CDC Commercial Inc

March 2015 Monthly Letter

As I sit to write this letter, Janet Yellen the Federal Reserve Chair announced the Feds “continued patience” with the recovery. I read that as, conditions are sufficiently lackluster that the Federal Reserve has little choice in their bag of tricks but to stand pat and watch their previous mistakes filter through. Said another way, things are still risky but on the edge of getting better. I on the other hand am optimistic and tell people that we are five years into the worst recovery of all time.

These days, we are inundated with news of the financial and economic woes of the United States, Europe and other developed countries. Though many of the woes relate to the recent splurging of government. If we look at history, we need look no further than the currency wars of the 1920’s and 1930’s. During this time, various nations left the gold standard, devalued their currency (can you say quantitative easing) all in an effort to gain export advantages to sell more goods and prop up their economy. This all leads to extreme over-indebtedness, instability in financial markets and deflationary trends as we “race for the bottom”. On the other hand if we look to the future we must look at demographics. Countries like Japan, Germany and Italy have more than 20% of their population over the age of 65. The U.S. by comparison has only 13.5%. Youth on the other hand are the future and synonymous with consumerism. In Brazil and China more than 25% of the population if under the age of 19 (the U.S. is 28%). Think in terms of spending. If India and China double its per capita spending in the next 20 years it will be a bonanza for consumerism. This bonanza leaves the door open for the U.S. and other developed countries to fulfill these capital needs and provide scientific and business know how that will allow these countries to advance to developed world status. In our own nation, we need to look to states and areas where the youngest population are attracted and making jobs. These states include California, Texas, Colorado and Georgia.

You always hear “follow the money”, well I say, “follow the people”. Always buy real estate where more people are moving in then moving out.

San Diego’s economy in 2015 is expected to outpace that of the US and California according to the National University System Institute for Policy Research. San Diego population growth will reach a new high of 40,500 residents this year. Domestic migration has also just turned positive (yes more people moving in than out). Unemployment is projected to further decline to 5.7%. All good things for San Diego and the real estate market.

You may or may not have been aware but the State (AB1103) has mandated that owners of commercial real estate track their energy use/cost (benchmarking) and are further required to disclose this information upon sale (sometimes lease) and refinance of the property. Property owners are required to disclose their property’s energy usage to:

  • Prospective buyers, at least 24 hours before accepting or countering a written proposal to enter into a purchase agreement [20 CCR § 1681(k)];
  • Prospective and existing tenants negotiating to enter into or renew a lease for an entire building (single tenant property), at least 24 hours before accepting or countering a written proposal to enter into a lease agreement [20 CCR § 1681(1)]; and
  • Mortgage lenders at the time a loan application is submitted for financing to encumber the entire parcel. [20 CCR § 1681(m); 20 CCR § 1683(a)].

The leasing of space in multi-tenant commercial buildings does not trigger the disclosure of energy information since tenants occupy or will occupy only a portion, not all of the building. The sale of a multi-tenant commercial building does trigger the disclosures.

The energy reporting disclosures are being phased in based upon interior building size or gross floor area (GFA).

  • September 1, 2013 for buildings with a total GFA of more than 50,000 square feet;
  • January 1, 2014 for buildings with a total GFA of 10,001-50,000 square feet; and
  • July 1, 2016 for buildings with a total GFA of 5,000-10,000 square feet. [20 CCR §1682].

The original compliance date for buildings with GFAs under 10,000 square feet was July 1, 2014. However, in September 2014, the state legislature gave small commercial building owners an additional two years to prepare for the new requirements. [CDC, Amendment to 20 CCR §1682(c), August 11 2014].

As a result, energy disclosures are already available for buildings with a total GFA of 5,000-10,000 square feet. Risk management principles suggest the disclosures be made on these smaller properties, especially if a sale is involved.

Owners of commercial buildings of less than 5,000 square feet GFA are exempt from the energy benchmarking and disclosure mandates.

To learn more about this issue,  here is a link to a detailed article on the matter.

To set up your account and compliance instructions  here is a link to the state’s site.

As broker, we always find ourselves in a battle between what the developer/investor wants, the desires of the tenant and the demands of the city/government, I thought you would enjoy the designs of a shopping center as seen through each of those eyes in lieu of a story this month.


A Shopping Center as seen by….

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