August 2016 Monthly Letter

The Blog
Page 5
Experience is that thing you get a minute after you needed it.

Well on the 9th I will turn the ripe old age of 55. I hear that 65 is the new 55 so I can only assume that 55 is the new 45! Groucho Marx used to say, “Anyone can get old. All you have to do is live long enough.” I was bolstered recently by two studies, one said that time starved people are happier than those who want more money. I don’t know about the money part but I must be happy as busy as I am! The second study said extremely busy people over 50 do better on cognitive tests. I am very happy though to be celebrating our 30th wedding anniversary this month. We have had a fun ride and have accomplished the “three E’s” with our four children; educated, employed, elsewhere!

Unemployment in San Diego took a turn for the worse in June edging up from 4.2% to 5.1% but remaining just below the 5.2% number of last year (so basically we are a wash). The Silvergate Bank business forecast reports the lowest confidence in 13 years from local business leaders. The biggest complaint is the new city minimum wage of $10.50 per hour (not to mention state increase to $15 in January). Time to assess the impact on your business or your tenants and how this will/could impact your rental stream.

As I have often preached, real estate values go up in places where more people are moving in than moving out. Gary London, a real estate consultant, recently reported that San Diego is in the midst of a “sea change” in how we are growing and how we are accommodating (or not) that growth. We have mostly run out of developable land, so most municipalities are instituting plans to grow vertically. This presents a number of tricky problems, below is a summary;

  • The unincorporated County contains practically all of the undeveloped land, and they put in place a new General Plan that can accommodate growth, but they have set a very “high bar” for new housing development.
  • The majority of new housing is planned to be multifamily, yet that is inconsistent with historical demand and housing preferences for single family homes. Aging millennials may disagree with being locked into “urban” units, as they start to raise families.
  • There is a long standing, and rising shortage of new housing construction. This is bidding up the cost of all housing and creating a regional inventory of housing that is unaffordable to many.
  • While the regional forecast is in sync with the many cities and County who say they will accommodate new housing through their General Plans, the “on the ground” experience of developers is very different. Project proposals regularly receive push back in the neighborhoods, resulting in no project or a smaller project.
  • The consequences of this can be dire including economic stagnation and decline; or San Diego may transform into a “boutique” region that is affordable only to the well-to-do.
I don’t know if it is just me aging but have you noticed the shift of healthcare uses moving into retail? Americans are spending more on healthcare and want to do so in locations that are convenient and safe. So now you will be able to get your blood pressure checked just steps from the steakhouse. The list of unconventional uses become conventional include, tattoo parlors, massage therapy, schools, gun ranges, churches and even funeral homes. Although the tenants may change, as long as humans are hard-wired to connect and congregate, the core purpose of retail will not change. It is up to the tenant what that experience will be.

Still on the topic of aging and real estate, I thought I would share the slides from a presentation on ADA that our office attended. Municipalities continue to tighten enforcement and we continue to see our clients being sued by advocates. This is a topic you should stay educated on:

As many of you know, I get obsessed with crazy challenges (trying to run a marathon on all 7 continents, trying to play golf in all 50 states, played 50 holes of golf on my 50

th birthday). Well for my 55th birthday, I am attempting to highlight volunteerism and my favorite charity, Interfaith Services (an Interdenominational Agency helping Veterans and homeless). Starting at 6am and ending at 5pm I am going to attempt to do 55 volunteer tasks. From you at minimum think about volunteering for something (it will make you feel younger and happier). If you feel so moved, please donate to Interfaith and my challenge – in the other section donate $55 and I will match the donation (of course if you wish to donate more feel free to).

If I would have known I was going to live this long, I would have taken better care of myself! Hope you enjoy the story…


Senior Wedding
Jacob, age 92, and Rebecca, age 89, living in Miami, are all excited about their decision to get married. They go for a stroll to discuss the wedding, and on the way they pass a drugstore, Jacob suggests they go in.
Jacob addresses the man behind the counter: “Are you the owner?”
The pharmacist answers, “Yes.”
Jacob: “We’re about to get married. Do you sell heart medication?”
Pharmacist: “Of course, we do.”
Jacob: “How about medicine for circulation?”
Pharmacist: “All kinds.”
Jacob: “Medicine for rheumatism?”
Pharmacist: “Definitely.”
Jacob: “How about suppositories?”
Pharmacist: “You bet!”
Jacob: “Medicine for memory problems, arthritis and Alzheimer’s?”
Pharmacist: “Yes, a large variety – the ‘works’.”
Jacob: “What about vitamins, sleeping pills, Grotto, antidotes for Parkinson’s disease?”
Pharmacist: “Absolutely.”
Jacob: “Everything for heartburn and indigestion?”
Pharmacist: “We sure do.”
Jacob: “You sell wheelchairs and walkers and canes?”
Pharmacist: “All speeds and sizes.”
Jacob: “Adult diapers?”
Pharmacist: “Sure.”
Jacob: “We’d like to use this store as our Bridal Registry.”
“Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.”

Well the economy continues to muddle through a market of mixed signals. The rest of this year, like the whole recovery, should be good but not great. But by traditional standards, it has been a long upturn, however irregular. For the first time in a long time I am hearing whispers of a downturn coming. At the same time, the people in the trades are all VERY busy. Many working around the clock to keep up with the demand. On a recent visit to the barber I was reminded of something my dad had said. He said, “When they’re trading stock tips at the Barber shop, it’s time to be out of the market.” This was brought sharply to my attention on my last visit when the guy in the next chair and his barber were exchanging commercial real estate tips.

To further bolster this iceberg warning, take a look at this chart.


The San Diego Regional Chamber of Commerce reported that their business outlook index had a sharp drop. Respondents cited, unknowns related to minimum wage increases. It takes a lot of courage to own a business; fear of the unknown is understandable.

Speaking of the unknown, we are entering the political season with both party’s conventions this month. Fasten your seat belt, drop your goggles down and hang on for a wild ride. Whatever the outcome, it does not portend well for the stock market and indirectly to the real estate market. Take a look at this chart and its massive correlation to presidential turnover.

Presidential chart

For those of you who remember the children’s story, “The King has no Clothes,” I think we are playing out this story in our economy and what I now call quantitative failure.

If my prediction is right and we see slowing next year, what can be done? Wise investors, tenants and brokers plan for the worst.

Treat each property (or even each tenant) as a standalone business, each its own profit center. You can further that strategy by boosting reserves and contingency funds. These safeguards prevent soft markets turning into loss of income or worse a liquidation event.

Besides the above advice, I thought I would share these 18 pieces of advice for real estate investors.

18 Pieces of Advice for the Real Estate Investor

  1. It’s not how much money you make that matters, it’s how much you keep.
  2. Don’t let friends, family, or co-workers talk you out of real estate investing unless they have more money that they know what to do with. If that’s the case, do what they’re doing.
  3. Free contracts are worth what you pay for them. Have your contracts approved by an attorney who will defend them in court. If you have to ask why, you’re new to the business.
  4. If you own real estate, it’s not a matter of “if” you go to court, it’s only a matter of “when.”
  5. Inspections are not an expense, they’re an investment. We have spent money to repair hidden problems that an inspection would have uncovered.
  6. You will pay for education, either ahead of time from a mentor or by the mistakes you make as you go through the process.
  7. We’re in the problem solving business. Find out what your customer needs, then craft a solution to their problem.
  8. Know your exit strategies (have several) before you buy.
  9. Manage your tenants, don’t let your tenants manage you.
  10. If a potential tenant doesn’t have enough money for their deposit and first month’s rent they won’t have enough money to make the monthly payments.
  11. If a potential tenant says, “the Lord will help me make my payments” you can be pretty sure you’ll end up evicting them both.
  12. A millionaire makes $500 per hour so if a job (painting the walls and repairing a toilet) can be done for less than $500 per hour, hire it out.
  13. Never get greedy. The best deals are the ones where everybody wins.
  14. In real estate, there is such a thing as good debt.
  15. Don’t wait until you know it all to get started. None of us know it all.
  16. It’s always a great time to be in real estate, you simply have to pay attention to the economy and real estate fluctuations to know how to direct your investments.
  17. Don’t wait to buy real estate, buy real estate and wait.
  18. Set up your real estate investment entities (LLC, S-Corp, etc.) early in your career to best protect you and your investments as well as to prepare yourself to take advantage of all the many tax benefits real estate offers.

Elephants have long memories and just keep plodding forward, like all of us in real estate. Just remember to not be lulled into a false sense of security…hope you enjoy the story.

Elephant Story

In 1996, Peter Davies was on holiday in Kenya after graduating from Louisiana State University.

On a hike through the bush, he came across a very young bull elephant standing with one leg raised in the air. The elephant seemed distressed, so Peter approached it very carefully. He got down on one knee, inspected the elephant’s foot, and found a large piece of wood deeply embedded in it. As carefully and as gently as he could, Peter worked the wood out with his knife, after which the elephant gingerly put down its foot.

The elephant turned to face the man and with a rather curious look on its face, stared at him for several tense moments. Peter stood frozen, thinking of nothing else but being trampled. Eventually the elephant trumpeted loudly, turned and walked away. Peter never forgot that elephant or the events of that day.

Twenty years later, Peter was walking through the Chicago Zoo with his girlfriend. As they approached the elephant enclosure, one of the creatures turned and walked over to near where Peter and his girlfriend Misty were standing. The large bull elephant stared at Peter, lifted its front foot off the ground, then put it down. The elephant did that several times then trumpeted loudly, all the while staring at the man.

Remembering the encounter in 1996, Peter could not help wondering if this was the same elephant. Peter summoned up his courage, climbed over the railing and made his way into the enclosure. He walked right up to the elephant and stared back in wonder. The elephant trumpeted again, wrapped its trunk around one of Peter legs and slammed him against the railing, killing him instantly.

Probably wasn’t the same elephant.

“Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.”
                                                                                                        –  Oscar Ameringer

Well I continue to struggle to gain control over my insane To Do List! Time management experts tell you to categorize tasks into important and urgent. Important things make life cool, fun, exciting, profitable or all of the above. The urgent tasks need to be done now, now, now. Things that are important and urgent are the things you should do first. Things that are neither important or urgent probably aren’t going to happen so you may as well scratch them off the list. The problem in my life is that the urgent stuff piles up because I’m busy working on the important stuff! That would all be fine except there is a reason they are called urgent. The more of them that stack up, the more stress I feel. The urgent things in life are a bit like broccoli. You know you should do them. You just don’t want to. I have another word for it, it’s called, “but first syndrome.” – you know, I’ll do it “but first I need to ….”

Well the classical business model is to hire more labor and/or increase productivity, typically through technology. In our case, we have increased the hours of our admin and we have hired a design firm to take over our flyer production. We’ve also been using an intern to get some of our task backlog cleared up. On a personal note, I went to a higher end Bluetooth headset ($200 Plantronics) and am using Siri to dial my calls, send and read emails, text messages and schedule appointments. I am also in process of transitioning to a Microsoft Surface as my computer and tablet and hope to eliminate the piles of handwritten notes that here to date, have had to be scanned into deal folders.

So why do I tell you all this? To illustrate how things are changing and how the working poor are going to be displaced by robotics and people automating more simple menial tasks. I remember my first computer and wondering how useful could it be. I remember my first smartphone and wondering why everyone didn’t have one right away. Let me just tell you, Siri (and its super sister Viv (coming soon), Cortana, Amazon’s Alexa, IBM’s Watson are all going to be a part of your life before you know it. Google’s CEO Sundar Pichal says the next evolution is AI (Artificial Intelligence). Soon we will all have intelligent assistants helping us through our day. On top of all that, think about the increase in productivity as we move to driverless cars. Imagine how much work you could get done during that 30 to 40-minute commute or drive to an appointment.

So we all know that productivity gains are good for our economy, GDP and Stock market but what impact will it have on our real estate. Take Carl’s Jr as an example. They are looking to bring back automated order kiosks and automated cooking lines The reality is that the working poor will be displaced by robotics. I am seeing security guards being replaced by cameras. Some are now live monitored where a guard can address a trespasser and tell them to leave and blast them with sound or light if they don’t.

Thankfully two of the faster growing sectors healthcare and technology are strong sectors in San Diego and probably why we have about 5% more people employed than at the peak in 2007. The unemployment rate in San Diego is now at 4.5%.

If you own real estate with a large bank or restaurant space, you might want to start thinking about how you can downsize and keep them in a smaller footprint. The 5-8,000 SF bank or restaurant is fast becoming a dinosaur with both looking at more like 3,500 SF now.

Well, as we keep our heads down getting all of your important and urgent tasks done I hope that you too are not infected with “But First Syndrome” …hope you enjoy the story.



It’s like when I decide to do the laundry -1 start down the hall and notice the newspaper on the table. Okay, I’m going to do the laundry – Butfirst I’m going to read the newspaper.

Then I notice the mail on the table. Okay, I’ll just put the newspaper in the recycle stack, Butfirst

I’ll look through that pile of mail and see if there are any bills to be paid.

Now Where’s the checkbook? Oops! There’s the empty glass from yesterday on the coffee table.

I’m going to look for that checkbook, Butfirst I need to put the glass in the sink.

I head for the kitchen, look out the window, notice my poor flowers need a drink of water. I put the glass on the sink and dam it, there’s the remote for the TV on the kitchen counter.

What’s it doing here?

I’ll just put it away, Butfirst I need to water those plants.

Head for the door and Ack! Stepped on the cat. The cat needs to be fed. Okay, I’ll put that remote away and water the plants. Butfirst, I need to feed the cat.

At the end of the day: The laundry isn’t done, the newspapers are still on the floor, the glass is still not in the sink, the bills are not paid, the checkbook is still missing, and the cat whizzed on the remote control.


When I try to figure out how come nothing got done all day, I’m baffled, because I KNOW I WAS BUSY ALL DAY!

I realize this condition is serious… and I should get help… Butfirst I think I’ll read all my e-mail!



“Everyone has their own experience. That’s why we are here, to go through our experience, to learn, to go down those paths and eventually you may have gone down so many paths and learned so much that you don’t have to come back again.”

                                                           -The Artist formerly known as Prince


Myself, I have always found that experience is that thing I get about a minute after I needed it!

Retail real estate experts continue to insist that e-commerce is more of an opportunity than a threat to brick-and-mortar retailing, bolstering marketing outreach and customer engagement. On the surface it may seem that retailers’ fear of e-commerce competition has passed. For example, Simon Property Group (the country’s top retail center owner) recently released a report arguing that “mall shopping has a smaller environmental impact compared to online shopping” and cited the following statistics:

  • Online shopping has an environmental impact that is 7 percent greater than mall shopping if shoppers bought the same number of products at a mall as they did in an online store;
  • Thirty-three percent of online purchases are returned versus 7 percent of brick-and-mortar purchases;
  • Physical retail generates five times more jobs than online shopping for the same value of sales.

So why have so many physical retailers been closing up shop? Retailers are pouring “high investments” into e-commerce, determining their physical stores are too big to sustain, according to Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a national retail consulting and investment banking firm headquartered in New York.

“E-commerce is growing 12-13 percent per year, physical stores 2-3 percent per year, meaning there are less available dollars for physical retailers. That’s why we have store closures,” says Neil Stern, senior partner at retail consulting firm McMillian Doolittle.

Another area that we need to see hard work and creativity is from government (although unlikely in an election year). Monetary policy (The Fed & interest rates) are only able to do so much. We need our politicians (leaders?) to take leadership, be creative and provide for strong fiscal policy (taxes and regulation). Sam Zell was speaking at an economic round table recently where he said his greatest concern is that “this is the first recession since World War II where there’s more debt in existence since before the recession. So instead of marking to market, as the world has always done to recover from difficult periods, we’re not marking to market at all. We’re just rolling up more debt.” While the private sector is in better shape debt-wise than sovereign states, the latter “are all broke,” he said. “I’m not so sure I can remain optimistic about the private sector.”

While on the subject of politicians, fiscal policy and taxes, I thought you would find this Presidential Candidate tax calculator to be quite interesting to see what you might pay under various candidates.

Candidate Tax Calculator

In San Diego, office vacancy rates have dropped almost a half a percentage point to just over 12% in the first quarter. Average asking rents have increased by over 4%. Unemployment has dropped to 4.7% (down from 5.4% a year ago). Healthcare, tourism, defense and biotech lead the way for countywide growth.

Lest I sound too optimistic, but not to be a canary in the coalmine, there are some caution signs on the horizon; cranes on the horizon to be specific – though they mark new construction they also tend to come near the end of the cycle in S.D., election-year – notoriously not good years for our economy, tenant space demand is declining – even though we have positive absorption, doctors and general contractors are buying property – counter cyclical, and the Miami condo market is once again over built (always seems to be a boom bust market).

Real estate isn’t risky if you don’t do risky things but debt is cheap and  people are loading up on it again – countries, companies and people.

Life stagnates without challenges – bring us your challenges! We like to use our experience and creativity to help solve your problems.  Hope you like the story . . .

On January 24, 1975, 17-year old Vera Brandes, then Germany’s youngest concert promoter, walked on stage at the Opera House in Cologne. This was to be the most exciting day of Vera’s life. She had convinced the American pianist Keith Jarrett to perform a one-night concert.  At Jarrett’s request, Brandes had selected a Bosendorfer 290 Imperial grand piano for the performance. However, there was some confusion by the opera house staff and instead they found another Bösendorfer piano backstage – a much smaller baby grand – and, assuming it was the one requested, placed it on the stage. Unfortunately, the error was discovered too late for the correct Bösendorfer to be delivered to the venue in time for the evening’s concert. The piano they had was intended for rehearsals only and was in poor condition and required several hours of tuning and adjusting to make it playable.

The instrument was tinny and thin in the upper registers and weak in the bass register, and the pedals did not work properly. Jarrett arrived at the opera house late in the afternoon and was tired after an exhausting long drive from Zürich, Switzerland, where he had performed a few days earlier. He had not slept well in several nights and was in pain from back problems and had to wear a brace. When he found the wrong piano in place, Jarrett walked out of the concert hall. He went outside to sit in his car. Vera called and called to try and get the correct piano but it was too late. She went outside and stood in the rain and begged Keith Jarrett not to cancel the concert. Jarrett looked outside his car and saw this rain soaked bedraggled teenager and took pity and said, “Never forget – only for you”. So several hours later, he sat at the unplayable piano and the concert began. Within minutes it became clear that something magical was happening. Jarrett was avoiding the upper registers. He was sticking to the middle of the keyboard.

Consequently, Jarrett often used ostinatos and rolling left-hand rhythmic figures during his performance to give the effect of stronger bass notes. He stood up to pound on the keys so as to get enough volume out of the undersized piano to reach the patrons in the back row.  ECM Records producer Manfred Eicher said: “Probably [Jarrett] played it the way he did because it was not a good piano. Because he could not fall in love with the sound of it, he found another way to get the most out of it. The audience loved it! Audiences continued to love it because the Cologne piano concert by Keith Jarrett is the best-selling solo album in jazz history, and the all-time best-selling piano album, with sales of more than 3.5 million.

Jarrett had been handed a mess and maybe not at first, but eventually, he embraced it and soared. Sometimes we all need to remember how our frustrations can be turned around and made into our most creative moments. Despite the obstacles, Jarrett’s performance was enthusiastically received by the audience and the subsequent recording was acclaimed by critics. It remains his most popular recording and continues to sell well, decades after its initial release. The album was included in Robert Dimery’s 1001 Albums You Must Hear Before You Die.

Here is the concert from You Tube


“If God had wanted us to vote, he would have given us candidates.”
–       Jay Leno

As we approach tax day, I cringe both at the amount of taxes we pay and our bloated economy that can’t seem to get out of its way. A few years back we did a deal with Congressman Hunter’s office and I saved this email because it still makes me chuckle to this day.


Thank you again for all of your help yesterday. I am asking Rhonda, our office manager, to send you a copy of what our standard gov lease looks like. We will have to confess regarding our current financial situation is that we are $16.3 trillion in debt, but we are working on raising everyone’s taxes to pay for it. But truthfully, we think that this will be a good fit and Rhonda will work with you regarding House of Reps requirements for the lease,

Thanks again,


District Chief of Staff

Congressman Duncan Hunter

In a rare case of repealing bad law, the State repealed AB-1103, effective January 1, 2016. If you remember I wrote about this law and the requirement to report all of the energy use of your commercial property. Supposedly, they are working on a replacement law to take effect next year. I can hardly wait (but at least no energy disclosure reports this year!).

Another article that I have saved for some time but thought was appropriate in this Tax Day month and election year filled with rhetoric. This is a brief history of commercial real estate by CRE blogger Chris Clark.

“In no other part of the civilized world is land made such an article of commerce and of such incessant circulation.” James Kent on American land use in “Commentaries on American Law 438” published in 1830.

Land wasn’t always an article of commerce as described by Kent. For centuries across Europe, land was an entity whose conveyance and use was governed by common laws concerned with the order of inheritance, alienation and protection from creditors. As a British possession, the American Colonies followed suit.

But the British Debt Recovery Act of 1732 altered this substantially, if not inadvertently, by allowing for the treatment of real property to be the same as chattel/personal property. Essentially, this gave debtors the right to seize not only personal property but land to recover costs. The British saw this solely as an additional means of debt repayment. But in the Colonies, where land was abundant, it was seen as an opportunity to use land as a substitute for money, i.e., an article of commerce.

While there was plenty of handshake agreements, lawyers were eventually the choice of sellers and buyers to record or transfer property title. The agent role evolved in order to find willing buyers for willing sellers. (To this day, real estate agents cannot perform the functions of a lawyer in real property transactions.)

Early real estate agents tended to be the people in town who knew everything and everyone. A fountain of local information they were paid in favors or fees to bring parties together. Unorganized and often acting independently, they could also be unscrupulous in their dealings.

Around the turn of the 20th century, the real estate industry of today emerged when the National Association of Real Estate Exchanges (1908 – now known as NAR) and real estate brokerage firms such as Cushman & Wakefield (1917) were born. Affiliation with these organizations inferred a higher level of ethics and service by their agents or members. Vouching for the honesty of their agents, brokerages and professional groups like these were meant to separate the wheat from the chaff.

By the 1930’s most state laws were written or appended to require that anyone who assisted in the transfer of real estate was licensed or registered with the state. The title insurance industry quickly followed in order to protect buyers and ensure more accurate legal recordings including the encumbrances, liens, restrictions, etc… that could be attached to land.

One of those liens – loans specific to purchase of real property (mortgages) – became more commonplace. Turning the British Debt Relief Act on its head, land was not only an instrument for debt repayment but a way to incur debt itself.

Extensive relationships and local knowledge have for years been the core services that real estate agents provide. Those services have been expanded to include consultation, marketing and information services all in the pursuit of connecting buyers and sellers. Additionally, numerous areas of specialization have evolved due to diversity of product, increased competition and client demand. It is these individuals who contribute to a world-wide industry handling assets in the trillions and accounting for over 50 percent of developed economies’ net worth.

Since a picture is worth a 1000 words I thought I would share this chart of the employment growth in North County over the last five years. This is how we have gone from 7.8% to 4.4% unemployment.

2016 North County prospects1 18
So whether you think there are too many real estate agents, or too many attorneys, just remember there are more IRS agents than there are FBI agents. Heck, I’m proud to be paying taxes in the United States but I could be just as proud for half the money! Hope you enjoy the story…


Don Zech

A Lawyer You Have to Love

A New Orleans lawyer sought an FHA loan for a client. He was told the loan would be granted, if he could prove satisfactory title to a parcel of property being offered as collateral. The title to the property dated back to 1803, which took the lawyer three months to track down.

After sending the information to the FHA, he received the following reply…

(Actual Letter)

“Upon review of your letter adjoining your client’s loan application, we note that the request is supported by an Abstract of Title. While we compliment the able manner in which you have prepared and presented the application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin.”

Annoyed, the lawyer responded as follows:

(Actual Letter)

“Your letter regarding title in Case No. 189156 has been received. I note that you wish to have title extended further than the 194 years covered by the present application. I was unaware that any educated person in this country, particularly those working in the property area, would not know that Louisiana was purchased, by the U.S. from France in 1803, the year of origin identified in our application.

For the edification of uninformed FHA bureaucrats, the title to the land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The land came into the possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India, was from the Spanish monarch, Isabella.

The good queen, Isabella, being a pious woman and almost as careful about titles as the FHA, took the precaution of securing the blessing of the Pope before she sold her jewels to finance Columbus’ expedition. Now the Pope, as I’m sure you may know, is the emissary of Jesus Christ, the Son of God, and God, it is commonly accepted, created this world. Therefore, I believe it is safe to presume that God also made that part of the world called Louisiana.

God therefore, would be the owner of origin and His origins date back to before the beginning of time, the world as we know it AND the FHA. I hope you find God’s original claim to be satisfactory. Now, may we have our damn loan?”

(The loan was approved.)


“Lord give me caffeine to change the things I can and wine to accept the things I can’t.”

Eight years after the financial crisis, the world is still coming to grips with an unpleasant realization: serious weakness still plagues the global economy, the stock market and even our local economy. However, before we get to settled in on the “Woe is me economy.” I thought I would share this chart of just how big our economy is compared to the world and why we are the greatest nation.

US economy

You have heard the quote “If the U.S. economy sneezes the rest of the world catches a cold.” Well there was concern that our economy was getting the sniffles and was slowing to a crawl in Late 2015. However, consumer spending returned in January and is hopefully a sign of good things to come.

monthly letter for march 2016

Closer to home, San Diego’s unemployment rate was 4.7% in December with 37,500 jobs gained in 2015. A quarter of those were in health services and education. We would affirm this given an increase in deals ourselves within those sectors. Vacancy in industrial real estate has hit historic lows, dropping to 5% countywide. San Diego home prices rose 7.2% in 2015 according to the Case-Shiller Index. So with this kind of good news locally should we be worried about the “Global Rout,” the whip sawing stock market or that the bond king, Bill Gross says that we have already entered a recession? What we have are dueling indicators: the economy vs. markets. Market based recession indicators such as stock prices and junk bond spreads are raising alarms, but so-called macroeconomic indicators such as inflation-adjusted incomes, energy prices and loan delinquency rates point to a more reassuring picture. I liken it to what we are experiencing and many of the tenants we work with; they are busier and making more money but to scared to hire more help.

I also continually question the “low inflation” environment that is reported. I get that oil has dropped (but California gas hasn’t dropped proportionately) and that technology has pushed down pricing. But if you go to the grocery store, look how things have skyrocketed from 2002 to 2012;

Eggs: 73% Coffee: 90% Peanut Butter: 40%
Milk: 26% A Loaf of White Bread: 39% Spaghetti and Macaroni: 44%
Orange Juice: 46% Red Delicious Apples: 43% Beer: 25%
Wine: 60% Electricity: 42% Margarine: 143%
Tomatoes: 22% Turkey: 56% Ground Beef: 61%
Chocolate Chip Cookies: 39%

(Divide any of those by 10 to see the real inflation rate.)

As I mentioned, technology has put downward pressure on prices and wages. Watch for the next step that is coming faster than you might think. It’s the “uberization” of everything. If you are not familiar, Uber is the private driver that you can summon from your phone. It is not a taxi in that it is a private party with their car providing you a ride. I have recently read of doctors going to this system. You want a doctor now, you can “Uber” an appointment and find an available opening or find the nearest “mobile doctor or nurse.” The 9 to 5 job has been out of popularity for several years with workers wanting flexibility. Well as an “Uber worker” you can opt in and opt out as you wish. Flex-time meant working 40 hours a week but when you choose. “Uber hours” means you can opt in for 20 hours this week and 80 hours next week. Lastly, what about the uberization of money? You will soon have a financial profile that includes everything from your balance sheet, payment history, credit score future earnings potential and Facebook habits and with a few key strokes you are connected with a range of lenders from banks to pools of individuals who negotiate a rate and duration that you agree on. You can shop around or combine different financing sources. You think this is futuristic? Well each of these components are happening now in their own niche’s and it won’t be long until they combine up (maybe even as CDC Capital Markets!).

As many of you remember, we would produce our annual report along with data and forecasts. As mentioned above, things have changed with technology. Now it is easier for me to give you a link to a couple of the best reports generated – happy reading!



If there is one thing that is constant, it is change. I wonder what they’ll be saying about us in 100 years….


The year is 1915 “One hundred years ago” what a difference a Century makes!

  • Life expectancy for men was 47 years.
  • Fuel for cars was sold in drug stores only.
  • Only 14 percent of the homes had a bathtub.
  • Only 8 percent of the homes had a telephone.
  • The maximum speed limit in most cities was 10 mph.
  • The tallest structure in the world was the Eiffel Tower.
  • The average US wage in 1910 was 22 cents per hour.
  • The average US worker made between $200 and $400 per year.
  • A competent accountant could expect to earn $2000 per year.
  • A dentist $2,500 per year.
  • A veterinarian between $1,500 and $4,000 per year.
  • And, a mechanical engineer about $5,000 per year.
  • More than 95 percent of all births took place at home.
  • Ninety percent of all Doctors had NO COLLEGE EDUCATION!
  • Instead, they attended so-called medical schools, many of which were condemned in the press AND
  • the government as “substandard.”
  • Sugar cost four cents a pound.
  • Eggs were fourteen cents a dozen.
  • Coffee was fifteen cents a pound.
  • Most women only washed their hair once a month, and used Borax or egg yolks for shampoo.
  • Canada passed a law that prohibited poor people from entering into their country for any reason.
The Five leading causes of death were:
  1. Pneumonia and influenza
  2. Tuberculosis
  3. Diarrhea
  4. Heart disease
  5. Stroke
  • The American flag had 45 stars.
  • The population of Las Vegas, Nevada was only 30.
  • Crossword puzzles, canned beer, and iced tea hadn’t been invented yet.
  • There was neither a Mother’s Day nor a Father’s Day.
  • Two out of every 10 adults couldn’t read or write.
  • And, only 6 percent of all Americans had graduated from high school.
  • Marijuana, heroin, and morphine were all available over the counter at local corner drugstores.
  • Back then pharmacists said, “Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach, bowels, and is, in fact, a perfect guardian of health!” (Shocking?)
  • Eighteen percent of households had at least one full-time servant or domestic help …
  • There were about 230 reported murders in the ENTIRE U.S.A.!
I am forwarding this to you without typing it myself.
From there, it can be sent to others all over the WORLD all in a matter of seconds!
It is impossible to imagine what it may be like in another 100 years.

Happy early Valentine’s Day! You know, Valentine’s Day is big business. Consumers will spend an average of $80 on Valentine’s Day gifts this year. E-Commerce retailers expect to rack up over 800 million in sales of food, candy, flowers and other Valentine’s Day gifts. This year, February also brings us a leap year – on an election year – great an extra day of campaigning! Well, while the sweet sounds of politicians debating climate change or climate of change, we need to tighten our seat belt as U.S. and world economic markets seem to be melting down.

The Fed is in a horrible quandary as it tries to extract itself from all of its quantitative easing (QE). We are in a debt trap. If they raise rates it’s bad. If they don’t raise rates, it makes matters worse. The problem is a solvency one (spending and saving) and the Federal Reserve is there to tackle liquidity problems. We need our government to govern. What no one seems to realize is that QE is simply bringing spending forward from the future. However, like spending on your credit cards, the future catches up with you. By definition, you cannot spend the money tomorrow if you spent it today and tomorrow is here and we spent it yesterday. Liquidity is an illusion. It is always there when you don’t need it and never there when you do.

So while the world worries about sinking I am questioning if you are syncing. The convergence of high tech and biotech is creating an explosion of opportunities in digital health here in San Diego. And now smartphones, big data and technology are set to revolutionize and democratize healthcare. From Googling your symptoms to your doctor wirelessly monitoring your heartbeat and glucose levels, it’s happening in San Diego. So if all that health monitoring pays off and you eat less beef jerky and ring dings, don’t worry about 7-11 going out of business. they have already adjusted shelf space and are introducing e-commerce lockers for customers to pick up packages from Walmart, Amazon and UPS.

In other changing fronts, the office of The Office is fading and shrinking in the process. We continue to see demand for “open office” and “creative office”. Workers mill about rooms without walls. Small cubicles (dog bone shaped) are places to park personal items but work is done from couches, shared tables or the coffee shop down the street. Ear buds not partitions act as sound barriers. People are more concerned about people who do cool things than how big their desks are. This “desk-less society” is even creeping into the Hotel Industry. Marriott has recently announced that it is going to be removing desks from most of its rooms in a chain wide redesign.

Meanwhile on the labor front, unemployment continues to trend downward putting pressure on wages. In the construction field, we are finding TI bids rising 15-50% because of Title 24 and subcontractors selectively bidding jobs. Also lack of contractors, subcontractors and labor pool are increasing the length of time to get jobs bid and completed.

Pressure on the labor market also has brought about political pressure to raise minimum wage rates. Wherever you stand on this issue, trends are developing. First businesses are cutting back, slower to hire and keeping more employees part time. Second the food industry is moving toward a no-tipping policy (which is actually much like Europe). Crab Shack has moved to a $14-15 per hour – no tip wage. Food prices have gone up but are averaging less than the 15-20% average tip. It will be interesting how this plays out – will workers get less hours? work less hard (not being tipped)? Will workers take more ownership and promote business and sales since they will only get more hours if there is more business. Lastly, will technology replace more workers? Do you buy a $150,000 dish-washing machine? That’s 6-8 people at $10-11 per hour with a break-even in less than a year. Are we going to see more tabletop tablets and check out kiosks. What about more mechanized farming?

It isn’t easy being a commercial real estate executive these days. Modern brokers must mix frontier passion with corporate savvy, while traveling in rarefied philanthropic and social circles.

As the stock market tosses and turns, election season rhetoric inundates us, labor markets roil and race relations and terrorism keeps us on pins and needles, it is important to note that random acts of kindness tend to take the air out of the balloon before it bursts. In recent months, it was sad to see Natalie Cole along with many other great singers passing away.

I hope you enjoy the story.

One night, at 11:30 p.m., an older African American Woman was standing on the side of an Alabama highway trying to endure a lashing rainstorm. Her car had broken down and she desperately needed a ride. Soaking wet, she decided to flag down the next car. A young white man stopped to help her, generally unheard of in those conflict-riddled 1960’s. The man took her to safety, helped her get assistance and put her into a taxicab.

She seemed to be in a big hurry, but wrote down his Address and thanked him. Seven days went by and a knock came on the man’s door. To his surprise, a giant console color TV was delivered to his home. A special note was attached.

It read:

Thank you so much for assisting me on the highway The other night. The rain drenched not only my clothes, but also my spirits. Then you came along. Because of you, I was able to make it to my dying husband’s’ bedside just before he passed away… God Bless you for helping me and  unselfishly serving others.

Mrs. Nat King Cole

From work to kids – people have a lot to worry about. Even small stuff like gift giving and holiday gatherings, cause us to worry – for up to two hours a day according to a new study out of the U.K. When you do the math that’s five years off of your life. It is time you could be spending doing something else – not to mention the health hazards worrying can cause. So with all that said, what are you to do as we enter what may be a tumultuous New Year? Health care professionals say;
  • Have a strategy – this will make you feel more in control (call us to discuss yours regarding your real estate).
  • What do you have to do to get from here to there?
  • Talk about your worries and concerns (like to your CDC Commercial Broker).
  • Know all the facts (ask us to fill you in on market data). Don’t let your imagination run wild.
  • List your worries on paper (or in an email to us). Listing them can help you realize that some may never come to fruition.
  • Another piece of advice that doctors say is that you should never worry about the past.
So with that said here are some things you should decide upon being worth worrying about;
  • While San Diego has been busy worrying about losing the Chargers, a mentally ill man filed a simple Quit Claim Deed and transferred the ownership of Petro Park to himself. Unfortunately, he has been declared not mentally competent so the fraud case was dismissed. They’ll probably file a “quiet title action” but in the meantime what a mess.
  • Speaking of losing the Chargers to LA and the Billionaire Boys Club of the NFL, did you know that the majority of people who were billionaires in 1995 are no longer billionaires. How hard is it to remain a billionaire? If in 1995, they had invested the billion 60% in a stock fund and 40% in a bond fund (the world’s simplest portfolio that can be constructed without the help of a high priced money manager) and left it untouched, it would be worth 5.5 billion today. Yet somehow over half managed to lose money in the past 20 years.
  • Getting, having or keeping a job is a constant worry for most and if not your own job, the health of the economy is based on job creation and low unemployment. In November, the San Diego region produced a net of 5400 jobs. To put that in perspective, the entire state of California only created a net of 5500 jobs – so we had almost the entire state’s growth in job! Wow!
  • Do Billionaires worry? Well real estate billionaire Sam Zell does and he was recently quoted as saying there is a high probability that we are looking at a recession in the next 12 months. Is he right? How do you recession proof your real estate or is it time to sell? On October 26th Zell sold 72 properties for 5.31 billion. The last time Zell sold big was early 2007 hmmmm….
  • On Black Friday consumers spent $4.5 billion online. That’s a 14% increase over last year. However, consumers spent $12.1 billion in brick and mortar stores, That is a decline from last year – that is a potential for downward pressure on retail rents. The online assault on the shopping mall continues.
  • Citi reports a 65% chance of recession based on China’s slow recovery and rate slash to zero and the length of the U.S. recovery. Watch for short term (1-2 year treasuries) rates to be higher than long term rates (10-30 year). This is the yield curve inversion and has happened before the last five U.S. recessions since the mid 1970s.
  • Closer to home, at CDC Commercial we are pleased that our sales and lease volume were at their highest level ever in 2015 – just a tad over 2007 the previous best year. And looking at our call volume (future indicator), despite the strongest August on record, September, October and November were all at all-time lows. Perplexing? Worrisome?
The more deals we do the more it seems to me that people are more worried about being sure there is someone to blame if things don’t work out than we are on how to succeed. I have found that one of the best rules in life is to not do anything that wouldn’t make your mother proud. But perhaps we should listen to the Dalai Lama….

Regards and Happy New Year,


The Dalai Lama, when asked what surprised him most about humanity, answered “Man. Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.”


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

In my 30 years as an agent, manager, and trainer of commercial agents, I’ve found that there are 9 areas that come together to have an agent perform his or her best. These 9 areas are prospecting, mailing, scheduling appointments, obtaining exclusive agreements, closing transactions, having great people skills, building relationships, obtaining referrals, and pursuing one’s own continuing education and training.

While all 9 of these components are continually interacting with each other, some of them are activities that an agent does, while others are milestones that validate one’s own success along the way. Along with these 9 components, the most important element that any agent can bring to the table is their incredible passion and love for the real estate business, along with their unyielding drive to be hugely successful at it. This is the engine that completely drives an agent’s success in our industry.

As the year draws to an end and we look to a new year ahead we would like to thank all of you for the relationships we have and those that we will grow in the future. Since this is the season for prognostications, we’ll see, hear and read everything under the sun that can be sent to us on our three screens. However, I am going to tell you that although you will hear about the end of the bull market, rising interest rates, e-commerce, crowd funding and such, everything simplifies to three simple things for every craftsman, carpenter or builder;

  • Refinish
  • Refine
  • Repurpose

At the core of most every trend (and every piece of real estate in San Diego) is the fact that they are refining something that exists or refinishing or repurposing it going forward. I challenge all of us to finish up the year and the Holiday Season and look at our own lives and business and see how we can use these three “Rs” to re-energize and re-invigorate both our lives and our businesses. On the subject of building, (and another “R”), we understand that trust and relationships are the cornerstone of the brokerage and commercial real estate business. Listening to clients and keeping an eye on trends can identify needs and processes that need to be changed to preserve owner trust. You can ignore all of these as just a passing fad, but look at how well that turned out for Kodak, Swiss watch manufacturers, Blockbuster, travel agents… Or you can spend time and money on lawsuits to fight off the competition. Just think if the taxi companies spent their money digitizing dispatch instead of fighting off Uber.

So even if you are not 100 percent ready to jump on the bandwagon to refine, refinish or repurpose , as you go through the holidays and turn the page into a new year, keep the following sentiment of Mother Teresa in mind; “I can do things you cannot, you can do things I cannot; together we can do great things”.

We hope you enjoy the Holidays and the story…




The Carpenters Glasses

On this particular December day, he was building some crates for the clothes his church was sending to orphanages in Middle Eastern refugee camps. On his way home, he reached into his shirt pocket to find his glasses, but they were gone. When he mentally replayed his earlier actions, he realized what had happened; the glasses had slipped out of his pocket unnoticed and fallen into one of the crates, which he had nailed shut. His brand new glasses were heading for the Middle East !

He had spent a lot of money for those glasses that very morning. He was upset by the thought of having to buy another pair. It’s not fair, he told God as he drove home in frustration. I’ve been very faithful in giving of my time and money to your work, and now this.

Recently, , the director of the orphanage was on furlough in the United States. He wanted to visit all the churches that supported him in the Middle East, so he came to speak one Sunday at my grandfather’s small church in Chicago. The missionary began by thanking the people for their faithfulness in supporting him.

But most of all, he said, I must thank you for the glasses you sent last. You see, ISIS had just swept through the orphanage, destroying everything, including my glasses.

I was desperate. Even if I had the money, there was simply no way of replacing those glasses. Along with not being able to see well, I experienced headaches every day, so my coworkers and I were much in prayer about this. Then your crates arrived. When my staff removed the covers, they found a pair of glasses lying on top.

The missionary paused long enough to let his words sink in. Then, still gripped with the wonder of it all, he continued: Folks, when I tried on the glasses, it was as though they had been custom made just for me! I want to thank you for being a part of that.

The people listened, happy for the miraculous glasses. But the missionary surely must have confused their church with another, they thought. There were no glasses on their list of items that they had sent overseas. But sitting quietly in the back, with tears streaming down his face, an ordinary carpenter realized the Master Carpenter had used him in an extraordinary way.

Happy Holidays from the Team at CDC Commercial!

Don, Nick, Matt, Nancy, Cheryl and Candy


As you read this today I hope to be dragging my tired body across the finish line at the Great Barrier Reef Marathon in Australia. This will be Continent #3 on my quest to run a marathon on all 7 continents.

As part of my vacation reading, I will be absorbing the recently published “2016 Emerging Trends in Real Estate” report published by PWC and the Urban Land Institute. If you would like to get a jump on me you can download it here. One highlight I noted was that secondary markets and 18 hour cities and tertiary markets (like San Diego County) are the compelling investment story for 2016. These are markets that people love to live, work and play in.

Speaking of places to live, after the carnage of the “Great Recession”, who would have thought the home-building industry would recover from forecasts that there was a 20-year oversupply of housing? Well it seems that the forecasters were wrong again, as the housing market index climbed to a 10-year high in October, a sign of full recovery and momentum for one of the most important indicators for the health of the economy.

Unemployment in San Diego continues to work its way down to 4.6% (down from 6.1% last year at this time). Amongst this optimism , a few words of caution. Economic growth dipped due to a strong dollar that caused a drop in exports. In San Diego, the Chamber of Commerce measure of business optimism fell for the third consecutive month. Small business owner concerns were around the $10 minimum wage going into effect in January and upcoming ACA deadlines requiring business to insure full-time workers (95% of worker now up from 70%).

If you follow my rule of buying real estate where more people are moving in than moving out then you should sleep well owning in San Diego. SANDAG just released its 2050 plan and in it, they project the region will add ONE MILLION more people, half a million jobs and 300,000 more homes. The new plan dedicated 15% of its resources to add 160 miles of managed lanes to our existing freeways – read van pool, car pool, and fast passes. They are planning 275 miles of bike ways. I have to say it was pretty cool to run the bike lane all the way from my house to Solana Beach for a training run before my marathon.

For those of you selling a property and considering doing a 1031 exchange, it is important to remember that you have 180 days OR the filing of your tax return to complete the exchange. So if your exchange is not completed by the due date of your tax return – file an extension.

As we head into the Holidays, I thought I would put out this need for Interfaith and their Veterans Assistance program (this program keeps Vets from being homeless and gets them back into society). We have just dedicated a facility that will house 20 homeless Vets and they need a car of SUV or van that the program can use to shuttle Vets to the stores, doctor appointments and job interviews. So if you have a running vehicle and need a year-end tax write off, please contact the Program Director Dean Dauphinais at or (760) 489-6380.

I recently saw this quote in the SIOR real estate magazine, “The value added a good broker brings to a deal includes, among other things, the ability to understand the market beyond the published statistics, the ability to deeply understand a client’s position relative to the competition, and the ability to know when to be (and when not to be) aggressive during a negotiation…this value added is greatest when the deal is large and complex, and technology cannot easily replicate these features because they are human in nature”. Sounds like a good consultant to me…

I hope you enjoy the story…


The Consultant

A shepherd was herding his flock in a remote pasture of Australia when suddenly a brand-new BMW advanced out of the dust cloud towards him. The driver, a young man in an Armani suit, Gucci shoes, Ray Ban sunglasses and YSL tie, leaned out the window and asked the shepherd … “If I tell you exactly how many sheep you have in your flock, will you give me one?”

The shepherd looked at the man, obviously a millennial, then looked at his peacefully grazing flock and calmly answered “sure”. The millennial parked his car, whipped out his Apple Mac Pro connected it to a cell phone, then he surfed to Google Earth where he called up a GPS satellite navigation system, scanned the area, and then opened up a database and an Excel spreadsheet with complex formulas. He sent an email on his iphone and, after a few minutes, received a response. Finally, he prints out a 130-page report on his miniaturized printer then turns to the shepherd and says, “You have exactly 1586 sheep. “That is correct; take one of the sheep.” said the shepherd. He watches the young man select one of the animals and bundle it into his car.

Then the shepherd says: “If I can tell you exactly what your business is, will you give me back my animal?”, “OK, why not.” answered the young man. “Clearly, you are a consultant.” said the shepherd. “That’s correct.” says the millennial,”but how did you guess that?” “No guessing required.” Answers the shepherd. “You turned up here although nobody called you. You want to

get paid for an answer I already knew, to a question I never asked, and you don’t know didly about my business …… Now give me back my dog.”


1 2 3 4 5 6 7 8 17
Vacancy Rate

Recent Posts


Search our Website

Copyright 2013 CDC Commercial, Inc. | Lic. #01857155
Translate »