December 2014 Monthly Letter

The Blog
Page 7

“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.

The number one issue affecting commercial real estate in the near and long term? America’s growing energy independence – this according to Chicago based Counselors of Real Estate. Energy’s implications are twofold. Rising energy costs act like rising interest rates and put a damper on the economy and rent and real estate value. On the other hand it is creating a boom in employment in many markets from Houston to the Bakken oil fields of North Dakota. Also low natural gas prices improves our competitiveness in manufacturing, as well as being a potential export which helps rail and ship building.

Well San Diego lost an icon in the passing to Tony Gwyn this month. Tony was a great baseball player but more importantly he was a great man. His work ethic was legion but his kindness and jovialness were what made him genuine. I had the good fortune to not only watch him play but to cross paths with him at spring training, in the stands at high school basketball and at the local Circle K. He was always happy and always kind. In today’s world of social media and tweets I am reminded of this recent quote I heard, “The way to gain work is not through a lot of followers. A lot of followers doesn’t get you work. Doing good work gains you a lot of followers”. We at CDC try to live by this motto!

Well whether is was the passing of Tony (only a year older than me) or a family vacation with three generations of family or the most recent Father’s Day, but I looked around and realized we have a lot for which to be thankful. Despite the rising price of oil & gas, tension in the Middle East and Ukraine I find that business, un-employment and the real estate market are a lot better than it has been for the last five years. I read that 60 is the new 11. It used to be we averaged 11 months out of a recession. The ’81-’82 and ’90-’92 recessions took 36 months for us to return to normal (same unemployment as pre-recession). On June 6th, 60 months after the start of our recent depression/recession we have recovered the jobs lost (the scary part is how many of these jobs are now part time vs. full time). As they say at PIMCO, “The new normal is the new neutral.” The unemployment rate in San Diego in May was 5.8% down from a year ago at 7.3%. The employment increase added 29,300 jobs. The largest gain (6200) was in leisure and hospitality (more of those part time jobs).

Amazon recently rated San Diego the most well-read major city in the United States. In other news, Amazon announced its new Fire phone. Although they are late to the game they may still be a game changer. Malls and others are social spaces and so is the Fire phone. It has five cameras and assorted sensors. If you see a jacket on an actor in a movie – capture the image and you can buy it on Amazon. The next phase is “augmented reality” shopping. Want to see that chair in your living room and with new paint on the walls? Lowe’s is rolling out “Holoroom” where you can do just that.

In the retail grocery business there is also a new shift occurring and it is price not technology. For years, grocers pursued a mid-market strategy – don’t price too high and offer good value. Today Americans are choosing to go either up or down. Value shoppers are forsaking quality to meet budgets (Food 4Less, 99 cent) while other mid-market shoppers are trading up for quality and variety (Whole Foods, Trader Joe’s).
In all of my thankfulness, this month I was thrilled to have Nick and I featured in a recent real estate trade paper about father and son teams. It was especially fitting that it was published on Father’s Day and Nick’s 5th year anniversary with the company. In lieu of a story this month I have attached the article below. . In the meantime have a Happy 4th of July and be thankful for family, friends and Country!

real estate bisnow

Einstein had his theory of relativity, and so do we: The commercial real estate biz is full of people who are related. So, in honor of Father’s Day (it’s this Sunday; you still have time to run out and get a tie) we recently chatted with some of the industry’s dads and sons.

don and nick zech

Don Zech and son Nick work together at CDC Commercial, which Don founded in 1996. Don, the firm’s president, has been in commercial real estate since 1985, having launched his career at the old John Burnham & Co. Nick estimates he’s been in the biz in one way, shape or form for seven years now. As a college sophomore in Denver, he began internships with various firms, and by his senior year of college, he was working full-time for Dad. While Don says Nick was never pushed into the business, Nick says he knew from an early age that he wanted to be a broker. As a kid, he played on basketball, baseball and soccer teams and most of his peers’ dads barely made it to any games. “Conversely, my Dad was the coach and was there at every game and practice.” He decided he wanted a job with that kind of flexibility and be able to support a family.

nick zech

Here’s where you say “Awwww.” (We asked Don if Nick would mind us running this pic. His response: He’ll get over it.) According to Don, commercial brokerage is the closest thing to a contact sport that you can find in the business world. Kids of pro sports stars often become athletes; that’s partly due to genetics, but also, having a parent already there helps to clear the path a little bit. That said, brokerage is a commission business, so they sink or swim on their own. Nick adds that brokerage is a small community and it’s hard to get your foot in the door. “You’ll know real quick if you’re going to make it.” Having family or friends in the business gives you a chance to get in and prove yourself. A few years ago, Don hosted a get-together at his house for fathers and sons in commercial real estate. for the guests, it was an opportunity to learn who else has a kid in the biz, and to “let everybody know that the next generation has arrived.”


Once again our County and our real estate was tested by fire this month. I hope and pray that each of you and your family and your homes and properties were safe.

One hundred years ago, the world suffered an even bigger surprise than our recent fires. Instead it was a shot that was “fired” that began our first World  War, starting in Eastern Europe and spreading around the world. In the end it shattered Europe, cost millions of lives and changed life forever. A hundred years later, Eastern Europe threatens to entangle the world. Lest, like in past wars, you think who cares it doesn’t affect me, let me point to history. Besides all of the horrors of war, they always lead to inflation and higher taxes and higher inflation automatically pushes up interest rates.

After removing the volatile food and energy prices (who eats or uses gas?) from the basket, core inflation increased at a 2.5% annualized rate in March, the highest rate in a year. If this rate continues the Fed will have no choice but to raise rates (sooner than the 2015 guidance given so far). Inflation looks fit to rise. The National Association of Realtors is forecasting 3.5% inflation and 5.5% 30 year rates by next year at this time.

For an interesting perspective of interest rates over history click here. I am always reminded of the forecast that interest rates will go up and then come down, I just can’t predict how much and when!

The technology sector continues to lead the rebound in San Diego employment. This has been evident in both direct jobs but also the indirect effect from spending by technology workers. A barbell economy is one where middle-wage jobs are lost as the economy is polarized with high wage, high skill jobs on one end and low-wage low-skill jobs on the other. I recently read that this is the same issue affecting the “Grey Tsuami” (the aging yuppie bubble). The social welfare system cannot afford to pay for the bubble, however at the same time, those with professional degrees are working longer into their lives. I often say that jobs drive real estate (and they do). But I am thinking we ought to argue that education drives real estate.

Speaking of getting older and richer, I recently read that the richer you are the older you’ll get. The study showed that if you are in the top wealthiest 10% (all our clients I hope!) you can expect to live 16 years longer than those in the bottom 10%. If you can’t live longer by being rich, keep your eyes on a new San Diego start up by Craig Venter (sequencer of the human genome). His start up, Human Longevity Inc., hopes to make 100 years old the new 60. If you are looking to be more like the rich, then pay attention to a study by Investment Program Association who found that high net worth investors believe Commercial Real Estate is currently a more attractive asset class than equities.

If you already own real estate (or even if you plan to), you should be VERY concerned about proposals that the Federal government is weighing to eliminate or limit Section 1031 of the tax . “Like Kind” exchanges are one of the few opportunities to defer gains (and in death eliminate the gain and the tax). Unfortunately, limiting or eliminating the 1031 Exchange will not bring more money to the government because most prospective sellers will simply hold off and not sell at all. The ripple effect of this on lenders, escrow and yes yours truly will act as a drag on employment, property values and the overall economy. Contact your representatives!

After recent fires and a three generation family vacation, I have to tell you that I am so thankful for so many things. Please know that the relationships we build with you, so that we may all live long and prosperous, are  amongst those things for which I am thankful. I hope you enjoy this month’s story.

A brother and sister had made their usual hurried, obligatory pre-Christmas visit to the little farm where dwelt their elderly parents with their small herd of horses. The farm was where they had grown up and had been named Lone Pine Farm because of the huge pine, which topped the hill behind the farm.

The old folks no longer showed their horses, for the years had taken their toll, and getting out to the barn on those frosty mornings was getting harder, but it gave them a reason to get up in the mornings and a reason to live. They sold a few foals each year, and the horses were their reason for joy in the morning and contentment at day’s end.

Angry, as they prepared to leave, the young couple confronted the old folks “Why do you not at least dispose of The Old One.” She is no longer of use to you. It’s been years since you’ve had foals from her. You should cut corners and save so you can have more for yourselves. How can this old worn out horse bring you anything but expense and work? Why do you keep her anyway?”

No one noticed the insulation smoldering on the frayed wires in the old barn. None saw the first spark fall. None but the “Old One”. In a matter of minutes, the whole barn was ablaze and the hungry flames were licking at the loft full of hay. With a cry of horror and despair, the old man shouted to his wife to call for help as he raced to the barn to save their beloved horses. But the flames were roaring now, and the blazing heat drove him back.

By the time the fire department arrived, only smoking, glowing ruins were left. They nodded thanks to the firemen as there was nothing anyone could do now. The old man turned to is wife, brokenly he whispered, “We have lost much, but God has spared our home. Let us gather strength and climb the hill to the old pine where we have sought comfort in times of despair.

The journey up the hill was hard for their old bodies in the steep snow. Suddenly, the old man gave a cry of wonder and incredible joy. Bedded down about the “Old One” close to the trunk of the tree, was the entire herd, safe.

At the first hint of smoke, she had pushed the door ajar with her muzzle and had led the horses through it. Slowly and with great dignity, never looking back, she had led them up the hill, stepping cautiously through the snow. And now, she lay among them and gazed at the faces of the old man and his wife. Those she loved she had not disappointed. Her body was brittle with years, tired from the climb, but the golden eyes were filled with devotion as she offered her gift- – –


“Flipping burgers is not beneath your dignity. Your grandparents had a different word for burger flipping; they called it opportunity.”

– Charles Sykes

As I have preached many times, employment is the key component to real estate values (more people moving in than out and being employed). On the positive front for San Diego, unemployment has dropped to 6.9% in March from 7% in February and below the 8.4% of last year. Leisure and hospitality had the largest month over month gain adding 3400 jobs, most of the growth was in food services and drinking places. Education and health services gained 2400 jobs with health care contributing more than half. Other significant gains came from Government (2100) and construction (2000).

On the surface this all sounds good. Nationwide we have created approximately 4 million jobs in the last 5 years. However, if we look closely, you will see that the number of part time jobs has also increased by 4 million. Because part time jobs are included in the unemployment numbers, this means almost all job created were part time. These are mostly minimum wage jobs (like leisure, hospitality, food service – see above). Unfortunately, these jobs don’t support a living and do little to help overall growth in the market (thus why we feel like this is a slow recovery).

With this state of unemployment, there is little real income growth. Without discretionary cash flow, it begs the question as to where the fuel will come from. Beyond consumers taking on more debt, what will drive demand to produce sufficient top-line economic growth (remember higher gross sales means higher rent, equals greater real estate values).

As liquidity from the Fed comes to a screeching halt, the economy is left to stand on its own. We now need to grow our economy out of this malaise, no more financial engineering. In short, we need good business practices not Fed policies.

Speaking of business practices, there is a lot going on in the real estate world which we will soon see on the street. Albertson’s has acquired Safeway (Vons in SD) – watch for potential store closures and new tenants attempting to get into the market. Amazon has announced its sales have dropped 10% in states where it now has to collect sales tax (24% drop on items over $300). Interestingly those states only saw a 2% rise in sales from the bricks and mortar retailers. Radio Shack is undergoing a huge downsizing and may not survive. Office Depot and Staples are moving to smaller stores (maybe they could take the Radio Shacks?). The rumor is that Amazon might be looking at the Sears/K-mart conglomerate to open brick and mortar stores. Ground breaking should start soon for the Cross-Border airport bridge. Soon you will be able to park in San Diego and arrive or depart in Tijuana. You will be able to avoid lengthy border waits and have access to another airport in San Diego.

With more people covered by health insurance, there is a broader demand for medical services. Hospital systems are expanding their campuses and private healthcare is moving closer to its patients, making shopping center space a natural fit. The other trend to watch is large hospital systems moving into the insurance field. The trend is to an “integrated delivery system.” Insurance companies will be buying hospital systems and vice versa. Some refer to this as the “Kaiserfaction” of healthcare.

On the good news front, recent business surveys in San Diego show small business owners to be more upbeat. American Express reports that small business optimism is at a five year high. The San Diego County Business Forecast reached all time highs with the most important stat being over half of business owners expected to hire in the next three months.

In local real estate markets in the first quarter, office had a positive net absorption with slight increases to rents. Industrial rents were flat but still experienced  positive absorption. Retail was the case of the  have’s and have not’s. Premium markets have vacancies below 3% and above average rents. The others markets 7-10%. vacancy  with struggling rent (contributing to an average market vacancy of 6.4%).

So, as you leave your part time job and walk across the bridge to Mexico to fly to another country to get you healthcare, you can be sure that the sun is still shining in San Diego! I hope you enjoy this month’s story…

The Four Cats

Four men were bragging about how smart their cats were.

The first man was an Engineer,
The second man was an Accountant,
The third man was a Chemist, and
The fourth man was a Government employee.

To show off, the Engineer called his cat, “T-square, do your stuff.” T-square pranced over to the desk, took out some paper and pen and promptly drew a circle, a square, and a triangle. Everyone agreed that was pretty smart.

But the Accountant said his cat cold do better. He called his cat and said “Spreadsheet, do your stuff.” Spreadsheet went out to the kitchen and returned with a dozen cookies. He divided them into 4 equal piles of 3 cookies. Everyone agreed that was good.

But the Chemist said his cat could do better. He called his cat and said, “Measure, do your stuff.” Measure got up, walked to the fridge, took out a quart of milk, got a 10 ounce glass from the cupboard and poured exactly 8 ounces without spilling a drop into the glass. Everyone agreed that was pretty good.

Then the three men turned to the Government Employee and said, “What can your cat do?” The Government Employee called his cat and said, “Coffeebreak, do our stuff.” Coffeebreak jumped to his feet….

Ate the cookies…..
Drank the milk…..
Pooped on the paper…..
Had sex with the other three cats…..
Claimed he injured his back while doing so…..
Filed a grievance report for unsafe working conditions…..
Put in for Workers Compensation…..
And went home for the rest of the day on sick leave…..



Did you ever notice that when you put together the two words “The” and “IRS” it spells “Theirs…”?

In February, mother nature shut down Washington’s government offices for a day, but the extreme weather was no match for federal regulators. In the first two months of the year, the Federal Registry has mushroomed to 9079 pages! At this rate it will take an additional 80,000 employees working full time to complete the additional paperwork! I often wonder when we will hit the wall (paper or otherwise).

The Federal Reserve reports that “there is sufficient underlying strength in the economy to support ongoing improvement in the labor market.” Janet Yellen testified that it should be done winding down its stimulus measures by September and could see raising rates by this time next year.

Meanwhile, San Diego’s unemployment rate appears to have hit  a wall at 7%, however, it gained 9500 jobs in February, indicating that more people are returning to the workforce. Part of that returning work force may be because San Diego has been cited as the top city in the U.S. for launching a start up according to Forbes Magazine. Overall, Forbes predicted a revitalization of small business nationwide. Additionally, San Diego was ranked third in the nation for top biotech region by Genetic Engineering and Biotechnology news. This improvement to the job market comes despite three high profile companies shedding workers. Cox Communications laid off 500 people, Sony trimmed 400 jobs locally and Websense is moving to Texas with it 470 jobs. Seems like we are pushing against the wall but it’s not moving much. Lately I have been telling people that things are better today than yesterday and better this year than last. I don’t feel like we are pushing the rock up the hill each day, only to start at the bottom each time we stop. Now it is more like we are pushing  on the level and the next day the rock is where we left it.

Speaking of moving rocks and building walls, housing’s share of the GDP was 15.3%. Keep In mind housing is one thing that is still “Made in America”. This 15.3% compares to a 17% or 18% “normal” or average number. The good news through is where the GDP has grown about 4.7% over the last two years, the RFI (residential fixed investment) has grown by 22.8%. (so it is coming back fast!)

One wall I am concerned we are hitting is the stock market. Although this is not my market area of expertise, the dividend yield curve indicates an overpriced market and a correction in the offing. My bigger concern is the impact that has on pocketbooks and tenants in the market place and our fragile recovery.

Well in an attempt to be more “social” and to give clients more insight and regular market updates, I have joined the Twitter universe (@cdccommercial ). If you Twitter (or even if you don’t – just Google Don Zech Twitter) and please follow me. This is an easy way for me to “tweet” links to relative news or articles or more importantly, answer the constant question of “how is the market”. It’s kind of my way of posting updates to the wall. Speaking of walls, I hope you enjoy this months story.

The Wall

A lady CNN journalist heard about a very old Jewish man who had been going to the Western Wall to pray, twice a day, every day, for a long, long time.

So she went to check it out. She went to the Western Wall and there he was, walking slowly up to the holy site.

She watched him pray and after about 45 minutes, when he turned to leave, using a cane and moving very slowly, she approached him for an interview.

“Pardon me, sir, I’m Rebecca Smith from CNN. What’s your name?

“Morris Feinberg,” he replied.

“Sir, how long have you been coming to the Western Wall and praying?”

“For about 60 years.”

“60 years! That’s amazing! What do you pray for?”

“I pray for peace between the Christians, Jews and the Muslims.”

“I pray for all the wars and all the hatred to stop.”

“I pray for all our children to grow up safely as responsible adults and to love their fellow man.”

“I pray that politicians tell us the truth and put the interests of the people ahead of their own interests.”

“How do you feel after doing this for 60 years?”

“Like I’m talking to a wall.”


One of the most famous motivational  stories is that of the two shoe salesmen who are sent to Africa. The first writes back that it is a disaster  –  “no one here wears shoes.” The other writes back – “glorious opportunity! Nobody here wears shows!”

In the 4 ½ years since the Great Recession, we find ourselves wondering, “Is this  as good as it gets?” As we enter the Chinese Year of the Horse, superstition says it will be a year of instability. What we are seeing on the ground in the market place is that we are not fighting to push the ball up the hill quite as much. Not that the ball has momentum or is going downhill but at least it is on the level and with our exertion we can get deals to happen.

I know some of you will ask then why are things not leasing or selling better or faster. First, you must realize that what we are seeing is what I call, “Expansion in place.” A two person office in 1000 sf is becoming a four person office in 1000 sf. People with a home office are having an employee come to their house 3-4 days a week to work. Fifty person offices are demolishing their offices and putting in cubes and adding 25 employees. However, the next step of expansion is out of houses and larger offices.

While on the subject of optimism, technology and adaptability I would like to share some bullet points and trends that I thought you might interesting:

  • World poverty is at an all time low.
  • Battle deaths from war are at an all time low.
  • Death from AIDS in Africa from the peak are at an all time low.
  • De-leveraging is largely over. Monetary policy has been  largely ineffective while each sector of the economy is focused on reducing debt and getting spending in line with future income. This has taken us almost five years. The U.S. economy is now  ready to grow again.
  • The Fed has turned positive. Signaling that the economy can come off of life support, the Fed has started to reduce Quantitative Easing (QE). Now we can only watch and wonder what the escape from QE looks like. We predict the last chapter of QE is inflation. You can’t expand the money supply without incurring inflation. And history teaches us that inflation is how debt-ridden nations devalue and purge their debts.
  • The energy boom continues. The U.S. energy revolution is real. U.S. crude oil and natural gas production is 40% higher than 2006 when the boom started. Closer to home, researchers at Scripps Institute of Oceanography are developing methods to create bio fuel from algae. Algae fuel may someday make San Diego the next Saudi Arabia of the energy world.
  • Cap rate will remain stable with a little pressure to rise with interest rates. As cap rates and interest rates rise, more lenders  will enter the market keeping downward pressure on both rates.
  • Baby boomers are into retirement years. They are working later in life (keeping unemployment higher) and spending less (those 64-74 spend 23% less than younger groups).
  • The Internet of Everything. All I can say is you haven’t seen anything yet. The next 10 years will be more disruptive than the last. Google glass, 3D printing, driverless cars, voice recognition, keyless (virtual) access will affect your life, your wallet and your real estate. All I can say is learn and adapt.

With all of this change ahead will be opportunity. For all of us to seize this opportunity we need to communicate. Let’s be sure we are talking about existing tenants, renewals, coming vacancies, reasons to sell or do exchanges, refinances and buying opportunities.

There is no substitute for “boots on the ground” and wearing out our shoe leather knocking on doors. We appreciate the opportunity to be your eternal optimists on the front line of the real estate market. I hope you enjoy the rest of the story…

So, in the immortal words of Paul Harvey, here comes the rest of the story:

Salesman One returned on the next steamer to London.  He was an aggressive young man who had saved the company from a disastrous venture in a terrible market.  His reward was to oversee the newly-formed sales territory in France, a large territory that included Paris.  Salesman One went on to build a wonderful, booming business in ladies’ dress shoes.  He became wealthy and comfortable.  A fixture on the Parisian social circuit, he met and married a French heiress (getting rich the old fashioned way!). Salesman Two built an office and warehouse, ordered a boatload of shoes from his home office, and hired a team of hard-charging salesmen.  He estimated the sale of 15,000 pairs of shoes in his first year of business.  The home office was ecstatic.

The end of the first year came and Salesman Two and his team had sold less than 100 pairs of shoes.  The home office ordered layoffs.  Funding for payroll was cut.  Threats of abandoning the market were made  Aggressive, optimistic Salesman Two could but conclude one thing: He had made a serious mistake.  This was, indeed, the worst market in the world for shoes.

Salesman Two had not met his first year forecast, but, after a year of intensive selling, he knew more about the market than any person alive.  For example, he knew that some of his potential buyers liked the idea of shoes (protecting their feet) but felt claustrophobic in them, and did not want to have to stop and dump sand out of them all the time.  So he imported a small number of sandals to test. He concluded that some large part of his market would likely never wear shoes, at least in his lifetime.  But they all still hurt their feet occasionally on rocks and debris.  So, he found a lotion made by a German firm that, applied to the soles at night, toughened them up.  He imported cases of it.

Finally, Salesman Two discovered that most everyone, shoes or not, walked long distances during the day.  All got hot and many got sunburned.  So, he imported a line of wide-brimmed straw hats and walking sticks.

The hats became an immediate sensation.  The sandals did less well, but gained a niche following.  He could not keep enough of the lotion in stock.  And, in year 2, he sold 1,000 pairs of shoes—still a small number, but much better than the 100 pair in year one. Year 2 was breakeven.  Year 3 better.  After seven long years of hard work, trial and error, sleepless nights and one ulcer, Salesman Two became a millionaire, buying the business from his company.  In fact, he became so famous throughout his adopted country that a song was written about him. “It was called ‘Straw Hats and Walking Sticks.”


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