How is it that we put a man on the moon before we figured out if it would be a good idea to put wheels on luggage?
In an almost equally cool move as wheels on luggage, last year Apple started to allow you to store car, house, and hotel keys in your digital wallet. The same goes for corporate access cards. Commercial real estate brokers will rejoice the day we don’t have to carry a suitcase of keys to get into properties!
Meantime, a new wave of AI is set to have a profound impact on commercial real estate. AI is set to slash operating costs, reduce inflationary pressure and get rid of some of the grunt work. The big difference now is that interfaces with AI are intuitive, can be verbal, and are just an extension of what we do already with search engines or Siri.
While the advent of AI is a big growth opportunity for the industry, it comes with serious challenges that real estate companies will need to consider and confront as early as possible. Number one is the human impact. A day doesn’t go by without news of some previously unimaginable feat that ChatGPT has achieved, be it passing the Wharton MBA exam, writing college-level essays, or writing speeches for political leaders. The impact this will have on jobs and education requires a societal-level response to put a greater emphasis on critical reasoning, teamwork, and “soft” skills that remain outside the reach of AI.
What we don’t want to be left with is humans doing the hard jobs for minimum wage while the robots write poetry and paint!
Having just witnessed our politicians run out of money one more time and solve the problem again at the last minute by issuing themselves another credit card, I am not sure that AI might not be better!
For about the last 30 years, globalization is what kept a lid on inflation and allowed politicians to spend like drunken sailors and our monetary authorities to remain loose, without much in the way of an inflationary impact.
In fact, globalization kept prices down so much, it led policymakers to (erroneously) try to create more inflation with loose money, which was a further boon to equity, real estate and consumer prices. Policymakers tried to create what wasn’t there, and all it did was goose asset prices, and lead to bubbles and blowups.
They could spend all the money they wanted and not cause inflation. The whole notion that we could send all the low-end jobs abroad, turn the U.S. into a software powerhouse, run a negative trade balance, but then have China buy all our debt with their surplus, keeping our borrowing costs down, thrilled the politicians.
Nobody really thought it all through. Our country is not solely birthing software engineers, in fact at the rate we are dumbing down, quite the opposite. A country is not secure when giant hunks of its critical supply chain are outsourced to other countries which you are effectively at war with. It is all penny wise and pound foolish.
Politicians and monetary authorities can no longer behave the way they did, and get away with it, without inflationary consequences. The loose money era is over.
The banks have already realized this. Spooked by the damage caused by higher interest rates on their bond and real estate portfolios, they are now lending to only the most credit-worthy customers. Robert Frost once said, “A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.”
So why aren’t we already in recession? I have three observations.
The Fed created a truly insane amount of currency and dumped it into the system. That cash continues to work its way through the market, keeping prices high and consumers spending. The Fed meets next June 13 & 14 – how far will they push?
Unemployment remains low (3.3% in San Diego in April). Layoffs are spreading (ViaSat (107), General Atomic (376), Thermo Fisher (218), Mesa Biotech (170)) but in the face of that, 700 more jobs were posted in March than in February! On a year-over-year basis, San Diego saw 43,400 new jobs added! They can’t all work from home so it’s got to be good for commercial real estate – right?
The U.S. CRE market is off 15% from May 2022 (it was off -37% in 2007). A divergence in pricing is occurring. Institutional investors (typically larger value properties) have backed off 5.2% in value during the last 12 months. Meanwhile, smaller individual investors have seen a 4.8% gain during the same period.
I think the most interesting CRE story has been the sale of the Union Bank building in San Francisco. Many of you (including myself) have been affected by the Union Bank/US Bank sale. But less attention has been given to the 300,000-sf sale of the Union Bank building in San Francisco. It was listed in 2020 for $250 million. In 2022, it was taken off the market. It was re-listed in Feb 2023 for $120 million. It is reportedly under contract for mid-$60 million. That’s 75% off the original list price! Until now, no one knew what something was worth (where is the current bottom?). Keep in mind this isn’t a foreclosure (it’s free and clear). This might be the first, but it won’t be the only story as the market grapples and attempts to find equilibrium. If you would like to read the full story here is the link: Union Bank Story.
Nick’s Numbers
The chart below shows the Conference Board Leading Economic Index.
If you would like an analysis of your properties’ value or discuss what you should be doing with regard to interest rates or inflation and their impacts on your business, tenants, or property, I’d be happy to talk. (Nick Zech, 858-232-2100, nzech@cdccommercial.com).
Having recently updated my estate and having dealt with some clients recently that didn’t have wills, trusts, or proper vesting of their property, I implore you to take a few moments and invest in having your affairs and real estate in order. In the same frame of mind, take a moment and set up a legacy contact for your phone or tablet and your social media accounts. So when you have had enough on this world, your heirs will have a much easier time getting access to your digital world.
On Apple.
- Open settings and tap your name.
- Go to Password & Security > Legacy Contact
On Facebook.
- Go to Settings & Privacy > Settings and look for Memorialization settings.
Well with May gray behind us and June gloom ahead, my wish is that we get enough sun, enough happiness, and enough prosperity in the months ahead…and I hope you enjoy the story…
I Wish You Enough
I recently overheard a father and daughter in their last moments together at the airport. They had announced the departure.
Standing near the security gate, they hugged, and the father said, ‘I love you, and I wish you enough.’
The daughter replied, ‘Dad, our life together has been more than enough. Your love is all I ever needed. I wish you enough too, Dad.’
They kissed and the daughter left. The father walked over to the window where I was seated. Standing there I could see he wanted and needed to cry. I tried not to intrude on his privacy, but he welcomed me in by asking, ‘Did you ever say goodbye to someone knowing it would be forever?’
‘Yes, I have,’ I replied. ‘Forgive me for asking, but why is this a forever goodbye?’
‘I am old, and she lives so far away. I have challenges ahead and the reality is – the next trip back will be for my funeral,’ he said.
‘When you were saying goodbye, I heard you say, ‘I wish you enough…’ May I ask what that means?’
He began to smile. ‘That’s a wish that has been handed down from other generations. My parents used to say it to everyone…’
He paused a moment and looked up as if trying to remember it in detail, and he smiled even more. ‘When we said, ‘I wish you enough,’ we were wanting the other person to have a life filled with just enough good things to sustain them.’
Then turning toward, me, he shared the following as if he were reciting it from memory.
‘I wish you enough sun to keep your attitude bright no matter how gray the day may appear.
I wish you enough rain to appreciate the sun even more.
I wish you enough happiness to keep your spirit alive and everlasting.
I wish you enough pain so that even the smallest of joys in life may appear bigger.
I wish you enough gain to satisfy your wanting.
I wish you enough loss to appreciate all that you possess.
I wish you enough hellos to get you through the final goodbye.’
He then began to cry and walked away.
To all my Friends, Family, and Clients – I WISH YOU ENOUGH.
