CDC Commercial Inc

Monthly Letter for August 2015

As I flipped through the channels the other day I watched the debate as to whether interest rates should be tightened. On the next news channel, I saw business titan Donald Trump promising voters to make America great. It was at that “ah-ha” moment that I realized the current American conundrum – Tighten vs. Titan.

My day seems to be filled with contrary headlines; “Hagen Grocery to cut 700 workers” followed by “Discount Grocer Aldi to open 45 stores in Southland. “Net U.S. commercial space absorption up 39.3%”, “China’s stock market collapsing”.

So where are we? It is difficult to tell in today’s market where there is so much meddling and intervention. So let’s look top down. GDP – at its current anemic 2% growth rate you would think recession. Caterpillar’s CEO recently said at the current 2% U.S. growth rates you can’t hire. Interest rates are at historic lows indicating we should be booming. The Fed sits poised to tighten but can’t because the “Titans” have not given the economy the lift off we need to make America great again. Now surely the stock market would seem to be up but not really unless you own one of the titans of the “FANG Four” – Facebook, Apple, Netflix or Google. Banks which have historically been the stalworht of society are now touting bank closure plans as part of their business model. More transactions online, less branches, smaller branches and more in-retail locations like grocery stores will be the banking mantra for the decade ahead.

Unemployment is always my favorite gauge as to where we are at (though I worry as to how this number is manipulated). National unemployment is at 5.5% and San Diego at 5% would indicate a healthy economy. I saw an interesting statistic about North San Diego County this month. There are 27,183 businesses in North County and 419,754 workers. Eight percent of these businesses have only one location and 60% employee only 1-4 employees. Wow… Lots and lots of little titans!

Auto sales are usually a good indicator of future home sales and home sales are a sign of a strong economy. Because a car is less expensive than a house, auto sales volume tends to rise earlier and fall later than home sales. If that hypothesis is true and the chart below is accurate then we are overdue for a housing boom.

monthly letter for august 2015

While on the subject of auto sales, titans and making America great, you might find this video of a Tesla factory at work. Automated factories making America great – robots increasing unemployment (the conundrum again).

monthly letter for august 2015

Closer to home in our real estate market, the team at CDC has found ourselves busier than we have ever been. Interestingly, our inbound call volume has been flat, our sales and leasing volume has almost doubled but our margins have shrunk. At the end of the day we are ahead. Surprisingly, talking to other broker they are not all feeling the increased activity. What we are seeing right now is largely a domino effect. A sale leads to an exchange leads to another purchase. A tenant buys their building and kicks out the other tenants so they can expand. The other tenants fill an under occupied building which can now sell and do an exchange. Maybe it is not so much dominoes as it is us creative brokers putting together a jigsaw puzzle of transactions.

Well whether you are a titan of business, an entrepreneurial real estate broker or a hot dog stand operator trying to figure out the economy’s numbers, I hope you enjoy the story.


The Hot Dog Story

Once there was a man who had a stand on one of the busy streets downtown and he sold hot dogs. He sold good hot dogs and folks bought from him on a consistent basis. He put signs up advertising his hot dogs, he placed ads in the newspaper, and he told everyone in his community how good his hot dogs were. And he sold a lot of hot dogs!

So he increased his inventory. He bought more buns, more hot dogs, more wrappers, and more condiments. He built a new stand and made it larger, added signs advertising his good hot dogs, and he kept his sales area neat and clean. He made sure his hot dogs were always hot and that his customers always walked away with a smile. And his sales continued to increase!

He was so successful that he was able to send his son to Harvard University. After graduating with a Masters Degree in business, the son returned home to join his father in business. At the end of his first day on the job, the son said: “Dad, I know you’re not educated in Economics and you have not had the opportunity to read and study the latest journals on business and economic forecasts. But the overall economy is in terrible shape. The huge federal deficit, the trade deficit, oil prices, and the unemployment rates are undoubtedly going to plunge this nation into a horrible recession. I think you should consider these things for future planning.”

The man scratched his head and thought: “Well, my son has the finest university education from the most acclaimed business college in the country. He must know what he is talking about.”

So the man reduced his inventory by half. He stopped advertising in the newspapers and took down his signs to save money. He quit telling everyone in his community about how good his hot dogs were and he even went back to using the old cart from years ago. And his hot dog sales went down the tubes almost overnight!

“Son”, the man said to his Harvard-educated offspring, “You sure were right. Damnedest recession I’ve ever seen.”

The moral of the story: Keep on selling your products, your services, and yourself. No one can stop you from succeeding but yourself!!

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