Viking Components, a Laguna Hills maker of computer memory products. He added: “We’re hiring people left and right.”

Kuntz Manufacturing Co. in Santa Ana makes automated equipment for other manufacturers, and as such, provides a finger to Orange County’s economic pulse. Kuntz struggled during the recession, but in 1994 business slowly began to recover, then plodded along until the last few months when it took off.

“This year has started off to be a banner year,” said Roger Kuntz, the company’s vice president, adding that he is looking to hire workers again.

Like Kuntz Manufacturing, many companies in Orange County are in their best financial condition in years. Besides benefiting from low interest rates and surging stock prices, many local firms have restructured during the recession, and others have found new markets or expanded overseas.

And Orange County has more than its share of firms tied to industries that are growing, such as international trade, tourism and engineering management services.

“That’s one of the real bright spots in the Orange County economy,” said Chris Taylor, an economist with Wells Fargo Bank in San Francisco.

For all of this optimism, however, the local economy has yet to regain the luster of its heyday.

Manufacturing employment, though it appears to have bottomed out, is still 50,000 jobs shy of its peak in 1988. Home values have yet to change direction. And not everyone is quite ready to declare that the shroud of the county’s bankruptcy has lifted.

As Newport Beach economist Walter Hahn put it: “As long as we don’t have some kind of blowup in the bankruptcy recovery plan, I think things are returning to normal.”

Perhaps the most significant economic indicator is Orange County’s unemployment rate, which fell to 4% in December, the lowest since August 1990.

Orange County’s jobless rate--the third-lowest among 60 counties in California--reflected the area’s continued job gains in services and an emerging recovery in the long-troubled finance sector. Despite fears that the county’s bankruptcy would deaden the jobs recovery, the county’s nonfarm employers increased their payrolls by 1% in 1995. Analysts are predicting double, if not triple, the job growth this year.

Real estate also appears to have hit a critical juncture in the county. After five years of deteriorating sales, an increasing number of houses have changed hands in recent months. In January, new and existing home sales surged 22.6% in Orange County, the biggest year-to-year increase since mid-1994.

While home values continue to languish, analysts think prices will start to creep up again this year.

“Prices are already beginning to firm,” observed Roland Osgood, president of Kaufman & Broad’s Coastal Division in Newport Beach. Osgood said Kaufman’s sales of its new homes last month in Orange County were the best in five years.

“We’re seeing a sense of urgency” from buyers, he added. “Interest rates are some of the lowest, and people don’t want to miss it.”

Similarly, the market for Orange County’s office and industrial space is heating up.

Office vacancy in the county has dropped to less than 15% in the fourth quarter of last year, down from a high of 22% in early 1992. Rents for industrial space are climbing throughout the county, and new retail development in Orange County is expected to quadruple this year from 1995, according to CB Commercial in Anaheim.

Dick Sim, president of the Irvine Co.’s office and industrial division, said more than 10 buildings are being planned or were recently built in the 2,500-acre Irvine Spectrum, home to 2,200 companies.

“We haven’t seen a market like this since 1989,” he said.

Another builder, Turner Development Corp. of Newport Beach, is even planning to erect two “spec” buildings, which means tenants have not been lined up. Betting that companies will soon need office space in south Orange County, Turner has bought 8.4 acres in Lake Forest, where it will soon begin a $9.5-million project.

A growing number of companies are searching for bigger or new space in Orange County.

Fluor, the Irvine-based international engineering and construction services firm, earlier this year threatened to leave the county if voters failed to approve the half-cent sales tax that was part of the bankruptcy recovery. The company never followed up on its threat and now, coming off a year of record profits, it is evaluating new headquarters space here for its growing business. Fluor reflects a key aspect of the corporate resurgence in Orange County: the increasing profits from work overseas.

William Worthen, chief executive of Neuro Navigational Corp. in Costa Mesa, says he doesn’t know exactly what’s behind the surge in his business, which makes micro surgical devices for brain surgery.

All he knows is life is good again.

“I’m not sure if it is just the economy, or the technology and the cost-cutting drive in the industry that is doing it,” he said, “but things are just going great.”

Times staff writers Debora Vrana, John O’Dell, Greg Johnson and Greg Miller contributed to this report.

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