September 2018 Monthly Letter

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truthWell, my birthday came and went again, and I still can’t figure out how I got over the hill without getting to the top! But I have found a way to increase my fitness quotient without working any harder yet still impressing all my friends and family. I have officially renamed “the John” to “the Jim”. It sounds so much better when I tell people I go to the Jim every morning!

I am very concerned that our society is grappling with what is truth and what is not. It has infected our politics, our media, the stock market and I am afraid maybe the real estate market as well. If you don’t understand what the market is saying, then you are not listening closely enough.

Ten years ago, the Fed was pushing on the string trying to get rates down low enough to kick start the economy – no luck. Now, with the economy humming the Fed is again walking the tight rope pushing rates up to slow down but not stop the growth. I guess you call it Quantitative Tightening (or QT vs QE). Remember when we were saying that there was cap rate “compression” because interest rates were so low that cap rates were pushed lower. Well with rates on the rise shall we call it “decompression”? In scuba diving when you rise from lows you stop along the way to equalize the inert gases in your blood stream (otherwise your blood literally boils). Same thing happens as the economy and rates rise and we get rid of the FEDS “inert gas” also known as QE or liquidity. However, as in scuba diving if you go up to quickly, you get decompression sickness also known as “the bends.” In our economy, the bends are called a recession.

In the commercial real estate market, we have a similar problem. As rates rise, cap rates do too. This is because investors can now get higher and safer returns from CD’s, Bonds, and stocks so there becomes less demand causing cap rates to rise (you know – supply and demand). Cap rates rise, and price goes down. So, this is what it looks like as the economy gets better, but you lose value. The only way you can make up for this is increased rents (or lower expenses).

So, is it time to sell? Yes. No. Maybe. Yes, if you bought low and want to sell high, pay your taxes and do something else with your money. Yes, if you have a lot of debt and a drop-in value of 10% – 20% would wipe out most of or all of your equity. No, if you have long term stable tenants with room to raise rent over time and fixed rate financing in place. Maybe? – well there are lots of maybe reasons and that is why you need to call us to discuss.

Similarly, the housing market must see wage growth to keep up with the accelerated housing prices that have been occurring over recent years. Hourly earnings are up 2.7% but still behind the pre-2008 pace in the low 3’s. Wage pressure will come from low unemployment (down to 3.7% in San Diego from 6% in 2008) but just as importantly from the labor participation rate. We are at 82.1% but need to get over the pre-recession high at 83.2%.

In the meantime, Southern California home sales hit the brakes in June falling to the lowest reading in four years. Furthermore, pending home sales stepped back in July and have been falling for seven straight months. The biggest part of the problem is lack of availability of “affordable” housing. Sales below $500K dropped 21%, while deals over $500K only dropped 3%. This was due to lack of supply not demand. Higher rates will not make this problem any better (I’m starting to feel my blood boil).

So, this leads to my biggest worry, more people moving out than moving in – that is a recipe for commercial real estate value decreases. According to the U.S. Census Bureau, more than 42,000 San Diego residents left the area for the Inland Empire from 2000-2015, 9000 left for Phoenix.

San Diego only grew by 0.6 percent last year which is below the national average of 0.7 percent and lower than San Diego’s historic average of 1 percent. Almost all the growth was births over death. The strongest in-migration was people making over $100K (duh—they’re the only ones who can afford to live here). So, will San Diego be a castle on the hill with its work force commuting in from Riverside County and or across the Mexican border?

Another negative cloud on the horizon…the foreclosure rate rose for the first time in 36 months. On the positive front that 3.7% unemployment rate was highlighted by strength across all sectors since 10 years ago – Happy Labor Day!

  • Healthcare up 34,900 jobs
  • Tourism/Hospitality up 29,100 jobs
  • Government up 25,800 jobs
  • Science & Technology up 17,500 jobs
  • Management up 5,800 jobs

One other thing that is up in San Diego is telecommuting. Up almost 200% in the last 10 years. Carlsbad based, Global Workplace Analytics estimates that 65,000 San Diegans now work at least half of their hours from home.

I was out driving the market the other day and I couldn’t help but notice the number of church’s that have changed their names to things like, The Well, The Place, The Sanctuary, etc… I give them an “A+” for rebranding but the product is still the same as it has been for 2000+ years (which I think is a good thing). However, I look at McDonalds, Starbucks or In-N-Out and you see them adjust and refreshen but as in my opening paragraph, changing the name does not change the truth. Just look at IHOP…I mean IHOB.

At CDC Commercial, we aren’t planning on changing our name, we plan to keep telling you the truth and we try to remember that the market is ever changing, and the truth often seems illusive…hope you enjoy the story


The Cookie Thief 
by Valerie Cox

A woman was waiting at an airport one night, with several long hours before her flight. She hunted for a book in the airport shops, bought a bag of cookies and found a place to drop.

She was engrossed in her book but happened to see, that the man sitting beside her, as bold as could be. . .grabbed a cookie or two from the bag in between, which she tried to ignore to avoid a scene.

So, she munched the cookies and watched the clock, as the gutsy cookie thief diminished her stock. She was getting more irritated as the minutes ticked by, thinking, “If I wasn’t so nice, I would blacken his eye.”

With each cookie she took, he took one too, when only one was left, she wondered what he would do. With a smile on his face, and a nervous laugh, he took the last cookie and broke it in half.

He offered her half, as he ate the other, she snatched it from him and thought… oooh, brother. This guy has some nerve and he’s also rude, why he didn’t even show any gratitude!

She had never known when she had been so galled and sighed with relief when her flight was called. She gathered her belongings and headed to the gate, refusing to look back at the thieving ingrate.

She boarded the plane, and sank in her seat, then she sought her book, which was almost complete. As she reached in her baggage, she gasped with surprise, there was her bag of cookies, in front of her eyes.

If mine are here, she moaned in despair, the others were his, and he tried to share. Too late to apologize, she realized with grief, that she was the rude one, the ingrate, the thief.

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Don Zech MarathonTwo years ago, I celebrated my 55th birthday, had a heart attack from an injury caused blood clot followed by complete cardiac arrest 10 days later while trying to recover (a one in a thousand event). I guess it wasn’t my time. Since then I’ve run five half marathons and a sprint triathlon. I’ll be running a duathlon for my birthday this year and a marathon on my fourth continent (back on track to run one on all 7) next summer.

I have come to realize that both our bodies and our properties are aging and sometimes a meaningful disruption comes along and we need to be smart and flexible to stay in the game. While on the subject of medical, talk about a niche that is undergoing a dramatic change. This change is also flowing through to real estate. Instead of the old model of one large delivery point – a hospital – the new model is “healthcare everywhere.” Technology enabled care will increase efficiencies and drive changes in the design of space – be it retail, clinic, acute care or for the home. It ranges from Amazon delivering your prescription to Uber delivering you to the hospital (ambulance traffic has plummeted in most cities). Big data access and Artificial Intelligence is making diagnosis easier (symptoms can be compared to millions of other cases) and now medicine is getting predictive. Soon you will get an email telling you to come in because you have a 90% chance of having a problem within 90 days. Or now at Heal.com, you can just schedule the doctor to come to you (I remember as a kid, doctors used to make house-calls. It seems to be coming full circle). In the medical office world, I am now seeing executive suites starting to popup, so Doctors can have offices in multiple cities or states for several days a week.

In the last 10 years we have seen the rise of open office plans. These are large open offices with table tops and sofa’s strewn throughout. The idea is everyone working on their laptops and collaborating as if they are in their living room or kitchen table. This concept was born out of companies like Facebook renting old warehouses and throwing up banquet tables and couches as an affordable office option. I don’t know if it was cool to be in an open office or working for Facebook. However, now everyone is looking to open their office plan and put more people in less square feet. This is all well and good but there are some pitfalls.

First of all, when you get more employees in the same space (I call it expansion in place), it results in a lot of hidden costs (parking, HVAC load, wear and tear). As this trend grows you will start seeing more control exercised over parking spaces and fees for parking. We will also see caps on the number of employees and overage charges for excess employees. Jeff Eales, Senior VP of Asset Management at Bircher Anderson Realty Management (and reader of my monthly letter) wrote a great article on this subject for Commercial Investment Real Estate and created a great spreadsheet to assess the cost of extra occupants in the building.

Just when you think you are ready to make the adjustment to open office (you know get a laptop and a hoodie and some earbuds and work on the couch), a new study from Harvard has found that open offices don’t live up to all the hype. Open office took off because of the idea of increased interactions and collaboration. When in fact, the Harvard study has found that employees spend 73% less time in face-to-face interactions. However, email and messaging shot up by over 67% (so you text the guy on the couch next to you). Open office tries to drive collaboration, but it often comes at the expense of focus and concentration. When it is hard to focus, stress and errors increase. As in personal health, getting the balance right “is paramount.”

When you are on fire you are taught to “stop, drop and roll.” Well when you own your property in an LLC or Partnership and want to do a 1031 exchange, you need to learn to do a “drop & swap.”

When a partnership is selling property and some, but not all, of the partners want to do an exchange, it creates complications for the exchange. A basic rule of exchanges is that the taxpayer who disposes of the relinquished property must be the same taxpayer that acquired the replacement property. If the partnership sells the relinquished property, then the partnership, and not an individual partner, must buy the replacement property. In addition, Section 1031 does not apply to an exchange of partnership interests, so a partner cannot dispose of his partnership interest as relinquished property in an exchange.

If the partners don’t want to keep the partnership intact, one solution to this problem is the drop and swap, where the partnership is dissolved, the property is deeded down to the individual partners as tenants-in-common, and then each individual partner can choose to either cash out and pay the taxes or trade into a replacement property.

The benefits of a drop and swap are that the individual owners now each own a real estate interest that can be traded into other real estate. In addition, because of partnership tax rules, the transfer of the partnership property down to the partners should be a tax-free transfer (be sure to speak with your tax advisers.

In celebration of my 57th year on this planet and keeping with the theme of how great modern medicine can be, I am departing from my normal monthly written story and giving you a link to my story that Palomar Hospital thought was significant enough to make a video about…hope you enjoy it.

 

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“Computers are useless. They can only give you answers.” – Pablo Picasso

july 2018 monthly letter 1Happy 4th of July to all! Boy when our founders signed the constitution do you think they could have imagined where we are at now? Of course, life changes and evolves. Who would have thought that the mechanical pencil company, “Sharp” would now be a giant electronic and TV manufacturer? Who would have thought that an online book seller (Amazon) would become the dominant retailer they are? What can we expect in the future from the like of Uber, Google, and Facebook. A few clues to ponder – Walmart Stores has dropped “stores” from it name. Microsoft has added AI (artificial intelligence) to its name and Google has dropped “don’t be evil” from its long-time motto (and the first thing they did is lie and say the didn’t change it. – Gizmodo 5/18/18).

The heck with “Fake News,” it looks like we might be moving forward in a “post truth” world. According to the infamously secretive Bilderberg elite (about 120-150 of the worlds political elite, industry, finance, academia and media), the most pressing issues in global affairs are:

  1. Populism in Europe
  2. The inequality challenge
  3. The future of work
  4. Artificial intelligence
  5. The U.S. before midterms
  6. Free trade
  7. S. world leadership
  8. Russia
  9. Quantum computing
  10. Saudi Arabia and Iran
  11. The “post-truth” world
  12. Current events

Well since I said I was going to write about it last month and seeing the Bilderberg elite list has it at #4, I guess it is important to address Artificial Intelligence (AI). Most of us grew up hearing that jobs will be replaced by robots. Well that time is here, and it is going to affect our jobs, our real estate and our bank accounts. Forty-seven percent of U.S. jobs could be automated in the next two decades. There is an 83% chance that workers earning less than $20/hour will have their jobs replaced in the next 5 years. Those in the $40/hour range face a 31% chance of having their jobs taken over by machine. Clearly, robots are coming!

Imagine what it might look like to a commercial real estate broker. You go to a website and type in your size, space requirements and financial and location parameters. Moments later a recommendation list and map are produced along with a virtual tour of each site. Market intelligence tells you what terms and incentives to expect (free rent, cpi, cap, etc.), you put in your bid along with an upload of your financial info, credit check and an intelligent assistant checks out your Linkedin and Facebook profile, Uber ride history and determines you have only a 2% chance of not fulfilling your obligation. It also determines that your business should grow to need more space in 3 years, but the space next door will be expiring then. It asks if you would like to pay now for an option or “buy it now” to lock in the space. You are asked if you need insurance, utilities transferred to your name, movers arranged. With all of the boxes checked, you summon your driverless Uber to take you to the golf course for some exercise.

Adapting to change is going to require us to understand how man-machine partnerships are going to evolve. HUMAN + MACHINE = FUSION SKILLS (or in Star Trek – Cyborg!). I like the quote, “AI – use it or be used by it.” If you would like an in-depth dive into the effects AI will have on commercial real estate, I highly recommend the following YouTube video.

July 2018 Monthly Letter

If you don’t have time, here are the 17 real estate work flows in the crosshairs of AI;

  • Investment strategy
  • Customer segmentation
  • Portfolio construction
  • Customer chum prediction
  • Risk management
  • Content personalization
  • Client services
  • Customer experience
  • Asset Monitoring
  • Price optimization
  • Discovery & due diligence
  • Infrastructure optimization
  • Compliance
  • Demand optimization
  • Predictive maintenance
  • Security
·         Asset performance

On average, it costs about $60,000 to replace a departing employee. Furthermore, it takes 3-6 months to get a new employee up to speed. Knowledge transfer of a departing employee is a difficult and typically not well documented process. How do you transfer experience, context and interpersonal relationships? I used to say, “I wish I could clone myself” so I could get twice as much done. Businesses are now looking at ways to use AI to clone you so as to retain a departing employee’s knowledge and experience and allow a new employee to come up to speed almost instantly (or completely replace said employee!). If you don’t think that’s realistic (and if you need an AI friend), check out Replika in the app store. You can upload text messages, social media posts and create you own chat bot who will text with you any time and not judge – plus your chat bot can stay around after you die and text with your friends and family…hmmm…

On the National front, I continue to worry a bit about the yield curve and the message it is sending (It is about where it was in 2007). Locally, inventory is continuing to absorb, new buyers are upgrading old buildings, rents are rising. I also notice more construction cranes in the sky (usually a sign of prosperity).

Well as real estate values rise, and you enjoy family pictures around the barbeque this 4th, just remember some things change, some things evolve but if you don’t want to pay an arm and a leg we’re here to help you with your real estate needs. Hope you enjoy the story…

 


In George Washington’s days, there were not cameras. One’s image was either sculpted or painted. Some paintings of George Washington showed him standing behind a desk with one arm behind his back while others showed both legs and both arms. Prices charged by painters were not based on how many people were to be painted, but by how many limbs were to be painted. Arms and legs are “limbs,” therefore painting them would cost the buyer more. Hence the expression, ‘Okay, but it’ll cost you an arm and a leg.’ (Artists know hands and arms are more difficult to paint).

 

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June 2018 Monthly LetterWell I am going to keep this month’s letter short since I am writing it from my balcony over-looking the blue green waters of the Pacific Ocean and Maui coastline. First it never ceases to amaze me how technology allows me to stay in touch with calls, emails, electronic files, etc…. (on the other hand, I know what you’re thinking “Geez get a life, you’re on vacation!). So, this is the conundrum of modern life (or what is now being termed “the gig economy” – after the idea of getting paid one deal at a time – or “one gig at a time” or what’s your next “gig”). Although, this might be a new concept, that is how I have been getting paid for the last 33 years! Of course, by the time you are reading this I will already be home working like a dog again.

Speaking of dogs, it never gets easier but one of our two family dogs passed after 14 years. It is never fun, but a replacement goes a long way to filling the void (pictured at top). While still on the subject of pets, you may want to give some consideration to your rules, leases, employee handbooks, etc. with regards to pets. The service animals have been around for a long time but there has been an explosion of “support animals” (from Dogs to Peacocks). In addition, dogs have grown to almost human standards in terms of their access to planes, trains and automobiles, not to mention stores, offices, hotels and theaters. Don’t get me wrong, I love my dogs, but I recently toured a space where a tenant wouldn’t lease because she has allergies and the suite next door had two dogs in their office. On the other hand, my daughter works at Petco Corporate and they have nearly as many dogs as they do employees wandering the halls (complete with two dogs parks!) Linked below is a great article by Brian Adkins at KTS Law on pets in the workplace. If you haven’t already, this is a good time to address this growing issue.

Regardless of which side of the fence (sorry for the pun) you are politically, finding contractors (Gig workers) has gotten tougher – everyone is busy. Finding workers in the Trades (plumbing, painting, electrical etc… has gotten difficult and more expensive.  At the global level, economists are saying there is slower global growth rate and higher rates are leading to stagnation. However, at the street level what I see is Goldilocks on steroids – not too hot, not too cold and plenty of activity to go around. However, it does make my head turn a bit when I start hearing the old phrase, “but it’s different this time.” One thing I think is different is that rate increases are felt much quicker and therefore won’t travel as high or as quickly as say in the ’70s’. Back then you had a fixed rate home loan and you paid cash for your car. Today, a simple rate bump affects millions of businesses and tens of millions of consumers right away because we have so much financed. That leads me to my greatest concern – High debt companies. These companies have been living at the trough of government sponsored low interest rates and when the uptick is felt they will cut jobs, space and overhead quickly. I think in the meantime, we are looking pretty good until 2019 or 2020.

One other early warning sign that has just come onto my radar in the last month. Appraisals seem to be coming in higher than I expect. Now consider that I am an optimist and want to value a property at the highest price I can get it sold for. But in the last month, I have seen 3 – 4 appraisals that were much higher than I would value the property for. In all of the cases they had used poor comps or had projected rents higher than the market for the subject building. I don’t know if this was because they were busy, incompetent or overly optimistic, but it is of concern.

Well I was going to write about artificial intelligence and its future effect on commercial real estate… but I think it is time to go play in the surf and curl up like a dog in the sun. BTW in dog beers… I only had one!


A Dogs Purpose (from a 6-year-old)

Being a veterinarian, I have been called to examine a 10-year-old Irish wolfhound name Belker. The dog’s owners, Ron, his wife, Lisa, and their little boy, Shane, were all very attached to Belker.

I examined Belker and found he was dying of cancer.

I told the family we couldn’t do anything for Belker and offered to perform the euthanasia procedure for the old dog in their home.

As we made arrangements, Ron and Lisa told me they thought it would be good for six-year-old Shane to observe the procedure. They felt as though Shane might learn something from the experience.

The next day, I felt the familiar catching my throat as Belker’s family surrounded him. Shane seemed so calm, petting the old dog for the last time, that, I wondered if he understood what was going on.

Within a few minutes, Belker slipped peacefully away.

The little boys seem to except Belker’s transition without any difficulty or confusion. We sat together for a while after Belker’s death, wondering aloud about the sad fact that animal lives are shorter than human lives. Shane, who had been listening quietly, piped up, “I know why.”

Startled, we all turn to him. What came out of his mouth next stunned me. I’d never heard a more comforting explanation.

He said, “People are born so that they can learn how to live a good life — like loving everybody all the time and being nice, right?”

The six-year-old continued, “Well, dogs already know how to do that, so they don’t have to stay as long.”

Remember, if a dog was the teacher, you would learn things like:

  • When loved ones come home, always run to greet them
  • Never pass up the opportunity to go for a joyride
  • Allow the experience of fresh air and the wind in your face to be pure ecstasy
  • Take naps
  • Stretch before rising
  • Run, romp, and play daily
  • Thrive on attention and let people touch you
  • Avoid biting when a simple growl will do
  • On warm days, stop to lie on your back on the grass
  • On hot days, drink lots of water and lie under a shady tree
  • When you’re happy, dance around and wag your entire body
  • Delight in the simple joy of a long walk
  • Eat with gusto and enthusiasm
  • Stop when you have had enough
  • Never pretend to be something you’re not
  • If what you want lies buried, dig until you find it
  • When someone is having a bad day, be silent, sit close by and nuzzle them gently
  • Be always grateful for each new day

Enjoy Every Moment of Every Day!

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Brokers, who having no stock of their own, set up and trade with that of other men , buying here, and selling there, and commonly abusing both sides to make out a little paltry gain.”

~From Samuel Johnson’s “a Dictionary of the English Language”, 1755.

may 2018 monthly letterI prefer to think of the brokerage business like that of a virtuoso of the deal! Well as I write this the 10-year Treasury has touched the 3% mark for the first time since 2014. The 30-year fixed rate mortgage hit 4.46% also a high point. Consensus is that the 30-year fixed mortgage will reach 5% by the end of the year. Some perspective however, the historical average for the 30-year fixed rate mortgage is about 8%, so rates are still low by historical standards. The primary reason mortgage rates are rising is a healthy and growing economy. However, income levels must keep growing to offset rising rates (that means wages and rents).

The USD economic index set a record high for the third month in a row in March, indicating positive growth in the local economy through at least the end of 2018. The report does warn, however, we face a long run problem of shrinking employment due to improved technology. The key as always, is whether the technology changes will lead to new opportunities as it has in the past.

Computers are performing detailed image processing on x-rays, text mining of legal documents. IBM touts Watson, we all talk to Siri or Alexa, but AI is now even being used to read leases. An application called Dilligen can scan hundreds of lease and CC&R’s and tell you if there are any use conflicts or who needs to be notified in case of certain events. AI is starting to be used in locational decision making, in valuations and appraisal. You might also check out www.commonareas.com to help manage your property. It is an amazing way to track all the work and tenants at your property. In fact, we are even using an AI mining product that allows us to generate an amazing history and projection of rent, value and comparables of most properties on the market. Let us know if you would be interest in an evaluation of your property or one you might want to buy.

One area that San Diego ranks high in (not in a good way) but that might change with technology (can you say self-driving cars) is traffic. San Diego was 45th out of 1360 cities in 38 counties. According to the study, San Diegans spent 48 hours in peak traffic congestion last year. Ten percent of our driving time in 2017 was spent in traffic jams!

Well traffic jams always get me thinking about one of my favorite topics – bureaucracy! Last month, Jamie Dimon, the CEO of JP Morgan Chase had one of the great all-time quotes; “Bureaucracy is a disease. Bureaucracy drives out good people, slows down decision making, kills innovation and is often the petri dish of bad politics.” Wow! How true. You may have missed this but over a year ago, the City of San Diego acquired the 19-story former Sempre Energy building through a lease to own contract. They were supposed to move in July of 2017, but conservative accounts say they are still six months away from occupancy. In the meantime, they have paid nearly $15 million in rent and expenses- on a vacant building! Government working hard or hardly working?

In the swamp also known as Washington D.C. you will be glad to know that IREM (Institute of Real Estate Management) is hard at work advocating for seven major issues affecting the industry and maybe with a developer as President we will get some traction. Their agenda is;

  1. ADA lawsuit reform. IREM supports legislation to create “notice and cure” provisions within ADA to allow owners of businesses and property to rectify violations before facing costly lawsuits.
  2. Federally Assisted Housing. Federally assisted housing puts people into homes. HUD contracts with private owners to fund the difference between rent and 30% of tenant’s income.
  3. Rent Control. IREM urges elected officials at all levels of government to oppose rent control as being counterproductive to all segments of society and the well-being of the nation.
  4. Medical and recreational marijuana. The conflict between federal, state and local law creates a complicated situation for real estate owners, users and lenders.
  5. Flood insurance. The National Flood Insurance Program (NFIP) provides affordable insurance for those that need it. IREM supports reform and continued funding.
  6. Data Security. Property owners and managers collect and maintain huge amounts of sensitive data (it’s not just Facebook!) including social security numbers, account numbers and financial records putting them at risk from cyber criminals. There is a fine line between establishing standards and creating onerous legislation on property owners and managers.
  7. Online sales tax. This is a hot topic in the news lately. IREM supports creating a level playing field but opposes a “federal sales tax on internet purchases.” Instead it supports states collecting sales tax at the state and local level.

So, what can we do? Gene Simmons (yes, rocker with the Band KISS) said, “whether you are left or right the bad guys still hate us.” Former Speaker of the House Newt Gingrich says, “we need a national theory of succeeding in education and the economy. An unhealthy, uneducated and unproductive America will not sustain a global national security system and may not even be able to defend itself. Specifically, to be successful over the next 20 years, we must develop national security theories for:

  1. Shrinking and eventually eliminating Radical Islamic supremacism as an ideology capable of recruiting soldiers willing to engage in terrorism.
  2. Creating an American response to the Russian model of hybrid warfare which operates with the same capabilities.
  3. Developing systems, strategies, and structures for sustaining continuous competition with China and Russia.
  4. Being prepared for constant change across every career, institution, and system brought about by emerging technologies (this includes your real estate).
  5. Constantly communicating with Americans and allies to help people understand that mastering the scale and pace of change will be the key to success (this also includes your real estate).

This is a daunting agenda, but we need to face the music and look for a virtuoso (we hope that’s us for your real estate)…hope you like the story.


Music and Perception

THE SITUATION

In Washington, D.C., at a Metro Station, on a cold January morning in 2007, this man with a violin played six Bach pieces for about 45 minutes. During that time, approximately 2,000 people went through the station, most of them on their way to work. After about 3 minutes, a middle-aged man noticed that there was a musician playing. He slowed his pace and stopped for a few seconds, and then he hurried on to meet his schedule.

About 4 minutes later:

The violinist received his first dollar. A woman threw money in the hat and, without stopping, continued to walk.

At 6 minutes:

A young man leaned against the wall to listen to him, then looked at his watch and started to walk again.

At 10 minutes:
 A 3-year old boy stopped, but his mother tugged him along hurriedly. The kid stopped to look at the violinist again, but the mother pushed hard, and the child continued to walk, turning his head the whole time. This action was repeated by several other children, but every parent – without exception – forced their children to move on quickly.
 At 45 minutes:
The musician played continuously. Only 6 people stopped and listened for a short while. About 20 gave money but continued to walk at their normal pace. The man collected a total of $32.

After 1 hour:

He finished playing and silence took over. No one noticed, and no one applauded. There was no recognition at all.

No one knew this, but the violinist was Joshua Bell, one of the greatest musicians in the world… He played one of the most intricate pieces ever written, with a violin worth $3.5 million dollars. Two days before, Joshua Bell sold-out a theater in Boston where the seats averaged $100 each to sit and listen to him play the same music.

This is a true story. Joshua Bell, playing incognito in the D.C. Metro Station, was organized by the Washington Post as part of a social experiment about perception, taste and people’s priorities. This experiment raised several questions:

*In a common-place environment, at an inappropriate hour, do we perceive beauty?

*If so, do we stop to appreciate it?

*Do we recognize talent in an unexpected context? One possible conclusion reached from this experiment could be this:

If we do not have a moment to stop and listen to one of the best musicians in the world, playing some of the finest music ever written, with one of the most beautiful instruments ever made. How many other things are we missing as we rush through life?

Enjoy life NOW… it has an expiration date!

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“The difference between death and taxes is death doesn’t get worse every time Congress meets.”  ~ Will Rogers

april 2018 monthly letterIsn’t it appropriate that the month we pay taxes starts with April Fool’s day and finishes with the cries of May Day (traditional International Workers Day)! Adlai Stevenson said in a campaign speech, “I offer my opponents a bargain: if they will stop telling lies about us, I will stop telling the truth about them.” (History might not repeat itself, but it sure does rhyme). In today’s world of “Russia, Russia, Russia” and #DeleteFacebook, I think it is important to be a little reflective. Of course, we should seek to shut down Russian influence as much as possible, without losing perspective. But we aren’t divided because of Russia; we are divided because we have genuine deeply held differences. The fault, to the extent there is one, isn’t with the bots, but with ourselves.

The shuffling among new technologies and potential business responses (and yes that includes commercial real estate) is what sets the page for social change. No one believed that self-driving cars would ever be viable, let alone at the verge of commercialization. Computers will soon be able to perform detailed image processing on x-rays, text mine legal materials and turn out fault-free analysis of tax forms by breaking these dauntingly complex cognitive tasks into smaller and smaller task units. Whether it is the #metoo movement or an episode of House of Cards, your taxes or the future of AI it is all about “Control.” So how do you “control” your commercial real estate (especially in the event of an inevitable real estate downturn)? Times are good, but they won’t last forever. Now is the time to take advantage of what’s left of the good times. Money is still relatively cheap, vacancies are low, and rents are rising. For some, it is time to offload assets that are not strong enough to weather the storm. For others who are confident their properties will hold up long term, here are some beneficial tips:

  • Negotiate Long-Term Leases. During downturns when vacancies are up, having long term tenants and steady cash flow is important.
  • Pursue Rehabs and Upgrades. Be sure your property is in tip-top condition. When times are slower you want to remain the most attractive spot on the block. Doing this while capital is available and cheap is the best approach.
  • Embrace Technology. Look at Tech solutions to make your property more efficient and nimble. New sprinkler box timers connect to WiFi, so they turn off automatically when rain is in the forecast plus you can control your system from your cell phone.

Speaking of technology, I recently read about a new technology that may soon make WiFi obsolete. It is called LiFi and it uses LED lightbulbs to transfer data. It boasts speeds up to 1000 times faster than WiFi. Now that is light speed!

For you to remain in control of your real estate and be light years ahead, it is important to know the fundamentals of how you make money – and optimize it.

  • Cash Flow – Income after expenses and depreciation shelter.
  • Loan Paydown – it doesn’t look like much, but it adds up to a lot over time.
  • Appreciation – appreciation come from rent increases or cap rates going down (buyers accepting less return). Leverage (loan) super charges that appreciation. A 3% rent increase on a $100,000 property that you own for cash is 3% but if you have a 50% loan that is $3000 on a $50,000 investment or a 6% return., on an 80% loan that is 15%! – just remember it cuts both ways when things go south.

Whether we own a skyscraper on Wall Street or a duplex on Main Street, the basic principle of income property remains essentially unchanged. We expect to collect money, mainly in the form of rent, and we expect to spend money to pay for the operating expenses and the loans against the property. When we’re done for the year, we hope to have a surplus and to keep the tax collector from getting too large a chunk of it. Perhaps someday our prudent management and careful upkeep will combine with a healthy real estate market to allow us to sell the property at a profit and wise tax advice will keep some of that profit in our bank account.

So Happy Tax month, may the tax man taketh less, and you have more in all ways of your life. Hope you enjoy the story…


The local bar was so sure that its bartender was the strongest man around that they offered a standing $1,000 bet. The bartender would squeeze a lemon until all the juice ran into a glass and hand the lemon to a patron. Anyone who could squeeze one more drop of juice out would win the money.

Many people had tried…over time: weightlifters, longshoremen, etc., but nobody could do it.

One day, this scrawny little fellow came into the bar, wearing thick glasses and a polyester suit, and said in a small voice, “I’d like to try the bet.”

After the laughter had died down the bartender said “OK”; grabbed the lemon; and squeezed away. Then he handed the wrinkled remains of the rind to the little fellow. But the crowd’s laughter turned to total silence…as the man clenched his little fist around the lemon…and six drops fell into the glass.

As the crowd cheered, the bartender paid the $1,000 and ask the little man, “What do you do for a living? Are you a lumberjack, a weightlifter, or what?”

The little fellow quietly replied, “I work for the IRS.”

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antelope on the open plainWell, things have picked up speed and we are running fast (sometimes like a hamster on a wheel, other times like the Antelope on the open plains).

The USD Burnham-Moores Center for Real Estate’s Index of Leading Economic Indicators for San Diego County rose 0.6 percent in November, 1.4% in December and another 1.4% in January. December’s sharp rise was fueled by a huge gain in building permits, along with strong gains for online help wanted advertising, and the outlook for the national economy.

January’s gain was the second straight strong increase in the USD Index and the 15th month in a row where it had not fallen. The gain pushed the USD Index to an all-time high of 151.1, surpassing the previous high of 150.8 which was reached in May and June of 2000. Given the strong performance of the USD Index, particularly in the last two months, the outlook for the local economy is positive at least through the end of 2018.

If you are interested in reading perhaps the best 2018 Forecast Report, you will want to read, Emerging Trends in Real Estate by PWC and the Urban Land Institute.

I have mentioned in the past about storm water run off and the clamping down by state and local officials on tenants and owners. There is a free workshop being offered on March 7th from 8:30 to 4:45 of San Marcos City Hall. For more info email; dowden@san-marcos.net .

Another free tip is the Escondido Report It App (you can download from the App store) or Google it online. On the app (or website) you can report (take a picture) the problem (pothole, shopping cart or code violation) and the city will be on it (Sorry Escondido Only so far).

Well as things pick up speed in the market, it is important to stay focused on the fundamentals. The first lesson is actually an African proverb that explains that every morning the Antelope wakes up knowing that it must be faster than the fastest Lion and every morning the Lion wakes up knowing it must be faster than the slowest Antelope Honest to God, I tell people all the time that I am a salesman and I am unemployed every morning when I wake up. And I know that I have to run fast if I am going to eat or at least not be eaten.

The second lesson is to have vision. Now listen carefully to the definition of vision. Vision is the picture of the future that makes you passionate. Get a vision!

The third lesson is to have character. Now your whole life you have probably either been accused of being a character or told to have good character. But here is a working definition you can live by; “Character is the accumulation of all of your habits”. Have good character, it is what you are judged by.

And finally, a little about real estate. We live in an unprecedented time. We are in a time like the Renaissance or the Industrial Revolution. When Christopher Columbus discovered the New World, the fear was that the world was flat. Now with the advent of almost unlimited bandwidth, cell phones and other wireless networks, the internet and online collaboration, the new fear is that the world may indeed be flat. You get paid minimum wage to work hard and you get paid huge sums to work smart.

The next ten years will see labor costs continue to come under pressure as cheaper and smarter work forces are found In China and India. These are not reasons to panic but instead be smarter, have a vision and run faster. Let me give you an example of what I mean and a glimpse of the future. If today in the US, we have 90 smart people and 10 not so smart people. In China we have 100 smart people and 900 not so smart people. Realistically, our competition is 1 on 1 to cater to those 910 people. We just have to be smart enough to adapt and sell to them. I am reminded of the salesman who was sent to Africa to sell shoes. He wired back that there was no market, the people didn’t wear shoes and had no money. The company sent a second salesman and he wired back that the market was unlimited because the people had no shoes! The way around in a flat world is to be smart.

While on the subject of smart, let me tell you about the future of San Diego. World class weather, the beach and outdoor life style will continue to attract the best and the brightest in the world to San Diego. The high cost of land and the low cost to manufacture off shore will cause San Diego’s manufacturing to continue to dwindle. The gap has to be filled with knowledge workers. Yes, I know we are bringing jobs back home under the Trump administration, but it won’t be long until those jobs are replaced by robots and drones and artificial intelligence. (I just hope I can run fast enough to retire by then!). It is important, however, to understand how the real estate economy works;

  1. JOBs – Think Industrial, Research & Development buildings – for every hard-employed job (manufacturing/knowledge worker) you employ 7 support services (retail, doctor, accountant),
  2. Houses or Condo’s follow jobs – got to have somewhere to live,
  3. Retail – shopping follows rooftops (although Amazon is disrupting this),
  4. Office – services (financial, insurance, medical, real estate follow the houses and retail).

You probably have heard that the three most important things about real estate are; location, location, location. Well, it is not really true. Here is the fact. Buy real estate where more people are moving in than moving out. I am confident that although it may ebb and flow, the smart people of the world want to live in San Diego. You’ve got one leg up on them because you are already here, but you are going to have to stay smart to stay here.

And now for the test…

  1. Name the five wealthiest people in the world.
  2. Name the last five Heisman Trophy winners.
  3. Name five people who have won the Nobel or Pulitzer Prize.

How did you do?

My point is, none of us remembers all the headliners of yesterday. And these are no second-rate achievers. They were the best in their fields. But the applause dies. Awards tarnish. Achievements are forgotten. Accolades and certificates are buried with their owners.

Here is another quiz. See how you do on this one…

  1. Name a few teachers who aided you on your journey through school.
  2. Name three friends who have helped you through a difficult time.
  3. Think of five people you enjoy spending time with. Easier?

The lesson;

The people who make the difference in your life are not the ones with the most credentials, the most money, or the most awards. They are simply the ones that care about you.

God Bless you and remember when you wake up in the morning, run fast and be passionate – we’re in the field running hard for you because we care about you! (I hope you enjoy the things that go through my head before I go to sleep…)


Things that go through my head before I fall asleep.
If you attempt to rob a bank you won’t have any trouble with rent/food bills for the next 10 years, whether or not you are successful.

Do twins ever realize that one of them is unplanned?

What if my dog only brings back my ball because he thinks I like throwing it?

If poison expires, is it more poisonous or is it no longer poisonous?

Which letter is silent in the word “scent”, the s or the c?

Maybe oxygen is slowly killing you and it just takes 75-100 years to fully work.

Every time you clean something, you just make something else dirty.

The word “swims “upside-down is still “swims”.

Intentionally losing a game of rock, paper, scissors is just as hard as trying to win.
100 years ago, everyone owned a horse and only the rich had cars. Today everyone has cars and only the rich own horses.

The doctors that told Stephen Hawking he had two years to live in 1953 are probably dead.

If you replace “W” with “T” in “What, Where and When”, you get the answer to each of them.

If 2/2/22 falls on a Tuesday, we’ll just call it “2’s Day”. (It does fall on a Tuesday).

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general george washingtonGeorge Washington gave some great advice that we can still use today, in his farewell address of 1776:
“Don’t blow the tax payer’s cash on tanks, don’t elect the same guy more than twice and don’t let the nations politics devolve into partisan bickering.”
Well let me tell you that the year has gotten off to a quick start with optimism and resolve, not just here at CDC but seemingly through the market place and the economy. I used to refer to the economy/market being like pushing a ball up a hill now the ball is rolling down the hill.
Optimism is based on several factors:
  • The continued strong economy, which should be boosted by tax reform that was extremely kind to the president’s profession.
  • Property fundamentals that generally fall between positive and robust.
  • Continued strong capital flows that enhances liquidity and support record-high property values, while low acquisition yields seem immune from the slow rise in long-term interest rates.
  • Perhaps most important, the uncharacteristic restraint exercised by the market this deep into a recovery.
The market’s discipline is the foundation for those who dare to wonder if today’s cycle is different from those in the past. Cycles don’t normally last this long, and typically after a few years with good returns the market starts to overheat. Construction is overextended, capital flows forces equity players to chase ever-riskier deals that rely on unrealistic income assumptions, and hot competition forces banks to be more aggressive in lending, increasing leverage and cutting coupons. As we start 2018, however, the red flags normally associated with the late cycle are the exception rather than the rule.
The real estate investment sector has been very robust the last five years with billions of capital invested in this sector. The new tax bill and pro-growth policies in Washington will produce higher GDP growth of 3.5% – 4%+ and with it higher interest rates. Net lease assets are the most susceptible to higher interest rates and interest rate risk. Asinterest rates increase, cap rates will follow, and the values will suffer declines in value.
There are 15 risks inherent in investing in CRE as follows:
  • Cash Flow Risk – volatility in the property’s net operating income or cash flow.
  • Property Value Risk – a reduction in a property’s value.
  • Tenant Risk – loss or bankruptcy of a major tenant.
  • Market Risk – negative changes in the local real estate market or metropolitan statistical area.
  • Economic Risk – negative changes in the macro economy.
  • Interest Rate Risk – an increase in interest rates.
  • Inflation Risk – an increase in inflation.
  • Leasing Risk – inability to lease vacant space or a drop, in lease rates.
  • Management Risk – poor management policy and operations.
  • Ownership Risk – loss of critical personnel of owner or sponsor.
  • Legal, Tax and Title Risk – adverse legal issues and claims on title.
  • Construction Risk – development delays, cessation of construction, financial distress.
  • Entitlement Risk – inability or delay in obtaining project entitlements.
  • Liquidity Risk – inability to sell the property or convert equity value into cash.
  • Refinancing Risk – inability to refinance the property.
All investors that own CRE should perform a detailed and systematic review of the above risks and their potential effect on their assets.
The Federal Reserve could have a big impact in 2018. Jerome Powell, the next Fed chairman is expected to continue on the path of gradually tightening monetary policy. It is hard to determine the exact impact of rising rates but it is pretty safe to assume that as rates rise so will cap rates.
So, you might ask how this might affect you? Let me give you a simple example;
Today you own a property that has;
                $55,000 a year net income and 5.5% CAP today gives you;
                $1,000,000 in property value.
                CAP rates move up by .5% with $55,000 a year net income
                6% CAP tomorrow gives you;
                $916,000 in property value.
                CAP rates move up by 1% with $55,000 a year income.
                6.5% CAP tomorrow gives you;
                $846,000 in property value.
Now assume you bought that $1 million with 30% down and 70% loan and CAP rates rose by 1% (5.5% to 6.5%). Your $300K of equity just got cut in half ($1,000,000 – $846,000 = $154,000. Leaving you $146,000 of equity). So, a 1%-point rise in CAP rate wipes out 50% of your equity.
Solution?
Raise rent. In the example above if we move the rent up by $10,000 a year and CAP rates moved up to 6.5% you would still have a property worth $1,000,000. So…rent must rise to keep your value whole in a rising CAP rate environment.
Here are a few of my random observations for the month;
  •  Home equity hits all time high – the home ATM is back!
  •  Health Care is moving from being about coverage to being about affordability. CVS buys Aetna. Heel.com goes public.
  • Wal-Mart Stores drops the word “stores” from their name. Bring it on Amazon.
  • In 2015, Wal-Mart paid 6.4 billion in taxes and Amazon paid $1.6 billion (but had more sales). Watch out Mr. Bezos, the tax man is coming.
  • Bitcoin is a window into the exuberance there is for yield and what an overheated market can look like . I thought a telephone number and social security number were unique numbers, I wouldn’t think to pay $18,000 for one!
If you like these “glimpses” you might also enjoy this List of Niche Real Estate Concepts by Economist Gary London that may be here today and gone tomorrow.
So as we at CDC scurry abut trying to battle the forces of evil and get deals done, I thought you might enjoy the modern day Noah story…

It is the year 2018, and Noah lives in the United States. The Lord speaks to Noah and says: “In one year I am going to make it rain and cover the whole earth with water, until all is destroyed. But I want you to save the righteous people and two of every kind of living thing on the earth. Therefore, I am commanding you to build an Ark.”

In a flash of lightning, God delivered the specifications for an Ark. Fearful and trembling, Noah took the plans and agreed to build the Ark.
“Remember,” said the Lord, “You must complete the Ark and bring everything aboard in one year.” Exactly one year later, a fierce storm cloud covered the earth and all the seas of the earth went into a tumult. The Lord saw Noah sitting in his front yard weeping.
 “Noah.” He shouted, “Where is the Ark?”- “Lord please forgive me!” cried Noah. “I did my best but there were big problems. First, I had to get a permit for construction and your plans did not comply with the building codes. I had to hire a civil engineer because I can’t build the Ark without filing an environmental impact statement on your proposed flood, over the entire Earth.
They didn’t take very kindly to the Idea that they had no Jurisdiction over the conduct of the Creator of the universe.
Then the Army Corps of Engineer demanded a map of the proposed new flood plain. I sent them a globe. Right now, I am trying to resolve a complaint filed both with the ACLU and the Equal Employment Opportunity Commission that I am practicing discrimination by not taking godless, unbelieving people aboard! The IRS has seized all my assets, claiming that I’m building the Ark in preparation to flee the country, to avoid paying taxes. I Just got a notice from this state that I owe some kind of user tax and failed to register the Ark as a recreational water craft. Finally, the ACLU got the courts to issue an injunction against further construction of the Ark, saying that since God is flooding the earth, it is a religious event and therefore unconstitutional.
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“The reason that guru is such a popular word is because “Charlatan” is so hard to spell.”
~ William Bernstein

The word “Charlatan” is derived from the Italian word ciarlare which means “to babble”. One of the benefits of keeping ones eye on history is that you discover, more often than not, that the handwringers and doomsayers are usually wrong.

On January 1, 2018, it has become officially illegal to sell the original “bright idea” in California. The incandescent bulb, innovated by Thomas Edison more than a century ago, is banned in the Golden State and will be in the rest of the U.S. in 2020. While the light goes out you will now be able to “light up” that is, recreational pot will be legal in California as of January 1. In the meantime, the birthrate is so low in Japan and the boom of seniors so high, that adult diapers have out sold baby diapers for the last 6 years running. What is coming of this world . . .

With that random assortment of facts, here is my “charlatan” list of predictions, musings and other babble that you should keep an eye on for 2018;

  • Voicification of the internet (hello Siri, Cortana, Alexa, Google home, etc.)
  • North Korea – no easy happy ending.
  • Continued meltdown in Hollywood.
  • Interest rates – up.
  • Fraternities/Sororities – crash (where else is the raunchy behavior of Hollywood, DC, media taught).
  • Bitcoin – see tulip mania.
  • Labor cost – biggest pressure on business & inflation.
  • Inverted yield curve – watch out recession, here we come
  • Pension meltdown – read the children’s book “The King has no clothes”.
  • NFL players accept a tax which is used to pay for cameras on every law enforcement officer – instant replay in the hood.
  • Disney buys CNN – ATT merger goes through with Time Warner.
  • New network big three – Disney, Netflix, Google.
  • Healthcare turmoil continues – only solution is Siri & Alexa providing .99¢ diagnosis when you lick your phone screen.
  • Syria – the real U.S. – Russian showdown.
  • Movie theaters offer scent, shake, wind – something you can’t get from Netflix.
  • Artificial Intelligence – it is real, it is coming and will be part of your life like the internet and cell phone.

Did you know that the Federal government owns or leases 5,066 bathrooms occupying nearly 1.7 million square feet of the governments 1.9 billion feet of office space? Forty-five of them are listed as historic landmarks (really what makes a bathroom historic?). Uncle Sam owns 16,570 parking lots, 17,000 warehouses, 766 hospitals, 2427 schools. Billions are wasted on unused or unneeded Federal property. Once the government owns something it becomes costless because it is off the books. This is a huge lost opportunity cost. Many of these properties can be turned into apartments & offices. Redevelopment instead of paying for upkeep of old empty buildings. This is like the government’s ownership of the wireless spectrum which they started to auction off in 1994 – a move that added nearly $60 billion to the Treasury and gave us Wi-Fi and cell phones.

Early reports of Christmas sales were very positive with Mastercard reporting shoppers spent over $800 billion during the season, more than ever in history!

While retail sales have boomed, the material impact of the internet on the shopping center has continued to evolve what is or is not a successful tenant roster. Electronic stores, department stores and clothing stores have given way to restaurants with live music, escape rooms, urgent care facilities, gyms. The internet hasn’t killed the shopping center, but it is changing its tenant mix.

In San Diego, the unemployment rate has dropped to a low 3.7%. The USD Burnham-Moores Index of Leading Economic Indicators for San Diego rose in September and October. The outlook continues to be positive but slower growth through most of 2018. Two things of interesting note; (1) 16 to 17% of San Diego tenant businesses work from home (Inside Prospects), 2) In 2017 in California 105,000 more people moved out of CA then moved in – this is never a good sign.

Many have asked about my take on the new tax reform and its effect on commercial real estate. Well here you go…Depends;

  1. Depends on what the corporations do with their repatriated money.
  2. Depends on what the millennials do with the $1000 – $5000 less taxes they will be paying.
  3. Depends if the new pass through tax deduction really works in real estate LLC’s.
  4. Depends on how much impact the $750,000 max loan interest deduction has on housing (because the housing industry feeds commercial space needs – office – industrial – retail).
  5. Depends if real estate investors/developers start using carried, interest structures more since it wasn’t eliminated.

I recently read that there are three common factors in those that live to be over 100 years.

#3 – genes – but not as big a factor as you would think.
#2 – lifestyle – not smoke, not fat, exercise, preventative testing & screening.
#1 – the number of people you love in your life! – by far the single biggest factor.

We wish you a Happy New Year and a long and prosperous life and may you also find that the technology in your life makes it easier and happier… I hope you enjoy the story.

Don Zech
CDC Commercial

A toothpaste factory had a problem. They sometimes shipped empty boxes without the tube inside. This challenged their perceived quality with the buyers and distributors.

Understanding how important the relationship with them was, the CEO of the company assembled his top people. They decided to hire an external engineering company to solve their empty boxes problem.

The project followed the usual process: budget and project sponsor allocated, RFP, and third-parties selected. Six months (and $8 million) later they had a fantastic solution – on time, on budget, and high quality. Everyone in the project was pleased. They solved the problem by using a high-tech precision scale that would sound a bell and flash lights whenever a toothpaste box weighed less than it should. The line would stop, someone would walk over, remove the defective box, and then press another button to re-start the line. As a result of the new package monitoring process, no empty boxes were being shipped out of the factory. With no more customer complaints, the CEO felt the $8 million was well spent.

He then reviewed the line statistics report and discovered the number of empty boxes picked up by the scale in the first week was consistent with projections, however, the next three weeks were zero! The estimated rate should have been at least a dozen boxes a day. He had the engineers check the equipment, they verified the report as accurate.

Puzzled, the CEO traveled down to the factory, viewed the part of the line where the precision scale was installed, and observed just ahead of the new $8 million-dollar solution sat a $20 desk fan blowing the empty boxes off the belt and into a bin.

He asked the line supervisor what that was about.

“Oh, that,” the supervisor replied, “Bert, the kid from maintenance, put it there because he was tired of walking over every time the bell rang.”

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cdc commercial christmasThe four stages of life:

  1. You believe in Santa Claus.
  2. You don’t believe in Santa Claus.
  3. You are Santa Claus.
  4. You look like Santa Claus.

As commercial real estate brokers, we are asked to wear a lot of hats and be a lot of things to a lot of people. As great salespeople it is our job to find middle ground and consensus. Unfortunately, in this digital age of 1’s and 0’s and Fox or MSNBC, the middle ground perspective has almost dissolved. As leaders and deal makers we must be among the leading few not the mediocre many.

This year we have seen more challenges than most – a surprise election, nuclear threats in Iran and North Korea, natural disasters in Houston, Florida and Northern California, a polarized people and press.

As many of you know each year I write this holiday letter to express my thanks for working with a great community of owners, tenants, and community leaders. I also like to leave you with a story of hope for the coming year. This year I would encourage all of you to soldier on, but I would like to challenge all of you to use your “salesperson toolbox” outside of the workplace to try and find more middle ground in our community. Use your skills and gifts to defuse hate, find consensus, give compliments and help others feel appreciated. At a time when we are worried about artificial intelligence and big data putting us and our clients out of business, you need to realize that technology and your relationship with it will facilitate unthinkable opportunity and growth or keep you on the wrong side of average (If you haven’t read it, I would highly recommend you read, “The Whole New Mind” by Daniel Pink – I have never dog eared a book more!).

I also learned a new lesson this year (in case you think an old dog can’t learn new tricks). I assume you are like me and open most calls or meetings with the proverbial ‘How are you doing?’ and like most of us give or receive a “good” or “fine.” I recently learned that if you move that same question to the end of the call, meeting or text message, you get an entirely different answer. People open up, you connect, people feel appreciated and you have more real friendships (It’s a hard habit to change but that is what 2018 is for!).

We at CDC Commercial want to thank all of you for the opportunity to do business with you and build our relationship.. In the meantime, let someone know how much you appreciate them. #grateful

Hope you enjoy the story….

Happy Holidays!

Team CDC Commercial

Don Zech, Nick Zech, Matt Orth, Cheryl Pace

An article in National Geographic several years ago provided a penetrating picture.

After a forest fire in Yellowstone National Park, forest rangers began their trek up a mountain to assess the inferno’s damage. One ranger found a bird literally petrified in ashes, perched statuesquely on the ground at the base of a tree. Somewhat sickened by the eerie sight, he knocked over the bird with a stick. When he gently struck it, three tiny chicks scurried from under their dead mother’s wings. The loving mother, keenly aware of impending disaster, had carried her offspring to the base of the tree and had gathered them under her wings, instinctively knowing that the toxic smoke would rise.

She could have flow to safety but had refused to abandon her babies.

When the blaze had arrived, and the heat had scorched her small body, the mother had remained steadfast.

Because she had been willing to die, those under the cover of her wings would live. “He will cover you with his feathers, and under his wings you will find refuge” (Psalm 91:4).

Being loved this much should make a difference in your life.

Remember you are loved and then be different because of it.

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