Well as we enter the Dog Days of Summer, I am beginning to worry that hell may finally freeze over. As you know, I have said that for the last three years we have been working twice as hard for half as much. Well over the past 60 days, we have been three times as busy but made nothing. I feel like we have been dying a death of a 1000 paper cuts. Now lest you think I am going all negative on you, may I point out the good news. We are 3 times as busy! The difficulty is that we are stuck in a hurry up and wait mentality. If we can get the water to the waterfall things will be good (just need to watch out for the dam or damn! as the case might be.)
A recent CoStar article highlighted the top 10 threats to commercial real estate:
- Lack of job creation
- Debt overhang (loans maturing) from 2006-2008
- Disorder or break-up of the Euro-Zone
- The financial condition of tenants
- Housing recovery (or lack there-of)
- Inability to acquire capital or financing
- Potential increase in interest rates
- Aggressive competition to top real estate assets
- Inability to sell properties quickly
- Risk aversion (let’s call that uncertainty).
I’d like to share one of my barometers that I like to use to keep a pulse on how things are going. It is amazingly simple; it is the Fed-ex (FDX) stock price. So much of our economy from industrial to retail is run through Fed-ex. Because of that, it is a great measure of where we are at. A look at their stock chart for the year looks like my EKG! My rule of thumb is that above 90 we are in recovery. As of this writing, it is at 91 off of 85 in early June. While on Fed-ex and lists of threats to our industry and economy, I’d like to share what Frederick Smith, Chairman, and CEO of Fed-ex has to say about revitalizing America’s economy “I believe we must address the following three issues to reverse these trends and revitalize our economy:
- Our reliance on imported petroleum
- Over-regulation
- Business revitalization through tax reform, education, and training.
Without changes on these issues the conditions for American business will continue to deteriorate.” I read an interesting survey that recently said Smartphones are boosting in-store sales. 61% of Smartphone owners used their device to shop (52% used it on the way to the store). Despite obvious concerns that stores like Best Buy are becoming showrooms for Amazon, 52% of users surveyed said their phone influenced them to purchase in the store. Two decades ago, most well-off citizens owned a camera, a video camera, a CD player, a stereo, a video console/TV, a cell phone, a watch, an alarm clock, a set of encyclopedias, a world atlas, a Thomas Guide and a bunch of other assets that could easily add up to $10,000 or more. All these come standard in today’s Smartphones or are available at the app store for less than a cup of Starbucks coffee. Just think about the impact that $10,000 worth of expenses vanishing per person has on the economy (and our real estate) So with office space requirements shrinking and retail going to the web what is a real estate owner to do? I have for the last 10 years and still recommend that you must cater to “people”, that means service businesses, things that can’t be replaced on the web (food, chiropractor, hair salon, workout facility). It becomes more important than ever that owners provide an “experience”. The other thing you can do is fight to cut expenses. You can go greener (not because I am worried about global warming of hell freezing over but just to save money and reliance on petroleum). I’ll keep this list short but it is time for you to look at the following in every building;
- Solar electric – panel costs have fallen 50% in four years
- Wifi – internet everywhere and tablets for everyone
- LED lighting – lighting accounts for 20-30% of building energy use
- I.P. cameras & remote sensors – watch your property, manage your sprinklers and collect rent all from your Smartphone.
So as we nimbly move forward and use our Smartphone to handle the increased activity, I am relieved to learn that the thermodynamics of hell won’t allow it to freeze over. I hope you enjoy this month’s story…
Thermodynamics of Hell
The following is an actual question given on a University of Washington chemistry midterm. The answer by one student as “so profound” that the professor shared it with colleagues, via the Internet, which is, of course, why we now have the pleasure of enjoying it as well. Bonus Question: Is Hell exothermic (gives off heat) or endothermic (absorbs heat)? Most of the students wrote proofs of their beliefs using Boyle’s Law, (gas cools off when it expands and heats up when it is compressed) or some variant. One student, however, wrote the following: First, we need to know how the mass of Hell is changing in time. So we need to know the rate that souls are moving into Hell and the rate they are leaving. I think that we can safely assume that once a soul gets to Hell, it will not leave. Therefore, no souls are leaving. As for how many souls are entering Hell, let’s look at the different religions that exist in the world today. Some of these religions state that if you are not a member of their religion, you will go to Hell. Since there are more than one of these religions and since people do not belong to more than one religion, we can project that all souls go to Hell. With birth and death rates as they are, we can expect the number of souls in Hell to increase exponentially. Now, we look at the rate of change of the volume in Hell because Boyle’s Law state that in order for the temperature and pressure in Hell to stay the same, the volume of Hell has to expand proportionately as souls are added.
This gives two possibilities:
- If Hell is expanding at a slower rate than the rate at which souls enter Hell, then the temperature and pressure in Hell will increase until all Hell breaks loose
- If Hell is expanding at a rate faster than the increase in souls in Hell, then the temperature and pressure will drop until Hell freezes over.
So which is it? If we accept the postulate given to me by Teresa during my Freshman year, “…that it will be a cold day in Hell before I sleep with you, “and take into account the fact that I still have not succeeded in having sexual relations with that woman, then #2 cannot be true, and thus I am sure that Hell is exothermic and will not freeze. The student received the only “A” given.
