CDC Commercial Inc

June 2015 Monthly Letter

“The sidelines are not where you want to live your life. The world needs you in the arena. There are problems that need to be solved. Injustices that need to be ended. Diseases still in need of cure. No matter what you do next, the world needs your energy, your passion, your impatience for progress.”

                                                                – Tim Cook, CEO Apple to class of 2015 George Washington University

Well I have to tell you, if you haven’t made the move to the iPhone 6, it is worth it. I did the first of the year and it was worth every penny. The bigger screen helps my aging eyes, apps all work better and Siri is even smarter. By the way, hold the button down and say “set timer for 10 minutes” – done, the alarm goes off in 10 minutes. When texting or emailing tap the microphone or the keyboard and just dictate your message. I know many of you already are doing this but I am amazed to watch people endlessly taping out a paragraph.

Now the jury is still out on the iWatch. The technology is cool but I have enjoyed not wearing a watch for the last 15 years and don’t know if I want to start again. Besides in 25 years I am hoping I can give my Rolex to my Grandson (yes I will be a grandpa come September) and it will continue to be an heirloom. I am not sure we will be able to say that about a 25 year old iWatch!

No matter where you stand with technology, the “iconomy” has affected all of us. Whether it is the way you receive your news, keep in touch with the grandkids or track your health. It is amazing what $84.00’s worth of parts has done to change the world and our real estate market.

It appears that our “Obamanomics economy” is filled with makers and breakers. We appear to be on the threshold of some of the greatest innovations of all time and at the same time that ISIS, China, Russia and Korea threaten world peace and all the while social unrest tears at our own countries fabric.

What does all of this and impending rising rates portend for the real estate market? First real estate needs to be looked at for the long term when you invest. You want to buy based on the income and understand how the income can and will grow over time. This in short is job growth and job growth comes from innovation (see where my Apple theme came from?). If and when rates rise and or cap rates rise, your income must go up faster. This is a tough bill to fill but needs to be heeded.

The best news to our local economy is that the unemployment rate in San Diego County dropped to 4.8%. Professional and business services have had the greatest gain with scientific and technical services in a close 2nd.

So what are the biggest mistakes investors make when they buy commercial real estate?

  • Incomplete due diligence
  • Assuming that “new” means no problems
  • Outside comfort zone without proper advisement
  • Not focusing on rent sustainability or replacement rent
  • Focus on short term noise not long term signals
  • Not having proper contingencies
  • Choosing a bad deal at all costs
  • Stretching yield at the wrong part of the economic cycle

Locally we see continued market improvement as unemployment drops, space continues to absorb and there is little if any new construction. This all bodes well for future rental rate increases. Unfortunately, for now we are trapped in what Bank of America calls “The Twilight Zone” – the transition period between the end of QE and the first rate hike by the Fed. The economy has to be robust enough to allow for the hike otherwise the exit from zero rates will be  potentially cause a shock like it did in 1936-37.

If you are still confused, don’t forget the value a good broker brings to a deal. Among other things, the ability to understand a client’s position relative to the competition, the ability to know when to be and when not to be aggressive during a negotiation. This value added is greatest when the deal is large and complex, and technology cannot easily replicate these features because they are human in nature. So I don’t see Siri becoming a commercial real estate broker any time soon but maybe Apple could run the U.S. Government….?

 


PRESS RELEASE FROM APPLE – June 1, 2015

In direct response to accusations made by the department of justice, Apple Inc, announced today that it will be acquiring the Federal government of the United States of America for an undisclosed sum. “It’s actually a logical extension of our planned growth”, said Apple Inc chairman Tim Cook. “It really is going to be a positive arrangement for everyone.”

Apple Inc representatives held a briefing in the oval Office of the White House with U.S. President Barak Obama, and assured members of the press that changes will be minimal. The United States will be managed as a wholly owned division of Apple Inc. An initial public offering is planned for July of next year, and the Federal government is expected to be profitable by “Q4 2016 at the latest,” according to apple CEO Tim Cook.

In a related announcement, Barak Obama stated that he had “willingly and enthusiastically” accepted a position as a vice president of Apple Inc and will continue to manage the United States government, reporting directly to Tim Cook. When he asked how it felt to give up the mantle of executive authority to Cook , Obama smiled and refer to it as “a relief.” He went on to say that Cook has a ” proven track record” and that U.S. citizens should offer Apple their “full support and confidence,” Obama will reportedly be earning several times the $200,000 annually he has earned as U.S. president, in his new role at Apple Inc. Cook dismissed the suggestion that the U.S. Capitol will be moved to Cupertino, CA as “silly,” although he did say that he would make executive decisions for the U.S. Government from his existing office at Apple Inc headquarters. Cook went on to say that the House and Senate would “of course” be abolished. “Apple Inc is not a democracy,” he observed, “and look how well we’re doing.”

When asked if the rumored attendant acquisition of Canada was proceeding, Cook said, “We do not deny that discussions are taking place.” Apple Inc representatives close the conference by stating that United States citizens will be able to expect lower taxes, increases in government services and discounts on all Apple Inc products.

About Apple

Founded in 1976, (NASDAQ: AAPL) is the world leader in software for personal computers, and democratic governments. The company offers a wide range of products and services for public, business and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing and free society every day.

About the United States

Founded in 1789, the United States of America is the most successful nation in the history of the world, and has been a beacon of Democracy an opportunity for over 200 years. With headquarters in Washington, DC, the United States is a wholly owned subsidiary of Apple Inc .

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