“It is impossible to increase taxes. Disastrous to keep on borrowing. And inadequate to merely cut expenses.” ~ Charles Alexander de Cologne, French Finance Minister 1786
Why do you have to “put your two cents in … but it’s only a “penny for your thoughts?” Where’s that extra penny going?
The above question and many others have me thoroughly perplexed these days.
Last month I spoke about accomplishing the impossible of putting toothpaste back in the bottle. This month I was able to accomplish another impossibility! I was able to be in two places at one time! Yes, I logged into a Zoom conference call on my phone and a Zoom class on my laptop. So, through the magic of technology, I was effectively in two places at one time! Now many of you will rightly argue that I could not possibly give both Zoom calls my undivided attention. I agree! Unfortunately, this seems to be the hyper state that many of us are living in today. I call it the state of perpetual distraction. It has been proven that this state even causes our breathing to become shallow and erratic. It is also known as “email apnea” or digital exhaustion.
Well, I am glad to report that business and markets are crawling back to normal. We are finding ourselves very busy at CDC, however, converting this “busy-ness” to closed deals and income is quite another challenge. I feel like there is money sloshing around the economy and at the same time I am exhausted. I fear that the government may be creating too much demand when and where it may not be needed. When demand runs away from supply, you get inflation.
This demand-driven inflation is starting to show itself in the construction industry. Construction industry employment is at 7.5 million which is fast approaching its pre-pandemic peak of 7.6 million workers employed. With the latest $2.3 billion proposed infrastructure bill, the downside is that this is likely to put upward pressure on the cost of construction materials and labor. We are already experiencing a 400% spike in lumber prices in the last 12 months. This spike has added $24,400 to the cost of an average new home! As the world starts to get in their cars again, you have probably noted that gas is about a buck and a quarter more this year than last. Now with money to spend (pent-up demand) and stimulus checks, expect to see an even bigger leap in inflation numbers next month.
Nick’s Numbers
Here is a chart that shows just how crazy the spike in lumber prices is.
Please give me a call or email me if you would like an analysis of your properties’ value or to discuss what you should be doing with regards to the Coronavirus pandemic and its impacts on your business, tenants, or property (Nick Zech, 858-232-2100, nzech@cdccommercial.com).
So, what happens to over 100,000 U.S. gas stations if the new infrastructure plans, tax credits, etc.… move us to an EV world? I think you will see “gas” stations move to charge stations but also shift to be more experiential. I see workstations, Zoom rooms, brewpubs. If it takes 30 minutes to an hour to charge your car, you are going to have to use technology to be in two places at once (or at least do two things at the same time!)! Seven-Eleven is already paving the way with their new “evolution” stores. These new stores still serve Big Gulps but also frozen margaritas on tap. They have cigar humidors, taco shops, fancy coffees, fresh bakery, and patio seating.
The workplace continues to be in flux. No longer is everyone working remotely. Now the key in the workplace is “flex.” We live in a “phygital ” workplace that blurs the lines between work, home, and the web. In the office world, the emphasis is on an agile, adaptable workspace. Think space age cubicles – enclosed telephone booths, pop-up tents, tables, monitors, desks all on wheels. Office space will need to be laid out for safe collaboration as well as allow for individual focus but reconfiguring an office in minutes not months.
Speaking of returning to work, Apple recently announced its plans to hire 5000 employees in San Diego over the next five years. All the news was about a 1 billion square-foot campus for 3000 workers in North Carolina, but in San Diego, we are getting 5000 jobs! This is Apple laying down the gauntlet against Qualcomm in the cellular silicone turf war.
Besides feeling like we are running around like a chicken with its head cut off, I am very concerned about the impending tidal wave of distressed mortgages. Specifically, the response of the mortgage companies who could face penalties if they do not help prevent foreclosures or face gigantic losses if they do not proceed to mitigate these losses. The same goes for the eviction moratorium for residential and commercial. While no one relishes evicting a tenant, the industry has little choice given the complete lack of support offered by the government to landlords. This is an area that requires diplomacy, delicacy, and empathy. With this in mind, here are some ideas;
Keep the lines of communication open.
Be sure tenants have and are securing their PPP loans (which can be used to pay rent).
Look to secure early renewals in return for some rent forgiveness.
Look at amortizing unpaid rent across the balance of the term.
Of course, there is the risk that delaying an eviction will just get you deeper in the hole (The first rule of getting out of a hole is to stop digging!). On the other hand, if you evict and re-tenant you could end up in the same hole. It is always best to retain a good tenant who is going through a tough time.
In breaking news this week, the President has proposed limiting 1031 Exchange tax deferral to a maximum of $500K. The administration says the drastic change is part of the plan to “pay for” the cost of the $1.8 trillion American Families Plan.
This is a direct threat to Section 1031 Exchanges and the proposed limitation will have a severe negative impact on investment real estate and the economy.
You can help. Tell Congress to keep 1031 Exchanges.
Click on the link below to send an electronic letter to Congress. Every letter makes a difference.
TELL CONGRESS TO KEEP 1031 EXCHANGES
Though we may all feel that we are working ourselves to death. We are told there are only two certainties in life – Death and Taxes. Now we already have one Death Tax (also known as an estate tax or inheritance tax – currently an estate worth $11.7 mil or more). However, there is a rumor that the government is exploring the elimination of step-up in basis at death, which would result in a mandatory capital gains tax at death. Stay tuned and educated. This could be a whopper for the real estate industry.
In the meantime, I think I have found the cause of my tiredness and I thought I would share it with you…I hope you enjoy the story…
C.A.A.D.D. Covid Activated Attention Deficit Disorder
This is how it manifests:
I decide to water my garden.
As I turn on the hose in the driveway, I look over at my car and decide it needs washing.
As I start toward the garage, I notice mail on the porch table that I brought up from the mailbox earlier.
I decide to go through the mail before I wash the car.
I lay my car keys on the table, put the junk mail in the garbage can under the table, and notice that the can is full.
So, I decide to put the bills back on the table and take out the garbage first.
But then I think since I’m going to be near the mailbox when I take out the garbage anyway,
I may as well pay the bills first.
I take my checkbook off the table and see that there is only one check left.
My extra checks are in my desk in the study, so I go inside the house to my desk where I find the can of Pepsi I’d been drinking.
I’m going to look for my checks, but first I need to push the Pepsi aside so that I don’t accidentally knock it over.
The Pepsi is getting warm, and I decide to put it in the refrigerator to keep it cold.
As I head toward the kitchen with the Pepsi, a vase of flowers on the counter catches my eye–they need water.
I put the Pepsi on the counter and discover my reading glasses that I’ve been searching for all morning.
I decide I better put them back on my desk, but first I’m going to water the flowers.
I set the glasses back down on the counter, fill a container with water and suddenly spot the TV remote.
Someone left it on the kitchen table.
I realize that tonight when we go to watch TV, I’ll be looking for the remote, but I won’t remember that it’s on the kitchen table, so I decide to put it back in the den where it belongs, but first I’ll water the flowers.
I pour some water into the flowers, but quite a bit of it spills on the floor. So, I set the remote back on the table, get some towels and wipe up the spill. Then, I head down the hall trying to remember what I was planning to do.
At the end of the day:
the car isn’t washed,
the bills aren’t paid,
there is a warm can of Pepsi sitting on the counter,
the flowers don’t have enough water,
there is still only 1 check in my checkbook, I can’t find the remote, I can’t find my glasses, and I don’t remember what I did with the car keys.
Then, when I try to figure out why nothing got done today, I’m really baffled because I know I was busy all the damn day, and I’m really tired.
I realize this is a serious problem, and I’ll try to get some help for it, but first I’ll check my e-mail….
