November 2, 2009
RE: Monthly Letter
Dear Clients:
Well, Halloween has passed so the screaming should stop right? Unfortunately it is still frightening out there with lots of things to worry about. On the bright side, this might have been the best October in recent memory. No life threatening fires or financial system melt downs.
My report is mixed. We are seeing more over all activity. Part of it is a spike of new listings as vacancy continues to rise. (For us this is good in the long haul, but in the short term it is expensive and time consuming.) Deals are there but none are easy; and tenant, lender and government constraints are making deals harder and harder to get done. Some short case studies to give you some insight:
- Tenant signs lease after 30% reduction in asking rent and 3 months free rent to do own TI’s. Two weeks after signing, tenant decides they want a different space in the building for the same deal.
- Closed gas station site, formerly auto shop, goes vacant for 7 months. We find a smog shop tenant but city says use is no longer allowed and “grandfather” clause expired after 6 months.
- Month to month tenant given notice to move because we found a 5 year replacement tenant. Month to month tenant decides they don’t want to move and hold over illegally.
- Escrow with a very strong buyer taking over an existing loan. Lender approves but FDIC and lender now require an appraisal.
- Countless tenants and buyers stuck in neutral not able to get financing.
Historically we have measured our nation’s Gross National Product (GNP) as a yardstick of our success and happiness. Soon we may need to have a new measure, perhaps a GNH (Gross National Happiness). I have found that people will put up with a lot — but not with anyone or anything that imperils their future. There is practically nothing that lowers Americans’ happiness more than taking away faith in a better tomorrow.
Wasn’t it just a year or two ago that you closed on that once in a lifetime deal, with rents sure to go up, tenants strong, and economically secure? The interest only loan you’d refinance in a few years and pull your money out. So now what? The downturn was predictable (though most of us suffer amnesia about past cycles). But this cycle too will bottom out, be stagnant for a few years, then appreciate slowly, and then faster and faster until it overheats again. Sandy Sigel, wiring for Shopping Center Magazine, gave these tips for surviving this part of the cycle:
- Communicate – with tenants, lenders, investors, brokers and property managers
- Control your costs
- Help your tenants
- Monitor tenant sales
- Know your tenants success stories and let others know (brokers, lenders, and other tenants). Success breeds success.
- Hire experienced advisors – advisors with over 15 or 20 years in the business are worth their weight in gold in these times. – I knew I stayed in the business for 25 years for a reason!
I know it is easy to feel hopeless at times like these. Have you ever heard of the famous book “The Power of Positive Thinking” by Dr. Norman Vincent Peale? You would think that if anyone understood persistence in the face of adversity, it would be him. Yet, most would not know that he threw away his final manuscript because he thought it would never sell. His wife, however, pulled it from the trash, took it to the publisher — and the rest, as they say, is history!
The voices in our head can get very loud when the going gets tough. Don’t listen – the only way to fail in life is to stop. So next time you are feeling beat up and despondent, just take one more step and repeat as necessary until you reach your goal (or we get to the next up cycle!). If that doesn’t work, you might enjoy the new voicemail system we are evaluating.
Regards,
Don
Don S. Zech
CDC Commercial, Inc.
Real Estate Services
Hello… Welcome to the Psychiatric Hotline…
If you are obsessive compulsive, please press 1 repeatedly.
If you are codependent, please ask someone to press 2.
If you have multiple personalities, please press 3, 4, 5, and 6.
If you’re schizophrenic, listen carefully and a little voice will tell you which number to press.
If you are manic depressive, it doesn’t matter which number you press. No one will answer.
If you are paranoid, we know who you are and what you want. Just stay on the line so we can trace the call.
And if you are a tenant or owner, call 1-760-743-8500 for the best commercial real estate service available!
