“Before Google, who answered all the questions?
Well, I don’t know the answer to that question. But I do know that it has been a fast short month and I have lots of short pieces of news for you, so I am just going to throw them out as bullets and hope it all comes together.
- The Urban Land Institute (ULI) reported in The Wall Street Journal and at the University of San Diego Trends Conference that; “Commercial real estate is beginning a return to its normal as an income-producing investment rather than the wildly appreciating asset class it has been this decade.” Investors are going to have to turn to operating performance to raise returns – what a concept!.
- Rent bumps on expiring leases in 2007 (ie. market rate options) will continue to raise income and values. Most leases signed 3 to 5 years ago were done during the tech bubble burst so at much lower rates than today.
- Taxable retail sales in San Diego rose an estimated 5.0 percent in 2006 and are expected to rise 4.3 percent in 2007.
- The service industry accounts for 80% of the nation’s economic activity. January marked the 46th consecutive month of business activity increase for this sector.
- The Bush Budget proposal includes a 40% increase to SBA loans, as well as a reduction to their fees. More capital, less cost is going to equal more owner user opportunities.
- Commercial construction costs have skyrocketed and they won’t stop in 2007. Expectations are for 6% to 8% increases despite a slowdown in residential construction (If it weren’t for the housing slowdown, they would rise 10%!).
- A penny almost costs a nickel to make. Talk is that the penny may be short for this world. Don’t tell me we don’t have inflation!
- Speaking of construction costs and metals prices, you may want to look at the exposed metal on your buildings (particularly backflow preventers and electric panels). There is an epidemic of stealing going on for the value of the scrap metal. Think about locks or cages to protect them.
- Speaking of security, remote surveillance is becoming common place. Imagine having a remote camera to look at your property via the internet. (Maybe you’ll want a remote camera to watch your commercial real estate broker work!)
- Interesting how numbers get thrown around. One forecast event said San Diego will grow by 1 million residents in 30 years (33,000+ per year). At another industry event, data was cited that only 900 people moved to San Diego over the last two years and 28,500 people moved out. Just goes to show figures don’t lie, but liars sure can figure!
For those of you who are inclined, I have posted the sales comparables for the year 2006 (office industrial and retail sold in 2006) on the website (www.cdccommercial.com). I hope you find them useful and enlightening.
The National Association of Realtors (NAR) has launched a campaign aimed at promoting this as the best time to buy a house (Got Real Estate…?). Whether you believe this is the right time to buy or not is your own call. Our opinion is that although rapid price gains may be past, real estate is still a good commodity to own in inflationary times and because there is still a lot of room for rent to grown in most properties. Additionally, over time there are some “comfort factors” that come with owning real estate (besides not worrying about 400 point down days!):
1. Tax Benefits
2. Cash Flow
3. Risk management and control
4. Leverage and appreciation
5. Mortgage payoff
These factors aren’t so affected by the cycles and a big reason that people who own real estate over long periods are happy people!
