Tesco – Fresh and Easy store coming to a neighborhood near you.

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The buzz has been on the street for about 6 months that Tesco (the world’s third largest grocery store chain) is coming to town. Plans are for Southern California, Phoenix and Las Vegas. I’m working on 3 locations myself. The concept is a 14,000 sf freestanding building like a Walgreens that will look sort of like a Trader Joe’s but more of a large 7-11 with the addition of ready serve meals like many grocery stores. The news today though is that Warren Buffet has boosted his stake and that’s a big vote of confidence. News story is below;

Buffett Buys More Tesco Shares, Raising Stake to 2.9%

By Angharad Couch and Sarah Thompson

March 2 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. increased its stake in Tesco Plc, according to the U.S. insurance and investment firm’s annual letter to shareholders.

Berkshire Hathaway owns 229.7 million Tesco shares, or 2.9 percent of Britain’s biggest retailer, yesterday’s letter shows. That makes it Tesco’s fifth-largest shareholder, according to Bloomberg data. Omaha, Nebraska-based Berkshire had held a stake of 2 percent before today, according to the most recent filings.

Buffett, the world’s second-richest man, first bought shares in Tesco last year after the Cheshunt, England-based retailer said it would open convenience stores on the U.S. West Coast. The outlets will take on 7-Eleven Inc. and Trader Joe’s to win time-pressed shoppers in southwest U.S. cities. Prevented by planning restrictions from expanding its U.K. supermarkets, Tesco is also adding stores from China to Turkey.

“Buffett is realizing that with Tesco moving into the U.S. with a fantastic format and great management, they are the ones to back,” said Chris Gower, an analyst at Man Securities in London. “I wouldn’t be surprised if other investors start piling in. They look at Buffett as the shining light.”

Buffett’s note didn’t discuss Berkshire’s Tesco investment. The company’s shares rose 8.75 pence, or 2.1 percent, to 431.75 pence in London, giving the retailer a market value of 34.3 billion pounds ($66.7 billion).

U.S. Operations

Morgan Stanley raised its price estimate on Tesco stock to 490 pence from 380 pence today, citing the prospects for international expansion.

The retailer’s “operations are still undervalued,” Morgan Stanley analyst Nick Coulter wrote. He estimates the U.S. stores will have $1,300 in sales per square foot and profit margins before interest and taxes of 6 percent, valuing the business at 46 pence a share.

The British retailer has said it will recruit more than 2,500 U.S. staff and will open Fresh & Easy Neighborhood Market outlets later this year in Phoenix, Las Vegas, Los Angeles and San Diego. The stores will be based on the Tesco Express convenience store U.K. format, selling high-quality ready-made meals and fresh produce. Tesco plans to spend as much as 250 million pounds a year opening U.S. outlets.

Investors comb Buffett’s annual Berkshire Hathaway letters for insights into everything from investments and acquisitions to executive pay and economic policy. The letters disclose most of the company’s holdings worldwide. Buffett was labeled “the world’s greatest investor” in Robert Hagstrom’s 1994 biography.

To contact the reporters on this story: Angharad Couch in London at acouch2@bloomberg.net ; Sarah Thompson in London at sthompson17@bloomberg.net

Last Updated: March 2, 2007 11:49 EST

Regards, Don (858.486.9999)

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I had the pleasure of attending the Univesity of San Diego annual Commercial Real Estate forecast event last month. Sam Zell the real estate mogul and billionaire was the keynote speaker. I learned two things and thought I would pass them on to you.

1. Sam noted that rents rise to meet construction or replacement costs. I agree 100%. Given the high cost of construction right now we have a lot of room for rents to go up. I believe this creates a “protected” investment opportunity right now. It is not if but when will rents rise.

2. Sam apparently does an annual video (usually to music) that gives his view of some economic issue. They are very insightful and educational. I have posted the web link below (double click on it). He showed the 2005 one on liquidity (wow is that one spot on). I particularly like the 2003 “Wired Exports” one. I hope you enjoy them as much as I did. Good economics lessons to music!

Sam Zell Year End Gifts

Regards, Don (858.486.9999)

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I had the pleasure of attending the Univesity of San Diego annual Commercial Real Estate forecast event last month. Sam Zell the real estate mogul and billionaire was the keynote speaker. I learned two things and thought I would pass them on to you.

1. Sam noted that rents rise to meet construction or replacement costs. I agree 100%. Given the high cost of construction right now we have a lot of room for rents to go up. I believe this creates a “protected” investment opportunity right now. It is not if but when will rents rise.

2. Sam apparently does an annual video (usually to music) that gives his view of some economic issue. They are very insightful and educational. I have posted the web link below (double click on it). He showed the 2005 one on liquidity (wow is that one spot on). I particularly like the 2003 “Wired Exports” one. I hope you enjoy them as much as I did. Good economics lessons to music!

Sam Zell Year End Gifts

Regards, Don (858.486.9999)

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‘m still not sure about this. It is easy to type and rant but who really cares to read it. I already write my monthly letter and many read and enjoy that. I live on the phone and by email. I even use instant messaging with my co workers and my kids. I think my goal as a blogger (if I am going to even become one) is to give my clients (and maybe the world!) a little better visibility as to what is going on in the market, little snippets of trends or things I see happening. I guess if you take a top down look at this, it starts with our business plan and model (Our Pyramid which is part of our Logo and has all of our personal and business philosophy posted on it – see “Our Mission Statement” on our Web Page) and annually you get a look at the past year and our forecast of the next year (See “Gold Report” on our Web Site), this is of course is supplemented by our Monthly Letter (See “Monthly Letter” on our Web Site). Now you’ll get my near minute be minute look at market activity, breaking news and it’s affect on things, deals done or being done, case studies and more links or useful attachments that might help you, the owners and users of commercial real estate.

So, all in all this might be fun. One more thing to keep me busy though … hmm. These days I feel like I am going so fast I am being physically separated from my shadow (I even had to hold the elevator for it the other day!).

Don

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“Before Google, who answered all the questions?

Well, I don’t know the answer to that question. But I do know that it has been a fast short month and I have lots of short pieces of news for you, so I am just going to throw them out as bullets and hope it all comes together.

  • The Urban Land Institute (ULI) reported in The Wall Street Journal and at the University of San Diego Trends Conference that; “Commercial real estate is beginning a return to its normal as an income-producing investment rather than the wildly appreciating asset class it has been this decade.” Investors are going to have to turn to operating performance to raise returns – what a concept!.
  • Rent bumps on expiring leases in 2007 (ie. market rate options) will continue to raise income and values. Most leases signed 3 to 5 years ago were done during the tech bubble burst so at much lower rates than today.
  • Taxable retail sales in San Diego rose an estimated 5.0 percent in 2006 and are expected to rise 4.3 percent in 2007.
  • The service industry accounts for 80% of the nation’s economic activity. January marked the 46th consecutive month of business activity increase for this sector.
  • The Bush Budget proposal includes a 40% increase to SBA loans, as well as a reduction to their fees. More capital, less cost is going to equal more owner user opportunities.
  • Commercial construction costs have skyrocketed and they won’t stop in 2007. Expectations are for 6% to 8% increases despite a slowdown in residential construction (If it weren’t for the housing slowdown, they would rise 10%!).
  • A penny almost costs a nickel to make. Talk is that the penny may be short for this world. Don’t tell me we don’t have inflation!
  • Speaking of construction costs and metals prices, you may want to look at the exposed metal on your buildings (particularly backflow preventers and electric panels). There is an epidemic of stealing going on for the value of the scrap metal. Think about locks or cages to protect them.
  • Speaking of security, remote surveillance is becoming common place. Imagine having a remote camera to look at your property via the internet. (Maybe you’ll want a remote camera to watch your commercial real estate broker work!)
  • Interesting how numbers get thrown around. One forecast event said San Diego will grow by 1 million residents in 30 years (33,000+ per year). At another industry event, data was cited that only 900 people moved to San Diego over the last two years and 28,500 people moved out. Just goes to show figures don’t lie, but liars sure can figure!

For those of you who are inclined, I have posted the sales comparables for the year 2006 (office industrial and retail sold in 2006) on the website (www.cdccommercial.com). I hope you find them useful and enlightening.

The National Association of Realtors (NAR) has launched a campaign aimed at promoting this as the best time to buy a house (Got Real Estate…?). Whether you believe this is the right time to buy or not is your own call. Our opinion is that although rapid price gains may be past, real estate is still a good commodity to own in inflationary times and because there is still a lot of room for rent to grown in most properties. Additionally, over time there are some “comfort factors” that come with owning real estate (besides not worrying about 400 point down days!):

1. Tax Benefits

2. Cash Flow

3. Risk management and control

4. Leverage and appreciation

5. Mortgage payoff

These factors aren’t so affected by the cycles and a big reason that people who own real estate over long periods are happy people!

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Happy New Year! So what is my forecast for 2007 you might ask? I think John Kenneth Galbreth said it best:

“There are two types of forecasters: Those who don’t know

and those that don’t know that they don’t know”.

Attached you will find the 2007 Gold Report – Intelligence in Real Estate (do you like the play on words?). This is our 11th edition and as in the past we give an overview of the economy then work our way down to the specifics of property types and suggestions to help you in the year ahead (The report is also on the website www.cdccommercial.com ).

Markets are mixed; the USD San Diego index is down; the CEO index of small firms is up for 2007. Another great economist said, “If you are going to be in the business of forecasting, do it often!” – the idea being the more often you do it the more often you can revise! (Lynford). With that in mind we will do our best to keep you updated throughout the year with our monthly letter.

For now, the housing slowdown is spilling over a little (as predicted) with housing related tenants (mortgage, realty, etc…) closing, vacating or subleasing their spaces. Landlords and property managers, please keep us posted even of your weak tenants. Often we can target a replacement before they go out of business and stop paying rent. As you do your common area maintenance (CAM or NNN) budgets for the new year, please be sure to send us the new estimate so we are quoting good numbers.

Phase I environmental reports just got more expensive due to higher licensing requirements. They also have to be current within 6 months.

I hope that you enjoy the Gold Report as much as I do putting it together for you. If you or your organization is interested, I have a short presentation that I can give along with a primer on commercial real estate (the talk can be tailored from 10 to 30 minutes and is good for Rotary, Kiwani’s or trade groups).

Although many are looking at this year as the cup half empty and equally as many as the cup half full, we at CDC Commercial like to see it as simply a glass that is twice as large as it needs to be!

May our 2007 be mutually prosperous!

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