“Plan B is to succeed at Plan A”
~ Arnold Schwarzenegger
The Beatles were a group for six years and played more than 200 shows before they got a record deal to record their first album. Three record labels rejected them before this happened.
I read the Steve Jobs biography that Walter Isaacson wrote and what jumps out at me is the story after story of someone who was offered a huge ownership stake in Apple for a small investment, and then they passed. This was at a time when Apple’s early hardware was revolutionary, and the two founders – Steve Jobs and Steve “Woz” Wozniak – impressed nearly everyone who met them:
- Woz offered ownership of Apple’s first computer to his employer at the time, Hewlett-Packard. A senior executive said no thanks, feeling home computers were a “hobbyist product.”
- An early partner was already given 10% of Apple. But then he got cold feet, and pulled out, receiving a total of $2,300 for his ownership stake in the company. Today, that 10% would be worth billions of dollars.
- Soon after, someone else was offered a 33% ownership stake in the company if he would invest $50,000. He recalls, “I was so smart, I said no. It’s kind of fun to think about that when I’m not crying.” Today, he would have been one of the richest people in the world.
- Atari was given a chance to buy the right to Apple early on. They passed.
- Commodore was then given the chance too, with Steve Jobs saying, “You might want to buy us for a few hundred thousand dollars.” They passed too, deciding instead that it would be cheaper to develop and build their own machines. Apple is the second most successful company in the world at the moment, worth over $3 trillion dollars (with a “t”). Commodore declared bankruptcy in 1994 and no longer exists.
Does anybody know where San Diego-based WD-40 got its name? Well, it stands for water displacement experiment #40 – that means there were 39 failures before it! Thomas Edison had 1,000’s of attempts at a lead acid battery but when his assistant said, “We have nothing to show for all of our work,” Edison responded, “Yes, we do, we have 1,000’s of things that we have proven don’t work!”
So lately we have all heard of DOGE (Department of Government Efficiency) but what is DOREE? Ok, I confess I made it up, but it stands for the Department of Real Estate Efficiency. Even though it is made up, you should all take it seriously. From the house you live in to the property you own, rent, or manage, you should evaluate its efficiency. If it is income property, are the rents at market value, and what is your plan to get them there? Have you reviewed the expenses? Have you repriced your insurance? Could you appeal your property taxes? Have you walked the roof to see if some small repairs could extend the life? Can you put your renters on autopay? What about vendors? When is the loan due? How will your cash flow be with a higher loan payment? Should you be setting aside funds to pay down or pay off the loan? Maybe you should sell now?On the subject of DOREE’s and exit strategies, what are tax-efficient ways to exit real estate? Well, my first principle is always to not sell, but instead exchange (1031) until you die, and then your heirs get a step-up in basis and can sell and receive a cash-free distribution. I like to call it, “defer ‘til you die and refi to live.”
Two other selling options are an Installment Sale or a Charitable Remainder Trust. An Installment Sale allows sellers to avoid a large, taxable lump sum by receiving payments over time, spreading income and tax liability across several years while earning interest. It requires planning and taxes due each year on the portion of gain received. A Charitable Remainder Trust is another option and enables sellers to transfer real estate into a trust, sell it tax-efficiently, and receive lifetime income through distributions. Sellers also benefit from a charitable tax deduction, with the remaining assets going to a designated charity after their death.
Nick’s Numbers
Well, San Diego’s overall office leasing market had a little bump, with leasing volume (total space leased) dipping in 2024, below 2023’s poor numbers and below 10-year historic averages, down about 30% below last cycle’s averages (2015-2019).
There were more than 200 fewer leases signed in San Diego in 2024 than in 2023. The average lease in San Diego was 2,900 sf. Occupiers of space have pivoted toward maximizing space efficiency (yes… my Dad’s DOGEE concept) and from continued work from home (WFH).
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).
In my life and in our office, we are occasionally pulled in many different directions at once, sometimes finding it challenging to make progress in any one direction. I always recommend that you knock on a lot of “DOREE’s,” have a positive mindset, and neither avoid failure nor seek it out. Your job is to just bust your ass! Hope you enjoy the story…
The Undecided Donkey
A donkey approached the barn with his head held low after a long day’s work. He was very hungry and thirsty.
The donkey looked up and saw that he stood exactly halfway between a pile of hay and a bucket of water.
The donkey didn’t move. He couldn’t move. He kept looking back and forth between the hay and the water.
Which one should he get first: the food or the water?
He stood there, uncertain of what to do, for so long that he eventually died of hunger and
thirst.
Don’t be the donkey.
