What a crazy month. I just told someone that I am really busy not making money right now. The economy that we’re experiencing right now is definitely testing people. Unless you lived during the Great Depression, you’ve most likely never experienced an economy like this one. So the question becomes, “what do you have to do to get and stay on track despite what is going on with this current economy?”
The economic indices are finicky. Jobs are coming back but many are still moving overseas. This means we are not going to see the kind of growth seen in a typical recovery.
So you ask, why are we so busy and why aren’t we making any money? (my wife asks the same question) Well, we are seeing an uptick in people looking and wanting to do business, however, despite what you would think it is harder to do a deal now than almost ever before. People are cautious and easily scared off. People expect a bargain and if they get resistance they bailout. Capital to do business is tight; lenders are stingy and very difficult. City governments and agencies are understaffed but also busy throwing up roadblocks (3-6 months for simple plans is not unusual at the city or county.) These roadblocks vary but they range from ADA enforcement, stormwater runoff requirements (covered dumpster enclosures, etc…), sewer and water fees, parking surveys. Strict enforcement of seemingly ever code and rule. Besides the time there is a cost and frequently it is pushed back on owners – redo handicap ramps ($20K), redo bathroom ($10K), water and sewer impact fee ($2500+), the list goes on. As brokers in the market, we are both educator and jungle guide. We are the CEO of the deal (Chief Everything Officer)! The good news is that we at CDC Commercial are good teachers and experienced guides. The challenge is having tenants and buyers with the stomach for the long trek. With that said, it would seem that with vacancies abundant and still a large contingent of unemployed entrepreneurial workers that it would be a brokers dream – but there is a caveat. The simple reason space isn’t being snapped up is the lack of financial reserves to grow a business and support a payroll. I see one of our ways out of this mess is to look at providing space to innovative startups and visionaries in return for stock options, percentage leases, and other profit-sharing plans. If you think this fits you and your property let us know. (You can’t fault me for not being creative.). If you are not that creative then it may have to be lower rent, free rent, half rent, and TIs. Know that if a tenant or buyer “has a pulse” we’re going to do everything we can to make that deal.
Not to harp on bad news this month but there is no question that heightened energy prices has and will continue to impact the recovery and tenants businesses. It will shutter some tenants, move many closer to their homes (good for most of North County owners), raise prices and squeeze rents for now. The rise in oil prices has effectively been a substitute for an interest rate increase. We are in the beginning of the inflation cycle and likely what will lift real estate values over the next 7 years. It won’t be like the ’70s but is and will be, none the less an inflation cycle. When the CEO of Wal-Mart, Bill Simon, says that inflation is going to be serious, citing cost increases that are coming at a rapid rate, it seems prudent to add a percentage point or so to inflation forecasts and pick your investments accordingly. Having just graduated my second son from college with a finance degree, I can tell you that the standard textbook says that commercial real estate offers a good hedge against inflation. It is time to get yourself in a position to buy. REO’s are coming to market and Seller’s are motivated.
So with all that said what are you to do in these times? My advice is, stay educated, work hard to make and fight for deals, be entrepreneurial, cut costs and save money wherever you can and most of all, Be Happy!
Here are a few practical applications in the meantime.
• Get out and visit with lenders – know what they will loan on and what you can borrow. You’re going to want to be a buyer and now is the time to get yourself pre-qualified and ready to jump.
• Save money by re-doing windows that unemployed hooligans scratch or paint graffiti on instead of replacing.
www.wkrpservices.com Mike – 714-832-2146 x103
• Cut expenses down on oil and energy. Explore solar power for your building.
Baker Electric (Solar Division) – Mark Johnson
760-802-6784
Being Happy is up to you but as I approach my 50th birthday this summer I thought you would enjoy the practical applications that Dave Barry suggests.
16 Things That Took Me 50 Years to Learn
by Dave Barry
1. You will never find anybody who can give you a clear and compelling reason why we observe daylight savings time.
2. You should never say anything to a woman that even remotely suggests you think she’s pregnant unless can see an actual baby emerging from her at that moment.
3. The most powerful force in the universe is gossip.
4. The one thing that unites all human beings, regardless of age, gender, religion, economic status or ethnic background, is that, deep down inside, we ALL believe that we are above-average drivers.
5. There comes a time when you should stop expecting other people to make a big deal about your birthday. That time is age 11.
6. There is a very fine line between “hobby” and “mental illness.”
7. People who want to share their religious views with you almost never want you to share yours with them.
8. If you had to identify, in one word, the reason why the human race has not achieved, and never will achieve, its full potential, that word would be “meetings.”
9. The main accomplishment of almost all organized protests is to annoy people who are not in them.
10. If there really is a God who created the entire universe with all of its glories, and He decides to deliver a message to humanity, He WILL NOT use, as His messenger, a person on cable TV with a bad hairstyle.
11. You should not confuse your career with your life.
12. A person who is nice to you, but rude to the waiter, is not a nice person.
13. No matter what happens, somebody will find a way to take it too seriously.
14. When trouble arises and things look bad, there is always one individual who perceives a solution and is willing to take command. Very often, that individual is crazy.
15. Your friends love you, anyway.
16. Nobody cares if you can’t dance well. Just get up and dance.