February 2019 Monthly Letter
In 1929 in Chicago, gun men in the suspected employment of organized crime boss Al Capone murdered seven members of George “Bugs” Morin’s North Siders gang in a garage on North Clark Street. The so-called St. Valentines Day Massacre stirred a media storm centered on Capone and his illegal prohibition era activities and motivated Federal authorities to redouble their efforts to find evidence incriminating enough to take him off the streets. With that nugget in mind, Happy Valentine’s Day!
Back in the day the cops used to complain about the crooks getting away before they could get to the scene of the crime. Of course, that was when the cops were still on horseback and the crooks had the modern technology of a car. Thus, was born the get-away car and later, the cop car.
What about today’s electric cars. What impact will they have on our commercial real estate landscape? Gas stations? Auto repair shops? Charging stations? Hot Roders, tuners and Hobbyists? (Do you expect a dual electric distributed battery system with stick shift Corvette in your garage?) Will gas cars go the way of steam and horses? Do you still have doubts? Volvo has announced that it is going to electrify all of its cars by the end of 2019.
Besides electric cars, Artificial Intelligence (AI) is also getting a lot of hype. How will this impact our commercial real estate landscape? After the hype dies down, I see AI becoming a part of our lives just like combustion, electricity and the internet. Will we have an Alexa in the lobby to help people find a tenant’s suite instead of a directory. It could also be used to check the weather, order your lunch and call your Uber. What was once a lobby valet and only in the most luxurious of buildings can be had by all. The great concern about AI of course, is that it will lead to human unemployment and social strife. For now, AI appears to be creating more jobs than it is displacing. Manufacturing is expected to take the biggest hit – 1.8 million jobs (great we’ll bring home all of these manufacturing jobs and then automate them all and put everyone out of work!) The 2.3 million jobs expected to be created by AI are in the education, healthcare and public sector. We have seen robotic automation affecting banking (ATM and bank by phone), retail cashiers and warehouse workers but the next step is “augmenting” where technology works alongside human professionals assisting them with repetitive tasks while leaving them with the “final say.” Think Doctors, Lawyers, hmm… Real Estate Brokers (“Siri, write my monthly letter…”).
The other real estate product heading for major transition is the drug store. The new healthcare model is to become the “healthcare destination”. CVS recently acquired Aetna Insurance, Walgreens has partnered with Humana and Amazon has a joint venture with Berkshire Hathaway (Warren Buffet) and JP Morgan Chase. What can we expect? Amazon store in front and minute clinic in back? Alexa detecting that you have a cold or cough and delivering a pill pack? Will it be drug store as a C-Store or as your Doctor office? Or both? Healthcare is a $3.5 trillion industry. We must figure out how to corral the costs or our nation will go bankrupt. I am starting to see the green shoots of this now; automated blood pressure machines at the mall, Apple watches telling you that you have Afib, your dental hygienist checking your mouth and neck for early cancer signs, blood labs giving your results along with dietary guidelines to increase or decrease a particular blood count.
Agility is key to winning in the digital era. New business models and competition, extensive use of technology, and changing tenant and investor expectations are redefining the commercial real estate (CRE) industry. As investors increasingly favor newer business models and the tech-enabled ecosystem, companies in the commercial real estate industry will have to realign business priorities and adapt to new demands. The most agile will be the winners! (That would be us at CDC Commercial!)
San Diego’s economy remains solid. When the government finally figures out how to stay open. San Diego will be one of the markets that benefit most from the latest spending bill. Two of San Diego’s key economic engines (Defense and Health Care/Biotech) look to be even stronger in 2019. San Diego was a little slow/late getting into the current recovery so hopefully we have a little more runway left than other markets.
Speaking of runways, I hope you enjoy the story.
A story of two men:
STORY NUMBER ONE
Many years ago, Al Capone virtually owned Chicago. Capone wasn’t famous for anything heroic. He was notorious for enmeshing the windy city in everything from bootlegged booze and prostitution to murder. Capone had a lawyer nicknamed “Easy Eddie.” He was his lawyer for a good reason. Eddie was very good! In fact, Eddie’s skill at legal maneuvering kept Big Al out of jail for a long time. To show his appreciation, Capone paid him very well. Not only was the money big, but Eddie got special dividends.
For instance, he and his family occupied a fenced-in mansion with live-in help and all of the conveniences of the day. The estate was so large that it filled an entire Chicago City block. Eddie lived the high life of the Chicago mob and gave little consideration to the atrocity that went on around him. Eddie did have one soft spot, however. He had a son that he loved dearly. Eddie saw to it that his young son had the best of everything: clothes, cars and a good education. Nothing was withheld. Price was no object. And, despite his involvement with organized crime, Eddie even tried to teach him right from wrong.
Eddie wanted his son to be a better man than he was. Yet, with all his wealth and influence, there were two things he couldn’t give his son; that he couldn’t pass on a good name and a good example. One day, Easy Eddie reached a difficult decision. Easy Eddie wanted to rectify wrongs he had done. He decided he would go to the authorities and tell the truth about Al “Scarface” Capone, clean up his tarnished name and offer his son some semblance of integrity. To do this, he would have to testify against The Mob, and he knew that the cost would be great. So, he testified. Within the year, Easy Eddie’s life ended in a blaze of gunfire on a lonely Chicago Street. But in his eyes, he had given his son the greatest gift he had to offer, at the greatest price he would ever pay.
STORY NUMBER TWO
World War II produced many heroes. One such man was Lieutenant Commander Butch O’Hare. He was a fighter pilot assigned to the aircraft carrier Lexington in the South Pacific. Butch O’Hare demonstrated in real life, and when it counted most, the fighting skills he had mastered. The carrier Lexington had been assigned the dangerous task of penetrating enemy-held waters north of New Ireland. From there her planes were to make a strike at Japanese shipping in the harbor at Rabaul. Nine Japanese bombers were reported on the way to the Lexington. Six Wildcats, one of them piloted by Butch O’Hare, roared off the Lexington’s deck to stop them. O’Hare and his wingman spotted the V formation of bombers first and dived to try to head them off. The other F4F pilots were too far away to reach most of the enemy planes before they released their bombs. As if this weren’t bad enough, O’Hare’s wingman discovered his guns were jammed. He was forced to turn away. Butch O’Hare stood alone between the Lexington and the bombers. O’Hare didn’t hesitate. Full throttle, he roared into the enemy formation. While tracers from the concentrated fire of the nine bombers streaked around him, he took careful aim at the starboard engine of the last plane in the V and squeezed his trigger. Slugs from the Wildcats six .50-caliber guns ripped into the Japanese bomber’s wing and the engine literally jumped out of its mountings. The bomber spun crazily toward the sea as O’Hare’s guns tore up another enemy plane. Then he ducked to the other side of the formation and smashed the port engine of the last Japanese plane there. One by one he attacked the oncoming bombers until five had been downed. Commander Thach later reported that at one point he saw three of the bombers falling in flames at the same time. By now Thach and the other pilots had joined the fight. This was lucky because O’Hare was out of ammunition. The Wildcats took care of several more bombers and Lexington managed to evade the few bombs that were released. It was an amazing example of daring and shooting skill. Afterward Thach figured out that Butch O’Hare had used only sixty rounds of ammunition for each plane he destroyed. He had probably saved his ship.
This took place on February 20, 1942, and for that action Butch became the Navy’s first Ace of W.W.II, and the first Naval Aviator to win the Congressional Medal of Honor. A year later Butch was killed in aerial combat at the age of 29. His home town would not allow the memory of this WW II hero to fade, and today, O’Hare Airport in Chicago is named in tribute to the courage of this great man. So the next time you find yourself at O’Hare International, give some thought to visiting Butch’s memorial displaying his statue and his Medal of Honor. It’s located between Terminals 1 and 2.
SO, WHAT DO THESE TWO STORIES HAVE TO DO WITH EACH OTHER?
Butch O’Hare was Easy Eddie’s son.