January 2019 Monthly Letter
Wow! What a year? Hang on to your hat because 2019 is going to continue the wild ride! People ask me all the time, “what about the interest rate increase?” For the most part, I tell them commercial real estate doesn’t get affected the same way as residential. That is true, but the hidden lie is that it is still an impact. We’ve seen a 15% increase in rates in a year – that’s a lot! It affects people’s sentiments – makes them pause.
The other cocktail conversation is of course, “What about the stock market? – Ouch”. To which I also reply, “I’m in commercial real estate – it really doesn’t affect me.” Again, a bit of a white lie. Besides affecting people’s 401Ks and sentiment it often affects the money people were holding to put down on a commercial property purchase or to start or expand their business. This is true trickle down economics.
I will say that I am less concerned about rates then I am about the Fed running the debt off the balance sheet. If interest rates are rising because of stronger economic growth (which is what the Fed chief tells us), then real estate demand will also likely grow. But, if the stock market tumbles like it has recently, when we take 6 billion off the balance sheet, what happens when we take the remaining 3 trillion off? In the meantime, we have 9 trillion of corporate debt which is double that of a decade ago – as rates rise the squeeze is on.
So, where are we? I will tell you that we are in the battle between “stag” and “flation”. You see the recent rise in rates causing the stock market dip also took care of the fear of “flation” and now we have to wait and see if the fear of unwinding of QE (Quantitative Easing i.e., Debt) causes “stag”.
With the economy seemingly running on all cylinders and companies struggling to hire enough workers, it might be difficult to find time to take stock and examine your new year strategies and efficiencies. Yet now, as we move through the late stages of the business cycle, it’s more important than ever to do so. Here are 3 things to consider at this stage in the cycle;
- If you are thinking of selling your property or business in the next 5 to 7 years, consider selling sooner. Now is an opportune time to maximize value.
- In your business, your personal life and your property – streamline your cash flow. Invest now in the tech and time to digitize your life and your assets.
- Reduce risk on your balance sheet. Just like the Fed is doing (take some chips off the table).
As many of you will remember, for years we produced The Gold Report which was our look and advice for the year ahead. As in recent years, we have found it more efficient to give you links to a couple of the best reports in the industry;
I also strongly encourage you to attend a presentation of The Emerging Trends in Real Estate 2019 by Mitch Roschelle. It will be at USD on February 6 from 7 AM to 10 AM. I’ve attended many of Mitch’s presentations and find him to be entertaining and massively educational. Here is a link to register.
So, they teach you in sales school to always have a “call to action”. So here it is, “If you or someone you know is thinking of selling (buying is OK too) and/or would like to know the value of their property, have them call or email me.”
In the meantime, I am going to try to be like a duck (or a frog) and stay calm on the surface but paddle like crazy underneath. Hope you enjoy the story …
In the Pail
Two frogs left the safety of their swamp one day and ventured into a nearby farm to explore. Soon they found themselves in a dairy, where they found a large milk pail. Hopping into the pail, they found it was half filled with fresh cream.
The two little frogs were absolutely thrilled. They had never tasted anything so delicious! Soon their bellies were full. Feeling sleepy, they decided it was time to leave – and that’s when they realized they were in trouble.
They’d had no trouble hopping in. but how were they going to get out? The inside of the pail was too slippery to climb. And because they couldn’t reach the bottom and there was nothing for them to step on for traction, hopping to safety was out of the question, too. They were trapped.
Frantic, they began thrashing about, their feet scrabbling for a foothold on the elusive, slippery curve of the pail’s side.
Finally, one frog cried out, “it’s no use. We’re doomed!”
“No,” the other frog gasped, “we can’t give up. When we were tadpoles, could we have dreamed that some day we would emerge from the water and hop about on land? Swim on, brother, and pray for a miracle!”
But the first frog only eyed his brother sadly. “There are no miracles in the life of a frog,” he groaned. “Farewell.” And he sank slowly out of sight.
The second frog refused to give up. He continued paddling in the same tiny circle, over and over, hoping against hope for a miracle. An hour later, he was still paddling in his futile little circle. He no longer even knew why. His brother’s dying words clutched at his thoughts as fatigue tugged at his tiny muscles. “Was my brother, right?” he thought desperately. “Are there no miracles in the life of a frog? Finally, he could swim no more. With a whimper of anguish, he stopped paddling and let go, ready to face his fate…
Yet to his surprise, unlike his brother, the second frog did not sink. In fact, he stayed right where he was, as if suspended in midair. He stretched out a foot tentatively-and felt it touch something solid. He heaved a big sigh, said a silent farewell to his poor departed brother frog, then scrambled up onto the top of the big lump of butter he had just churned, hopped out of the pail and off toward his home in the swamp.
The Slight Edge by Jeff Olson