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“The difference between death and taxes is death doesn’t get worse every time Congress meets.” – Will Rogers

april 2019 monthly letterApril Fool’s Day also called All Fool’s Day, dates back to 1582 when France changed from the Julian calendar to the Gregorian calendar. People who were slow to adapt or get the news that the new year had moved to January 1st were celebrating the last week of March through April 1st became the butt of jokes and hoaxes.

However, the original “fake news” started in 1973 when Joseph Stalin created the first Disinformation Office. The idea was to provide false information with the intent to deceive public opinion. Stalin would say, “Flood the people with false info so they won’t know or believe the truth.”

True to the Will Rogers quote above, our state legislature has been hard at work. The sheer volume of new laws is staggering! In total, 1016 new laws will take effect in California in 2019. Amongst those, only milk and water will be published as beverage options on kid’s menus in sit down restaurants. Obesity is an epidemic, but I am not sure this solves the problem. Similarly, restaurants will no longer automatically offer you plastic straws when you order a drink. We’ll save the environment but sicken society by putting our mouths on questionably clean glasses.

I can’t say that I have reviewed the over 1000 new laws but the folks at Kimball, Tirey & St. John LLP have, and I have culled their list for laws affecting commercial real estate that are worthy of your review and understanding;

AB 2173 Commercial Property: Abandoned Personal Property: This bill increased the threshold amount for personal property abandoned in a commercial property to the great of (1) $2,500 or (2) one month’s rent. This bill does not change existing law with regard to the valuation of residential abandoned property. An article with information about the abandoned personal property in commercial property is available at https://www.kts-law.com/abandoned-personal-property-left-by-a-former-commercial-tenant/.

AB 2343 Calculations of 3-Day Notices and Summons: This bill amends Code of Civil Procedure Sections 1161 and 1167 to extend the waiting period for summons and some notices, effective September 1, 2019.

California Landlord/Tenant Law previously allowed weekends and holidays to count towards the three (3) day notice period but prohibited a notice from expiring on a weekend or holiday. Code of Civil Procedure §1167 has been amended to specifically exclude “Saturdays and Sundays and other judicial holidays” when calculating the notice period for notices to pay rent or quit or notices to perform covenant or quit. It does not exclude these days when calculating expiration periods for 30, and 60-day termination notices and notices to quit based on unauthorized assignment, subletting, nuisance, and waste.

AB 2847 Abandoned Commercial Property: creates new law regarding abandoned commercial property. Previously, the law specified that rent had to be unpaid for 14 days before a Notice of Belief of Abandonment could be served on the tenant. Effective July 16, 2018, new California Civil Code §1951.35 changes the 14-day period to the time period specified in the lease for the landlord to declare a rent default (if the lease is silent, it is a 3-day period. Leases sometimes provide for other time periods, such as 3 business days, 5 days or 10 days). AB 2847 also slightly modified the residential Notice of Belief of Abandonment form.

SB 745 Water-Conserving Plumbing Fixture Replacement (2014): Originally passed in 2014, and codified in Civil Code §1101.5, it requires water-conserving plumbing fixtures to be installed in property constructed before January 1, 1994. To be compliant, plumbing fixtures may not use more than the following amounts of water:

  • Toilets – 1.6 gallons per flush
  • Urinals – 1 gallon per flush
  • Shower heads – 2.5 gallons per minute
  • Interior faucets -2.2 gallons per minute

Beginning on January 1, 2014, noncompliant plumbing in multifamily and commercial property were required to be replaced in certain situations.

By January 1, 2019, multifamily and commercial properties must be in full compliance. An article with information about water-conserving plumbing fixtures required in California is available at https://www.kts-law.com/water-conserving-plumbing-fixtures-required-in-california/.

SB 1397 Automated External Defibrillators: Health and Safety Code §19300 previously required automated external defibrillators (AED) be installed in properties constructed on or after January 1, 2017. The law will now require that specific residential and commercial properties built before January 1, 2017, to install automated external defibrillators if the structure is modified, renovated or tenant improved, as specified, on or after January 1, 2020. An article about AEDs in commercial properties is available at https://www.kts-law.com/aed-devices-in-commercial-properties/.

Proposition 65: Proposition 65 requires businesses with 10 or more employees to provide warnings when they cause significant exposure to specific chemicals. Proposition 65 requires disclosures by employers who have 10 or more employees and who may expose their employees or the public to specific listed chemicals. There are more than 850 chemicals listed. Some of the environmental hazards are contained in items common in commercial, such as building materials, cleaning materials, car exhaust, and tobacco smoke.

For some time, landlords have been uncertain about how to comply with their Proposition 65 obligations. “Clear and reasonable” warnings must be given. Generally, in an effort to comply with Proposition 65, landlords have posted signage on their properties. Some also have also included Proposition 65 warnings in their leases. For more information about the new Proposition 65 warnings, see https://www.p65warnings.ca.gov/new-proposition-65-warnings .

I told you there were a lot of laws!

Well, we are at the stage of having a lot of good news and a lot of bad news going on. The good news is we had a great year and made money last year, the bad news is we paid a lot of taxes. The good news is we paid less than we would have under the previous year’s rates.

In February, the economy added a meager 20,000 jobs, well below the 180,000 expected. But the number of employed Americans – 156,959,000 has never been higher. The unemployment rate has dropped to 3.8 percent from January’s 4.0 percent.

The Fannie Mae Home Purchasing Sentiment Index (a measure of the current mood of the market) was 83.5 – a 3 year low and well below the May 2018 reading of 92.3 – a seven-year high. This is typically a sign of a reversal in the housing market.

In the leasing market, we are having a tough time finding the space tenants are looking for and at the same time we are finding some tenants getting conservative/cautious about their plans (shortening lease term, etc.). We have also seen multiple mortgage and escrow companies close or downsize.

I will say I am very concerned about the inversion of the yield curve. This is a pretty strong predictor of a recession. However, waiting for a recession is not a good investment strategy.

I still hold that we are in a lull window with some things tearing forward and some pulling back. At this point, it might be a soft landing or better yet a touch and go.

Finally, with the Mueller report out and election season kicking off, expect more talk and less action out of Washington.

Well, with all the information already disseminated I thought you would just like a little more as your story…


How Can You Possibly Live Without Knowing These Things?
  • In general, men can read smaller print than women can, but women can hear much better than men.
  • Coca-Cola was originally colored green.
  • It is impossible to lick your elbows.
  • The percentage of Africa that is wilderness:28% (now get this…) The percentage of North America that is wilderness: 38%.
  • Each king in a deck of playing cards represents a great king from history: Spades-King David, Hearts – Charlemagne, Clubs – Alexander the Great, Diamonds – Julius Caesar.
  • If a statue in the park of a person on a horse has both front legs in the air, that person died in battle. If the horse has one front leg in the air that person died as a result of wounds received in battle. If the horse has all four legs on the ground, that person died of natural causes.
  • Hershey’s Kisses are called that because the machine that makes them looks like it’s kissing the conveyor belt.
  • What day are there more collect calls made than any other day of the year? Father’s Day.
  • What is the most ironic trivia fact about Mel Blanc (voice of Bugs Bunny)? He was allergic to carrots.
  • What is an activity performed by 40% of all people at a party? Snooping in your medicine cabinet.
  • In Shakespeare’s time, mattresses were secured on bed frames by ropes. When you pulled on the ropes the mattress tightened, making the bed firmer to sleep on. Hence the phrase “goodnight, sleep tight”.
  • It was the accepted practice in Babylon 4,000 years ago that for a month after the wedding, the bride’s father would supply his son-in-law with all the mead he could drink. Mead is a honey beer and because their calendar was lunar based, this period was called the honey month we know today as the honeymoon.
  • In English pubs, the ale is ordered by pints and quarts. So, in old England, when customers got unruly, the innkeeper would yell at them mind their own pints and quarts and settle down. It’s where we get the phrase “mind your P’s and Q’s”
  • Many years ago, in England, pub frequenters had a whistle baked into the rim or handle of their ceramic cups. When they needed a refill, they used the whistle to get some service. “Wet your whistle” is the phrase inspired by this practice.
AND FINALLY,……………………………………
At least 75% of people who read this will try to lick their elbow! —April Fools!
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It seems that Jeff Bezos has experienced the same problem as many Amazon customers with having Echo ordering inappropriately:

Scene: Amazon’s Jeff Bezos’ trendy home earlier this month. He’s talking to his Echo.
Bezos: “Find me something to buy at Whole Foods.”
Echo: “Okay, buying Whole Foods.”

Bezos: “Oops.”

Amazon is killing a lot of businesses. In the process, it may also be killing inflation – they are squeezing prices of everything through their automation and efficiencies. Both factors that are bound to hurt commercial real estate. Although all of the focus this month has been on the Whole Foods purchase (never mind that Whole Foods has less than 3% of the grocery market), I think the breaking news was the roll out of Amazon Prime Wardrobe. Here the online retailer attacks the biggest problems of buying clothes; (1) the time it takes to shop, (2) the hassle of finding the right size, (3) returning stuff you don’t want (comes with pre-labeled return but you get a discount if you keep it all).
As we enter the second half of the year, I would like to take an assessment of where we stand and share some interesting data that I am seeing. First, I will tell you that we continue to be busy and are not experiencing any slowdown. Interest rate bumps have not affected most of our day to day investor/buyers. However, the think tanks and big data are pointing to a “slow-motion slow-down.” Low unemployment is generally good for commercial real estate (more workers – more space).
However, too low makes it tough to expand without a pool of workers. Slowing job growth may be the catalyst for the slowdown. E-commerce will continue to bring retail to its knees. Interest rates will continue to tick up which will put upward pressure on cap rates (and lower prices). With cap rates at record lows (I saw a 3.5% cap on a property in NYC!) it is hard to believe that there is much room for commercial real estate prices to run.
A couple of charts below help to illustrate my concerns.
commercial property price index
total deal volume by sector

(PRNewsfoto/Ten-X)

consumer board consumer confidence index

If you really like charts, numbers and big data then you will really enjoy the Cycle Monitor by Dividend Capital Research and Glenn Mueller, PHD.

While recessions are inevitable, it will not be anywhere near the disaster of 2008 (and we probably won’t start seeing the “slow-motion, slow-down” until 2018). Rather we will more likely see a prolonged flat period. The recession of 2007-2009 was the closest thing to the great depression. My guess is the next recession will be more modest. Commercial real estate has nowhere near the excesses that were built up in the mid 2000’s. In the meantime, low unemployment, low cap rates, low vacancy rates, head down, work hard and enjoy the ride. Hope you enjoy the story…
Jeff Bezo’s Email to Employees on Amazon’s Purchase of Whole Foods
by Ryan Garcia
Team;
Today is a significant milestone in the evolution of the Amazon brand. Our offer to purchase Whole Foods will finally consolidate the largest online and off-line retailers where consumers end up spending way more than they intended. I actually didn’t even mean to buy Whole Foods but after downing a few too many boilermakers at the Echo mixer last night, I accidentally clicked BUY IT NOW instead of just putting the grocery chain in my cart for future consideration.
Oh well, you know what they say-you can’t log off Amazon without spending $13.7 billion. So true!
Further details about the merger will be forthcoming, but I wanted to call out a few major points before we have to go silent and get this approved by regulators.
  • Our corporate cultures or perfectly aligned. The New York Times revealed that every Amazon employee has cried at their desk, and I personally made a Whole Foods employee cry when they couldn’t correctly identify their process for ensuring single-source coffee beans throughout the roasting process. It was an uncomfortable 38 minutes for both of us, but I think an experience so many of you can relate to.
  • Improved Echo functionality. Whole Foods has maintained a laser-like focus on organic foods and sustainable facilities and I’m excited to bring that same vision to Echo. Starting next week, when customers ask their Echo to order non-organic food products that receive a 12-minute lecture on the benefits of organic and local source products while our top-notch product matching software will send them the closest available organic item. Users on our website will find the “Customers Also Bought…” section replacing unhealthy items with notes such as, “Cookies That Went Straight to Their Thighs” and “Beef Produced By Clearcutting Rain Forest.” Needless to say, those products will not be available for purchase.
  • Drone changes. All Amazon drone teams will immediately switch to bio-fuels rather than battery packs.
  • Senior leadership. Once the acquisition is complete, John Mackey will take a new position as financial analyst and social media community outreach for the Washington Post. Synergy!
  • Location changes. Since Whole Foods is headquartered in Austin, Texas, I’ve asked EM to build the first hyperloop route between our offices here in Seattle and the Blue Bubble of Texas. All Amazon/Whole Foods employees Will office in Austin for the one week of good weather they have in late February, and in Seattle for the one week of sunshine we have an August (or May… or October… or whenever). The remaining 50 weeks of the year are up to you. Because I believe all Amazon employees should be free to cry at their desk no matter where that desk is located.
  • Product expansions. Amazon will soon carry all of the 365-branded products Whole Foods has developed in all Whole Foods stores we’ll be adding aisles for garden equipment, household electronics, sportswear, handbags, pet supplies, golf clubs, video games, plumbing supplies, luggage, headphones, and climbing gear. To start.
  • Cruelty free. We will be adopting Whole Foods policy of only purchasing products that are certified cruelty free. Please note this does not apply to any software we developed ourselves.
I am beyond excited by the possibilities of this merger moving forward and I hope the team feels the same. The combination of our two companies will account for over 85% of all hipster purchases in the United States. I’m looking forward to capturing the remaining 15%.
Now, I need your daily status updates and you aren’t excused for being late for reading this.
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According to her biography, Barbara Millicent Roberts grew up in the mythical town of Willows, Wisconsin. For a period of time she attended Willows High School but later moved on to Manhattan International High School in New York City. Over the years, she has had more than 40 pets including cats, dogs, various horses, a zebra, a lion cub, and a panda. She has held dozens of professional positions including doctor, pilot, astronaut, veterinarian, and flight attendant. Her taste in cars is legendary. Her favorite color is bright pink. That color has become known as Barbie Pink. On March 9th, the folks at Mattel celebrated Barbara Millicent “Barbie” Roberts’ 58th birthday. No matter what you think about this cultural icon, you have to admit that she’s looking good for her age.

The ubiquitous Barbie doll made its debut on March 9, 1959, at a toy fair in New York City. She was an instant hit. About 350,000 dolls were sold in the first year of production. Since then, it is estimated that more than a billion Barbies have been sold worldwide.

Negotiating the emotional minefield between whims and dreams is a difficult task for any parent (or consumer for that matter). The marketing machines of companies flash shiny objects in our eyes forcing us to make tough decisions, ones that don’t always leave us happy, satisfied or popular.

I once read that in a grocery store there are over 100 salad dressing choices. With so many to choose from we are never able to be satisfied since we can’t try all of them. Whereas with only 3 or 4 choices we can be sure of our favorite. Could this be the root of IN-N-OUT Burgers grand success?

I remember a bumper sticker that used to say “I want to be like Barbie…that bitch has everything.” Well before you become rich you must decide whether you want to be secure, comfortable, or rich. These are called core values, or the reasons you want to invest.

The first reason most people invest is because they want to feel more secure That’s why Social Security or a retirement plan is very popular with people whose core value is the need for security. Security is a very important aspect of investing. You don’t want to be a destitute out on the streets with nobody taking care of you.

Unfortunately, many people who are counting on government or their employer to provide for their retirement will be sorely disappointed. A person who invests to be secure or values security will always say, “Well, I have to have a roof over my head and I need to put food on my table.” Their whole orientation is security or survival.

The next level above security is to be comfortable. They say, “I just want…” They want the house, the second vacation house, or the extra car. They want to take a cruise every now and then. Their highest priority is the need to be comfortable.

The third core value that motivates people is wanting to be rich. Most people dream of becoming rich but if the dream of becoming rich disturbs any of the lower core value of security or comfort, they’ll forsake being rich.

They’ll dream of being rich but if it means giving up a safe, secure job, then being rich remains a dream. If it’s just too much trouble to become rich and they’re comfortable at the moment, then they won’t pursue becoming rich. Those are the three core emotional reasons why certain people chose certain investment paths. Money is just an idea. It’s a formulation of the mental, emotional, and spiritual ideas inside of you that determine what you ultimately become. In the end, you need to fight for the future you want.

Today Big Data is to commerce what oil was in the past. Data helps retailers interpret what consumers will buy and when and for how much. The data comes from everywhere. Indoor tracking systems like Bluetooth beacons or Philips lighting or facial recognition. From web browsing and app use. From transaction data aggregated by Visa and MasterCard. Even from Uber, who knows that riders spent 2 billion directly after getting out of an Uber. How about the father who got a call congratulating him on becoming a grandfather before his daughter told him she was pregnant – all courtesy of Big Data and browsing history!

In 1890, Samuel Warren wrote a paper called, “The Right to Privacy” and in it he cited “recent inventions and business methods” – including instant photography and tabloid gossip – “have invaded the sacred precincts of private domestic life.” In the paper, they called for the “right to be left alone” and what they called, “the right to one’s personality.”

Although technology may be making our lives more public than we want, loneliness seems to be an epidemic. The number of Americans who say they have no close friends has nearly tripled in the last decade. While technology offers us an easy way to keep in contact with friends and meet new people, technology encourages shallow conversations that can distract us from meaningful, real life interactions. Smartphones have transformed grocery lines from a chance for small talk with neighbors to an exercise in email checking. Starbucks has sealed the fate of the coffee shop as nothing more than a place of mutual isolation.

So what does this have to do with commercial real estate? Shopping centers? Office buildings? Well let me tell you. Successful real estate in the future is social real estate. Location, location, location brings new meaning in a social setting. The best location is where people will want to live, work and play. Shopping centers will be social centers.

Although you may buy your Barbie dolls now on Amazon, most of you still go to the grocery store to buy your groceries. The grocery store has been largely immune to the ravages of online shopping. But a war is coming. Beside the current intense competition of Vons, Ralphs, Wal-Mart, Target and Costco, you have the growth of niche players like Trader Joe’s, Whole Foods, and Sprouts. Soon you will see the growth of ALDI, LIDL and Grocery Outlet. Not to be outdone, Amazon is stepping up its grocery delivery business and is now rolling out stores that will just deduct your purchase from your credit card as your walk out the door – no cashier needed. To make things harder, struggling brick and mortar retailers such as dollar stores and pharmacies have increased their inventory of grocery items (can you image Amazon buying Rite-Aid or CVS? Amazon delivering your drugs and an Amazon store on every corner.)

Like the grocery business, our activity has increased but business has gotten harder to close. Although we are working hard to get rich we are trying to be happy being satisfied. We have ventured into the Big Data market and done a Barbie analysis of the San Diego market (I apologize ahead if you or your neighborhood is insulted).

San Diego Barbie from KGB Bob and Coe Show

La Costa Barbie – this princess Barbie is only sold at the brand new La Costa Forum. She comes with an assortment of Kate Spade handbags, a Lexus SUV, a long-haired dog named Honey, and a cookie-cutter house. Available with or without tummy tuck and face lift. Workaholic Ken sold only in conjunction with “augmented” version.

Rancho Bernardo Barbie – this modern-day homemaker Barbie is available with Ford Windstar minivan and matching gym outfit. She gets lost easily and has no full-time occupation or secondary education. Traffic-jamming cell phone included, headset sold separately.

Escondido Barbie – this recently paroled tattooed and nose pierced Barbie comes with a 9mm handgun, a desert/river ready lifted Chevy truck with dark tinted windows, and a methlab kit. This model is only available after dark and can only be paid for in cash, preferable in small, untraceable bills. Unless you are a cop, then we don’t know what you’re talking about.

Del Mar Barbie – this yuppie Barbie comes with your choice of BMW convertible or Hummer H2. Included are her own Starbucks cup, credit card, and a country club membership. Also available for this set are Shallow Ken and Private School Skipper. You won’t be able to afford any of them.

Santee Barbie – this pale model comes dressed in her own Wrangler Jeans, two sizes too small, a NASCAR shirt, and Tweety Bird tattoo on her shoulder. She has a six-pack of Coors Light and a Hank Williams, Jr CD set. She can spit over 5 feet and kick mullet-haired Ken’s ass when she is drunk. Purchase her pickup truck separately and get a confederate flag bumper sticker absolutely free.

La Jolla Barbie – this collagen injected, rhinoplastic Barbie wears a leopard-print bikini outfit and drinks cosmopolitans while entertaining friends at the beach house. Percocet prescription available.

Lakeside Barbie – this tobacco-chewing, brassy-haired Barbie has a pair of her own high-heeled sandals with one broken heel from the time she chased Beer-Gut Ken out of Lemon Grove Barbie’s house. Her ensemble includes low-rise acid-washed jeans, fake fingernails, and a see-through halter top. Also available with a mobile home.

Leucadia Barbie – this doll is made of actual tofu. She has long, straight, brown hair, archless feet, hairy armpits, no makeup, and Birkenstocks with white socks. She smokes good sinsemilla buds and prefers that you call her “Willow.” She does not want or need a Ken doll, but if you purchase two Leucadia Barbies and the optional Volvo wagon, you get a coupon for a free wheat-grass smoothie at any Whole Foods Market.

National City Barbie – this Barbie now comes with a stroller and infant doll. Optional accessories include a GED and bus and trolley pass. Gangsta Ken and his ’79 Caddy were available, but are now very difficult to find since the addition of the infant.

Chula Vista Barbie – this Spanish-speaking-only Barbie comes with a 1984 Toyota with expired temporary plates and three baby Barbies in the back seat, but no car seats. The optional Ken doll comes with a pickup truck loaded 10-feet high with mattresses. Green cards are not available for Chula Vista Barbie or Ken.

Hillcrest Barbie/Ken – this versatile doll can be easily converted from Barbie to Ken by simply adding or subtracting the multiple “snap-on” parts. Bonus: free rainbow flag with proof of purchase sticker.

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