CDC Commercial Inc

Monthly Letter for June 2007

“If you think nobody cares, try missing a couple of payments!”

The current meltdown in the sub prime market is a “prime” example of greed and mispricing of risk. I have been advising clients of late that we really didn’t / don’t have a real estate bubble. What we had was a “lending bubble”. If you could fog a mirror you could get a loan (maybe even two!). The reason we have not seen the ripple effect into the commercial market is because commercial underwriting did not dip into the bottom of the bucket like residential did. (The SBA market might have a few issues in a weakened economy.) Interestingly enough, commercial real estate lending showed a year over year decrease in delinquencies in California. 99.87% of commercial loans were current or less than one month behind.

Well, things are unfolding pretty much as predicted in the Gold Report ( The F.I.R.E. (Finance, Insurance and Real Estate) industry has shown the most strain. However, it appears to have stabilized and baring anything unforeseen, the worst is behind us. The stock market is showing gains (also predicted in the Gold Report). Keep in mind that although this is good for the economy it takes liquidity from the real estate market and will put pressure on CAP rates.

As I mentioned last month, we have seen an increase in tenant delinquencies (mostly in the F.I.R.E. industries referenced above. A number of you have asked how the eviction process works. Last month I posted a blog entry outlining the process (

A recent court case (thanks to Kimball Tirey, St. John for the alert) should be noted by Landlords doing evictions.

A commercial landlord is not ordinarily under a duty to inspect its premises once the tenant has taken possession. However, a new Court ruling may change all that. In Stone v. Center Trust (2007) 146 CA4th 1435, the Court of Appeal for the Second Appellate District, expanded a commercial landlord’s duty to inspect its property for dangerous conditions after a judgment for possession was entered by the Court, but before the sheriff could effectuate the lock-out of the tenant.

The case involved a commercial shopping mall where a customer was injured on a slippery dance floor. The Court found that Civil Code section 1714, which places a duty on a landlord to use reasonable care to protect people who come onto the property, and applies to the time period between an unlawful detainer judgment, but before possession is returned to the landlord. The Court predicated its ruling on several grounds, including the fact that the landlord knew that defaulting tenants sometimes neglected their property; the fact that the property involved use by the public; and the fact that the Lease Agreement explicitly gave the landlord the right to inspect if the tenant was in default.

The Court’s ruling has expanded a commercial landlord’s liability in the arena of personal injury to its property. It further increases the need for a commercial landlord to be vigilant and consider an inspection of the property at least after an unlawful detainer judgment has been awarded but before the lock-out has taken place.

I am happy to report that the drop in deals that we experienced last month was completely reversed in May and we are back on the tear of the first three months of this year. I thought I would share an internal statistic because I have found it to be highly reflective of the current and future economy. The statistic is of inbound sign calls. Although we don’t rely on sign calls, (yes, we cold call, network, advertise, mail and email) over time they are a steady indicator of business activity.

Given our resurgence of activity, I’m writing to let you know that I have recently been diagnosed with a very serious illness and there’s no hope I will ever get over it. It may be hereditary as

well. The scientific world is frantically searching for a cure. This is an ailment many of us suffer from and may not as yet be able to discuss it with your loved ones and try to explain what really happened to you all those times you tried so hard to accomplish something and didn’t. Do you by chance, share this same affliction?

“Butfirst Syndrome”

It’s like when I decide to do the laundry – I start down the hall and noticed the newspaper on the table. Okay, I’m going to do the laundry – Butfirst I’m going to read the newspaper.

Then I notice the mail on the table. Okay, I’ll just put the newspaper in the recycle stack, Butfirst I’ll look through that pile of mail and see if there are any bills to be paid.

Now where’s the checkbook? Oops! There’s the empty glass from yesterday on the coffee table. I’m going to look for that checkbook, Butfirst I need to put the glass in the sink.

I head for the kitchen, look out the window, notice my poor flowers need a drink of water. I put the glass on the sink and darn it, there’s the remote for the TV on the kitchen counter.

What’s it doing here?

I’ll just put it away, Butfirst I need to water those plants.

Head for the door and Ack! Stepped on the cat. The cat needs to be fed. Okay, I’ll put that remote away and water the plants. Butfirst I need to feed the cat.

At the end of the day: The laundry isn’t done, the newspapers are still on the floor, the glass is still not in the sink, the bills are not paid, the checkbook is still missing, and the cat whizzed on the remote control.


When I try to figure out how come nothing got done all day, I’m baffled, because I KNOW I WAS BUSY ALL DAY!

I realize this condition is serious…and I should get help…Butfirst I think I’ll read all my e-mail!

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