June 1, 2009
RE: Monthly Letter
Dear Clients:
Well with summer upon us you noble swingers of golf clubs can stand proud. A recent study found the average golfer walks about 900 miles a year. Another study found golfers drink an average of 22 gallons of alcohol a year. That means the average golfer gets about 41 miles to the gallon. Makes you proud – almost feel like a hybrid!
Unfortunately, as we begin Summer we are watching the end of the car industry as we knew it. Not only do we the tax payers now own G.M., but dealerships and used car lots are coming on the market throughout San Diego County.
First the good news. The USD index of leading indicators turned upwards for the first time in several years. Yes, the economy is improving…but don’t get carried away just yet. The gains are small and the recession will linger at least through the end of the year before beginning to recover in 2010. Slow growth, inflation and higher taxes are on the menu for the next few years.
The biggest observation I continue to make is the “zombie” state that seems to hang over Tenants, banks, politicians and landlords. We’re living in a zombie economy. People are frozen by fear for their jobs, their savings, their future and are trying to march forward one step at a time while they digest what has happened and might be next.
The lesson we must learn from this “great recession” is the vital importance of simplicity in business, banking and government. Next to honesty, it is the most important virtue. More often than not, the two are interconnected. Too often the clouds of complexity hide bad judgment, incompetence, unconscionable risk taking and sheer dishonesty. It is one of the reasons I like commercial real estate so much. It is pretty simple; Tenants and landlords, income and expenses, property and loans. With a little diligence you can smell a rat or at least see it coming.
Looking at the numbers, you might think that California was in pretty good shape. General fund revenues of nearly $86 billion are nearly $4 billion more than 5 years ago. Despite our current crisis, Governor Schwarzenegger’s budget is larger than his first budget 5 years ago. California government spending has increased by 20% in 5 years! Raising sales tax has only resulted in less sales. Our national economic revival is being impeded because one-eighth of the nation’s population lives in a state that is driving itself into permanent stagnation. California must once again become the incubator of America’s future.
Peter Druker, the famed business guru, said it best… “Because its purpose is to create a customer, your business has two purposes and two purposes only: marketing and innovation. Marketing and innovation make you money, generate sales, produce profit. Everything else is an expense.”
To that degree, I remember being told that a down market creates a shift in demand to expert brokers who are smart and innovative. Well, we certainly are seeing a spike in demand for our services. However, some days I feel more like a social worker after hearing all of the sad stories. Know that we are working 6 and 7 days a week, pulling out the stops on marketing and we’re forewarning you to be prepared as we get as creative as we can to put deals together. We believe that if we have a “warm body” there is a way to get them into your space. Watch for the following ideas and strategies:
- free rent
- half rent
- 99¢ teaser rate first year
- stepped rent
- tenant improvements
- percentage rent
- option to buy
- pay moving expenses
- buy out old lease
- short term leases
- early termination option
- offer start up financing
- 1st right of refusals
- expense caps
Like the Fed and Treasury, we are going to throw everything we can at a deal to get some movement.
Speaking of innovation, San Diego managed to buck the downward turn of venture capital investment. US Venture capital investment dropped 35% from the fourth quarter, yet San Diego saw a 22% increase. This is a good sign or as the “talking heads” say – “these are green shoots”. Now I just hope somebody talks to the banks about putting some water in the watering can!
If you want to keep up with the latest business going on in San Diego, feel free to click through to our website: http://cdccommercial.com where we have a live feed of San Diego business news courtesy of the San Diego Business Journal.
It is with sadness that I announce that Rob Pew has left CDC Commercial, but we’re having our own “greet shoots” as I am pleased to announce my oldest son, Nick Zech, has joined CDC Commercial, Inc. (nzech@cdccommercial.com 858.232.2100 ).
As we watch the auto industry and our economy evolve, I hope my story below gives you a glimpse of history and a lesson in good negotiating.
Regards,
Don
Don S. Zech
CDC Commercial
Real Estate Services
The Four Goldberg Brothers
The four Goldberg brothers, Lowell, Norman, Hiram, and Max, invented and developed the first automobile air conditioner. On July 17, 1946, the temperature in Detroit was 97 degrees.
The four brothers walked into old man Henry Ford’s office and sweet-talked his secretary into telling him that four gentlemen were there with the most exciting innovation in the auto industry since the electric starter.
Henry was curious and invited them into his office. They refused and instead asked that he come out to the parking lot to their car.
They persuaded him to get into the car, which was about 130 degrees, turned on the air conditioner, and cooled the car off immediately.
The old man got very excited and invited them back to the office, where he offered them $3 million for the patent.
The brothers refused, saying they would settle for $2 million, but they wanted the recognition by having a label, “The Goldberg Air-Conditioner,” on the dashboard of each car in which it was installed.
Now old man Ford was more than just a little anti-Semitic, and there was no way he was going to put the Goldberg’s name on two million Fords.
They haggled back and forth for about two hours, and finally agreed on $4 million and that just their first names would be shown.
And so to this day, all Ford air conditioners show Lo, Norm, Hi, and Max on the controls.
So, now you know.
