01 Mar / 2007
‘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!).
01 Mar / 2007
“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!
01 Feb / 2007
“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!