“Investing is a game of Snap, of Old Maid, of Musical Chairs. It’s a pastime in which he is the victor who plays “Snap” neither too soon nor too late, who passes the Old Maid to his neighbor before the game is over, and who secures a chair for himself when the music stops.”
~John Maynard Keynes, Economist
We are living in the weirdest bubble yet. I think I’m going to quit and take on something intellectually challenging like miniature golf or hot dog eating contests! Real estate is cyclical, which means it has its booms and busts, each of which differs slightly from the last. But today’s markets are so outside the norm that its strangeness has become the story. Deportations, arrests and a tighter border are causing fear and causing some labor shortages in the construction industry. As the rules shift daily, commercial real estate is where it has been for the last five years – caught between opportunity and paralysis. The question to ask is, “Is the panic based on the fear of what might happen, or on what is actually happening? Or is it reacting to March’s latest jobs report, which showed 93,000 more jobs created than predicted? Is Wall Street panicking over reports of lower oil prices? Are we worried that the March inflation report showed the annualized inflation rate has dipped to 2.6%?
Crazy but our trade deficit (buying more imports) has soared to a record $162B in March, as everyone rushed to buy ahead of new tariffs. Now will there be a contraction because people over bought or because tariffs raised prices. Meanwhile, jobs openings, new hiring and people quiting have all remained flat as we wait and see.
I recently traveled to Mexico and sat next to an American businessman who had several Maquiladora plants in Mexico. He told me at the beginning of the month, he was warned about losing most of his business because of tariffs. However, he had just learned that Maquiladoras were going to be classified as American businesses and would not be subject to new tariffs. He said in a matter of weeks his business was up almost 50%! Imagine if Mexico was sending $60 billion per year to the U.S., and if American drug dealers were making $20 billion a year by selling fentanyl and opioids to Mexico. Would Mexico be angry?
If there is soon a rush of nations to cut deals with the U.S. to not be left out of the American market, will there be another hysterical Wall Street spasm – this time to buy at bargain prices, not to sell?
We may be in a tariff war, however, we really need to declare war on red tape. Construction of the Oakland Bay Bridge and the Golden Gate Bridge both began in 1933 and both were carrying traffic by 1937. After the 1989 earthquake, the repairs and reconstruction finally began in 2002 and wasn’t finished until 11 years later – nearly four times as long as the entire bridge took – at a cost of $6.5 billion, the costliest public works project in California history.
Sixty-plus years ago, a canal was proposed to carry water from Northern California to Southern California. The project continues to languish, but construction, if it ever occurs, is years away. All projects require a building permit in a manner that is timely, transparent, consistent and outcome-oriented. It is the only way to address our housing crisis. Unfortunately, for most projects we see, the opposite appears to be true. They face permitting processes that are time consuming, opaque, confusing, and favor process over outcomes. Even the Democratic Assemblywomen from Oakland who chaired the committee on permitting reform said, “It is too damn hard to build anything in California.” She added, “If we’re serious about making California more affordable, sustainable, and resilient, we have to make it easier to build housing, clean energy, and public transportation.” Me, I’d just like to see a room addition or TI job permit in less than four months!
I’ve been asked lately about the big “R” word. I usually respond with, “Recession? I have no idea. Just keep running, it will be fine.” Then people say, “No running. Are you still running?” This always makes me smile. To which I am happy to say, “Yes, I am still running. Though I have backed off of my goal of seven marathons on seven continents at my wife’s request. So, four down and three to go and holding. However, I have a green light for 50 half marathons in 50 states. Happy to report, 12 are done and a couple more on the books for this year – watch out Maryland and Tennessee!” No, no, no some still say to me, “The R-word, you know retirement.” To which I happily can say, “Are you kidding? I could never retire. I’m dying with my boots on.” I will say that as of the first of this year, Nick has taken over the company. The only difference is now I work for him instead of him for me. But I do have one announcement. I am planning on expanding on my writing. So think, Billy Joel’s “real estate novelist” or Tom Clancy comes to San Diego and reincarnates Jack Ryan as a commercial real estate broker. In short, my life has been reduced to the three “R’s”: Running, “(w)Riting,” and Real estate.
Nick’s Numbers
First and foremost, don’t worry—as Don’s new boss, I’ll be keeping him plenty busy and productive! Well, I know for sure my dad’s not retiring. As for the big “R” – recession, I’m not sure. But inflation has plunged, and inflation expectations have spiked (see chart below). Long-term rates, which also measure inflation expectations, are rising. Obviously, it’s trade wars that drive up import prices, but they can also be deflationary because they slow economic growth. And at this point, no one knows which way the current is going to break.
If you would like an analysis of your properties’ value or discuss what you should be doing with regard to interest rates or inflation and their impacts on your business, tenants, or property, I’d be happy to talk. (Nick Zech, 858-232-2100, nzech@cdccommerical.com).
So, keep anticipating the next twist, keep putting one foot in front of the other as you run forward, and stay tuned for my thriller novel whenever it might get done. In the meantime , I hope you enjoy the perfect short story below…
The Perfect Short Story
A college class was told they had to write a short story in as few words as possible.
The short story had to contain the following three things: (1) Religion, (2) Sexuality, (3) Mystery.
There was only one A+ paper in the entire class.
Below is the A+ short story.
Good God, I’m pregnant. I wonder who did it.
