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Happy New Year! Welcome to the ’20s! In the 1920s, the Model-T’s were rolling off the assembly line while the economy continued to find ways to train workers while at the same time drive automation. Today, Amazon is in the thick of the same thing The company announced that it will spend $700 million to retrain its labor force of 100,000 in response to a growing labor shortage. The big story is that the strong labor market is pushing companies to make big investments not only in workers but also in technology.

Low unemployment raises all boats. It is the best tool we have to help the homeless and less privileged and raise wages naturally. J.P. Morgan Chase as part of a new initiative will no longer ask prospective employees to reveal if they have a criminal past during their application process. The company said this initiative allows for those with criminal backgrounds to receive the same consideration as any other applicant when their background has no bearing on job requirements (I assume that means they ask if your crime was robbing a bank!).

As mentioned, technology is advancing at warp speed on so many fronts. For example, the Apollo 11 computer had a processor which ran at 0.043 MHz The latest iPhone’s processor is estimated to run at about 2490 MHz This means that the iPhone in your pocket has over 100,000 times the processing power of the computer that landed a man on the moon 50 years ago.

That is interesting, but even more astounding is Google’s announcement that its new “quantum” machine needs less than 3.5 minutes to perform calculations that would take a traditional computer 10,000 years!

One thing I have learned over the years is that commercial real estate transactions can be messy. You cannot digitally solve for personality conflicts, egos, mental illness, greed, ignorance, sinkholes, new building codes, contamination, and the myriad of other challenges that we overcome on a regular basis. I suspect that while digital transaction platforms will be very beneficial and successful for those clean, straightforward, simple deals, the rest will require the expertise of a professional problem solver. And at the end of the day, that’s what we do here at CDC.

So, what is the outlook for the new year? Of course, there will be the usual chaos and mayhem, none of which you need to worry about if you focus on the truth, value and what you can control. Here is what we see in the year ahead.

Being an election year means that we will likely have more gridlock in Washington, The Fed will leave interest rates alone, not wanting to be seen as interfering with the election. Meantime, on Main Street, we will continue to see store closings. The nuance to this story is that last year we closed 150 million square feet of stores and only about 100 million square feet this year. However, this year we closed over 10,000 stores which are almost twice what was closed last year. So Big Boxes last year, small shops this year. Are we right-sized yet?

The passing of the USMCA (NAFTA 2.0) will be a boon for the U.S. economy and in particular San Diego. The auto, TV and medical instrumentation sectors will need production, warehouse, and logistics space on both sides of the border.

I say a recession is not likely and the stock market is certainly not pricing it in. I will let Nick and his number give you another look.

If you would like to see some of the best of the best, big ideas for 2020 here is a link to LinkedIn’s best of the best ideas shaping the year ahead.

LinkedIn’s Best of the Best Ideas Shaping the Year Ahead.

And now from the other corner of our office, here are Nick’s numbers for the month;

Nick’s Numbers

Happy New Year to all! According to Gallup polls, it is a 50/50 chance of a recession in 2020 (well actually 49% yes to 51% no). I thought it would be interesting to compare to 2007 polling when 57% said a recession was not likely and 40% said it was – two months later we were in the Great Recession!

Gallup also asked Americans to predict whether a recession was in the offing in 2001 when the dot-com bubble was bursting, and at that time 53% said it was likely.

Please give me a call or email me if you would like an analysis of your properties’ value (Nick Zech, 858-232-2100, nzech@cdccommercial.com).

Finally, Charlie Munger, who along with Warren Buffet has created a multi-billion-dollar empire has shared a dozen pieces of his most valuable advice. I think it applies to the stock market, the real estate market, and just plain old life.

  1. “Those who keep learning will keep rising in life.”
  2. “Knowing what you don’t know is more useful than being brilliant.”
  3. “One of the greatest ways to avoid trouble is to keep it simple.”
  4. “People calculate too much and think too little.”
  5. “We have three baskets for investing: yes, no, and too tough to understand.”
  6. “A great business at a fair price is superior to a fair business at a great price.”
  7. “Success means being very patient, but aggressive when it’s time.”
  8. “The big money is not in the buying and the selling, but in the waiting.”
  9. “You must force yourself to consider opposing arguments. Especially when they challenge your best-loved ideas.”
  10. “Don’t drift into self-pity because it doesn’t solve any problems. Generally speaking, envy, resentment, revenge, and self-pity are disastrous models of thought.”
  11. “Invert, always invert.” – It can often be useful to look at a problem in reverse. What do you want to avoid? Act in a manner that reduces your chances of failure, and you will find your path to success.
  12. “Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts…slug it out one inch at a time, day by day. At the end of the day…if you live long enough…most people get what they deserve.”

Well, you are now loaded up with advice for the new year. Let’s go out and make it a great one! I hope you enjoy the story…


The Deacon

It was Christmas Eve Service. His name was Bill. He had wild hair, wore a T-shirt with holes in it, jeans, and no shoes.

This was literally his wardrobe for his entire four years of college. He was brilliant, kind of esoteric and very, very bright.

He became a Christian while attending college. Across the street from the campus was a well-dressed, very conservative church. They wanted to develop a ministry to the students but were not sure how to go about it.

On Christmas Eve Bill decided to go there. He walks in with no shoes, jeans, his T-shirt, and wild hair. The service had already started and so Bill started down the aisle looking for a seat. The church was completely packed, and he couldn’t find a seat.

By now, people were really looking a bit uncomfortable, but no one said anything. Bill got closer and closer and closer to the pulpit, and when he realized there were no seats, he just squatted down right on the carpet. (Although perfectly acceptable behavior at a college-fellowship, trust me, this had never happened in this church before!).
By now the people are really uptight, and the tension in the air is thick.

About this time, the minister realizes that from way at the back of the church,

a deacon is slowly making his way toward Bill. Now the deacon is in his eighties, has silver-gray hair, and a three-piece suit. A godly man, very elegant, very dignified, very courtly. He walks with a cane and, as he started walking toward this boy, everyone is saying to themselves that you can’t blame him for what he’s going to do. How can you expect a man of his age and of his background to understand some college kid on the floor?

It takes a long time for the man to reach the boy. The church was utterly silent except for the clicking of the man’s cane. All eyes were focused on him. You couldn’t even hear anyone breathing. The minister couldn’t even preach the sermon until the deacon did what he had to do.

And then they see this elderly man drop his cane on the floor. With great difficulty, he lowered himself and sat down next to Bill and worshiped with him so he wouldn’t be alone.

Everyone choked up with emotion. When the minister gained control, he said, “What I’m about to preach, you will never remember. What you have just seen, you will never forget”.

Be careful how you live. You may be the only truth and values some people will ever see.

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Christmas: what other time of the year do you sit in front of a dead tree and eat candy out of your sox?

The world today is divided about what is going on and how to move forward. We live in a time of political division and personal distraction. We have political and media and technology systems that reward extremism. We have a system that is increasingly punishing moderate viewpoints. For brokers who strive daily to find middle ground, this makes our jobs every increasingly more difficult. We have so much in common as a society, it is hard to believe that we let such little differences be what separates us.

I think we live in a society that says you don’t have to sacrifice any of your culture to fit in. When, in fact, the American Way is to sacrifice some of your culture and adopt some of everyone else’s culture to become that melting pot experiment called America. Like at the Holidays when meat and vegetables and seasoning that transform into a gastronomical delight when you blend their textures and flavors.

So, as we wish you, our client family, Happy Holidays, we challenge you to remember that FAMILY is really an acronym that stands for – Forget About Me I Love You.

Additionally, in this politically distracting year ahead I further challenge you to “Make Decency Cool Again.”

Nick’s Numbers

First, I would personally like to wish all of you a Happy Holiday! When you are gathered with family and friends and they ask you about the real estate market, you can tell them it is all about employment – jobs mean occupied real estate. Unemployment is at 2.8% which is below California’s 3.7% and the U.S. 3.3%. And job growth (and real estate) are great – see the chart below.

nicks numbers chart

Please give me a call or email me if you would like more in-depth info on San Marcos or other San Diego and North County sub-markets (Nick Zech, 858-232-2100, nzech@cdccommercial.com). 

Finally, I always talk about being passionate about this business. You know, “it is what you are passionate about that gets you out of bed in the morning!” Well this year, I challenge you to ask yourself if you are a bricklayer or are you building a Cathedral. Happy Holidays and my you Prosper in the New Year!

Hope you enjoy the story…


When four of Santa’s elves got sick, the trainee elves did not produce toys as fast as the regular ones, and Santa began to feel the Pre-Christmas pressure.

Then Mrs. Claus told Santa her Mother was coming to visit, which stressed Santa even more.

When he went to harness the reindeer, he found that three of them were about to give birth and two others had jumped the fence and were out. Heaven knows where.

Then when he began to load the sleigh, one of the floorboards cracked, the toy bag fell to the ground and all the toys were scattered.

Frustrated, Santa went in the house for a cup of apple cider and a shot of rum. When he went to the cupboard, he discovered the elves had drunk all the cider and hidden the liquor.

In his frustration, he accidentally dropped the cider jug, and it broke into hundreds of little glass pieces all over the kitchen floor.

He went to get the broom and found the mice had eaten all the straw off the end of the broom.

Just then the doorbell rang, and an irritated Santa marched to the door, yanked it open, and there stood a little angel with a great big Christmas tree.

The angel said very cheerfully, ‘Merry Christmas, Santa. Isn’t this a lovely day? I have a beautiful tree for you. Where would you like me to stick it?’

And thus, began the tradition of the little angel on top of the Christmas tree.

Not many people know this.

May your Christmas be Merrier!!

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sea monkeys adWhen I was a kid, I eagerly awaited my monthly issue of Boy’s Life Magazine. I would devour the stories and projects and adventures of others. Then I would read the ads in the back. I would beg my parents to buy me the pet sea monkeys. I had visions of little friendly sea horses or mermaids that I could play with. My parents would explain that there was no such thing as sea monkeys, and it was a rip-off. But I would not relent (I was a good salesman even then). Finally, my parents ordered them. When they arrived, we followed the directions and low and behold we had purchased a pack of tiny (more like microscopic) brine shrimp. You can imagine my disappointment! I have to say this is one of the great lessons my parents taught me. Since then I pay very little attention to advertising and try to be a good critical thinker. So, lesson be had…do not buy the sea monkeys!

We’ve all heard that we only use about 10% of our brains. In fact, we use 100% of our brain and the problem is that we face overload quickly, so where we focus our attention is key – goals, to-do lists, financial plan, etc.… Every day, a sea of decisions stretches before us. Some are small and unimportant, but others have a larger impact on our lives! We don’t always make the right decisions but if we apply sound critical thinking skills, we can sift through the sea of data and achieve our goals. Fewer sea monkeys and better real estate deals. Here is a five-step process that might help you.

  1. Formulate your question. In other words, know what you are looking for.
  2. Gather your information. There is plenty of data out there. The better you refine #1 above the easier this becomes.
  3. Apply the information. You do this by asking questions. What concepts are working? What assumptions exist? Am I being told the truth? Don’t fall for the sea monkeys!
  4. Consider the implications. If you follow the path will you be happy? You hear owing apartments is a good plan – do you want to deal with backed-up toilets in the middle of the night? You want a fully triple-net deal – can you afford a long zero income vacancy when you have to re-tenant?
  5. Explore other points of view. Ask yourself why so many people are drawn to the policies of the opposing political candidates.

I have talked about this before, but we have a bubble in the cost of education and the giant burden of student debt (more than auto and credit cards combined!). The cost of a four-year degree has shot up 15x in the past 40 years. If car prices jumped as much as tuition, a base model Toyota Corolla would cost $90,000 today.

On the positive side, large universities like UC San Diego fuel our regional economy. UCSD has more than $5 billion in annual revenue and .2 billion in annual sponsored research. A recent Tripp Umbach report cited UCSD as contributing about $16.5 billion in annual impact in California. That’s more than the entire revenue of the State of Arizona!

In our day to day battlefield, we continue to see constant crosswinds. Deals continue to happen but not as many as we should see at this point in the economy. We have seen the first rise in mortgage defaults since the financial crisis. But just as that happens rates fell – so stay tuned. We at CDC also had a couple of firsts. We were in escrow representing a buyer and the seller decided they didn’t want to sell. Well, you can’t just do that. A buyer can sue for specific performance. In our case, a settlement was arranged, and a new property was found. In another case, we represented the seller and the Buyer had signed contracts in escrow, but no deposit arrived and no communication – crazy – but we’re back working with several new buyers. These are not the kind of “First” we like to have!

Unemployment fell again in San Diego to a 20-year low of 2.7% in September. There are still more jobs than the number of unemployed San Diegans. This is a positive sign for leasing and sales.

Investment volumes overall are trending lower this year compared to 2018. Being a critical thinker, you must realize that 2018 had a large increase in merger-and-acquisition activity which helped to supercharge last year’s numbers.

Because of the low unemployment numbers and job growth, there seems to be an insatiable demand for housing. However, the other sector that is just blossoming right now is healthcare. We have an aging population. By 2030, the population of people over the age of 65 will double and approximately 6 out of 10 boomers will be managing one or more chronic conditions.

And now from the other corner of our office, here are Nick’s numbers for the month;

Nick’s Numbers
San Marcos – Current Market Statistics:

Retail

San Marcos Retail stats

Office

San Marcos Office stats

Industrial

San Marcos Industrial stats

(Costar)

Please give me a call or email me if you would like more in-depth info on San Marcos or other San Diego and North County sub-markets (Nick Zech, 858-232-2100, nzech@cdccommercial.com).

On my recent trip to France, I had the good fortune to visit the Chateau that Leonardo da Vinci spent his later years living and tinkering. This inspired me to read Walter Isaacson’s biography on de Vinci. I was inspired by this quote and think Leonard would have done as well in our time as in his own.

“His ability to combine art, science, technology, the humanities, and imagination remains an enduring recipe for creativity. So, too, was his ease at being a bit of a misfit: illegitimate, gay, vegetarian, left-handed, easily distracted, and at times heretical. Florence flourished in the fifteenth century because it was comfortable with such people. Above all, Leonardo’s relentless curiosity and experimentation should remind us of the importance of instilling, in both ourselves and our children, not just received knowledge but a willingness to question it—to be imaginative and, like talented misfits and rebels in any era, to think different.”

As we prepare for Thanksgiving house guests and wrapping up the year and using our critical thinking skills to achieve our goals for 2020, we want to thank you for your business. I hope you enjoy the Zen Story.


Zen Houseguests

Treat your thoughts as if they were houseguests in your mind. They come and then they go. Sometimes they are fun, and sometimes you can’t wait for them to depart – but eventually, they always leave; sometimes they do make a mess of things though.

Thoughts are fleeting and have no real home in your head. Memories hang around, but thoughts are transient states that ebb and flow through your consciousness.

Sometimes we become obsessed with a thought, a worry, an expectation and it seems like we just can’t get away from this unwanted guest, but that is all it is, an unwanted thought. Realizing that your thoughts are not you and that they are just a flash that will soon fade. This takes away a lot of stress and worry.

A thought is just an electrical burst in your brain but is not part of your brain. Think of a lightbulb – apply electricity and the bulb glows bright, but the bulb is not electricity, neither is a thought you – it’s just a guest.

Watch your thoughts; they become words.

Watch your words; they become actions.

Watch your actions; they become habits.

Watch your habits; they become your character.

Watch your character; it becomes your destiny.

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happy autumnWall Street is flirting with reclaiming record highs, but a rocky ride may be ahead as stock volatility has been 25% higher in October on average since 1928 according to Goldman Sachs.

The U.S. Treasury market is flashing a classic recession signal called the “inverted yield curve.” This is where short term rates (3 months to 2 years) are at a higher rate than 10 year or 30-year rates (no reward for long term risk!). There have been 12 recessions since the end of WWII and seven of them were proceeded by an inversion of the yield curve. Will this time be different? Maybe. Thanks to negative bond yields (yes, investors are paying someone to take their money!) in Germany and Japan foreign investors are buying more U.S. Treasuries which drives those rates down. In the meantime, our economy is plugging away at a 2% GDP growth rate. So, let me get this right, our economy is chugging ahead, and we have an abundance of people wanting to invest in our country – what could be wrong? However, I think it would be safe to say this has been the longest, weakest recovery in history – economic prosperity has never been so poor! (Quickly, let’s put to rest the myth that the longer the recovery goes, the greater the likelihood of a recession. Recoveries don’t stop because of length!)

My concern continues to be, not interest rates, but instead the reduction of the balance sheet (debt reduction). I think debt reduction is great, but it comes with pain just like interest rate hikes. I think the Fed raising rates and reducing the balance sheet is an unwise two-variable experiment. If you assume as Morgan Stanley does, every $200B of balance sheet reduction is equivalent to another .25% rate increase.

San Diego’s August jobless rate hit 3.4%. That is lower than the 3.6% in July and 3.5% last August. It is also lower than 4.2% for the state and 3.8% for the Nation.

The most jobs were added in government followed by business services (architects, research, etc.) and construction – a good sign for housing and infrastructure.

Speaking of service businesses and government, California Senator Robert Hertzberg is proposing to expand the sales tax to services (initially 5% now pared down to 2%). This would be levied on all business to business transactions – we’re talking accountants, lawyers, broker commissions, architectural drawings, etc. Enough already!

A couple of observations from my trip to France (yes, I finished the marathon, drank fine wine and ate amazing food!). Having a strong dollar sure made things more affordable. As many of you know it is common practice not to tip in Europe. Did you know that tipping came out of reconstruction and slavery? The railways did not want to pay the former slaves who were porters and wait staff, so they encourage tipping instead. What hit me was that without sales tax and a tip, my bill was regularly 30% less than I expected. So, despite France being “expensive”, I found the bottom line to be equal or less many times. So, are we reaching a “tipping point” in the U.S.? With restaurant owners facing $15 per hour wages plus tips in the front of the house, is there now unequal pay between the front and back of the house? Will automation replace labor? Finally, the restaurant business is facing the battle of convenience vs. experience. Do you want it on your doorstep or like “Cheers, where everyone knows your name.”

Nick’s Numbers

Hi all, to piggyback on a couple of things my Dad mentioned. There was a great article in USA TODAY by Ken Fischer about whether America’s massive debt will doom us.

Here is a link https://www.usatoday.com/story/money/columnist/2019/09/22/debt-debt-doom-america/2384550001/ .

On the topic of restaurants, almost all the numbers are positive (rents, vacancies, etc.), but the chart below (months vacant restaurants are on market) may be a hint of the future.

months on market

Please give me a call or email me if you would like more in-depth info (like a property valuation or analysis). Nick Zech, 858.232.2100, nzech@cdccommercial.com ). ~ Nick

Well as we head into a busy October, keep your eyes open for tipping points. I don’t like to re-use stories but this one is a classic and way to apropos so forgive me…


There was this elderly man who had a profitable little business selling hot dogs on a busy street corner in a major city. He wasn’t particularly well educated, but he sold great hot dogs and his customers loved him.

During the early morning rush hour, he’d wheel his mobile hot dog stand to position it near the exit of the central railway station in town. A year ago, he’d added a bacon and egg roll to his range and sold scores of them to this breakfast crowd every day. At lunchtime, he’d move his stand to a popular park where he had lines of regulars.

In the afternoon he’d be back at the station entrance and then later most nights he knew a great spot near a nightclub where patrons rushed him off his feet. He had even installed special lighting and a flashing neon sign. Even people driving by would stop.

He’d worked hard for years arid done well enough to put his only son through university who later became a management consultant with a large firm.

One day his son warned him that a recession was on the way. The old man asked his son what this meant. Being an educated man, his son gave a very detailed explanation of how the recession would severely impact every person in the community, particularly small business people like his father. There would be enormous unemployment; people would not be able to afford to spend money as they did now. He painted a gloomy picture of the future and warned his father that it would be wise to cut back on his expenses and “tighten his belt” financially and prepare for the worst. The old man didn’t know much about the economy or interest rates, but he trusted his son. After all, he was an educated man. Recession mentality kicked in …

The old man began to cut back on the number of sausages and bread rolls he bought. He didn’t want to get caught with stale rolls as business began to drop off. But it was hard to judge and some days he ran out of sausages and rolls earlier than he normally would. So, he went home early and spent more time worrying about this recession that was coming.

Soon he knew that what his son had said was right. He noticed that his takings were indeed falling. This depressed him more and so he tended to get out of bed later each day. After all, why get to the station so early when obviously more people would be eating at home rather than spending money on breakfast in the city. He decided that his bacon and egg rolls were too expensive for most people now. After all, they were twice the price of a hot dog, so he cut them from his menu and his sales continued to plummet.

Wow, his son was right, this recession was hitting hard!

He decided to save more money and not replace the batteries that powered his neon sign and lights at night. Now because he was in the dark, fewer people bought from him and soon he decided that it wasn’t even worth his time setting up at night. Eventually, he decided to sell off his equipment and his trolley. He was in luck though because the woman who bought his trolley didn’t seem to know how bad business was, or how severe the recession was going to be. He managed to unload the trolley for more than he thought he would get. Now day after day he stayed at home, depressed, and occasionally his son would visit him and they would discuss how bad the recession was, and how lucky the old man had been to have an educated son who had warned him in advance about this terrible recession.

So what’s the moral of this story?

Recession mentality starts in one’s own head. If you believe that a recession is coming and that times will soon be tough, then they will be for you. Like the old man in the story, you’ll start to change your successful behavior patterns and replace them with less resourceful habits. You’ll sleep in later. You’ll take longer lunch breaks, make fewer phone calls, generate less e-mail, and go home earlier.

But it needn’t be that way …

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my daughter gets marriedWhat a whirlwind! My daughter, who has been dating a very nice young man for the last five years, asked us to go on a family trip to Vancouver at the beginning of the month. The night we got there they surprised all of us by announcing they were getting married the next day! She had brought two wedding dresses (bought on Amazon) and had the mothers say yes to the dress that night. We went on a seven-mile hike the next day, got changed at a nearby campground, walked to the edge of a fairy tale mountain lake where a minister appeared (because they had given him a Geo pin to locate the site). It’s no longer retail that is being revolutionized by technology even the institution of marriage is changing (who gets China and Silver and Crystal anymore?). Today, 40% of couples now meet online (my daughter, of course, met her husband sky diving!).

Upon getting back from the whirlwind weekend, I promptly had a birthday and ran a duathlon the next day. For the first time I was first in my division (yes, you guessed it – I was the only one in my age group!) The field seems to be getting younger and younger – it couldn’t be me getting older!

Flummoxed – def. completely unable to understand. Utterly confused or perplexed.

Yes, that is my word for the month and completely describes my position on politics, the economy, and the real estate market. Unemployment low? Check! Interest rates low? Check! Earning up? Check! What could possibly go wrong/

I think the process we may be in the midst of is a change of cycle where Central  Banks and governments are unlikely to be able to disguise their actions, because both monetary tools and fiscal policy have been exhausted (remember the story – the King has no clothes? Somebody has to tell them they have no money!). This change of cycle may not bring a recession but instead, a Japanese style stagnation as debt continues to rise while economic and productivity growth weaken. Pay attention – liquidity if falling.

Here is what we are seeing up close and personal in the market. Are we busy? Check! Are people looking at space to lease or investments to buy? Check! Are we seeing multiple offers in some cases? Check. Are we making money? Not sure yet??? Everyone seems to want their deal done yesterday but when push comes to shove there seems to always be a reason to push things out until tomorrow. So, if we don’t close all that we have been carrying over and collecting for the last six months it could be a catastrophe. If we close most everything, we are working on it will be one of our best years.

Flummoxed!

Another flashing light – U.S. mortgage debt hit a record this month, eclipsing the 2008 peak. With the latest rate cut, just watch those ATM machines dispense money again. Despite low rates and high debt levels, housing starts fell almost 1% in June (single-family up 3.5%; multi-family down 9.2%). I don’t think the housing market will be the primary cause of our next economic collapse, but it could be part of the bursting of an everything bubble – retail apocalypse, trade war, bond bubble, the credit bubble, and student loan bubble. More than 45 million U.S. borrowers owe $1.7 trillion in student loan debt – more than auto loans and credit card debt combined!

Nick’s Numbers:

Hi all, this month I would like to share two interesting views. First a very interesting chart of the Total Market cap of all stocks to the US GDP. You really don’t want to see it over 100% and certainly not trying to breach 150%. The last time it did so was 2008. It is often called the Buffett Indicator because it is said that he uses this tool to measure the markets value.

the ratio of total market cap to us GDP

The second is the CoStar Composite Price Indices released in July. It is based upon more than 212,000 repeat sales since 1996. The CCRSI offers the broadest measure of commercial real estate repeat sales activity. Industrial led and Retail lagged but all ships were rising in this economy.

us composite indices

 

Please give me a call or email me if you would like more in depth info (like a property valuation or analysis). Nick Zech, 858.232.2100, nzech@cdccommercial.com ). ~ Nick

Well by the time you are reading this, I will have celebrated my 33rd wedding anniversary. My now married daughter will be massively in debt as she goes off to law school and I will be running a marathon in France (my fourth Continent in my quest to run a marathon on all seven continents). The whirlwind continues and I remain Flummoxed —or as my favorite running bumper sticker says “26.2 miles… what could possibly go wrong?” Hope you enjoy the story…


Daughter: Daddy, I am coming home to get married. Take out your checkbook. Dad, I’m in love with a boy who lives far away from me. I am in Australia and he lives in the UK. We met on a dating website, became friends on Facebook, had long chats on WhatsApp, he proposed to me on Skype and now we’ve had two months of relationship through Viber.

“Dad, I need your blessings, good wishes and a big wedding.”

Father: “Wow! Really? Then get married on Twitter, have fun on Tango, buy your kids on Amazon and pay through PayPal. And if you are fed up with your husband…sell him on eBay.

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August 2019 Monthly LetterIf you asked one hundred people on the street if they understand how a refrigerator works, most would respond, yes, they do. But ask them to then produce a detailed, step-by-step explanation of how exactly a refrigerator works and you would likely hear silence or stammering. This powerful but inaccurate feeling of knowing is what Leonid Rozenblit and Frank Keil in 2002 termed, the illusion of explanatory depth (IOED), stating, “Most people feel they understand the world with far greater detail, coherence, and depth than they really do.”

The economy – with full employment and sky-high stock markets – is screaming for an interest rate rise. But the U.S. Fed and the ECB have signaled they’re going to cut instead. Why are we living in a Bizarro World where an overheating economy generates low inflation, and central banks shovel ever more cash into an on-fire market? U.S. Rep. Alexandria Ocasio-Cortez touched on the issue in a recent hearing: “Unemployment has fallen three full points since 2014 but inflation is no higher today than it was five years ago.” Could it be that we have solved inflation? Is it possible that macro deflationary forces are more powerful than central bank monetary forces? In other words, tech is increasing productivity faster than inflation. The problem is that our government needs inflation so it can pay back its ballooning debt with cheaper dollars. If not we could end up stuck in the mud for the next decade as Japan has been. The next issue is whether governments (infrastructure) and investors (capital and real estate) will be willing to take advantage of the extra fiscal spending space (lower rates) this historic opportunity will likely present.

[DISCLAIMER: The following is not a political statement it is simply an economic observation.]

The U.S. has reached a decade-long economic expansion, the longest in the country’s history, but real estate executives say the “end-of-cycle economy” is one of the top concerns facing the industry. I will tell you what has me concerned for our economy and real estate values; Healthcare. Although I am for everyone having the right to healthcare, the catchphrase of “Medicare for all” is an IOED as stated above. You see, Medicare only pays .87¢ on every dollar a hospital spends. That .13¢ is made up by those of us with private insurance paying $1.13 for our services. Under Medicare for all, hospitals will need to cut about 1.5 million clinical and administrative jobs (remember for every hard employed job it creates seven service-related jobs, so now we’re talking about 10 million jobs at risk). Next, are the jobs in the health insurance industry, that’s about another million. Then the pension plans and IRA’s invested in health insurance companies like Aetna, Cigna and United Health Care. These are billions of dollars of retirement dollars dissolving. Then, of course, there are the Hospitals, Medical Clinics, and offices all of which lease lots and lots of real estate. So what is the solution (first I wish Steve Jobs were still alive!)? Like inflation in our economy, tech is the only way I see out. It creates new jobs and allows existing infrastructure to adapt. So lick your cell phone screen and go see your neighborhood minute-clinic or order an Uber doctor from heal.com (we did and it was amazing!).

Speaking of technology, Uber Eats delivered it’s first McDonald’s food by drone in San Diego! Wow, like answered prayers, “Burger and fries were delivered from the heavens!”

Well, whether it is heaven-sent or not, a potential rate cut by the Fed will be a boon for commercial real estate. First off, lower rates make for higher cash flow and higher values. The reason for the rate cuts is stated as to “spur more inflation” which is also good for real estate values. Seems like a win-win to me.

There is nothing wrong with selling and paying taxes but if you don’t want to pay taxes consider doing an exchange. We get questions all of the time regarding exchanges. Here are the top 10;

Top Ten 1031 Exchange Questions

  1. Like-Kind means I must exchange the same type of property, such as an apartment building for an apartment building. All real property is like-kind to other real property. For example, you can trade an apartment building for an office building.
  2. My attorney can handle this for me. Not if your attorney has provided you any non-exchange related legal services within the two-year period prior to the exchange.
  3. I must “swap” my property with another investor. No. A 101 exchange allows you to sell your relinquished property and purchase replacement property from a third party.
  4. 1031 Exchanges are too complicated. They don’t have to be. N experienced commercial real estate broker (CDC Commercial Inc), Qualified Intermediary and your tax and/or legal advisors will work with you to make sure the process is as seamless as possible.
  5. The sale and purchase must take place simultaneously. No. The taxpayer has 45 days to identify the new replacement property and 180 days to close.
  6. I just need to file a form with the IRS with my tax return and “rollover” the proceeds into a new investment. No. A valid exchange requires much more than just reporting the transaction on Form 8824. One of the biggest traps, when not structured properly, is the taxpayer having actual or constructive rights to the exchange proceeds and triggering a taxable event.
  7. 1031 Exchanges can also be used on personal property. No. 1031 Exchanges are only for real property.
  8. All of the funds from the sale of the relinquished property must be reinvested. No. A taxpayer can choose to withhold funds or receive other property in an exchange, but it is considered boot and will be subject to federal and state taxes.
  9. 1031 Exchanges are just for big investors. No. Anyone owning investment property with a market value greater than it’s adjusted basis should consider a 1031 exchange.
  10. I must hold the property longer than a year before exchanging it. The 1031 regulations do not list a time requirement on how long you must hold property, but it does say that property must be “held for productive use in a trade or business or for investment”.

And now from the other corner of our office, here are Nick’s numbers for the month;

Nick’s Numbers
San Diego County Market Cap Rates (Range, Average and Current):
Retail

san diego county retail market cap rates

Office

san diego county office market cap rate

Industrial

san diego county industrial market cap rate

Please give me a call or email me if you would like more in-depth info on Escondido or other San Diego and North County sub-markets (Nick Zech, 858-232-2100, nzech@cdccommercial.com).

Just out – San Diego’s unemployment rate ticked up to 3.3% in June which is an increase from the 10 year low in May of 2.7%. With that, I hope everyone is enjoying their summer and the fireworks in Washington. Stay healthy and be thankful for answered prayers.
Hope you enjoy the story…


Prayers do get answered…

A woman received a call that her daughter was sick.

She stopped by the pharmacy to get medication, got back to her car and found that she had locked her keys inside.

The woman found an old rusty coat hanger left on the ground.

She looked at it and said, “I don’t know how to use this.”

She bowed her head and asked God to send her HElP.

Within 5 minutes a beat-up old motorcycle pulled up. The driver was a bearded man wearing an old biker skull rag. The man got off of his cycle and asked if he could help.

She said, “Yes, my daughter is sick. I’ve locked my keys in my car. I must get home. Please, can you use this hanger to unlock my car?”

He said “Sure.” He walked over to the car, and in less than a minute the car was open.

She hugged the man and through tears said “Thank You SO Much! You are a very nice man.”

The man replied “Lady, I am NOT a nice man. I just got out of PRISON yesterday. I was in prison for car theft.”

The woman hugged the man again sobbing, “Oh, thank you, God! You even sent me a Professional!”

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4th of JulyThe tune of the National Anthem was originally used as an English drinking song called “To Anacreon in Heaven.” Cheers…and Happy 4th of July!

U.S. economic growth depends heavily on the performance of individual states. California, for instance, in 2017 was the fifth largest economy in the world, boasting a GDP larger than that of the U.K., France, and India according to Wallet Hub.

Although nationally our inflation rate seems to be tame, San Diego has risen by 3.8% over the last 12 months and a full 1 percent over the last two months. This is largely due to an increase in the cost of gasoline. And that is before the 5.6 cents per gallon gas tax hitting today (July 1, 2019). If you believe that reported inflation doesn’t accurately reflect real inflation, you might want to visit; http://www.chapwoodindex.com/.

Good news! San Diego’s unemployment rate logged in at 2.8%, the lowest rate in a decade.

Although the next two trends are affecting residential real estate, I think they are noteworthy and could easily be seen in the commercial realm.

Just when you think things in Los Angeles could be any more dysfunctional, they take the cake again! The City Council has proposed a new tax on property owners for leaving a home vacant.

LeaseLock a new Fintech company is offering a new technology that would eliminate security deposits for multifamily rentals. It decreases move-in costs and accelerates the leasing cycle which increases occupancy rates. Think of it as an electronic surety bond.

Trade dispute tensions, a slowing global and U.S. economy and rising tension in the Middle East have caused a flight to treasuries and a drop-in rate. The Fed has signaled possible rate cuts. All this bodes well for commercial real estate and financing. First, if you didn’t refinance before now might be a good time to do so. To give you an idea as to rates here’s a quick snip of a recent quote:

$1mm + staring at:

5 year fixed – 4.5%
7 year fixed – 4.6%
10 year fixed – 4.7%
Up to 75% LTV
25-30-year amortization

With rates remaining low, it’s still a good time to look at acquisition. However, the reason for investing now shouldn’t be because of FOMO (Fear Of Missing Out). Money mistakes are a fact of life. According to a recent survey, 78% of Americans confessed to making a least one financial gaffe. These are always bad, but in a commercial real estate deal, this could easily cost millions of dollars. Here is a list of common mistakes and some strategies to sidestep them.

  1. Insist on a margin of Safety – in other words, don’t buy at fair market value but instead expect things to not live up to expectations.
  2. This time is NEVER different – the four most dangerous words in investing are “this time is different.” When you hear those four magic words – get out!
  3. Don’t go it alone – you probably got your money from being smart and exerting some special skills. When you buy real estate have a team to help with; real estate law, taxes, insurance, leasing, and property management.
  4. Don’t invest in something you don’t understand – don’t be at the mercy of your advisors. Fully understand the concept of your investment and be confident you are investing wisely.
  5. Be leery of leverage – leverage is a two-edged sword; it increases your returns and it increases your risk.
  6. Understand the local market – get the local newspaper or newsfeed. (I met a medical building investor who bought next to a hospital that was closing!). Know the local price per square foot comparisons, cap rates, commercial construction activity, zoning regulations, and economic growth. Have a local broker who knows and can help with that (Hint hint).

With #6 above in mind, I would like to re-introduce “Nick’s Numbers.”

Hello all, I would like to take a section of the monthly letter each month and give you some current data about a specific city or other trends that I think you may find informative and/or educational. This month, I will start with a summary overview of Escondido’s retail, office, and industrial property categories. ~ Nick

ESCONDIDO

Retail

Escondido Retail

Office

Escondido Office

Industrial

Escondido Industrial

Please give me a call or email me if you would like more in-depth info on Escondido or other San Diego and North County sub-markets (Nick Zech, 858-232-2100, nzech@cdccommercial.com).

I hope you all have a great 4th of July and enjoy beautiful San Diego. You can quiz your friends around the BBQ to see who is a real San Diegan . . .


YOU KNOW YOU’RE FROM SAN DIEGO WHEN;

  1. You can correctly pronounce Tierrasanta, La Jolla, Rancho Penasquitos, San Ysidro, Otay Mesa, Jamul, and El Cajon, and know where they are.
  2. There are four distinct seasons: Summer, Not Quite Summer, Almost Summer, and oh, hey look its summer again.
  3. Your house is worth more than some small countries.
  4. You know what MB, OB, and PB stand for.
  5. Every street name is either in Spanish or Spanish related, and you’re surprised when other areas don’t have this.
  6. You see weather forecasts for four different climate zones in the same county and aren’t remotely surprised.
  7. You remember going to “The Cross” on Mt. Helix for Easter services. 60 degrees is COLD!
  8. You’ve tailgated at Qualcomm Stadium, and for bonus points, also tailgated when it was Jack Murphy Stadium.
  9. You know that “charge!” doesn’t refer to a credit card.
  10. You remember going downtown via Federal Blvd. before Hwy 94 was built.
  11. You remember when Hwy 94 was 2 lanes in each direction.
  12. You still call it the Del Mar Fair.
  13. You say, “I’m going to the track” and people know what you’re talking about.
  14. You remember when Lemon Grove, La Mesa, and Spring Valley were “in the sticks.”
  15. You understand what May-gray and June-gloom mean.
  16. There’s a North County, South County, and an East County but no Central County.
  17. You know what “the merge” is and will plan your entire day around not being on it during rush hour.
  18. You know the difference between Clairmont Mesa, Kearny Mesa, and Mira Mesa.
  19. You’ve gone to Sea World on a warm day and sat in the first few rows at the Shamu Show to get cooled off.
  20. You’ve been delayed at the Border Checkpoints on the 5, the 8 and the 15.
  21. Your house doesn’t have or need air conditioning unless you live in the East County.
  22. No matter what the weather is, there is always someone walking around in a t-shirt, shorts, and flip flops.
  23. You’ve been to the desert, the mountains, and the beach all in one day.
  24. You know that Santee and Lakeside are where the “cowboys” live.
  25. You hate tourists and their bad driving. (But you don’t know how to drive in the rain.) 26. You’ve gone to the Zoo just to hang out.
  26. You have family or friends that have moved to Arizona, Nevada, Utah or Colorado.
  27. You know what the “Santa Anas” are and that they have nothing to do with the city of Santa Ana.
  28. You know what “real Mexican food” tastes like.
  29. You remember when “Mission Valley” was cow pastures (Oh… to have bought land then!)
  30. You remember when Lemon Grove had “the cows.”

    ❤️

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walter cronkiteHard to believe but 10 years ago, Walter Cronkite, Paul Harvey and Michael Jackson all died. Equally hard to believe, 10 years ago Nick Zech joined CDC Commercial – Happy Anniversary Nick!

Who would have thought back 23 years ago with four kids under the age of seven and naming the company after Candy, Don, and Children that one would grow up and be willing to work for me (far less do it for the last 10 years!)!

Well, one thing that has grown over that time is San Diego’s population. The Census Bureau reports that 2010 to 2018 San Diego County grew nearly 250,000 people! That’s 3,343,364 people in the County making us the fifth most populous county in the nation. As I always say, the key to rising real estate values is more people moving in than moving out.

One downside to all the people moving in is gridlock… Gridlock is when vehicles block a network of intersecting streets, bringing traffic in all directions to a complete standstill. I am very concerned that we might be entering this phase in the real estate market, the stock market, interest rates, and the political landscape.

First, the real estate market. We are experiencing buyers and tenants who are unwilling to pay higher and higher prices and owners unwilling to sell properties because “there is nowhere to go with the money.” Market vacancies are very slim so many tenants are finding no space in their size requirement or space is not in the location they desire. Furthermore, they are shocked at the cost to build new and the reality that it could take 18-24 months to be ready. Gridlock.

Interest rates recently were raised, and the Fed signaled more to come. The markets skidded and careened about until the Fed took their foot off the brake and announced no foreseeable plan to raise them again in the near future… Hmm…like a game of chicken – or Gridlock. With the election machine gearing up you can expect the Fed to try to stay on the sideline as best as they can!

The trade war has the market in a knot. Tariffs affect markets more than Main Street. But eventually, bad markets lead to bad economies. Tariffs is a war we need to win but we appear to be shaking in our boots (after all, 75% of our shoes do come from China.).

The political world is in gridlock and will only get worse through the upcoming election season. It used to be you could tune in to Walter Cronkite and get an idea of what was happening. Today, it depends on which network you tune in – to learn your truth.

Back to San Diego real estate for a minute. The restaurant business is in a big squeeze. Rents are rising, insurance is up, wages have skyrocketed, and the cost of goods has gone up. To a degree, we are all seeing it on the pass-thru – $16 to $20 for a sandwich, drink, and chips! Although San Diego is still giving out more food & beverage licenses each year, the rate of increase has dropped dramatically (from increases in the 1,000’s annually to only 300 or so yearly over the last 3 years).

Housing starts are a good gauge of the future of the real estate market. Every recession since 1960 has been prefaced by a double-digit decline in housing starts – March 2019 – down 16.99% YOY! Robert Campbell’s real estate timing letter flashed a sell signal January of this year for San Diego.

Breaking news – GDP was up 3.1% this last quarter. That is .1% higher than expected and .1% less than the previous quarter . . . Hmmm . . . is that bad news, good news or gridlock?

In case you are confused by all of the political jargon, geopolitics and big business on all the networks and social media, perhaps, as Paul Harvey would say, you will enjoy “the rest of the story” …


Cows and Geopolitics

Feudalism: You have two cows. The lord of the manor takes some of the milk. And all the cream.cows and geopolitics

Pure Socialism: You have two cows. The government takes them and puts them in a barn with everyone else’s cows. You must take care of all the cows. The government gives you as much milk as you need.

Socialism: You have two cows. The government takes one of your cows and gives it to your neighbor. You’re both forced to join a cooperative where you must teach your neighbor how to take care of his cow.

Bureaucratic Socialism: You have two cows. The government takes them and puts them in a barn with everyone else’s cows. They are cared for by ex-chicken farmers. You must take care of the chickens the government took from the chicken farmers. The government gives you as much milk and as many eggs as its regulations say you should need.

Fascism: You have two cows. The government takes both, hires you to take care of them, and sells you the milk.

Pure Communism: You have two cows. Your neighbors help you take care of them, and you all share the milk.

Russian Communism: You have two cows. You must take care of them, but the government takes all the milk.

Communism: You have two cows. The government seizes both and provides you with milk. You wait in line for your share of the milk, but it’s so long that the milk is sour by the time you get it.

Dictatorship: You have two cows. The government takes both and shoots you.

Militarism: You have two cows. The government takes both and drafts you.

Pure Democracy: You have two cows. Your neighbors decide who gets the milk.

Representative Democracy: You have two cows. Your neighbors pick someone to tell you who gets the milk.

American Democracy: The government promises to give you two cows if you vote for it. After the election, the president is impeached for speculating in cow futures. The press dubs the affair “Cowgate.” The cows are set free.

Democracy, Democrat-style: You have two cows. Your neighbor has none. You feel guilty for being so successful. You vote politicians into office who tax your cows, which forces you to sell one to pay the tax. The politicians use the tax money to buy a cow for your neighbor. You feel good. Barbra Streisand sings for you.

Democracy, Republican-style: You have two cows. Your neighbor has none. You move to a better neighborhood.

Indian Democracy: You have two cows. You worship them.

British Democracy: You have two cows. You feed them sheep brains and they go mad. The government gives you compensation for your diseased cows, compensation for your lost income, and a grant not to use your fields for anything else. And tells the public not to worry.

Bureaucracy: You have two cows. At first, the government regulates what you can feed them and when you can milk them. Then it pays you not to milk them. After that, it takes both, shoots one, milks the other, and pours the milk down the drain. Then it requires you to fill out forms accounting for the missing cows.

Anarchy: You have two cows. Either you sell the milk at a fair price or your neighbors try to kill you and take the cows.

Capitalism: You have two cows. You lay one off and force the other to produce the milk of four cows. You are surprised when she drops dead.

Hong Kong Capitalism (alias Enron Capitalism): You have two cows. You sell three of them to your publicly-listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax deduction for keeping five cows.

The milk rights of six cows are transferred via a Panamanian intermediary to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows’ milk back to the listed company.

The annual report says that the company owns eight cows, with an option on one more. Meanwhile, you kill the two cows because the Feng Shui is bad.

Totalitarianism: You have two cows. The government takes them and denies they ever existed. Milk is banned.

Counterculturalism: Wow, dude, there’s like . . . these two cows, man. You have got to have some of this milk.

Surrealism: You have two giraffes. The government requires you to take harmonica lessons.

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“You’re always going to have critics and naysayers and people that are going to tell you that you won’t, that you can’t, that you shouldn’t. Most of those people are the people that didn’t, that wouldn’t, that couldn’t.”            ~ Tim Tebow

the prosperity craneI have been fortunate to have been on several trips this month for business and pleasure and I am pleased to report that our national bird, “The Prosperity Crane” (more commonly known as a construction crane) has been prevalent everywhere. I was also pleased to read that the United States has more millionaires than Sweden or Portugal have total population!

One of my trips took me to Washington, D.C., where I was amazed, on one hand, what a fortress the town was and yet realizing just how fragile democracy is. It was thrilling to visit the museums, but I was disappointed by the focus on the exceptions, not on the exceptionalism of our country, it’s people and their accomplishments.

Speaking of exceptional. In February, the Department of Commerce reported that for the first time, online purchases took up a larger percentage of all sales of general merchandise than brick and mortar stores (General merchandise excludes cars, parts, food, beverages, and restaurants). The “retail apocalypse” is on. Fifteen thousand stores have closed since 2017 and 75,000 more are expected by 2026 according to UBS analysts. American consumers show no sign of slowing their online purchases with the average U.S. household spending 50% more online than they did a year ago.

However, there is no substitute for creativity. IKEA recently sent our newspaper ads that if you pee on, will show if you are pregnant and thereby qualify for a 20% discount on baby things – I haven’t figured out how you redeem the coupon though. We recently used Walmart’s grocery pickup service and were very impressed. We had a family reunion trip and had ordered our groceries online. We drove the rental car up and they loaded up the weekend’s groceries and we were on our way to the condo. Slick!

As happy as I am about the “Prosperity Cranes” and the economy chugging forward, I thought it was worth sharing a case study of a deal that we did so you could fully appreciate how long the “process” can sometimes take just to get you that little fast food place on the corner.

Twenty-five years ago, this city determined that drive-thrus were passé and shouldn’t be in their newly determined urban core.

Twenty years later (2012) a 5,000 SF sit down restaurant in that core closed because of changes in people’s eating habits (more food to go) high cost of labor and utilities. The team at CDC went to work and we found four replacement tenants and had four offers within 30 days. One from a mattress company, one from a franchisee of another sit-down restaurant and two different offers from national fast food restaurants with drive-thrus. The fast food offers were the highest but both required drive-thrus (40-60%) of their business. The LOI was negotiated within 30 days and the lease took another 60-90 days. Of course, the lease was contingent upon getting a business license, approved building plans and of course a drive-thru (there was a bank with a drive-thru next door and 12-15 others on the same street). The selected tenant was a “hot” chain that consumers and cities alike were clamoring for. The tenant had a team of architects, designers, and consultants. They met with community leaders, city staff and city officials. They were told the city liked their business (business friendly) but the area didn’t allow drive-thrus and perhaps they could just get by without one. The tenant explained that wasn’t possible. After six months it was determined that a general plan amendment could be made, a change to the zoning code and perhaps some kind of conditional use permit. This process, of course, could take 18 months or so. This, of course, was all on top of a demolition permit, grading permit and construction drawings and building permit. Finally, it was determined that the CC&R’s of the shopping center needed to be modified so those needed to be signed off by four different parcel owners in the project (each with their own concerns or wants). This process took 3-6 months to negotiate.

It was determined that environmental studies and traffic impact reports needed to be done – add 12 more months.

After six months of staff review, the project was scheduled to the planning commission who recommended approval to the city council. This approval scheduling and cycle took another four months.

With the drive-thru approved (after 50 months!), the deal became “non-contingent” and CDC was paid the first half of its commission! With the drive-thru approved, the city wrapped up its review of the demo permit and construction drawings – 3-4 months. Plans were put out to bid and contractors were selected – 3-4 months and construction begins, and the tenant began paying rent. Now, the irony – at the groundbreaking ceremony, all the city officials gathered and extolled their business-friendly city. Meanwhile, the tenant will employ 80 full and part-time workers and CDC got paid the second half of their commission – 6 years after negotiating the lease!

I can’t wait for our next deal! (I mean, I really can’t afford to wait that long!)

Thankfully all deals don’t take that long. But you can see how easily the ship known as our economy can be sunk. Hope you enjoy the story…


Most people don’t know that in 1912, Hellmann’s mayonnaise was manufactured in England.

In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico, which was to have been the next port of call for the great ship after it stops in New York. This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was lost forever.

The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great they declared a National Day of Mourning, which they still observe today.

The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.

 

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

april 2019 monthly letterApril Fool’s Day also called All Fool’s Day, dates back to 1582 when France changed from the Julian calendar to the Gregorian calendar. People who were slow to adapt or get the news that the new year had moved to January 1st were celebrating the last week of March through April 1st became the butt of jokes and hoaxes.

However, the original “fake news” started in 1973 when Joseph Stalin created the first Disinformation Office. The idea was to provide false information with the intent to deceive public opinion. Stalin would say, “Flood the people with false info so they won’t know or believe the truth.”

True to the Will Rogers quote above, our state legislature has been hard at work. The sheer volume of new laws is staggering! In total, 1016 new laws will take effect in California in 2019. Amongst those, only milk and water will be published as beverage options on kid’s menus in sit down restaurants. Obesity is an epidemic, but I am not sure this solves the problem. Similarly, restaurants will no longer automatically offer you plastic straws when you order a drink. We’ll save the environment but sicken society by putting our mouths on questionably clean glasses.

I can’t say that I have reviewed the over 1000 new laws but the folks at Kimball, Tirey & St. John LLP have, and I have culled their list for laws affecting commercial real estate that are worthy of your review and understanding;

AB 2173 Commercial Property: Abandoned Personal Property: This bill increased the threshold amount for personal property abandoned in a commercial property to the great of (1) $2,500 or (2) one month’s rent. This bill does not change existing law with regard to the valuation of residential abandoned property. An article with information about the abandoned personal property in commercial property is available at https://www.kts-law.com/abandoned-personal-property-left-by-a-former-commercial-tenant/.

AB 2343 Calculations of 3-Day Notices and Summons: This bill amends Code of Civil Procedure Sections 1161 and 1167 to extend the waiting period for summons and some notices, effective September 1, 2019.

California Landlord/Tenant Law previously allowed weekends and holidays to count towards the three (3) day notice period but prohibited a notice from expiring on a weekend or holiday. Code of Civil Procedure §1167 has been amended to specifically exclude “Saturdays and Sundays and other judicial holidays” when calculating the notice period for notices to pay rent or quit or notices to perform covenant or quit. It does not exclude these days when calculating expiration periods for 30, and 60-day termination notices and notices to quit based on unauthorized assignment, subletting, nuisance, and waste.

AB 2847 Abandoned Commercial Property: creates new law regarding abandoned commercial property. Previously, the law specified that rent had to be unpaid for 14 days before a Notice of Belief of Abandonment could be served on the tenant. Effective July 16, 2018, new California Civil Code §1951.35 changes the 14-day period to the time period specified in the lease for the landlord to declare a rent default (if the lease is silent, it is a 3-day period. Leases sometimes provide for other time periods, such as 3 business days, 5 days or 10 days). AB 2847 also slightly modified the residential Notice of Belief of Abandonment form.

SB 745 Water-Conserving Plumbing Fixture Replacement (2014): Originally passed in 2014, and codified in Civil Code §1101.5, it requires water-conserving plumbing fixtures to be installed in property constructed before January 1, 1994. To be compliant, plumbing fixtures may not use more than the following amounts of water:

  • Toilets – 1.6 gallons per flush
  • Urinals – 1 gallon per flush
  • Shower heads – 2.5 gallons per minute
  • Interior faucets -2.2 gallons per minute

Beginning on January 1, 2014, noncompliant plumbing in multifamily and commercial property were required to be replaced in certain situations.

By January 1, 2019, multifamily and commercial properties must be in full compliance. An article with information about water-conserving plumbing fixtures required in California is available at https://www.kts-law.com/water-conserving-plumbing-fixtures-required-in-california/.

SB 1397 Automated External Defibrillators: Health and Safety Code §19300 previously required automated external defibrillators (AED) be installed in properties constructed on or after January 1, 2017. The law will now require that specific residential and commercial properties built before January 1, 2017, to install automated external defibrillators if the structure is modified, renovated or tenant improved, as specified, on or after January 1, 2020. An article about AEDs in commercial properties is available at https://www.kts-law.com/aed-devices-in-commercial-properties/.

Proposition 65: Proposition 65 requires businesses with 10 or more employees to provide warnings when they cause significant exposure to specific chemicals. Proposition 65 requires disclosures by employers who have 10 or more employees and who may expose their employees or the public to specific listed chemicals. There are more than 850 chemicals listed. Some of the environmental hazards are contained in items common in commercial, such as building materials, cleaning materials, car exhaust, and tobacco smoke.

For some time, landlords have been uncertain about how to comply with their Proposition 65 obligations. “Clear and reasonable” warnings must be given. Generally, in an effort to comply with Proposition 65, landlords have posted signage on their properties. Some also have also included Proposition 65 warnings in their leases. For more information about the new Proposition 65 warnings, see https://www.p65warnings.ca.gov/new-proposition-65-warnings .

I told you there were a lot of laws!

Well, we are at the stage of having a lot of good news and a lot of bad news going on. The good news is we had a great year and made money last year, the bad news is we paid a lot of taxes. The good news is we paid less than we would have under the previous year’s rates.

In February, the economy added a meager 20,000 jobs, well below the 180,000 expected. But the number of employed Americans – 156,959,000 has never been higher. The unemployment rate has dropped to 3.8 percent from January’s 4.0 percent.

The Fannie Mae Home Purchasing Sentiment Index (a measure of the current mood of the market) was 83.5 – a 3 year low and well below the May 2018 reading of 92.3 – a seven-year high. This is typically a sign of a reversal in the housing market.

In the leasing market, we are having a tough time finding the space tenants are looking for and at the same time we are finding some tenants getting conservative/cautious about their plans (shortening lease term, etc.). We have also seen multiple mortgage and escrow companies close or downsize.

I will say I am very concerned about the inversion of the yield curve. This is a pretty strong predictor of a recession. However, waiting for a recession is not a good investment strategy.

I still hold that we are in a lull window with some things tearing forward and some pulling back. At this point, it might be a soft landing or better yet a touch and go.

Finally, with the Mueller report out and election season kicking off, expect more talk and less action out of Washington.

Well, with all the information already disseminated I thought you would just like a little more as your story…


How Can You Possibly Live Without Knowing These Things?
  • In general, men can read smaller print than women can, but women can hear much better than men.
  • Coca-Cola was originally colored green.
  • It is impossible to lick your elbows.
  • The percentage of Africa that is wilderness:28% (now get this…) The percentage of North America that is wilderness: 38%.
  • Each king in a deck of playing cards represents a great king from history: Spades-King David, Hearts – Charlemagne, Clubs – Alexander the Great, Diamonds – Julius Caesar.
  • If a statue in the park of a person on a horse has both front legs in the air, that person died in battle. If the horse has one front leg in the air that person died as a result of wounds received in battle. If the horse has all four legs on the ground, that person died of natural causes.
  • Hershey’s Kisses are called that because the machine that makes them looks like it’s kissing the conveyor belt.
  • What day are there more collect calls made than any other day of the year? Father’s Day.
  • What is the most ironic trivia fact about Mel Blanc (voice of Bugs Bunny)? He was allergic to carrots.
  • What is an activity performed by 40% of all people at a party? Snooping in your medicine cabinet.
  • In Shakespeare’s time, mattresses were secured on bed frames by ropes. When you pulled on the ropes the mattress tightened, making the bed firmer to sleep on. Hence the phrase “goodnight, sleep tight”.
  • It was the accepted practice in Babylon 4,000 years ago that for a month after the wedding, the bride’s father would supply his son-in-law with all the mead he could drink. Mead is a honey beer and because their calendar was lunar based, this period was called the honey month we know today as the honeymoon.
  • In English pubs, the ale is ordered by pints and quarts. So, in old England, when customers got unruly, the innkeeper would yell at them mind their own pints and quarts and settle down. It’s where we get the phrase “mind your P’s and Q’s”
  • Many years ago, in England, pub frequenters had a whistle baked into the rim or handle of their ceramic cups. When they needed a refill, they used the whistle to get some service. “Wet your whistle” is the phrase inspired by this practice.
AND FINALLY,……………………………………
At least 75% of people who read this will try to lick their elbow! —April Fools!
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