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Zen teaching: “Always remember you are unique just like everyone else.”

stand togetherWe seem to be living in a divided time unless you have just faced a natural disaster, then we seem to all band together regardless of color, politics or socio economics. In the past, we could escape to sports or Hollywood but alas even those have become politicized. After watching the “No Fans Left (NFL)” games last week, I was less surprised by the protests and backlash than I was by the amount of “Fake News.” One report was that the Steelers were suspended for three games. Another was that the L.A. Changers…I mean Chargers were on their way back to San Diego. So, is this Russian influence?

I am glad that we were able to survive the end of the world which was predicted for September 23rd. None the less, it has been disturbing to see the damage from hurricanes and earthquakes. God forbid what nuclear explosion or an EMP (Electromagnetic Pulse) could or would do. This is a good time in history to look at how and what your response can or would be to a cataclysmic event (can you secure your property? Tenant contracts available? Records backup? Insurance contacts available?) Think thru the scenarios and your responses to each.

Speaking of unwinding disasters. We all need to carefully watch the Fed to see how they are going to unwind its 4.5 trillion-dollar balance sheet. Or more simply said, time to pay off the credit cards. Or should we call it quantitative un-easing? Bottom line is that rates have to rise and that will cause some slowing. It isn’t the Fed raising rates as much as it is them selling the bonds the hold. The more they flood the market the higher rates have to go to attract enough investors.

The Fed says a tightening labor market has put pressure on wage costs (ie. higher wages). The Fed has hiked interest rates once this year and are expected to do so again. Yes Amazon (and others) use of automation looms as a long-term factor in restraining job and wage growth. Amazon has arguably done as much as the Chinese to kill jobs and keep a lid on inflation by enabling anyone with a cell phone to price or buy a product. Just as we are hearing about the end of the bricks and mortar mall, China’s Alibaba (their Amazon) is reported to be building its own 5-story shopping center called “more mall.” The idea is a mix of online, off-line, logistics and high tech all coming together. The new, “retail interactive store” is the wave of the future.

Commercial real estate price growth is expected to flatten in large markets but continue in smaller markets according to the latest quarterly report of the National Association of Realtors (NAR). Despite the rise in prices, investment sales volume is slowing down and the gap between ask and offer is widening (ie. people are offering less). Today, the negotiating process is tougher. Also, lender underwriting process is getting tougher and taking longer.

We are also noting on the leasing front that although vacancy continues to shrink deals are getting harder and harder. We are often in the situation where we have a square peg and a round hole. The tenant likes the building and  needs 2500 SF but there is only 1300 SF. So we have to move the 1200 sf tenant next door. So, we end up doing two deals to get one. We are facing more and more situations where we have to move someone, find them temporary space while theirs is readied, sublease their old space etc.. If they want to build new, it is a 2-3-year process.. Often it seems   a lot like pulling the thread on your sweater, the more you pull the worse the problem gets. This is how we try to be dealmakers not order takers. We pride ourselves on being excellent communicators and impeccably honest.  We negotiate with confidence yet never forget the emotional implications of a sale or lease. We try to respond to challenges quickly, deliver disappointing news gently and never lose sight of those pesky details that can loom large if left undone. “Life stagnates without challenges…bring us your challenges.”

It was troubling that the NFL game in London last week had players standing for Hail to the Queen but taking a knee during the Star-Spangled Banner (perhaps they should have read this story or visited Lincoln’s statue in England!). Well before we tear down anymore statues or if you think you are unique or that this is a unique time in history, I hope that you enjoy the story and that you will be proud to be a red blooded American.

I haven’t told any stories from England since I got home but it seems like maybe we could all use a good story about a civil war statue, a good story about an American President, and a good story about the power of the common people against the rich and powerful, so I’m going to start with this one.  It’s probably for the best that you’re reading this here because I haven’t managed to tell this story in person without crying.

I was in Manchester with a bit of time to spare on a cool, sometimes rainy morning that reminded me of home.  Since I had a minute I turned on Pokémon Go on the off chance that there would be a Mr. Mime in range.  As luck would have it there was one only two blocks away from my intended destination!  The game led me to a small square and as I approached I could’ve sworn that it had an enormous statue of Abraham Lincoln right in the middle of it.  Much to my dismay the closer I got, the more it looked like Lincoln.  When I was close enough to read the inscription, I learned that it was in fact, a statue of Lincoln.  What was a statue of Lincoln doing in a lonely square in Northern England?!

Then it got weirder.

There was a large blue sticker that was somewhat haphazardly stuck onto the base of the statue that said something along the lines of “talking statues of Manchester” and had a QR code with no further explanation.  There was no question, I had to know what that QR code said!  I immediately installed a QR scanner and no sooner had I clicked the shutter button then my phone rang.  That was weird and more than a little creepy, but if they say one thing about me when I’ve gone it will be that I never passed on an adventure.

I answered the phone.

There was no preamble, no explanation, just a man’s voice saying, “to the working men of Manchester” he then continued in beautiful, archaic prose to praise the workers of Manchester and thank them for their courage and sacrifice.  It seemed to be a letter and when it came to an end it was signed “Abraham Lincoln”.  When he had finished uttering his name President Lincoln hung up on me.  It was a tantalizing letter to a child of Lincoln’s far future standing alone in a rainy square, 4,500 miles away from home.  President Lincoln did not bother to list the brave acts or to sum up the sacrifice.  Why would he?  The people of Manchester knew what they had done.

Luckily, after the phone call ended a screen popped up offering links to learn more.  I stood in the drizzle, read an amazing story and wondered why I had never heard it before.

As you probably know during the Civil War the North imposed a Naval blockade on the South.  The economic hardship that this caused was an important factor in the North’s victory.  What I didn’t know was that the blockade also badly hurt the people of Lancashire, England.  At that time, the mills of Northern England produced the fabric that clothed the world.  Seventy five percent of all the cotton grown on Southern plantations was sent to Lancashire where it was spun, dyed, and woven.

A year into the war and the embargo found Northern England in real distress.  Sixty percent of its mills were shuttered, thousands of people were without work.  The desperate wealthy mill owners started lobbying the British government to send the British Navy to break the blockade and let the cotton through.

Then an amazing thing happened.  The workers themselves organized a mass meeting in the Manchester Union Hall to discuss the matter and those working-class men, who had the very most to lose, chose to refuse cotton grown by enslaved hands.  The blockade held and the men did indeed lose.  In one town alone only five out of thirty-nine mills continued to operate.  People went without fuel for heat, there was wide spread starvation, families lost their homes.  And still–an ocean and a world away from a war in a place they had never seen–the people of Manchester chose to live and die by their values.  They would not support slavery.

When the war ended, that letter came from President Lincoln and it was followed shortly after by ships loaded with food and supplies for the people of Lancashire from the people of America, in gratitude.

And that is how I ended up crying in the rain 4,500 miles from home, in a square named for Lincoln in a country that he never set foot in.

I also caught my Mr. Mime.

If you are interested in reading the letter you can do so here:

https://acws.co.uk/archives-misc-lincoln_letter

If you want to read more about the history you can do so here:

http://www.bbc.com/news/world-21057494

and here:

https://www.theguardian.com/theguardian/from-the-archive-blog/2013/feb/04/lincoln-oscars-manchester-cotton-abraham

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It seems that Jeff Bezos has experienced the same problem as many Amazon customers with having Echo ordering inappropriately:

Scene: Amazon’s Jeff Bezos’ trendy home earlier this month. He’s talking to his Echo.
Bezos: “Find me something to buy at Whole Foods.”
Echo: “Okay, buying Whole Foods.”

Bezos: “Oops.”

Amazon is killing a lot of businesses. In the process, it may also be killing inflation – they are squeezing prices of everything through their automation and efficiencies. Both factors that are bound to hurt commercial real estate. Although all of the focus this month has been on the Whole Foods purchase (never mind that Whole Foods has less than 3% of the grocery market), I think the breaking news was the roll out of Amazon Prime Wardrobe. Here the online retailer attacks the biggest problems of buying clothes; (1) the time it takes to shop, (2) the hassle of finding the right size, (3) returning stuff you don’t want (comes with pre-labeled return but you get a discount if you keep it all).
As we enter the second half of the year, I would like to take an assessment of where we stand and share some interesting data that I am seeing. First, I will tell you that we continue to be busy and are not experiencing any slowdown. Interest rate bumps have not affected most of our day to day investor/buyers. However, the think tanks and big data are pointing to a “slow-motion slow-down.” Low unemployment is generally good for commercial real estate (more workers – more space).
However, too low makes it tough to expand without a pool of workers. Slowing job growth may be the catalyst for the slowdown. E-commerce will continue to bring retail to its knees. Interest rates will continue to tick up which will put upward pressure on cap rates (and lower prices). With cap rates at record lows (I saw a 3.5% cap on a property in NYC!) it is hard to believe that there is much room for commercial real estate prices to run.
A couple of charts below help to illustrate my concerns.
commercial property price index
total deal volume by sector

(PRNewsfoto/Ten-X)

consumer board consumer confidence index

If you really like charts, numbers and big data then you will really enjoy the Cycle Monitor by Dividend Capital Research and Glenn Mueller, PHD.

While recessions are inevitable, it will not be anywhere near the disaster of 2008 (and we probably won’t start seeing the “slow-motion, slow-down” until 2018). Rather we will more likely see a prolonged flat period. The recession of 2007-2009 was the closest thing to the great depression. My guess is the next recession will be more modest. Commercial real estate has nowhere near the excesses that were built up in the mid 2000’s. In the meantime, low unemployment, low cap rates, low vacancy rates, head down, work hard and enjoy the ride. Hope you enjoy the story…
Jeff Bezo’s Email to Employees on Amazon’s Purchase of Whole Foods
by Ryan Garcia
Team;
Today is a significant milestone in the evolution of the Amazon brand. Our offer to purchase Whole Foods will finally consolidate the largest online and off-line retailers where consumers end up spending way more than they intended. I actually didn’t even mean to buy Whole Foods but after downing a few too many boilermakers at the Echo mixer last night, I accidentally clicked BUY IT NOW instead of just putting the grocery chain in my cart for future consideration.
Oh well, you know what they say-you can’t log off Amazon without spending $13.7 billion. So true!
Further details about the merger will be forthcoming, but I wanted to call out a few major points before we have to go silent and get this approved by regulators.
  • Our corporate cultures or perfectly aligned. The New York Times revealed that every Amazon employee has cried at their desk, and I personally made a Whole Foods employee cry when they couldn’t correctly identify their process for ensuring single-source coffee beans throughout the roasting process. It was an uncomfortable 38 minutes for both of us, but I think an experience so many of you can relate to.
  • Improved Echo functionality. Whole Foods has maintained a laser-like focus on organic foods and sustainable facilities and I’m excited to bring that same vision to Echo. Starting next week, when customers ask their Echo to order non-organic food products that receive a 12-minute lecture on the benefits of organic and local source products while our top-notch product matching software will send them the closest available organic item. Users on our website will find the “Customers Also Bought…” section replacing unhealthy items with notes such as, “Cookies That Went Straight to Their Thighs” and “Beef Produced By Clearcutting Rain Forest.” Needless to say, those products will not be available for purchase.
  • Drone changes. All Amazon drone teams will immediately switch to bio-fuels rather than battery packs.
  • Senior leadership. Once the acquisition is complete, John Mackey will take a new position as financial analyst and social media community outreach for the Washington Post. Synergy!
  • Location changes. Since Whole Foods is headquartered in Austin, Texas, I’ve asked EM to build the first hyperloop route between our offices here in Seattle and the Blue Bubble of Texas. All Amazon/Whole Foods employees Will office in Austin for the one week of good weather they have in late February, and in Seattle for the one week of sunshine we have an August (or May… or October… or whenever). The remaining 50 weeks of the year are up to you. Because I believe all Amazon employees should be free to cry at their desk no matter where that desk is located.
  • Product expansions. Amazon will soon carry all of the 365-branded products Whole Foods has developed in all Whole Foods stores we’ll be adding aisles for garden equipment, household electronics, sportswear, handbags, pet supplies, golf clubs, video games, plumbing supplies, luggage, headphones, and climbing gear. To start.
  • Cruelty free. We will be adopting Whole Foods policy of only purchasing products that are certified cruelty free. Please note this does not apply to any software we developed ourselves.
I am beyond excited by the possibilities of this merger moving forward and I hope the team feels the same. The combination of our two companies will account for over 85% of all hipster purchases in the United States. I’m looking forward to capturing the remaining 15%.
Now, I need your daily status updates and you aren’t excused for being late for reading this.
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