We recently lost a great American hero in Neil Armstrong. A man who gave real substance to the term, “shoot for the moon.” What most of us don’t know is that on July 18, 1969, days before the lunar landing, President Nixon’s speechwriter, Bill Safire drafted a just in case statement. The White House was preparing for all contingencies. The odds of landing on the moon were pretty good but getting the astronauts off the moon was a lot riskier. NASA had no backup plan; a system failure meant the men would be left to die. Thus the memo begins, “Fate has ordained that the men who went to the moon to explore in peace will stay on the moon to rest in peace.” Thankfully the doom and gloomers of that time weren’t right just as they won’t be right this time about our economy and our country.
Last month I reported that I was afraid that hell was freezing over. Shortly after that, a rocket seemed to lift off in terms of the market. Activity picked up and it appears that deals may be closing this time (remember we have had a few false starts over the last couple of years). I feel like a baseball player during a no-hitter at the 6th inning – you don’t say anything just keep your head down and working.
U.S. retailers store opening plans hit a four year high in July. Top retailers looking to grow were; Subway, Dollar General, Five Guys Burgers, Family Dollar, Pizza Hut, KFC, Dollar Tree, and 7-11. There is a limited amount of momentum in the office market but modest supply and limited to no construction should keep indicators positive.
As things stabilize and trend upwards, it is time for landlords to stabilize rent rolls (tenants – it’s time to lock in long term leases.) I still see a lot of rent rolls with month to month tenants, temporary reduced rent (or not paying rent), and options coming up but being ignored. It is time to be proactive and get these tenants renewed, extended and under contract. No need to go long term but 2-3 years (5 year is ok.) Otherwise, you are going to be reading in the paper about your tenants’ new lease transaction across the street.
In an effort to add to your education each month, I thought I would define a real estate term or give a rule of thumb each month. One that I like is that tenants rent should not be more than 7%-10% of their gross sales/income. This is obviously a great tool when you are trying to figure out how much rent a tenant can pay and a really good reason to understand how your tenants business is doing (eg. If they are doing $500k in sales, they can pay $50k in annual rent). This is a good starting point when you go to renew or renegotiate those leases as you stabilize those rent rolls.
Get ready for another tax. This one you might not mind as much since it probably helps real estate and tenants (or at least levels the playing field.) Online sales tax has been endorsed by the shopping center industry for some time. Amazon has, of course, been a long time opponent. However, Amazon has recently dropped its opposition. One rumor has been that they are now going to have a physical presence in each state (making sales taxable in the state of the sale) to lower delivery costs, so now they don’t want to lose their competitive advantage to other online retailers. The other rumor (a potential bricks and mortar killer) is that Amazon may roll out same day delivery on popular items (imagine toilet paper or printer cartridges delivered same day.) On the positive side, the logistics of a local warehouse will provide more employment and occupy new space (warehouse) in the local market.
So how do you make your property “Internet proof”? First, you make your property internet friendly. That is high-speed internet available to your tenants (fastest providers already available at your building), public wifi available for building guests. Second, you encourage your tenants not to just do business local but global. I regularly see tenants in storefronts here, shipping jewelry worldwide or specialty stores with a web store doing 10x the business of their physical store. People worry that Best Buy is a showroom for Amazon but your tenants need to make their space their “worldwide headquarters” and showroom. Lastly, focus on tenants that provide “an experience.” Whether that is a space-age laser surgery salon, movie theaters serving dinner and drinks, make your own pottery, soap or cake, or wine bar combined with clothing store (you can buy clothes online but you can’t have a glass of wine with a girlfriend and shop on the internet.) This trend even goes for office. More offices are offering free wifi and public outside areas for tenants to work and socialize with co-workers and other tenants.
Another trend to be cautious about is the store within a store. Grocery stores started this years ago with banks being put into the store. As anchor and chain tenants put stores inside of their stores they may compete with your existing tenants or they may preclude a new tenant from filling your vacancy. A good reason to craft tight use clause language (your shoe store may be selling Starbucks coffee before you know it!)
So for now, things appear to be looking a little better. It is time to shoot for the moon, but be prepared for the worst. Lastly, have a sense of humor. I hope you enjoy the story (it doesn’t check out on Snopes but good folklore none the less.)
ARMSTRONG’S SECRET
ON JULY 20, 1969, AS COMMANDER OF THE APOLLO 11 LUNAR MODULE, NEIL ARMSTRONG WAS THE FIRST PERSON TO SET FOOT ON THE MOON. HIS FIRST WORDS AFTER STEPPING ON THE MOON, “THAT’S ONE SMALL STEP FOR MAN, ONE GIANT LEAP FOR MANKIND,” WERE TELEVISED TO EARTH AND HEARD BY MILLIONS.*
BUT JUST BEFORE HE RE-ENTERED THE LANDER, HE MADE THE ENIGMATIC REMARK
“GOOD LUCK, MR. GORSKY”. MANY PEOPLE AT NASA THOUGH IT WAS A CASUAL REMARK CONCERNING SOME RIVAL SOVIET COSMONAUT. HOWEVER, UPON CHECKING, THERE WAS NO GORSKY IN EITHER THE RUSSIAN OR AMERICAN SPACE PROGRAMS.
OVER THE YEARS MANY PEOPLE QUESTIONED ARMSTRONG AS TO WHAT THE ‘GOOD LUCK, MR. GORSKY’ STATEMENT MEANT, BUT ARMSTRONG ALWAYS JUST SMILED. ON JULY 5, 1995, IN TAMPA BAY, FLORIDA WHILE ANSWERING QUESTIONS FOLLOWING A SPEECH, A REPORTER BROUGHT UP THE 26- YEAR-OLD QUESTION TO ARMSTRONG. THIS TIME HE FINALLY RESPONDED.
MR. GORSKY HAD DIED, SO NEIL ARMSTRONG FELT HE COULD NOW ANSWER THE QUESTION. IN 1938, WHEN HE WAS A KID IN A SMALL MID-WESTERN TOWN, HE WAS PLAYING BASEBALL WITH A FRIEND IN THE BACKYARD.
HIS FRIEND HIT THE BALL, WHICH LANDED IN HIS NEIGHBOR’S YARD BY THEIR BEDROOM WINDOW. HIS NEIGHBORS WERE MR. AND MRS. GORSKY. AS HE LEANED DOWN TO PICK UP THE BALL, YOUNG ARMSTRONG HEARD MRS. GORSKY SHOUTING AT MR. GORSKY. “SEX! YOU WANT SEX?! YOU’LL GET SEX WHEN THE KID NEXT DOOR WALKS ON THE MOON!”
