CDC Commercial Inc

April 2012 Monthly Letter

Luck. Money. Ambition. Initiative. Success.

Who wouldn’t want all of that? Well, it is the year of the Dragon, considered the luckiest year in the Chinese Zodiac. Chinese astrology is based on a 12-year cycle, each year named for one of the animals that responded when the Buddha called. Each animal is associated with certain traits, generally ones you can figure out: the ox for hard work, the tiger for aggressiveness. In a large part of the world, personal and business decisions are influenced by which year it is in the Chinese Zodiac. In the USA this year we will be influenced by two different animals – the Republican Elephant or Democrat Donkey.

Speaking of government, and triggered by me about to pay my taxes, have you ever noticed that when you bump the words The and IRS together you get “Theirs”!

So where are we at in the market?

The short answer is that the market is recovering. The question is the pace of the recovery, especially on the demand side. Until last fall, U.S. job growth was slow. It has picked up so far in 2012. As long as that continues, we will see some confidence return to the overall market and that’s going to translate into more people making leasing decisions on office, industrial and retail properties.

Overall real estate is about supply and demand. I am concerned about the demand but I am comforted by the fact that we do not have a huge oversupply.

Job Growth is a really important driver. It leads to more confidence and to companies making business decisions. In the last couple of years, firms have been hesitant to make long-term commitments. There were lots of renewals in place or extensions for a couple of years. That’s not great for momentum.

The USD Burnham-Moores Center for Real Estate’s Index of Leading Economic Indicators for San Diego County rose 0.9 percent in January – its third straight month of advances. The advance was led by sharp increases in consumer confidence, initial claims for unemployment insurance and local stock prices. Help wanted advertising and the outlook for the national economy were also up solidly.

Also, signaling confidence in the San Diego market, Merck plans to spend $90 Million on a new drug research center in San Diego over the next seven years to develop new ways of treating diseases. The institute will start off with about 20 to 40 scientists and is expected to grow to about 150.

Speaking of employment, the unemployment rate in San Diego County was 9.3 percent in January and February. It is a drop from the 10.2 mark of last year. Over half the new jobs were in professional and administrative services and waste services (10,700 jobs) the greatest job loss was in government (-2200 jobs.) I can only guess that the jump in waste services was hauling away all the trash that the 2200 lost government jobs were creating! I also recently read where Google is able to accurately predict unemployment increases with a high degree of accuracy, one week before government numbers are released based on query volume on the term “sign up for unemployment.”

Under the same pretence, I encourage you to keep your eyes on the Google Real Estate Index. As you can see, like unemployment we seem to be stable but flat.

The greatest concern I have is that high gas prices could derail this fragile recovery. The price increases will depress discretionary spending in other areas. Remember, higher oil/gas prices act like interest rate increases. To give some idea of the impact of the increase of gas from $3.50 to $4.37 (about $463 to the average consumer) imagine 230 less Starbucks coffee drinks or 163 less Rubio’s fish tacos a year.

One of the basic laws of physics is that a body in motion tends to stay in motion while a body at rest stays at rest. In order to be productive you need to move and just know that your team at CDC Commercial is always moving as we attempt to slay the dragon as we seek to reap the rewards of a Dragon year. Speaking of slashing things, I hope you find this simplified representation of our national debt below, interesting.

• U.S. Tax Revenue: $2,170,000,000,000
• Federal Budget: $3,820,000,000,000
• Current Deficit: $1,650,000,000,000
• National Debt: $14,271,000,000,000
• Budget Cuts: $38,500,000,000

Now, let’s remove 8 zeros and pretend it’s a household budget:

• Annual family income: $21,700
• The money the family spent: $38,200
• Additional charges on the credit card: $16,500
• Current credit card balance: $142,710
• Budget cuts: $385

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