July 2019 Monthly Letter
The tune of the National Anthem was originally used as an English drinking song called “To Anacreon in Heaven.” Cheers…and Happy 4th of July!
U.S. economic growth depends heavily on the performance of individual states. California, for instance, in 2017 was the fifth largest economy in the world, boasting a GDP larger than that of the U.K., France, and India according to Wallet Hub.
Although nationally our inflation rate seems to be tame, San Diego has risen by 3.8% over the last 12 months and a full 1 percent over the last two months. This is largely due to an increase in the cost of gasoline. And that is before the 5.6 cents per gallon gas tax hitting today (July 1, 2019). If you believe that reported inflation doesn’t accurately reflect real inflation, you might want to visit; http://www.chapwoodindex.com/.
Good news! San Diego’s unemployment rate logged in at 2.8%, the lowest rate in a decade.
Although the next two trends are affecting residential real estate, I think they are noteworthy and could easily be seen in the commercial realm.
Just when you think things in Los Angeles could be any more dysfunctional, they take the cake again! The City Council has proposed a new tax on property owners for leaving a home vacant.
LeaseLock a new Fintech company is offering a new technology that would eliminate security deposits for multifamily rentals. It decreases move-in costs and accelerates the leasing cycle which increases occupancy rates. Think of it as an electronic surety bond.
Trade dispute tensions, a slowing global and U.S. economy and rising tension in the Middle East have caused a flight to treasuries and a drop-in rate. The Fed has signaled possible rate cuts. All this bodes well for commercial real estate and financing. First, if you didn’t refinance before now might be a good time to do so. To give you an idea as to rates here’s a quick snip of a recent quote:
$1mm + staring at:
5 year fixed – 4.5%
7 year fixed – 4.6%
10 year fixed – 4.7%
Up to 75% LTV
With rates remaining low, it’s still a good time to look at acquisition. However, the reason for investing now shouldn’t be because of FOMO (Fear Of Missing Out). Money mistakes are a fact of life. According to a recent survey, 78% of Americans confessed to making a least one financial gaffe. These are always bad, but in a commercial real estate deal, this could easily cost millions of dollars. Here is a list of common mistakes and some strategies to sidestep them.
- Insist on a margin of Safety – in other words, don’t buy at fair market value but instead expect things to not live up to expectations.
- This time is NEVER different – the four most dangerous words in investing are “this time is different.” When you hear those four magic words – get out!
- Don’t go it alone – you probably got your money from being smart and exerting some special skills. When you buy real estate have a team to help with; real estate law, taxes, insurance, leasing, and property management.
- Don’t invest in something you don’t understand – don’t be at the mercy of your advisors. Fully understand the concept of your investment and be confident you are investing wisely.
- Be leery of leverage – leverage is a two-edged sword; it increases your returns and it increases your risk.
- Understand the local market – get the local newspaper or newsfeed. (I met a medical building investor who bought next to a hospital that was closing!). Know the local price per square foot comparisons, cap rates, commercial construction activity, zoning regulations, and economic growth. Have a local broker who knows and can help with that (Hint hint).
With #6 above in mind, I would like to re-introduce “Nick’s Numbers.”
Hello all, I would like to take a section of the monthly letter each month and give you some current data about a specific city or other trends that I think you may find informative and/or educational. This month, I will start with a summary overview of Escondido’s retail, office, and industrial property categories. ~ Nick
Please give me a call or email me if you would like more in-depth info on Escondido or other San Diego and North County sub-markets (Nick Zech, 858-232-2100, firstname.lastname@example.org).
I hope you all have a great 4th of July and enjoy beautiful San Diego. You can quiz your friends around the BBQ to see who is a real San Diegan . . .
YOU KNOW YOU’RE FROM SAN DIEGO WHEN;
- You can correctly pronounce Tierrasanta, La Jolla, Rancho Penasquitos, San Ysidro, Otay Mesa, Jamul, and El Cajon, and know where they are.
- There are four distinct seasons: Summer, Not Quite Summer, Almost Summer, and oh, hey look its summer again.
- Your house is worth more than some small countries.
- You know what MB, OB, and PB stand for.
- Every street name is either in Spanish or Spanish related, and you’re surprised when other areas don’t have this.
- You see weather forecasts for four different climate zones in the same county and aren’t remotely surprised.
- You remember going to “The Cross” on Mt. Helix for Easter services. 60 degrees is COLD!
- You’ve tailgated at Qualcomm Stadium, and for bonus points, also tailgated when it was Jack Murphy Stadium.
- You know that “charge!” doesn’t refer to a credit card.
- You remember going downtown via Federal Blvd. before Hwy 94 was built.
- You remember when Hwy 94 was 2 lanes in each direction.
- You still call it the Del Mar Fair.
- You say, “I’m going to the track” and people know what you’re talking about.
- You remember when Lemon Grove, La Mesa, and Spring Valley were “in the sticks.”
- You understand what May-gray and June-gloom mean.
- There’s a North County, South County, and an East County but no Central County.
- You know what “the merge” is and will plan your entire day around not being on it during rush hour.
- You know the difference between Clairmont Mesa, Kearny Mesa, and Mira Mesa.
- You’ve gone to Sea World on a warm day and sat in the first few rows at the Shamu Show to get cooled off.
- You’ve been delayed at the Border Checkpoints on the 5, the 8 and the 15.
- Your house doesn’t have or need air conditioning unless you live in the East County.
- No matter what the weather is, there is always someone walking around in a t-shirt, shorts, and flip flops.
- You’ve been to the desert, the mountains, and the beach all in one day.
- You know that Santee and Lakeside are where the “cowboys” live.
- You hate tourists and their bad driving. (But you don’t know how to drive in the rain.) 26. You’ve gone to the Zoo just to hang out.
- You have family or friends that have moved to Arizona, Nevada, Utah or Colorado.
- You know what the “Santa Anas” are and that they have nothing to do with the city of Santa Ana.
- You know what “real Mexican food” tastes like.
- You remember when “Mission Valley” was cow pastures (Oh… to have bought land then!)
- You remember when Lemon Grove had “the cows.”