May 2015 Monthly Letter

The Blog
Page 7

The sign that there is intelligent life on other planets is that they haven’t visited us! On one hand, I am absolutely thrilled to see the economy and our local market picking up. I am, however, worried about the global economy and the Fed policy. The first rule of holes is that when you find yourself in one you need to stop digging. This is to say that maybe the Fed should rethink the idea of giving forward guidance about interest rates. They are starting to lose credibility. The market is very smart and it recognizes that the combination of a strong dollar and punk economic data (here and especially abroad) trumps their desire to raise interest rates and start letting air out of the bubble that they created.

Speaking of holes, figurative and literal, the States water shortage is causing all of us issues. I know that I personally tore out my grass and put in a chipping and putting green. I save water and I have dropped two strokes off my game. I am seeing many building owners using drought tolerant landscape and rocks. I have found that the real savings is not just the water but a cut back on needs for landscape labor and repairs. The water crisis is a classic example of “the government solution”. Fifty percent of rain and snow melt is lost to the environment (because government has delayed building infrastructure to collect and distribute it), 40% goes to the farms (where 3/4’s of it is used to grow feed for cows and pigs) and 10% is used by the people. However, the 10% are expected to make up for the 100% – kinda like the tax system!

In our local market, the USD economic index rose for the 9th straight month. Help wanted advertising was the most robust gaining 2.38%. That would probably explain the drop in unemployment to 5.19% (down from 7.1% a year ago). Professional and business employment added 9900 jobs over the last 12 months, the largest gains. That would probably explain the sharp increase in home sales (3467 this much versus 3056 last month versus 2541 in February. It would also explain the slow uptick we are finally seeing in the office market. Hopefully, the trend gains traction over the coming years. More importantly the slow but steady recovery is leading to office rent increases in some markets and spaces. A case in point: a consulting firm that leased space in the Aventine (UTC) in mid-2012 for $2.85 psf was offered a “market rate” renewal of $4.25 psf! Now we are not seeing those rates or jumps in most of our markets but when those tenants face those rents, many will flow to the lower rates in suburban markets thereby dropping our vacancy and correspondingly raising our rents. We are also seeing the pre-leasing of new office developments with projected rents of $2.50 – $3.25 psf. These projects and rents also bode well for eventual rent increases for existing property owners.

Health and wellness programs in the workplace are the new sustainability. Insurance giant AON says investment in health and wellness programs return $3.0 to $6.00 for every dollar spent. Perhaps you should replace your common area with a putting green too – you can save water, increase productivity and rent!

The sharing economy is continuing to evolve. Many of you have used or heard of Airbnb or Uber, well this idea of sharing underutilized assets has spread to the restaurant business where multiple restaurants share a kitchen and serving area. Picture an Iron Chef meets Mall Food Courts. This concept allows a small business that couldn’t afford a brick-and-mortar location__ to take less risk, grow and keep profits healthier. So imagine your donut shop subleasing to a taco shop for lunch and a burger joint for dinner. The bad news is that Landlords will see more wear and tear and higher water costs. The good news is more traffic and the opportunity to raise rents and share in the success. This is the same kind of issue facing office owners and tenants as they densify the space because of the lack of paper and storage needs, putting a heavier load on the building and parking lot.

Get ready for another major worldwide credit crunch. Today, the entire global financial system resembles a colossal spiral of debt. Just about all economic activity involves the flow of credit in some way, and so the only way to have economic growth is to introduce even more debt into the system. When the system started to fail back in 2008, global authorities responded by pumping this debit spiral back up and getting it to spin even faster than ever. If you can believe it, the total amount of global debit has risen by $35 trillion since the last crisis. Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is staring to happen once again. For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock.” And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the Eurozone. On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States. All of these are signs that credit conditions are tightening, and once a liquidity squeeze begins, it can create a lot of fear.

So what is the bottom line? Make hay while the sun shines! Expect the flow of credit to slow and have emergency funds (cash) available to survive and to take advantage of deals when they come up.

In the meantime, enjoy this month’s story; it is basically a small version of the Fed and the IMF’s plan to solve the world debt crisis….

A Stimulus Story

It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.Suddenly, a rich American tourist comes to town.He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

And that, ladies and gentlemen, is how the Fed and IMF are solving the Greek Debt Crisis!


“In general, the art of government consists of taking as much money as possible from one party of citizens to give to the other.”

Voltaire (1764)

Commercial real estate values continue to climb in the first two month of the year. Some of this has to do with good fundamentals and rent growth but much has to do with ultralow interest rates and lower cap rates. Basically to much money chasing too few deals. Quantitative Easing (QE) has raised asset prices by offering low borrowing costs. However, once the Fed is done, we’re going to find out that once the student can’t go for “” anymore, we’re going to find out how bad a student he really is.

Fueled by these higher stock and real estate values, American’s net worth reached a record high by the end of 2014. Greater net worth’s should lead to greater spending and economic growth. However, this is perhaps the worst recovery ever. Although unemployment is below 6%, the economy is operating short of its full potential. The Fed should be raising rates but a less than strong economy, a worse than our economy in the rest of the world (strong dollar) and falling oil market puts the Fed in a tight box. When we see inflation the Fed will be quick to raise rates and that will trigger a dramatic market response. Or as I learned in school, “rates will go up and then they will come down and then rise again. It is how much and when and what order that we don’t know.”

As I mentioned above, asset prices are rising but that value can and will be wiped out if and when interest rates and cap rates rise. To illustrate:

  • $100,000 net income at 5% cap = $2,000,000
  • $100,000 net income at 6% cap = $1,666,666

That is a $333,333 (-16.7%) hit with one percentage point change in cap rate.

To protect against this you need to be looking at property that has “replaceable rents” and even better rent that you can see increasing because of growth in tenant’s business. This growth I talk about comes from more people moving into the area than moving out. It also comes from selling products that people use and buy. Better an Apple Store than a horseshoe store! Also businesses that benefit or are shielded from the internet and big box stores (food and personal services).

While on the topic of growth, San Diego has been forecast to grow by about 100,000 people every five years through 2060. That’s 4.1 million, almost 900,000 more than now! Although we may grapple with drought, traffic and high density development, that kind of population growth bodes well for San Diego real estate values.

According to local economist, Josh Williams, “North County was hit harder by the recession but has rebounded faster.” We have moved from a bedroom community to an export economy led by biotechnology environmental tech and active life styles industries (read Golf). “If you look at North County on its own, it would be the 43rd largest state in the country with a population of 1.2 million.”

I recently attended a Mayors address where the North County Mayors have unveiled a cooperative to attract more business to North County under the banner, “San Diego’s Upside Corridor – Innovate 78.”

Even though CDC Commercial doesn’t sell apartments, I found these numbers published by Fred Schaubelt and CoStar to be a fascinating study in the historic real estate appreciation of San Diego County;

  • 1970 – $11,428 avg per apartment unit countywide
  • 1980 – $30,714
  • 1990 – $58,000
  • 2000 – $122,135
  • 2010 – $139,025 (price after record market corrections)
  • 2014 – $186,350

Because of the pickup in sales activity and peoples aversion to pay taxes, we are finding many of our clients turning to IRC 1031 tax deferred exchanges. This tool conforms to my real estate philosophy which is to “defer until you die, refi to live” or as I recently heard, “swap til you drop!”

By using a 1031, an investor is able to defer capital gains that would ordinarily be incurred at the time of sale. As a general rule of thumb, to avoid paying taxes in an exchange, the investor should attempt to:

  1. Purchase equal or greater in value,
  2. Re-invest all of the equity in the replacement property,
  3. Obtain equal or greater debt on the replacement property.

There are many other nuances and timing issues but then that is why we are here to help you. If you think now is the time for you to trade out and up or if you are refinancing and want to put that cash you took out to work, give me a call to discuss opportunities.

Don’t forget to file your property taxes by the 10th or your state taxes by the 15th or your Federal taxes by the 15th or ….. hope you enjoy the poem this month.


Tax his cow, tax his goat,
Tax his pants, tax his coat,

Tax his crops, tax his work,
Tax his tie, tax his shirt,

Tax his units, tax his land,
Teach him ownership’s not so grand.

Tax his chew, tax his smoke,
Teach him taxes are no joke,

Tax his tractor, tax his mule,
Teach him taxes are a rule,

Tax his oil, tax his gas,
Tax his notes, tax his cash,

Tax him good and let him know
After taxes he has no dough.

Tax his house, tax his couch
Tax him till he yells “ouch!”

 If he hollers, tax him more;
tax him ’til he’s good and sore.

Tax his coffin, tax his grave,
Tax the sod in which he lays.

Put these words upon his tomb:
“Taxes drove me to my gloom.”

And after he’s gone he can’t relax;
They’ll still be after inheritance Tax!

As you politicians smile
proposing new taxes all the
while, Beware the day of just
one more tax, Your smiles
replaced when you get the ax!



As I sit to write this letter, Janet Yellen the Federal Reserve Chair announced the Feds “continued patience” with the recovery. I read that as, conditions are sufficiently lackluster that the Federal Reserve has little choice in their bag of tricks but to stand pat and watch their previous mistakes filter through. Said another way, things are still risky but on the edge of getting better. I on the other hand am optimistic and tell people that we are five years into the worst recovery of all time.

These days, we are inundated with news of the financial and economic woes of the United States, Europe and other developed countries. Though many of the woes relate to the recent splurging of government. If we look at history, we need look no further than the currency wars of the 1920’s and 1930’s. During this time, various nations left the gold standard, devalued their currency (can you say quantitative easing) all in an effort to gain export advantages to sell more goods and prop up their economy. This all leads to extreme over-indebtedness, instability in financial markets and deflationary trends as we “race for the bottom”. On the other hand if we look to the future we must look at demographics. Countries like Japan, Germany and Italy have more than 20% of their population over the age of 65. The U.S. by comparison has only 13.5%. Youth on the other hand are the future and synonymous with consumerism. In Brazil and China more than 25% of the population if under the age of 19 (the U.S. is 28%). Think in terms of spending. If India and China double its per capita spending in the next 20 years it will be a bonanza for consumerism. This bonanza leaves the door open for the U.S. and other developed countries to fulfill these capital needs and provide scientific and business know how that will allow these countries to advance to developed world status. In our own nation, we need to look to states and areas where the youngest population are attracted and making jobs. These states include California, Texas, Colorado and Georgia.

You always hear “follow the money”, well I say, “follow the people”. Always buy real estate where more people are moving in then moving out.

San Diego’s economy in 2015 is expected to outpace that of the US and California according to the National University System Institute for Policy Research. San Diego population growth will reach a new high of 40,500 residents this year. Domestic migration has also just turned positive (yes more people moving in than out). Unemployment is projected to further decline to 5.7%. All good things for San Diego and the real estate market.

You may or may not have been aware but the State (AB1103) has mandated that owners of commercial real estate track their energy use/cost (benchmarking) and are further required to disclose this information upon sale (sometimes lease) and refinance of the property. Property owners are required to disclose their property’s energy usage to:

  • Prospective buyers, at least 24 hours before accepting or countering a written proposal to enter into a purchase agreement [20 CCR § 1681(k)];
  • Prospective and existing tenants negotiating to enter into or renew a lease for an entire building (single tenant property), at least 24 hours before accepting or countering a written proposal to enter into a lease agreement [20 CCR § 1681(1)]; and
  • Mortgage lenders at the time a loan application is submitted for financing to encumber the entire parcel. [20 CCR § 1681(m); 20 CCR § 1683(a)].

The leasing of space in multi-tenant commercial buildings does not trigger the disclosure of energy information since tenants occupy or will occupy only a portion, not all of the building. The sale of a multi-tenant commercial building does trigger the disclosures.

The energy reporting disclosures are being phased in based upon interior building size or gross floor area (GFA).

  • September 1, 2013 for buildings with a total GFA of more than 50,000 square feet;
  • January 1, 2014 for buildings with a total GFA of 10,001-50,000 square feet; and
  • July 1, 2016 for buildings with a total GFA of 5,000-10,000 square feet. [20 CCR §1682].

The original compliance date for buildings with GFAs under 10,000 square feet was July 1, 2014. However, in September 2014, the state legislature gave small commercial building owners an additional two years to prepare for the new requirements. [CDC, Amendment to 20 CCR §1682(c), August 11 2014].

As a result, energy disclosures are already available for buildings with a total GFA of 5,000-10,000 square feet. Risk management principles suggest the disclosures be made on these smaller properties, especially if a sale is involved.

Owners of commercial buildings of less than 5,000 square feet GFA are exempt from the energy benchmarking and disclosure mandates.

To learn more about this issue,  here is a link to a detailed article on the matter.

To set up your account and compliance instructions  here is a link to the state’s site.

As broker, we always find ourselves in a battle between what the developer/investor wants, the desires of the tenant and the demands of the city/government, I thought you would enjoy the designs of a shopping center as seen through each of those eyes in lieu of a story this month.

A Shopping Center as seen by….


Happy Ground Hog Day! And while I am at it Happy Chinese New Year. This year is the year of the sheep. Well, in fact, it is the year of the goat. Political correctness and spin tells us it is the year of the sheep because the sheep is one of the best loved animals and is gentle and calm and we use its fleece to keep us warm. We have all heard of the story of the wolf in sheep’s clothes – so beware. Now the Ram is also part of the goat and sheep family. So it could be the year of the ram as well. Well I think our economy and real estate market is going to be the year of the ram (hero) or the goat (not the hero). Meantime our politicians will exacerbate the problem through legislation, regulation and hyperbole as we approach the 2016 election. You might say they are putting lipstick on a pig – or in this case a goat!

The USD Burnham-Moores Index of leading indicators for San Diego rose again in November and December. Job growth for 2015 is expected to be equal or better than last year. Sectors expected to do well are professional, scientific, and technical services, healthcare, leisure and hospitality. American Express ranked San Diego 5th amongst meeting destinations and several local hotels were in the top 10 in the nation.

Optimism amongst small and mid-size businesses has reached levels last seen during the pre-recession years of the early 2000’s according to a new survey by San Diego based Vistage International. However, in the same survey, 40% of CEO’s said that local government is negatively impacting their business. Thirty-seven percent said healthcare reform is impacting their business.

With thanks to Integra Realty-Appraisers, below is a market snapshot of San Diego Commercial Real Estate:

Market Snapshot (courtesy of Integra Realty – Appraisers)

CAP Rent Vacancy
     CBD A 7.0% $2.45 12.1%
     CBD B 7.0% $2.04 21.3%
     Suburban A 7.0% $2.92 10.5%
     Suburban B 7.0% $2.19 13.7%
     Class A 7.0% $.69 3.2%
     Flex 7.0% $1.33 11.7%
     Region 6.5% $2.50 0.5%
     Community 6.5% $1.58 5.5%
     Neighborhood 6.5% $1.75 7.4%

You will soon see some of your local Vons and Albertsons stores changing to become Haggen’s Grocery. Haggen is a grocer from the Pacific Northwest and is taking the stores so Vons and Albertsons can complete their merger.

As we approach our rainy season (for what little that is) you should be aware that local government is cracking down on storm water runoff. Rain water that “runs off” of building roofs, property hardscapes and through uncovered dumpsters into the storm drains instead of seeping into the ground on site. It ends up in the nearest waterways and eventually drains into the ocean. New federal and county regulations impose $5000 fines on property owners who fail to address storm water runoff.

So whether you choose to be a ram or a goat this year or snuggle up in your wool blanket and wait out the ground hog, it always pays to have good advice and that is what we are here for at CDC Commercial. Perhaps some of the best advice that we have heard and have been giving out is;

“Live where you want, and invest where it makes sense with turnkey, positive cash-flow properties whose Cap Rate is higher than your long-term fixed interest rate financing.” A turnkey property is a new or like-new property you understand and is hassle-free.

I hope you enjoy the story!


It is the year 2015, and Noah lives in the United States. The Lord speaks to Noah and says: “In one year I am going to make it rain and cover the whole earth with water, until all is destroyed. But I want you to save the righteous people and two of every kind of living thing on the earth. Therefore, I am commanding you to build an Ark.” In a flash of lightning, God delivered the specifications for an Ark. Fearful and trembling, Noah took the plans and agreed to build the Ark.

“Remember,” said the Lord, “You must complete the Ark and bring everything aboard in one year.” Exactly one year later, a fierce storm cloud covered the earth and all the seas of the earth went into a tumult. The Lord saw Noah sitting in his front yard weeping. “Noah.” He shouted, “Where is the Ark?” – “Lord please forgive me!” cried Noah. “I did my best but there were big problems. First, I had to get a permit for construction and your plans did not comply with the building codes. I had to hire an engineer and lawyer to file an environmental impact statement on your proposed flood, over the entire Earth.

They didn’t take very kindly to the idea that they had no jurisdiction over the conduct of the Creator of the universe.

Then the Army Corps of Engineers demanded a map of the proposed new flood plain. I sent them a globe. Right now, I am trying to resolve a complaint filed both with the ACLU and the Equal Employment Opportunity Commission that I am practicing discrimination by not taking godless, unbelieving people aboard! The IRS has seized all my assets, claiming that I’m building the Ark in preparation to flee the country, to avoid paying taxes. I just got notice from the state that I own some kind of user tax and failed to register the Ark as a recreational water craft. Finally, the ACLU got the courts to issue an injunction against further construction of the Ark, saying that since God is flooding the earth, it is a religious event and therefore unconstitutional.”


Happy New Year! As many of my long term readers remember, I put out the annual Gold Report each year with our forecast of the year ahead. As with many businesses, the internet with big data and instant access has kind of made the annual Gold Report forecast outdated.

However, as 2015 takes off, real estate leaders and experts are publishing their forecasts and expectations for the coming 12 months. So rather than reinvent the wheel, I thought it better to give you a link to two of the better reports to give you a big picture of the real estate market as a whole;

As in my past Gold Reports, after looking at the national market, we look at California. Perhaps one of the best articles to help you understand our “Golden State” is Jobs Move Real Estate (California). If you don’t have time to digest the whole article – California is getting better. Jobs exceed past recession levels but population growth of almost a million keeps us behind the curve still.

Finally, San Diego. Our economy is poised to add 30,000 jobs in 2015. According to USD Economist Alan Gin, the recent plunge in gas prices should add an extra $1 million a month in cash, to place in use in our economy.

The latest index of leading indicators from the University of San Diego shows continued gains by the region’s economy, with prospects for solid growth through 2015. The University’s Burnham-Moores Center for Real Estate reported that the index rose 0.6 percent in October. October’s gain was the fifth consecutive one for the index and “signals continued solid growth in the local economy at least through the end of 2015. Strong gains in initial claims for unemployment insurance and the outlook for the national economy offset a sharp drop in building permits,” the center said in its report. “Consumer confidence and help wanted advertising were up moderately while there was only a slight increase in local stock prices.

To read more about San Diego’s housing and employment, here is a link that I think gives the best charts and insight;  San Diego Housing Indicators.

If you want to create your own charts and learn about specific market asking rents, sale prices, market supply and such, I recommend going to our website and clicking on either of the market trend boxes, on the home page, and change the variables to receive the desired info;

Lastly, I thought you might enjoy this outlook on the National Retail market published by CoStar and yes that is yours truly quoted in the article!

CoStar Retail Outlook

I have to tell you, I can’t see how interest rates will stay this low forever. If you have a loan you should evaluate a refi. If you have cash, despite low cap rates, we are in a situation of positive leverage This is where cap rates (rate of return) can be found higher than loan rates. The only warning I have is that in buying, you want something that rents can grow or be increased over time as rates increase (and caps rise). Otherwise your appreciation will be wiped out by rising cap rates.

Since I have given you so much to read and digest this month, I thought I would leave you with an appropriate cartoon instead of a story. .

Don Zech (license #00885909)
CDC Commercial, Inc
Real Estate Services
Phone: 858.486.9999




“The only time my prayers are never answered is on the golf course.”

— Billy Graham

Something that I have often observed throughout my 30 years in commercial real estate, is that top producers don’t spend much time complaining about how difficult it is to close transactions or make money despite what they’re experiencing right now within their own brokerage business. Top brokers have more passion for the business. They enjoy the business more than everyone else, and it shows in their attitude every single day. They brush off any disappointment and move on, convinced that they’re about to uncover another opportunity. I like to say that at CDC Commercial we have an unfair advantage because we love what we do.

Like golf, it is good to have passion but it still takes time, repetition and persistence to be really good. According to the National Sales Executive Association, did you know that…

  • 48% of sales people never follow up with a prospect.
  • 25% of sales people make a second contact and stop.
  • 12% of sales people make more than three follow ups.

Yet 26.6% of all inquiries result in a sale. And it that is not enough;

  • 2% of sales are made on the first contact.
  • 3% of sales are made on the second contact.
  • 5% of sales are made on the third contact.
  • 10% of sales are made on the fourth contact.

Eighty percent of sales are made on the 5th  to 12th contact!

San Diego County’s unemployment rate dropped from 5.9% in September to 5.8% in October. October’s rate was a big drop from last October of 7.4%. Meanwhile, S&P/Case-Shiller index reports that home prices are decelerating. On the commercial real estate front, low inflation and moderate growth is maintaining the values of existing properties. Continued economic recovery will lead to more space absorption and higher rents and greater values. We are truly in a “Goldilocks” recovery – “not to hot and not to cold.”

Stagnant incomes and rising rents left the U.S. with an unprecedented number of doubled-up households as people moved in together to make ends meet. There are 5.4 million households that are lost in guestrooms and basements, waiting for better economic times. Like a golfers body coiled in a swing, these double up households represent a tremendous potential energy to be released into the market.

Although retail sales are on the rebound, the industry is dealing with the whole e-commerce and omni channel issue. Amazon , the online retail giant, is not only doing same day delivery but they are opening a brick-and-mortar store across from the Empire State Building in NYC. Meantime, Wal-Mart has opened “click-and-collect” facilities. These are drive up grocery pick up facilities. You order online and in as little as two hours you can pick up  your order from a drive up kiosk in your neighborhood. I believe this concept will gain traction with Walgreens & CVS using their drive thru’s to deliver more SKUs. Is 7-11 next? Shopping centers will reposition around this concept. Shopping Centers will either be “anti-social” – pick up and drive thru or “social” – where you eat, wander and are entertained.

So in an attempt to tie the subjects of this month’s letter together (golf, passion, persistence, employment, double up housing and the changing face of retail), I would like to introduce you to Austin Zech (my #3 son). He is a PGA Class A teaching pro with  a degree from the University of Nebraska in Golf Management. On December 1st he will be launching two businesses that are unique in the realm of the golf and retail/entertainment world. The first is the operation of a golf simulator where you can book a quick lesson (15 minute increments) or play 3 holes at your favorite course on the simulator and receive a lesson.  This will all take place at The Centre in Escondido (Lexus & Vintana).  The lesson will be personal instruction with a video of your swing and instructions emailed to you for future study. (  Come play three holes at Pebble Beach with a lesson and then catch drinks upstairs at the Vintana restaurant !( If that is still too much for you then you might try his other site at where you can upload a video from your phone of  your swing from the office or by the Christmas tree and get a video analysis back in 24 hours. Gift certificates for the golfer (or want to become golfer) in your life also available.With any level of success, I expect his “doubling-up” at our house to end soon!

This is the time of year when we all become dangerously close to burning out. So as the year comes to a close, take the time to do some things you normally do not get a chance to do such as see a new movie, play some golf or sip some fine wine. The most important thing to do is to relax, enjoy your family and re-energize your battery. On behalf of the whole team here at CDC Commercial, I would like to give thanks to you for your business and our relationship. All of you inspire me to be better every day. I can’t thank you enough. And of course, I hope you enjoy the story.

Regards and Happy Holidays!


Christmas Golf

Back in October a Christmas wish I made.
A brand new set of golf clubs before next year I played.
Then on Christmas morning with my eyes I spied
An oblong box under the tree, with ribbon wrapped and tied.

I looked out the window and saw the ice and snow.
But in my heart I knew, a golfing I would go.
Now I’d need some special gear to play in these conditions.
So I loaded up my golf bag to start a new tradition.

A broom to sweep the greens and a hammer for the tees
And different colored balls for white I wouldn’t see.
Arriving at the course, the ground was glistening white.
I wouldn’t have to wait, a tee time was no plight.

I swept away a pile of snow and pounded in a tee.
Placed a colored ball atop it and swung away with glee.
My ball went soaring down the fairway and landed with a flop
Into a two foot snow drift (unplayable), take a drop.

My next shot went into the sand, a shot to truly dread.
Then all at once I spotted him, a man all dressed in red.
As I’m lining up my shot, it’s Santa Claus I think,
When my ball flew in the hole, He looked at me and winked.

I knew these clubs were going to work, I’d just made a par.
Let’s play one hole together before heading for your car.
To believe in Santa at sixty, you might think it queer,
But it isn’t very often you get to see reindeer.

A long par three lay next, as we walked upon the tee.
There was no flag to aim for and the green I couldn’t see
Don’t worry said the man in red, I know what lies ahead.
Use your trusty five iron and aim it for my sled.

I’d like to thank you for these clubs, I wasn’t sure that I would get.
He said you’re welcome son, but Christmas isn’t over yet
I kept my head nice and still checked my stance and grip.
“Nice shot” said the bearded one, it’s hanging on the lip.

It seems a shame, he must be blind, there’s no ball upon the green
And I was disappointed because I’d struck it crisp and clean
And now you know my story and no one would believe.
How I made my first hole in one with Santa there to see.

– Jeff Opperman



Some of you already know this but late in October, in my quest to run a marathon on all 7 continents, I knocked off South America by running in the Galapagos marathon. Sure 541,000 people a year cross the finish line in 1100 U.S. marathons. It is difficult – extraordinary, even. I’m telling you that because people who run marathons like to be reminded how tough it is. Just like Commercial brokerage is a tough way to make a living.

The run, the trip, the experience were life changing. Someone in our group asked, “Do you ever say to yourself, ‘you’re going to have to pay for that’, I mean when you make a mistake sure there are consequences and generally we learn best from our mistakes, but do you ever say that to yourself when something good happens?” Then he said this, “My question to you is how much and to whom do I owe for that particular shade the sky had this evening?”


While I am still on the subject of being thankful and having just visited essentially a third world state, I was amazed to learn that (according to Credit Suisse) if you have $3650, you’re amongst the wealthiest half of the people in the world. Also in the next five years the number of millionaires will have increased from 35 mil to 53 mil.

Although you’re more likely in America to be killed by a pizza box than by Ebola, I will tell you that is not the way people are thinking and acting while traveling. I saw more masks and awkward looks at people coughing and sneezing than ever before in airplanes and airports. Of course, we may all worry about airplanes and airports, but what about around the water cooler at work? Buildings have fire and emergency drills – will we soon have Ebola drills? A time may be coming where you will need to have a plan to deal with communicable diseases to protect your tenants, employees or customers.

As the unemployment rate falls, the number of skilled workers looking for a job also falls. When this happens, employers who need to find employees will have to hire them from other companies, and the only way to do that is by offering them more money to leave their current jobs. When this begins to happen, you will then see wages increase and concerns of inflation will be talked about in the press.

In addition to a good jobs report, we have had oil prices tumble to lows not seen in a couple of years. This, too, will be beneficial to the economy in the fourth quarter and especially this holiday season.

The USD Burnham-Moores Center for Real Estate’s Index of Leading Economic Indicators for San Diego County rose 0.3 percent in August. Augusts’ increase was the sixth gain in the USD Index in the first eight months of 2014. The Index started the year strongly, had two bad months in the spring, and has now increased for three consecutive months.

The outlook is for continued solid growth in San Diego’s economy at least through the first half of 2015. The local economy has done well so far this year, with the county on a pace to add almost 31,000 jobs. If that pace continues, it would be the third consecutive year with an increase of more than 30,000 jobs. The last time that happened was during the period 1997 – 2000, which was the “Golden Age” of job growth in San Diego.

Again, my trip was eye opening as to how the world is evolving (yes, I know Darwin’s theory originated in the Galapagos). The Galapagos only had power 24 hours a day 10 years ago and the water is only on for 2-3 hours a day now. However, I was amazed to see dirt floored rooms with iPads on the table. I even saw a machete wielding worker talking on his cell phone while working.

Fast forward, last month the Wall Street Journal ran an article that the most amazing company of the last decade, Google, is mapping the favelas – Brazil’s down-trodden neighborhoods – with the expectation that exposure to these backward communities, before long, will cause them to emerge from crime and disorder, and translate into economic opportunity. Layer on this story the even more remarkable saga of Alibaba and its NYSE IPO, and the likelihood that the Chinese platform will reshape consumer commerce between the U.S. and China.

I could go on (and will next month) with some of the amazing things that are emerging but the more important thing is to remember, “It is not the strongest of the species that survive. It is the one that is the most adaptable to change.” – Charles Darwin. Hope you enjoy the story.

The Galapagos Fisherman

An American investment banker was at the pier of a small coastal Galapagos village when a small boat with just one fisherman docked.  Inside the small boat were several large yellow fin tuna. The American complimented the Galapaguen on the quality of his fish and asked how long it took to catch them.

The Galapaguen replied, “only a little while. The American then asked why didn’t he stay out longer and catch more fish? The Galapaguen said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”

The Galapaguen fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos.  I have a full and busy life.” The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Quito, then LA and eventually New York City, where you will run your expanding enterprise.”

The Galapaguen fisherman asked, “But, how long will this all take?”

To which the American replied, “15 – 20 years.”

“But what then?” Asked the Galapaguen.

The American laughed and said, “That’s the best part.  When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”

“Millions – then what?”

The American said, “Then you would retire.  Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”


As we approach Halloween and the political season moves into full swing, I have determined that Halloween is a holiday created by politicians because they want to teach children to knock on other people’s doors and ask for a handout! Despite my opinion, the average household plans to spend $125 this year on candy, costumes and other Halloween related items. The fact that consumers are willing to spend more on discretionary purchases is a positive sign for the upcoming holiday shopping season.

The real estate and leasing industry was responsible for roughly one quarter of California’s approximately 4% output growth in the 2nd quarter of 2014. Business expansion ultimately leads to increased demand for commercial space. Employment continues, however, to be a mixed picture. San Diego jobless rate is 6.1% but that is up from 5.8% the previous month. Bottom line is that job growth is not keeping up with population growth. The other problem we face is the skills gap. The San Diego Workforce Partnership just released a study showing the current imbalance of demand vs. supply for workers in advanced manufacturing (machinists, software and aerospace engineers) is over 800 jobs (that is 800 great jobs going unfilled!). As I mentioned last month, these are hard jobs that create 7 other supporting jobs (retail, real estate, accounting, etc.). Many of these jobs are in the defense industry. Military and support activities represent 20% of the region’s GRP, making it San Diego’s most important economic driver.

Tourism is another shining star with visitor traffic up 4%. Spending by tourists is up 10% indicating a more positive national economy. Tourism supports 20% of the county’s jobs but as I have mentioned before, these are service jobs often paying poverty wages.

Poverty maintains a tight grip on San Diego County with a 15.2% of the population below the poverty line (Escondido 19.69%, Vista 15.8% and Oceanside 16.7%). Forty-one percent of those falling below the line are employed full or part time.

I am pleased to announce that last month we closed escrow on a 10,000 SF office building that was only partially rehabilitated. We have sold the building to Interfaith Community Services (ICS) who will be spending close to $1.5 mil to finish the rehabilition and convert the building to a veteran recuperative care center for veterans who otherwise would be homeless. I encourage you to contact me or Greg Anglea the CEO of ICS ( if you can help with money or in-kind services.

So my take on the market is that we continue to teeter forward and mostly upward. The biggest issue is the lack of new business formation. This month I have included a couple of charts showing the amount of new space added to market (none), absorption-space leased, and vacancy for the I-15 market for office and retail. As you can see retail had an uptick and office a downtick.

As we keep our heads down filling vacancy, selling buildings, and helping to create more jobs, I hope you enjoy Halloween, some baseball and football this month with some potato chips and friends.

I hope you enjoy the story!

Potato Chips

A little boy wanted to meet God. He knew it was a long trip to where God lived, so he packed his suitcase with a bag of potato chips and a six-pack of root beer and started his journey.

When he had gone about three blocks, he met an old man. He was sitting in the park, just staring at some pigeons. The boy sat down next to him and opened is suitcase. He was about to take a drink from his root beer when he noticed that the old man looked hungry, so he offered him some chips. He gratefully accepted it and smiled at him.

His smile was so pretty that the boy wanted to see it again, so he offered him a root beer. Again, he smiled at him. The boy was delighted! They sat there all afternoon eating and smiling, but they never said a word.

As twilight approached, the boy realized how tired he was and he got up to leave; but before he had gone more than a few steps, he turned around, ran back to the old man, and gave him a hug. He gave him his biggest smile ever.

When the boy opened the door to his own house a short time later, his mother was surprised by the look of joy on his face. She asked him, “What did you do today that made you so happy?” He replied, “I had lunch with God.” But before his mother could respond, he added, “You know what?” He’s got the most beautiful smile I’ve ever seen!”

Meanwhile, the old man, also radiant with joy, returned to his home. His son was stunned by the look of peace on his face and he asked, “Dad, what did you do today that made you so happy?”

He replied “I ate potato chips in the park with God.” However, before his son responded, he added, “You know, he’s much younger that I expected.”

Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn life around. People come into our lives for a reason, a season, or a lifetime! Thanks for being in our lives.

Have lunch with God……bring chips!


 “There are those in life that make it happen. There are those that let it happen. and there are those that wonder – what the hell happened!”

As school goes back into session, I am reminded that our economy is like high school – you survive it. Last week Fed Chairman Yellen said what I have been saying for months, unemployment rates don’t accurately reflect the underlying weakness that still exists in the economy. I recently read that we have the same number of jobs now as back in 2007. However, we have 10.7 million more people – so we are still 10 mil jobs short of 2007.

There has been a lot in the press lately about inversions . This is simply moving a companies’ country of operation from the USA to a different lower corporate tax based location. This may all be well and good until the jobs follow. Keep in mind that real estate appreciation is a very simple game based upon more people moving into an area than moving out. We have our own inversion problem in California with companies choosing Texas, Nevada and Arizona to relocate. Even in San Diego we are finding companies looking to move to North County to escape the city’s new linkage fees and the new mandatory minimum wage increase. In the meantime, Microsoft announced a layoff of 18,000 and the likelihood of 12,000 jobs from San Diego’s Nokia facility. If you ever wondered what the impact of a layoff really is think about this; Economists say for every hard job (engineer, scientist, etc.) it creates 7 additional jobs (accountant, lawyer, doctor, waiter). So 12,000 laid off equals 84,000 jobs. If those people were to all move and you used the ratio of 18 sf of retail needed per person then we would lose the need of 1.5 mil sf of shopping space (or the size of North County Fair)! And this is all before the threat of the internet to struggling retailers. Speaking of which, Amazon announced a 34% increase in sales while at the same time brick and mortar stores had minimal sales increases.

Speaking of making it happen, the team at CDC has been busy. I find it that our inbound call volume has dropped significantly in the last two months, yet we are working on as many if not more deals than ever. It is the makeup of the deals that is unusual. We are not seeing the traditional “new business formation” that we would ordinarily see at this stage. Instead we are seeing existing businesses struggling with doing more with less. More restaurant tenants but taking smaller spaces (3000 sf instead of 8000 sf). Non-profits and churches growing and reaching out into the community with grant money. I am finding our problem solving skills, creativity and know how are being used to the max as we help lease, reposition, buy and sell properties for our clients.

But in the end there is no substitute for hard work and detailed diligence. At CDC, we believe a little optimism, some adaptability and perseverance combined with a little luck equals success. It doesn’t hurt that we love what we do – some might consider that an unfair advantage!

Hope you enjoy the story…



The following is an actual question given on a University of Washington chemistry midterm. The answer by one student was “so profound” that the professor shared it with colleagues, via the Internet, which is, of course, why we now have the pleasure of enjoying it as well.

Bonus Question: Is Hell exothermic (gives off heat) or endothermic (absorbs heat)?

Most of the students wrote proofs of their beliefs using Boyle’s Law (gas cools off when it expands and heats up when it is compressed) or some variant.

One student, however, wrote the following:

First, we need to know how the mass of Hell is changing in time. So we need to know the rate that souls are moving into Hell and the rate they are leaving. I think that we can safely assume that once a soul gets to Hell, it will not leave. Therefore, no souls are leaving. As for how many souls are entering Hell, let’s look at the different religions that exist in the world today. Some of these religions state that if you are not a member of their religion, you will go to Hell. Since there are more than one of these religions and since people do not belong to more than one religion, we can project that all souls go to Hell. With birth and death rates as they are, we can expect the number of souls in Hell to increase exponentially. Now, we look at the rate of change of the volume in Hell because Boyle’s Law states that in order for the temperature and pressure in Hell to stay the same, the volume of Hell has to expand proportionately as souls are added. This gives two possibilities:

  1. If Hell is expanding at a slower rate than the rate at which souls enter Hell, then the temperature and pressure in Hell will increase until all Hell breaks loose.
  2. If Hell is expanding at a rate faster than the increase of souls in Hell, then the temperature and pressure will drop until Hell freezes over.

So which is it? If we accept the postulate given to me by Teresa during my Freshman year, “…that it will be a cold day in Hell before I sleep with you,” and take into account the fact that I still have not succeeded in having sexual relations with that woman, then #2 cannot be true, and thus I am sure that Hell is exothermic and will not freeze.

The student received the only “A” given.


“Health is the slowest possible rate at which one can die.” I try to keep these kinds of thought in mind as my 53d birthday approaches this week and I pound out my morning runs and drink my green smoothies.

Speaking of green and living a long time, people are becoming more “green aware” in the commercial real estate biz. We hear more about green buildings but I expect you will start seeing more “green language” in leases. Courtesy of attorney Andrew Ouvrier here is a list of ideas for making leases green;

  1. Utilities – a green lease should require the tenant to provide electrical usage data.
  2. Lighting – green leases should require use of high efficiency lighting and motion sensors.
  3. Common Area Expense – a green lease should allow for the cost of upgrading for energy efficiency and pass through to the tenants.
  4. Recycling – should include specifics of handling tenant waste and also waste as well as construction or demolition debris.
  5. Construction – the build out phase presents an opportunity to incorporate energy saving features.
  6. Rules & Regulations – should restrict the use of items that affect temperatures or are energy hogs. Should require landlord approval.
  7. Use – uses should not interfere with sustainability practices. Air quality issues should also be addressed.
  8. Cleaning – cleaning practices should call out sustainable practices. Use of environmentally friendly cleaners.
  9. Remedies – Finally, what happens in the event one of the parties fails to meet the expectations set forth in the lease?

Now there is another type of green lease that is trending up as well and that revolves around recreational marijuana. With the likelihood of a 2016 California ballot initiative, we may see the same green boom as Colorado and Washington. Where over you stand morally, politically or health wise, legalized marijuana creates a boom for commercial real estate. Warehouse space will fuel the most pressure with the need for growing and distributor facilities. Retail will also see a bump for outlets and stores. Less space and higher rents will give new meaning to “a growing market.”

The bevy of recent economic data seems to fall into two camps; one suggests that the economy is poised to break out of the slow growth slumber we have been in and the other signaling that our cautious, slow expansion will continue to reign.
The broad measures of the commercial real estate market used by CoStar, measure aggregate pricing for commercial property. )Repeat Sales Indices – CCRSI). Both indexes are up 11.4% and 11.7% respectively year over year reflecting a broad improvement in market fundamentals.

When I think of fundamentals (and old guys who rule!), I think of Warren Buffet. I thought I would share ten popular Buffet quotes that can help all of us in our commerical real estate lives;

  1. “Rule #1: Never lose money.”
  2. “Rule #2: Never forget rule #1.”
  3. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
  4. “It is far better to buy a wonderful investment at a fair price than a fair investment at a wonderful price.”
  5. “We simply attempt to be fearful when others are greedy and be greedy.”
  6. “Risk comes from not knowing what you’re doing.”
  7. “In the business world, the rear view mirror is always clearer than the windshield.”
  8. “Our favorite holding period is forever.”
  9. “Some one is sitting in the shade today because someone planted a tree a long time ago.”
  10. “Price is what you pay, value is what you get.”

Well as I tick off one more year and check my lists of things to do, I hope you enjoy Dave Barry’s list of things that it took him 50 years to learn…

16 Things that took me 50 Years to Learn

  1. You will never find anybody who can give you a clear and compelling reason why we observe daylight savings time.
  2. You should never say anything to a woman that even remotely suggests you think she’s pregnant unless you can see an actual baby emerging from her at that moment.
  3. The most powerful force in the universe is gossip.
  4. The one thing that unites all human beings, regardless of age, gender, religion, economic status or ethnic background is that, deep down inside we ALL believe that we are above-average drivers.
  5. There comes a time when you should stop expecting other people to make a big deal about your birthday. That time is age 11.
  6. There is a very fine line between “hobby” and “mental illness.”
  7. People who want to share their religious views with you almost never want you to share yours with them.
  8. If you had to identify, in one work, the reason why the human race has not achieved, and never will achieve, its full potential, that would be “meetings.”
  9. The main accomplishment of almost all organized protests is to annoy people who are not in them.
  10. If there really is a God who created the entire universe with all of its glories, and He decides to deliver a message to humanity, He WILL NOT use, as His messenger, a person on cable TV with a bad hairstyle.
  11. You should not confuse your career with your life.
  12. A person who is nice to you, but rude to the waiter, is not a nice person.
  13. No matter what happens, somebody will find a way to take it too seriously.
  14. When trouble arises and things look bad, there is always one individual who perceives a solution and is willing to take command. Very often, that individual is crazy.
  15. Your friends love you, anyway.
  16. Nobody cares if you can’t dance well. Just get up and dance.

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