January 26, 2009
RE: Monthly Letter & Gold Report
Dear Clients:
“If you don’t read the newspaper you are uninformed; if you do read the newspaper you are misinformed.”
~ Mark Twain
It is my hope that you are neither uninformed or misinformed after reading this years CDC Commercial Gold Report 2009 — a silver lining…your mileage may vary.
(If you have any problems, just e-mail me, and I will e-mail a copy to you. If you prefer a mailed copy simply let me know.)
I am pleased to present you with our 13th annual forecast report. Since the Gold Report will give you plenty to read, I will keep this month’s letter short.
As I have mentioned to many of you, the last quarter of last year was perhaps the worst I have seen in 25 years in the business. On a positive note, we have seen a small bump up in activity since the first of the year. I am hoping we can convert this activity to deals and gain some traction in this market. My New Year’s motto is, “Fixing the market one deal at a time.”
I would also be remiss if I didn’t tell you that I am getting lots of calls from landlords and property managers telling me that tenants are crying, failing, and asking for rent concessions. Here is some of the advice I’ve been giving out.
- Do almost anything to retain good existing tenants.
- Make concessions small, short term, and try to simply defer the concession to the end of the lease or later in the term, i.e., give a rent reduction for 6 months but tack it on to the end of the term.
- Try to get something in return for the concession.
- have them extend the term or exercise option early.
- eliminate an onerous option from the future (make a fixed rate option a market rate option).
- get a unilateral right to terminate with 6 months notice so you can re-tenant later.
- can you barter with the tenant for their product or service (i.e., free meal every week from your restaurant tenant)?
- Try to avoid any permanent or long term rent cuts. This hurts value. Give free rent, deferred rent, or short term reductions.
- Make sure you get into their books and business. Understand what is really happening to their business and why they can’t pay rent. What event will allow them to pay full rent again? Do they have a manageable plan to get there?
- Be flexible but firm.
If you are not able to retain the tenant and will have to legally serve them a 3-day notice, you will no longer be able to use the Sheriff’s department as we have for years — another casualty of budget cuts. You will now need to use a private process server like:
Vista Courte Services — 888-838-8845
Buena Vista Process Server — 760-758-1669
I thought you would enjoy this list of the six phases of our economic cycle:
- Enthusiasm.
- Disillusionment.
- Panic.
- A search for the guilty.
- The punishment of the innocent.
- Praise and honor for the politicians.
Despite the humor above, it is time once again for our great nation to stop being red and blue and once again be Red, White & Blue!
I hope you enjoy this year’s Gold Report.
Regards,
Don
Don S. Zech
CDC Commercial
Real Estate Services
