Monthly Letter for March 2017
Well I am happy to announce that six months later I have successfully gone from “flat line to finish line”, completing the Carlsbad Half Marathon and I am looking forward to running the Golden Gate Bridge Half Marathon later this month. I tried to take a Zumba class. I bent, twisted, gyrated, jumped up and down and perspired for an hour. But, by the time I got my leotards on, the class was over. Next time I will try yoga!
With the news media being dominated by everything Trump, I do have to reflect back over 25 years ago when I read “Trump Style Negotiating” by Trump’s broker George Ross. There were lots of nuggets like, “the aura of legitimacy”, using deadlines to your advantage, creating value by how you present. But perhaps the most amazing thing to me (a true deal junkie) was that they closed 702 deals in 10 years.
The press is fond of talking about “Trump-o-nomics” but I am much more watchful of “Trumpflation”. If Trump’s stimulus plans succeed in producing GDP growth at an annual rate of 3% or more, that could lead us to a spike in the inflation rate. Historically, the combination of inflation at low rates usually leads to higher real estate appreciation. Rapidly increasing rates of inflation are not very helpful to consumer purchasing power for basic goods like food, utilities, restaurants or gas and transportation. However, the best hedge has been and probably will be something called real estate.
Using the old investment formula called, The Rule of 72, you can quickly calculate how soon your investment will double in value by dividing 72 by an estimate of the annual appreciation rate.
Speaking of appreciation, here are Nick’s Numbers:
Total office building sales for 2016 were up over 2015 by 18% with 2016 average price per square foot at $293.77 vs $238.28 for 2015. Cap rates were higher, however, at 6.76% vs 6.46%. ~Nick
San Diego outranks many of its competitors in “liveability” measures such as parks and bicycle infrastructure and weather, but lags in areas including joblessness and poverty, according to a recent San Diego Chamber of Commerce report. In a separate report by San Diego Sport Innovators, San Diego is becoming North America’s bicycling capital with its retail and wholesale sector topping $547 million in annual sales and employing over 1200 workers.
Owners: Tenants Beware! We recently attended a talk about Title 24 impacts (which we have been experiencing). If TI’s are more than moving a couple of lights or HVAC ducts then you need to show a 50% reduction in energy costs for the space or be forced to meet all Title 24 requirements (motion detectors, low energy, LED bulbs, energy efficient HVAC, etc.). Bottom line is it will add $8-$10 psf for lighting and $2-$8 psf for HVAC (a total of $15-$20 to the price of your TI project!).
Market activity is good but too many deals in the hurry up and stop mode. Whether it is regulation, cost, funding or otherwise we see a lot of time expended to see a deal die because government approval cycles might take 9-12 months, fear of funding cut etc.. The increase in activity is welcomed, efficiently getting deals done is the challenge. Our experience helps but “time kills all deals”.
Hope the new guide helps…or gives you a chuckle.
- The Wall Street Journal is read by the people who run the country.
- The Washington Post is read by people who think they run the country.
- The New York Times is read by people who think they should run the country, and who are very good at crossword puzzles.
- USA Today is read by people who think they ought to run the country but don’t really understand The New York Times. They do, however, like their statistics shown in pie charts.
- The Los Angeles Times is read by people who wouldn’t mind running the country, if they could find the time – and if they didn’t have to leave Southern California to do it.
- The Boston Globe is read by people whose parents used to run the country.
- The ChicagoSun-Times is read by people who aren’t too sure who’s running the country and don’t really care as long as they can get a seat on the train.
- The New York Post is read by people who don’t care who is running the country as long as they do something really scandalous, preferably while intoxicated.
- The Miami Herald is read by people who are running another country but need the baseball scores.
- The San Francisco Chronicle is read by people who aren’t sure if there is a country or that anyone is running it; but if so, they oppose all that they stand for. There are occasional exceptions if the leaders are handicapped, minority, feminist, atheist dwarfs who also happen to be illegal aliens from any other country or galaxy, provided, of course, that they are not Republicans.
- The National Enquirer is read by people trapped in line at the grocery store.