Editor's note: The Northern Colorado Business Report convened its annual Economic Roundtable on Dec. 4 at American Eagle Distributing Inc. in Loveland. Participants this year included:

• Mark Bower, senior vice president, CFO and chief operating officer, Home State Bank, Loveland;

• Doug Dohn, founder and president, Dohn Construction Inc. in Fort Collins;

• Brad Florin, founder and president, Acartus Inc., a Fort Collins software company, and organizer of NoCo Angels, a private investment network;

• Stephen Koontz, associate professor, Colorado State University Department of Agriculture and Resource Economics;

• Terri Shields, commercial real estate broker at Everitt MacMillan Commercial LLC in Fort Collins;

• Mark Wallace, M.D., family practice physician and director of the Weld County Public Health Department.



The six panelists took questions from Business Report editor Tom Hacker, who covers real estate and construction, and reporters Kristen Tatti, who covers technology and banking, and Steve Porter, who covers health care, agriculture and environmental issues. The following is a partial transcript of the discussion.



Tom Hacker: I'd like to start by asking each of you to summarize how you view the year ahead in your particular areas. Mark, how do you see the banking industry's future?

Mark Bower: As the economy goes, so does the banking industry, generally, because that's what we're tied to and what we're involved with. So 2009, I think, is going to be pretty tough. We're worried that the recession that everybody has finally admitted that we're in could be a long one. And we don't know how deep it's going to go. A lot of people keep comparing it to the Great Depression. I don't think that's appropriate, because we're certainly not to those levels yet. But we're certainly past the 2001 recession and we're seeing some stats that surpass the 1980-81 recession in certain areas.



Hacker: Doug, tell us what you see for the construction industry in the region.



Doug Dohn: It's a challenging time, I think, especially as far as residential construction is concerned. I think that will continue very much in line with what we saw in 2008, with very, very little residential construction. My firm does multifamily construction, and some years it's 20 percent of our business. Last year it was about half a percent of our business. And I don't see any reasons why that trend is going to change. I do see some pent-up demand for apartment construction, and we're getting ready to start. Still, there are some challenges in financing that apartment construction. With the vacancy ratios that the banks are asking for, it's very difficult to build apartments.

In commercial construction, I think there are still some signs of hope. I think some of the school districts and municipalities still have projects. The higher education sector still seems to be fairly strong for construction projects. Aims, Front Range Community College, CSU all have projects that are under way, and others anticipated to go to Dohn Construction. I think there are projects out there, unlike other slow periods I've been through in the '80s and '90s. The challenges are getting the financing and the equity required to actually start them.

On the good side of things, I think we're finally seeing stabilization in (building material) pricing.



Hacker: Thanks, Doug. Terri, how about the commercial real estate scene?



Terri Shields: What Doug said about the residential real estate industry surely affects what we do in commercial. The way that comes into play for the commercial market is, obviously, in the retail sector. There's an overabundance of retail space now.

But that could be absorbed if we have a good holiday season. If we don't have a good holiday season, I think by the end of January into February you're probably going to see some more big-box space come open.

As far as office space goes, there seems to be a lot out there but it's being absorbed. It's really new space that's being absorbed. And it's leaving older property vacant, which, in my opinion, is good because then you can bring startup companies in that don't necessarily have the cash flow, and can use the older space.

There's strong demand for industrial property, especially for some large to midsize properties out there. It's tough to find that property between 10,000 and 50,000 square feet that's of good quality. You can find a lot of older stuff, like the property by the Fort Collins Airport. With construction prices starting to level off or to drop, maybe that will be a sector that starts to pick up in Northern Colorado.

Overall, I believe 2009 is going to be a little difficult, especially with the first half of the year. But I'm optimistic that as we approach 2010 our commercial real estate market will pick up slightly. The news today was that foreclosures for the third quarter were down from where they were in 2007. That trend is important to us.



Hacker: Brad, what about the climate for the tech sector? What does the year look like for entrepreneurship and access to capital?



Brad Florin: I've been an entrepreneur for 20 years, and an angel investor for 10 years, and both of these markets go in cycles, just like real estate, just like banking, like credit markets and stock markets.

When I started in 1999, in the Boston area, we were still in the dot-com era. We saw people investing money, crazy valuations with business plans that were not credible, companies that didn't have either products or customers. It was speculation at best. Luckily that leveled off and we saw a more realistic market in the last several years.

There are lots of people who moved money out of the stock market before it went down. Those people who are sitting on cash, when they match up with the proper angel and proper entrepreneurship opportunity, it's a great fit. So it hasn't necessarily dried up, like in banking and the credit markets where you're relying on external markets and market forces, global economic factors.

Angel investing is a very personal connection. You connect entrepreneurs with a group of people that have cash, and deals will get funded even in the worst of times. Really high-quality companies - Sprig Toys is a great example - are getting funded.

To me, a down economic cycle seems like a great time to start a company. I started my company in '92, during a recessionary time. And as an early-stage, bootstrap company, we did a great job in going out and acquiring office space on very favorable terms, extremely favorable prices. As a startup, that's exactly what you need.



Hacker: Steve, tell us how you see the agriculture sector performing in the year ahead.



Stephen Koontz: Agriculture is a little bit countercyclical, compared to the rest of the economy. We have a classic price/cost squeeze going on. And if you look back at 2007 income in agriculture, we had record highs. Prices of a lot of the inputs that were purchased - fertilizers and things like that - have caught up with the very good prices that we saw in 2006, 2007 and have persisted in 2008. Agriculture in Colorado is primarily livestock. It accounts for a good 60 percent. The sector there that's really growing is the dairy industry.

Right behind livestock are the feed industries - corn, hay and wheat. Those feed grain industries and wheat have just had tremendous prices in 2007 and 2008, so income for some of those folks has been very good.

We'll see some contractions in 2009. I don't think it will be as bad as other segments in the economy. But that's the deal with agriculture. It doesn't make great money when everybody else is making great money, and it doesn't lose lots of money when everybody else is constricting.



Hacker: Mark, how about the health-care sector where we've seen such a boom in recent years?



Mark Wallace: Well, health care continues to churn along. But I think one of the challenges that we're going to see is with the state economies. A lot of states hoping to do local-level health care reform are going to get stalled. They were looking to find ways to try and draw on some minimal expansions of public programs to get more people covered who are in the poor category.

We're not doing a good job at all at controlling the cost of health care. So, we have a situation now where we have businesses not able to afford it, government not able to afford it, and individuals not being able to afford it. I hope that finally we'll get beyond this huge ideological divide about what we should do about structured health care in the United States and get down to the reality that we've got to do something to control the costs in that part of the system.

We've been trying to find ways to cover the underinsured. In Colorado, it's 800,000 people. For the nation it's 47 million. More and more people are moving out of the uninsured category and moving into the underinsured category. It's certainly a problem with a lot of small practices, because we're seeing their accounts receivable go up because people are coming in for services and they think they're covered, and they've got this huge $5,000 deductible, and they're not paying the small practices for that.

We just completed a report that shows that in the primary care workforce, 50 percent of those who are practicing today in family medicine intend to retire in three years. So on top of an already looming nursing shortage, we've got real concerns in what's going to happen with primary care infrastructure.



Kristen Tatti: Looking toward 2009, with a major change in the national political scene, what are you expecting? How do you think that political change might impact your industries?



Dohn: Well, obviously they've talked about restructuring the whole regulatory process for banks, and whenever the government talks about a massive change, you get nervous about what they're really going to do. There are probably some things they can do to improve our current regulatory structure. There's no question that part of the problem we're in today is because of a lack of some oversight. "Too big to fail"  I think is an issue that clearly needs to be addressed. So we're in kind of a wait-and-see situation to find out exactly what they put on paper and what they come up with.



Wallace: I think the health-care industry is going to be interesting to watch. There are sort of two camps out there. First, there are people who think there will be some immediate reform on a minor scale. That's about all the current administration can do given the economy, some expansion of public programming to help get children covered.

There's another group who feel we'll do nothing and they'll wait and see if this administration gets elected to a second term, and in that second term see the kind of more dramatic movement towards major reform.

I think that what's going to happen for sure is you've got both sides of this debate already attacking the administration, that the Obama plan is based on one that keeps pretty much the current system, takes a little bit of what Massachusetts had with this kind of protected marketplace decree, products that become affordable and accessible to people. Then you've got folks who are saying that's not the reform that we were hoping for.

We are seeing an increasing number of both professionals and physicians and others within the health-care system - as well as middle-class Americans - who are saying they want something more dramatic than just building on the current system. A large contingent in Northern Colorado is very vocal about moving to a single-payer structure of health-care financing here.



Hacker: Terri, there's been a lot of talk about the glut of office space on the market in Northern Colorado. Last year we saw a proposal for a pair of office towers near here put on the shelf. How do you see the absorption of office space going, and will we be at a point sometime in 2009 where we're going to be building some more?



Shields: There's definitely more office space in the plans, and we're starting to get construction bids. You were talking specifically about Eagle Crossing, which is right here at Crossroads Boulevard. That project is on hold, and the reason it's on hold is because of the market. The land value there is a little elevated, so we can't get the numbers that we need to build the project.

There absolutely is an abundance of office supply, but we're seeing a lot of movement in the market. You know, we see a lot of new companies coming in. Corporate headquarters are starting to look at Northern Colorado as the place to be for a quality lifestyle. I truly believe those will start to fill up and the demand will be greater. People are always making lateral moves, but we're seeing more and more moving upward into nicer office space.

There's still difficulty finding office space for clients who want to be in certain areas. There's a hot market in downtown Fort Collins and along Harmony Road. But there's not much space there for the small user. I think we're looking at about 12 to 18 months of absorption there.



Hacker: Doug, in what sector do you think there's going to be the most activity in construction? Institutional, health care, office?



Dohn: I think institutional building is definitely going to be probably the strongest sector. Higher education will continue to be strong. Health care, I think, is going to flatten. I don't see a lot of health-care facilities being built in the next year. I think there will be a lot of office space projects that need to start, but I don't think they'll start until they are at least 50 percent leased. You know, I think it's virtually impossible to get financing in an office building or industrial building that's not leased at least to the 50 percent level, no matter how strong your project is.



Bower: Certainly, things are tighter today than they were two years ago. There were times in banking when a 50 percent lease requirement for a project was pretty standard and normal. Then we got to a point in time when we were saying, "Well, let's just speculate the whole thing." Now we're coming back the other way, and unfortunately sometimes it gets pushed past probably where it should be.

One of our concerns is that regulators are under marching orders to make sure it doesn't happen again. So they tend to overreact somewhat and come in and put a lot of pressure on banks to justify what they're doing. Because of that, it makes the credit crunch even tighter.



Tatti: Mark, can you talk a little bit about how the local banking market is separate from these large, national institutions that have been failing?



Bower: I think there's a big distinction between investment banks - the Citi Banks, Bank of America - and the small community banks. Obviously, I represent a small community bank so, upfront, I'm biased. But I've always believed that the founding fathers tried to decentralize power. They were afraid of centralized power in any way, shape, or form. So they broke the government up, and they didn't want a centralized banking system, as well.

So in my personal, biased opinion, we need to look back to a Standard Oil type of scenario, when they broke that company up and said, we're not going to allow that to get that big, that powerful because it's not good for our country. We need competition.

When you have thousands of small community banks across the country, if one gets out of hand, it's really easy to deal with. We can take care of it.

Let me speak also to the liquidity crisis. Small banks generally operate with deposits that are very local. And we've stuck to more traditional models of lending out less than what we have in deposits. So we have strong liquidity and we're not in a "liquidity crunch" because we never were pushing the envelope with liquidity.

The large corporate banks, they lent out much more than they had on deposit. They used commercial paper to fund a lot of their loans and their activities. It's speculative, risky, and that investment activity is really the crux of the crunch.

Dohn: I think this community bank system has really worked well in our area and in a lot of the smaller markets when they all work together and they can participate in loans. But the lending limits and the liquidity levels of community banks make it a struggle on larger projects. There are limits for those projects, and for the bank. They can't do the old way of participating with maybe two-thirds of that loan out to another community bank.

As far as I can see, there is no means for participation these days or of sharing this risk. It's causing tremendous problems on larger construction loans.



Hacker: Brad, obviously we have a big stake in this region in renewable energy, and the governor has staked his political reputation on that. What do you see in that arena? Are there other companies that you know about that are coming forward in the next year?



Florin: Absolutely. Green technology is one of the hottest areas for angel investing for 2009. We have a benefit here in our local market that the research coming out of CSU is actually spawning some startups. I had a meeting with one last week. It is one of the better growth areas.

With the price of oil coming down, hopefully the focus stays on developing these alternative energies. It's still a hot market regardless of what's happening on Wall Street and banks and real estate, construction and all these things. We've seen several good things come out of CSU for green technology.



Tatti: Do you feel that deals in that sector are being held to a really high standard as maybe some of the other top companies are being held to?



Florin: No question. In a tougher market everybody is looking closer at what investments they make, whether they be in the public stock market, real estate, or angel investing. So, yes, the scrutiny is really high. The " green"  company automatically gets to the top of the queue. And then beyond that it's certainly the management team, whether they can protect that with patents, and so forth. Those are key things.



Steve Porter: Steve, there have been some pretty powerful criticisms raised by the Environmental Protection Agency of the Glade Reservoir water supply project. If that project does not get approval from the Army Corps of Engineers, what do you foresee for the region's ag sector?



Koontz: That's a difficult question. Any type of water question in the West is nothing but trouble. As they say, whiskey is for drinking, and water is for fighting. Probably one of the best quotes I've heard about the Glade project was from Reagan Waskom, the director of the Colorado Water Institute at CSU. He described the Poudre as a working river, and the people who are interested in pushing this particular project through have a right to do what they're proposing to do. Water rights are allocated that way. But, he said, even though the Poudre is a working river, this will probably work it to death.

You know this will have an impact on Fort Collins and the downstream communities. But these particular issues, with the need for water, are never going to go away. There simply has to be some discussion and some alternatives looked at for ensuring reasonable water supply.



Porter: Part of the idea is that if they have water supply there, it will take the pressure off buying agricultural water rights and keep farmland in production longer. But if it doesn't work out, then that farmland is going much more quickly out of production.



Koontz: It's very unpopular to say this within rural communities, but I think that's inevitable. The irrigation projects developed here allowed agriculture to develop. It also allowed cities and communities to grow. But now agriculture cannot compete with cities for the value of that water. There are simply too many dollars in the cities, and they will attract the water.

It will be a very drawn-out, difficult battle over whether or not rights are transferable and how they're purchased. And there are always these spillover effects. When one person makes a change in the water uses, it has impacts on the other people, on the ditch, on the river, elsewhere. It's simply unavoidable.

Porter: Dr. Wallace, you and other members of the 208 Commission worked long and hard to come up with a set of healt-care reform recommendations this past spring. Now you have been appointed to the Governor's Centennial Panel to try to come up with coverage plans. How do you view the future of that?



Wallace: I think we've seen small changes, which is reassuring, that people are using what we did as somewhat of a road map to get there. We're seeing people spend time looking at the cost of care. If we don't do that, we're never going to get this thing solved, so that's reassuring to me.

One of the things that's been clear to me is almost everybody today thinks if there's a realistic chance to make some change happen sooner, it's going to be built upon the current system. The majority of people in Colorado are covered by their employer-sponsored insurance. We've got to build on that system and not have it deteriorate any further. Gradually we'll have to build up some of the public programming.

We've got so many people who can't afford health-care coverage. The gap between those who are eligible for public programs and the number for what a family needs in order to buy something in the private market is still big. So, there has to be a subsidy program. The big wildcard is going to be, is there any public money to help offset the cost for the working poor?



Porter: Have you sensed a good faith effort from the insurance industry to take part in this?



Wallace: I think part of what we're seeing in the insurance industry is there is a fear that they may be regulated to a point where they don't want to be, and they better come to the table and play and play differently than they've played before. I think part of what's happening is we're seeing insurance companies recognizing that there is at least a popular movement that is very much against the private, for-profit insurance companies. So I think they're coming to the table and trying to do a different game plan.



Hacker: Terri, commercial brokers have been telling me that more and more interest is coming from out of state, from way outside this region, in investment properties in Northern Colorado. Are you seeing the same trend?



Shields: That is true. There is a lot of money coming into the area. We saw when the interest rates were way down, probably 18 months to two years ago, there were a lot of investors coming in, looking around, trying to purchase investment property in this area. We had a number of properties under contract. When the market quickly started to change, we saw a lot of those investment companies pull out of their contracts. I mean, it happened just like that. But I think in the last three months or so, there's been a lot of change. The investors are coming back. I believe that as we approach 2010, we will start to see more influx of outside investors coming into our state.



Tatti: Brad, you survived the bursting of the tech bubble with your software company. Maybe you could talk a little bit how this downturn is different from the 2002 tech bust and maybe how it's similar.



Florin: We did not buy into the bubble that came with technology in the 1990s. We didn't try to go out and raise money in crazy valuations. We focused more on taking care of customers. If you're going to have this speculative nature - whether you're in Wall Street, banking, construction, real estate, or technology - you're out on the fringe, and you're at risk. So if something happens, you're going to be the first one that's going to have its neck chopped off.

There have been times over the past 15 years where we had a bad enough of a downturn we had to have a minor layoff. You learn how to live through it. And as long as you haven't taken extraordinary risks, then your business shouldn't be at risk. You may not be as large as you'd like to be or grow as fast as you'd like to grow.



Hacker: Steve, how do you see the future of corn-based ethanol? There's been a lot of speculation that this product will have a shortened lifespan. How do you see that?



Koontz: I see it fairly differently than how it gets talked about in the press. Ethanol - boy, I hope this doesn't get quoted too much - is not a biofuel. It's not an effective biofuel. It's an inefficient fuel compared to other fuels, but what it is essential for is an oxygenate. It's absolutely essential for blending to meet clean air standards. I mean, think back to the brown cloud over Denver. You have to have fuel oxygenates to maintain air quality in populated areas.

So the real boom in that market came from that policy decision. You know, the future will be in cellulose instead of corn-based ethanol. But that will happen no time soon. The technology on that is still in its infant stages. They're still discovering ways to make that work, and we're a long way from making that industrial process something you can do at industrial speeds and actually make some money on it.



Hacker: Doug, it's been kind of a roller coaster ride for the last few years with building commodity prices - steel, cement, lumber - just rising through the roof. What do you see for these commodities in the next year?



Dohn: The only commodity that we're getting any kind of indication of price increase is cement. And I suspect they won't be able to pull it off, to get a price increase because demand is starting to drop. Steel has stabilized. It hasn't come down. Wood is at a record low. Mills are trying to get anything they can lumber-wise. Most commodities have seen a stabilization. Labor rates have definitely started to stabilize. That was one of our biggest pushes over the last three or four years was labor rates in construction were skyrocketing. We're finding a lot more opportunity to hire good employees.



Tatti: Mark, can you talk a little bit about what you are seeing in the loan pipeline at Home State Bank?



Bower: We're still seeing a fairly strong pipeline, because there are still a lot of deals that make sense, a lot of good borrowers and some projects going forward. To some degree we think that everything has totally come to a standstill, but there are still houses being built. There is still commercial construction being done. Everything is relative. It's not maybe like it was two years ago where for every deal there were seven banks going after it. But we still have loan demands, and people coming in with good ideas on projects and getting them done.



Hacker: Let's go around the table and give people an opportunity to describe some of the good news that you see coming in the next year. Mark?



Wallace: Well, we are still the healthiest state in the nation here in Colorado, so that's kind of nice. We're the only blue state on the map of overweight and unhealthy states, so we're trying to maintain that status as a very healthy, active, lean state.

On the health-care reform front, I think the good news is that we're at a place where I think people recognize that doing nothing is not OK anymore. Sitting around and just deciding to run business the way we've done it before and not have some of these tough debates is something in the past.

People are coming to the table, trying to figure out ways to do even incremental reform, which doesn't satisfy everybody, but at least gets us moving on the debate.



Hacker: Thanks, Mark. Steve?



Koontz: The good news for agriculture, I think, is in rising prices. When I moved here in the late '90s, commodity prices were very low. There wasn't much opportunity. And the volatility and inflation we'd seen on the food side actually created some opportunities for commercial agriculture and created some profit opportunity. If you have some money to work with and you can do something different down the road.

We're also seeing some changes at JBS Swift with the South Americans coming in. There are some interesting changes there. We're seeing growth in the dairy industry. That industry continues to grow and make money in Northern Colorado. The organic movement has a pretty good foothold here. There are some food businesses that are growing and doing well, so that's good news.



Hacker: Brad, what's your good news?



Florin: The good news for 2009 is that necessity is the mother of invention. You have companies that have had to tighten their belts. They have to let people go. But these people don't go home and just sit. They need to figure out a way to make a living, so they can become consultants. They can find a company that needs their talent. This is an amazing global economy. You get laid off on a Friday afternoon, and you go home that weekend and you get on your computer, open your Internet connection, use your Skype connection to get around the country or the world. It's just amazing today. The entrepreneurship environment couldn't be better.

To me, tough times cause innovation. So I think that's the good news in 2009. We have lots more people that are out of their comfort zone and they've got to go out and do something very different. I think we'll see some exciting things happen.



Hacker: Terri, how about you?



Shields: First, I don't think there's much good news for residential real estate in 2009, but the commercial sector is different. I think CSU brings a lot to the table where commercial real estate is concerned, and I think that will help in 2009. Property value is coming back in line with the market, and we're going to continue to start getting the investors coming back into the market. But I just see CSU carrying so much of the load, especially with the new energy cluster.



Dohn: I have seen a lot of really positive things. You know, I get mired in some of the doom and gloom we read in the papers and so on. But there's a lot, I believe, of positive things in our region. I started three buildings in November.

But it's not such a bad thing to slow down, either. This is probably the first time in our 16 years that we've gotten a little bit of a breathing room so that we can really re-energize and retool. We have time to really train people, really show improvement and really be ready for when the good times come again. I'm 100 percent convinced they're coming, and I don't think it's going to be very long. 2009 is going to be challenging, but I think there's going to be some great opportunities for our company to improve and get better and to be ready to face new challenges.



Hacker: Thanks, Doug. Mark?



Bower: I have similar thoughts. I think we're obviously going to be that much closer to the recovery. That's the good news. I think that a recession, as painful as it is, is the free market's way of getting rid of speculation that really didn't make a lot of sense. Companies that are able to adapt come out of it with better market share, stronger and more well positioned to really have a better foundation for long-term growth than they were before.

So I'm optimistic that we have some good things going for our region, and that the downturn won't be as severe for us as it is for the rest of the country. Sometime in 2009 we'll all be seeing indicators that unemployment is starting to drop and housing is starting to pick up, and we'll see some things that are turning the other direction and we'll all be a lot more relieved.



Hacker: That's a nice note to end on.



Bower: I hope it's true.