CDC Commercial Inc

September 2013 Monthly Letter

I thought I would share this email with you to exemplify the frustrations we see and face in trying to find tenants in today’s market;

Hi Don me again. One more example as to why I am not opening three Medical Equipment companies in Ca. There is a required DME license from the State of CA. The cost is $800.00 for the application fee. You have to occupy your space before they will consider issuing the license. The wait time is 4 months. In Arizona and numerous other states, wait time is 2 weeks and the application fee is $115 (and they answer their phones!). The expediter that I hired to obtain licenses in several states laughed and said the best procedure to obtain a DME in California is to go to another state and obtain one first in Arizona then apply to Ca as a foreign business entity (state). The fee in Ca then is $200.00 and the wait time is a month. I asked why they are charging me the $800 and taking 4 months and she laughed again… because you are already here! They want to attract new businesses to California and are so arrogant they don’t realize they’re chasing away many established entities to gain one new one. The wonderful logic of our state run government.

Arnold Toynbee, a historian who studied the rise and fall of civilizations, argued that a civilization flourishes when it attracts people with creativity and free markets. But he warns that civilization breaks down when its switches from attraction to control it eventually collapses, because no amount of control can replace collective creativity. We live in the dawn of a new era. We have moved from an agrarian society to an industrial society and now are entering an era where the mind has literally become the means of production. Human creativity is (or will be) the driving force of our economy.

Wells Fargo Securities Economic Group has indicated that the national economy is gaining momentum but will only grow at a moderate pace. They are more bullish about California saying that it should outperform the nation for the next few years. However, I have to tell you that there is still a lingering reservation about the real underlying strength of the economy. This is troubling because it begs the question of why after five years of stimulus the economy is still not ready to stand on its own feet.

As another sign of this flip flop economy, San Diego’s unemployment rose 7.8% from 7.4% (bad) but it is below the 9.5% recorded in July of last year (good).

The “new economy” is having a direct impact on our daily business now. Category killers, Internet sales, and Big Box stores have killed off the vast majority of mom and pop and small retailers. The successful small business today needs to have an “omni-channel” approach. That is to say they have to be brick and mortar, web, mobile and catalog. A great example of this is Costco. I recently picked up their Costco magazine while re-provisioning the house and while at home saw some shorts I liked and ordered them from my iPad for delivery. The other big trend coming at the market fast is 3D printing. Whether it is toys, liver tissue or guns you will soon be able to print anything you want at home or at your nearby UPS store. It is estimated that this market will be $3 billion by 2016 and $5 billion by 2020. This is likely to have a huge impact on imports (China), distribution (individual / warehouse) and watch for stores to become fulfillment centers (like catalog showrooms or video stores of the past).

Landlords must be creative-they still own the “location” and must create the community. People go to work and the store to have an experience and to be part of a community. Creating that community is an equally shared responsibility between Tenants and Owners. BOMA (Building Owners and Managers Association) recently released a report on building tenant preferences. Despite the Googleplex offerings of ping-pong, climbing walls and volleyball, there were some interesting and fairly easy to implement ideas. Top appreciated features were; hand sanitizers, remote baking, conference facilities, break rooms, coffee, bike racks, flu shot program and on-site car wash.

San Diego is a captive market. We are limited by the ocean, Mexico, Camp Pendleton and the desert. We have great weather year-round and that all attracts the best the brightest and the richest to want to live and work here

Our society and San Diego specifically has moved from an agrarian society to an industrial one and now one in which the mind has become the means of production (Qualcomm, DARPA, Biotech). We were an industrial society but now only 6% of Americans actually touch things in a factory. When I was growing up I remember being told that someday computers and robots would replace workers and we will face a great challenge. Well that time is now! Human creativity is the driving force of our economy. We will add 10 million jobs in the creative class in the next decade. We just have to ensure that they are well paying “thought” jobs not low wage service jobs.

This is the best time in 27 years I have seen to lease or buy commercial property in San Diego (though I still have some short-term concerns).

  1. Prices are still down (though no longer at the bottom)
  2. Interest rates and loans are artificially low.
  3. Population continues to grow (always buy where more people are moving in then moving out).
  4. Market is constrained geographically.
  5. Not much new construction.
  6. New construction is higher price than current sales prices. Prices eventually rise to meet construction costs.
  7. Negotiating / willingness is as easy as it has been since the 1970s.
  8. We live in the creative economy of the future here in SD.

One thing is certain and that is that buyers and lessee’s today and will eventually look back at big profits and when they do, people will say, “Boy, weren’t you lucky!” But we at CDC Commercial Inc know you have to work hard to get lucky and you have to take care of the customer. This month’s story was published in the 1920s and is as good today as it was then.

I am your Customer

I am your customer. Satisfy my wants-add personal attention and a friendly touch-and I will become a walking advertisement for your products and services. Ignore my wants, show carelessness, inattention and poor manners, and I will simply cease to exist-as far as you are concerned.

I am sophisticated. Much more so than I was a few years ago. My needs are more complex. I have grown accustomed to better things. I have money to spend. I am in egotist. I am sensitive; I am proud. My ego needs the nourishment of a friendly, personal greeting from you. It is important to me that you appreciate my business. After all, what I buy your products and services, my money is feeding you.

I am a perfectionist. I want the best I can get for the money I spend. When I criticize your products or service-and I will, to anyone who will listen, when I am dissatisfied-then take heed. The source of my discontent lies in something you or the products you sell have failed to do. Find that source and eliminate it or you will lose my business and that of my friends as well.

I am fickle. Other businesses continually beckon to me with offers of “more” for my money. To keep my business, you must offer something better than they. I am your customer now, but you must prove to me again and again that I have made a wise choice in selecting you, your products and services above all others.

From the team at CDC we want to thank you for your business, please know we appreciate it and our relationship daily in these challenging times.

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