If anything is plentiful in the market these days, it’s uncertainty. Conflicting economic data, fears of a double-dip recession, vacancy, stimulus, bankruptcies. If you look at the broad economic data it is generally mixed to improving. There’s so much negative news being shoveled at us that it can be difficult to rise above it all and still determine your destiny. Today we have an economy and households riddled not just with debt but riddled with doubt! However, I look at our economy and this real estate market like playing the running game in football. You just take it down the field three or four yards at a time, and once in a while, if you’re lucky, someone throws a great pass and you pick up a lot of yardage!
Having driven one son to college in Nebraska (Go Husker’s) and having watched the other head back to Texas (Go Mustangs) I have a few observations;
• There are not enough hard hats at work. The only “hard hat” projects I saw were Federal road projects.
• Middle America seems less affected than Southern California and Las Vegas and Phoenix.
• Our agriculture belt (“breadbasket”) is amazing and like nowhere in the world.
• The oil industry is creating opportunities galore in Texas, Colorado and even Bismarck, North Dakota. However, it is going to be green technology and green energy that “re-energizes” California (couldn’t believe the windmills and solar panels I saw popping up or on train and truck beds).
• Education and innovations are what has always set us apart (and will do so again) from the rest of the world.
All of this leads me to my contention that San Diego will recover sooner and faster than the rest of the nation. The reason? We have a large base of intellectual capital, a larger than normal number of small businesses and a natural limit on the supply of real estate. Thus demand will grow faster than supply making you a happy owner of real estate sooner than later. Oh, and did I mention we have great weather ! In the meantime, as our economy re-educates and retools we will see stagnant real estate leasing and sale markets. It is all about jobs. We need to see job gains at 25-30,000 a month to indicate that we have turned off of the bottom.
Ok, time to strap on the pads to protect yourself and have a little chalk talk about game plans to play the games that are coming.
• Had a recent case where a new tenant’s contractor hadn’t gotten paid so he tried to lien the owner of the property (and CDC.) The owner was able to quickly produce a copy of the recorded “notice of nonresponsibility” and a photo of it in the window. The lien was immediately released. Every owner should post this notice after signing a lease if the tenant is having any work done. A copy can be downloaded from our website (www.cdccommercial.com) under the owner’s services tab.
• A VAT (Value Added Tax) seems like a neat idea but the proposed 15% tax applied to all purchases would reduce consumer spending. Areas most likely hit hardest; eating out, clothing, food, and groceries, entertainment and vacation travel. On the other hand, the government could just spend less…
• Capital gains increases look to be going up the first of the year. If so, 1031 tax-deferred exchanges will become more attractive again. There are a number of rules and time frames, between your accountant and CDC we should be able to help you fulfill my motto which is to: “Defer until you die, Refi to live.”
• HR 5943 proposes to provide temporary tax incentives to attract new equity for existing real estate projects. It would provide enhanced depreciation on new equity investment and deductions of losses that are not subject to passive loss limits. You’ll see more in the press as it gets closer to passing.
• Lower your risk exposure on lease deals with higher risk tenants by; increased security deposits, more advance rent, no TI’s, half rent instead of free rent, shorter terms with more options. Talk to your smart leasing broker!
• I believe it is now time for many of you to consider appealing your property tax assessment (especially if you bought in the last five years.) It is fairly easy to do and directions are on the County Tax Assessors website. You have until November 30th. Call or email me if you need a quick opinion on the merits.
• Many of you would also benefit from doing a cost segregation analysis. This breaks down your property into building, land and personal property and allows you to have more depreciation. Most of you probably think your CPA does this already but they probably haven’t since it takes an engineering analysis to perform the study. In order to qualify, you must have $1Million in building value or more and you must be taxable (net operating loss means no tax to defer.) Properties can be new or old and the IRS allows you to correct back as far as 1987. If this is of interest to you, call me or call Harlan Friedman at 858-592-0659 x101.
Now that you’re ready and educated for the big game, it is time to turn off CNBC, Fox, CNN and turn on ESPN (or your other favorite football provider) and relax. As with any great crisis (opportunity?), the Great Recession has reminded us that the one ideal real estate has always been about, but somehow got buried underneath the deluge of offers and listings, is that it all comes down to people and relationships.
*Roger Staubach – Still Captain America*
Last month my brother was sitting in first class on a flight from Dallas/Fort Worth to Colorado Springs when a couple boarded and sat in front of him. He immediately recognized the man as Roger Staubach the former quarterback of the Dallas Cowboys. He said he looked great, very fit.
They exchanged greetings and Staubach said he was headed to Colorado Springs for the inaugural Wounded Warrior Games, a competition for injured members of the military.
After 60 to 70 percent of the plane had boarded, a female Army soldier who had lost her leg boarded. Staubach insisted she sit in his seat.
She said “no, thanks,” but he insisted and proceeded to go to the rear of the plane to take her middle seat in the far back. After a few minutes, the young woman got tears in her eyes and said she wanted to go to her seat and have Staubach return to his.
The flight attendant overheard, and, as the female soldier headed to retrieve Staubach, the attendant said she had a no-show and both could sit in first class.
The flight attendant returned with the female soldier, but instead of returning, Staubach sent a double amputee Army soldier to site in his seat in front. Staubach remained in coach the entire flight and disembarked last. My brother waited and asked for an autograph for my birthday; Staubach said certainly.
His autograph was a great gift, but the greater gift is knowing Roger Staubach is still Captain America.
~Written by Drew Werner of Addison, Texas. His letter to the Editor appeared in the June 10th, 2010 edition of the Dallas Morning News.
