Santa Cruz doctors lead the way to economic recovery
February 5, 2011
By Jondi Gumz - Santa Cruz Sentinel
SANTA CRUZ -- While many small-business owners sat tight watching for signs of economic recovery, a handful of doctors and dentists in Santa Cruz County took the plunge, investing in new office space, equipment and staff to expand their services for patients.
Health care jobs, which had grown steadily for decades, froze during the recession, according to economist Jeffrey Michael of the University of the Pacific Business Forecasting Center, who produces a quarterly report for the Santa Cruz County Business Council.
"The fact that health care is starting to grow again is a sign that the recovery is beginning," he said.
At a time when many lenders have been cautious, Santa Cruz County Bank, a lender established in 2004, made 13 Small Business Administration loans totaling $4.9 million in fiscal 2010, the most in the county. Four of those loans went toward four medical expansion projects over the past 16 months. Here's a snapshot of what's being done with those loans.
Late in 2009, Dr. Ted Bailey, a Santa Cruz optometrist, invested about $100,000 to buy new instruments to diagnose macular degeneration, glaucoma and other abnormalities. In April, he brought in a specialist in bladeless laser eye surgery, Dr. Michael Furlong, whose patients include the new 49ers football coach, Jim Harbaugh.
Dr. Nicholas Abidi, an orthopedic surgeon, and his partners bought an office building in Capitola a year ago for $1.7 million, according to the county Assessor's Office, and hired another surgeon to meet a burgeoning demand.
"We needed a bridge loan while we were renovating," Abidi said. "Santa Cruz County Bank kept the rate affordable."
Dr. David Benjamin and Dr. Andrew Knorr, urologists in Watsonville, leased space in Santa Cruz in January and brought in a specialist in minimally invasive robotic surgery, a $300,000 investment, to be more convenient for patients in the northern part of the county.
Dr. Brian Schabel and Dr. Vivian Chan, orthodontists practicing in Aptos and Santa Cruz, bought a former bank branch in Capitola in August for $1.4 million, according to the county Assessor's Office, to cut their costs and give them room to grow. They expect to start remodeling this month and open in April.
"You just have to outlast your competitors to remain in business," said Bailey, quoting Bud McCrary, co-owner of Big Creek Lumber and a speaker at a recent Think Local First mixer. "One of the ways to do that is to offer them something they can't get elsewhere."
Loans created jobs
The loans created jobs not only in health services but also construction as contractors and subcontractors outfit new medical offices.
That doesn't surprise Karen Dorway of Bauer Financial, an independent service in Florida that ranks banks and credit unions nationwide.
"Small banks tend to know their customers, the local business community, when to grant a loan ... and when not to grant one," she said. "They don't need to be squeezed with over-regulation. The fact is, they have better balance sheets than their larger counterparts."
The average capital ratio at community banks with assets under $300 million, a category that includes Santa Cruz County Bank and Lighthouse Bank of Santa Cruz, was 10.3 percent as of Sept. 30, higher than the industry average of 9 percent.
Economists announced last September the recession ended in June 2009, but in Santa Cruz County the recovery has been moving at a snail's pace.
Unemployment stayed in the double digits all last year and in December was 13.8 percent. The vacancy rate for office space at year's end was 12.3 percent, down only slightly from 13.1 percent in the first quarter.
Commercial real estate broker Ron Hirsch said his business was "certainly better in 2010 than 2009."
Cassidy Turley Commercial Real Estate predicts a slow rebound for Santa Cruz County, with "shadow space," leased but empty cubes and floors, hampering recovery.
However, Cassidy Turley expects tenants to move to upgrade their space at cheaper rents and says those who want to buy will find "once in a generation pricing in the owner-user market."
From renter to owner
At the Santa Cruz Orthopaedic Institute, Abidi had been saving up for four years to buy a building.
"We had more demand," he said. "Patients were waiting."
His plan: Add a doctor to share on-call duties with him and Dr. Peter Reynolds, so they could cut the wait for patients and get away from escalating rent.
"We can't have expenses going up 3 percent each year," Abidi said.
The practice relocated in July to 4140 Jade St. in Capitola. Sherman & Boone Real Estate had occupied the building before filing for Chapter 11 reorganization in 2008.
Abidi screened 60 candidates and interviewed 20 before finding Dr. Chris Heywood, who arrived in August. Many surgeons dropped out of contention after they found out office expenses in Santa Cruz are higher but Medicare reimbursements are lower.
"They go to Texas," Abidi said.
Other locations did not pan out, including empty space in Capitola's Nob Hill shopping center and a building vacated by Senate Furniture in Santa Cruz, where Abidi was told he needed 90 parking spaces. Nothing close to Dominican Hospital was affordable.
Owners of the Sherman and Boone building had three other offers but with demand slack for office space, the property, listed for $1.85 million, sold for $1.7 million.
It's four times bigger than what the orthopedists had, so they teamed up with Dr. Victor Lee, a pain specialist, to close the deal.
The renovation was done by a local contractor, Bogard Construction.
Third doctor needed
When the economy changed, Benjamin and Knorr lost a partner in their urology practice, a specialty focusing on the bladder, kidneys and prostate.
"We had to close our Santa Cruz practice and we were only in Watsonville," said Benjamin, finding it difficult for two doctors with children to run a practice and balance work with family.
"If both doctors are in surgery, no one is in the office," he explained. "Three physicians in a group practice is a perfect fit for this size of the community."
Dr. Vanessa Gulla, who grew up in Carmel, started work Feb. 1 at the new office at 1505 Soquel Drive in Santa Cruz.
She is trained in minimally invasive surgery, in which procedures are performed with thin instruments and a video camera through small incisions. Her specialty is surgery using da Vinci robotic technology.
What gave Benjamin the confidence to recruit a third doctor?
"The need for her expertise and want for improvement," he said, noting urology is centered on technology. "It's a big responsibility and risk in this economy to put out the money required."
The urologists bought new equipment: tiny fiber optic scopes that allow the doctors to inspect the inside of the bladder with minimal pain for the patient, ultrasound equipment that minimizes the risk for radiation, and a computer-based system that tests bladder function so patients can have procedures done in the office rather than in the hospital.
"All of them are tens of thousands of dollars," Benjamin said.
Michael, the economist, forecasts that most of the future job growth in the category of private education and health care will come from private health services.
Schabel, the orthodontist, expects he will add staff, not initially but eventually.
"In medical and dentistry, these problems don't go away," he said. "These are the first things people take care of once they have a brighter outlook."