CDC Commercial Inc

What do baseball and zombie companies have in common?

“The point to remember is that what the government gives, it must first take away.”

~ John Coleman

San Diego PadresWell spring is in the air (nope sorry, that’s more rain) and baseball is returning to the ballparks. Tax Day (April 18th) has been replaced by Jackie Robinson Day (April 15th) and our taxes (in San Diego) are now not due until October 16th right in the middle of the World Series. I find it odd that our taxes are delayed because of flooding caused during a drought. Our economy is hurting because of inflation caused by low unemployment and our banks are failing because they invested too much in U.S. government treasury bills. We all suffered through a pandemic, but I think we have a bad case of affluenza. This kind of disconnect comes when things have been too good for too long. The old saying goes, “hard times create strong people, strong people create good times, good times create weak people, and weak people create hard times.” Or as I recently read in the Wall Street Journal, “The era of holding a company meeting in a business top and pajama bottom is now at the end.”

Speaking of coming to an end, I recently read that over 1,000 companies on the Russell 3000 Index (the 3,000 largest U.S. listed stocks) don’t make any money and can’t afford to pay their interest expense. That’s something to pay attention to as rates rise, especially for companies that have debt expiring soon and can’t refinance at higher rates. You’ll hear these companies referred to as Zombie companies (as in the walking dead).

Speaking of Zombie companies and baseball, this one might hit close to home. Diamond Sports Group just filed for Chapter 11. I didn’t care until I heard they own Bally Sports Regional Networks who hold the broadcast rights for the Padres.

As we learned about crypto last year and recently with the banks, there is pressure to make sure numbers don’t disappoint. This leads to a little stretching here…which can lead to a lot of stretching there. The probability of this manipulation rises rapidly in the quarters before the economy tips into a recession. Also, a recent post in the Wall Street Journal shows this probability of fraud (“stretching”) is at the highest in over 40 years. Just like when there is a plane crash, you read about more crashes, brace yourself for more news on accounting fraud. You know the market is at the end of a cycle when the accounting fraud articles start to pop up.

Something we pride ourselves on at CDC Commercial is turning over the stones and understanding the properties we help clients buy and sell. We review income and expenses to make sure they are understandable, legitimate and in line with the market (no season tickets in the expenses!). Often times people’s accounting is not that good (or they are “stretching”)! With construction costs (materials and labor) running high, deferred maintenance is more expensive and affects the bottom line. With interest rates high, carry costs are higher and profits need to be real and achievable if the deal is going to make sense. We are now past the “buy and hope it will go up” stage.

2023 is likely to be a big year for 1031 exchanges as many long-term owners start recognizing their upside in the near future is gone, yet their management headaches and expenses remain. We are finding more real estate owners doing exchanges into more passive assets like single tenant net leased properties. There may be less income, but less hassles and passing on the property to heirs without taxes in the future because of a step up in basis is very attractive.

Nick’s Numbers

The turbulence in the marketplace is beginning to have an effect on unemployment. After ending 2022 with the second lowest unemployment rate in 20 years (2.9%), the rate surged to 3.7% in January.

San Diego Unemployment

If you would like to talk about 1031 exchanges or lease renewals or a valuation of your property, please give me a call or send me an email. Also, 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,

The Economist Stan Druckenmiller said, “Once inflation goes above 5%, it has never come back down without the Fed funds rate exceeding the CPI.” Well, the CPI was at 6.4 in January and two-year note was at 4.78 in February. That is still a negative real inflation adjusted rate, so I expect the Fed to keep raising rates and higher mortgage rates ahead.

The best news of the month is that San Diego landed on the Top 20 list of “happiest places to live.” So as the Bobby McFerrin song said, “Don’t worry, be happy”.

Jackie Robinson was a great ball player and a strong person. I hope you enjoy the story of a lesser-known ball player who might have been one of our strongest people…

I think most sports fans have heard the first part of this story, but I had never heard the full story about this Yankee catcher, Moe Berg…….

When baseball greats Babe Ruth and Lou Gehrig went on tour, in baseball, to Japan in 1934, some fans wondered why a third-string catcher named Moe Berg was included. Although he played with five major-league teams from 1923 to 1939, he was a very mediocre ball player. But Moe was regarded as the brainiest ball player of all time.

In fact, Casey Stengel once said: “That is the strangest man ever to play baseball.”

When all the baseball stars went to Japan, Moe Berg went with them, and many people wondered why he went with “the team.”

The answer was simple: Moe Berg was a United States spy, working undercover with the CIA. Moe spoke 15 languages – including Japanese. And he had two loves: baseball and spying. In Tokyo, garbed in a kimono, Berg took flowers to the daughter of an American diplomat being treated in St. Luke’s Hospital – the tallest building in the Japanese capital.

He never delivered the flowers. The ball player ascended to the hospital roof and filmed key features: the harbor, military installations, railway yards, etc. Eight years later, General Jimmy Doolittle studied Berg’s films in planning his spectacular raid on Tokyo.

His father disapproved of his baseball career and never once watched his son play. In Barringer High School, Moe learned Latin, Greek and French. Moe read at least 10 newspapers every day.

He graduated magna cum laude from Princeton – having added Spanish, Italian, German and Sanskrit to his linguistic quiver. During further studies at the Sorbonne, in Paris, and Columbia Law School, he picked up Japanese, Chinese, Korean, Indian, Arabic, Portuguese and Hungarian – 15 languages in all, plus some regional dialects.

While playing baseball for Princeton University, Moe Berg would describe plays in Latin or Sanskrit.

During World War II, Moe was parachuted into Yugoslavia to assess the value to the war effort of the two groups of partisans there. He reported back that Marshall Tito’s forces were widely supported by the people and Winston Churchill ordered all-out support for the Yugoslav underground fighter, rather than Mihajlovic’s Serbians.

The parachute jump at age 41 undoubtedly was a challenge. But there was more to come in that same year. Berg penetrated German-held Norway, met with members of the underground and located a secret heavy-water plant – part of the Nazis’ effort to build an atomic bomb. His information guided the Royal Air Force in a bombing raid to destroy that plant.

There still remained the question of how far the Nazis had progressed in the race to build the first atomic bomb. If the Nazis were successful, they would win the war. Berg (under the code name “Remus”) was sent to Switzerland to hear leading German physicist Werner Heisenberg, a Nobel Laureate, lecture and determine if the Nazis were close to building an A-bomb. Moe managed to slip past the SS guards at the auditorium, posing as a Swiss graduate student.

The spy carried in his pocket a pistol and a cyanide pill. If the German indicated the Nazis were close to building a weapon, Berg was to shoot him – and then swallow the cyanide pill. Moe, sitting in the front row, determined that the Germans were nowhere near their goal, so he complimented Heisenberg on his speech and walked him back to his hotel.

Moe Berg’s report was distributed to Britain’s Prime Minister, Winston Churchill, President Franklin D. Roosevelt, and key figures in the team developing the Atomic Bomb. Roosevelt responded: “Give my regards to the catcher.”

Most of Germany’s leading physicists had been Jewish and had fled the Nazis mainly to Britain and the United States.  After the war, Moe Berg was awarded the Medal of Freedom – America’s highest honor for a civilian in wartime. But Berg refused to accept it because he couldn’t tell people about his exploits.  After his death, his sister accepted the medal. It now hangs in the Baseball Hall of Fame, in Cooperstown.

Moe Berg’s baseball card is the only card on display at the CIA Headquarters in Washington, DC.



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