Why did God make mothers? - May 2013

Why did God make mothers?

1. She’s the only one who knows where the scotch tape is.
2. Mostly to clean the house.
3. To help us out of there when we were getting born.

~answers by elementary school children       

Well, I can think of a lot more of my own (maybe not as cute though), but in a week we should all be thankful to that person who brought us into the world and raised us without the help of an instruction manual.  I recently read that the U.S. fertility rate was 1.94, which translates to a long term population decline (it takes a 2.1 fertility rate to maintain our population).  This is not good since low fertility populations don’t innovate as much since their consumption tilts towards health care and their capital shifts to preserving and extending life (partly why I see more health service uses moving into retail centers).  Another recessionary trend is that more kids are living at home longer (back with mom & dad).  Keep in mind that kids living at home don’t make babies.  We will see a recession caused birthrate drop in the short term.  The moral to the story is to pay attention to demographic trends if you are going to be a long term real estate investor.

Our San Diego economy is trying desperately to reverse these trends by logging a 7.7% unemployment rate – well below the 9.3% of last year.  There were 8,300 jobs added between February and March of this year (32,600 for the 12 month period).

In January, I alluded to the fact that there have been some changes in the Americans with Disabilities Act (ADA) laws as they  relates to building owners and leases.  California Civil Code Section 1938 now reads:

1938.  A commercial property owner or lessor shall state on every lease form or rental agreement executed on or after July 1, 2013, whether the property being leased or rented has undergone inspection by a Certified Access Specialist (CASp), and, if so, whether the property has or has not been determined to meet all applicable construction-related accessibility standards pursuant to Section 55.53.

In my January letter, I referenced the following article by a local ADA specialist attorney:

Important Change in California’s Construction Related Disability Access Laws.

With July fast approaching it is critical that every property owner addresses this issue.  I recommend that you contact a Certified Access Specialist and have an inspection done (some sources will be listed at the end of the letter).  You should consult with your property manager or an architect.  Furthermore, you will want to work with a contractor and/or paving contractor to get into compliance.  If you use AIR lease forms through us, please know that we will be using the latest forms which have added the following language:

   Accessibility: Americans with Disabilities Act.

(a)  The Premises:     have not undergone an inspection by a Certified Access

Specialist (CASp).     have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises met all applicable construction –related accessibility standards pursuant to California Civil Code 55.51 et seq.    have undergone an inspection by a Certified Access Specialist (CASp) and it was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to California Civil Code 55.51 et seq.

(b)   Since compliance with the Americans with Disabilities Act (ADA) is dependent

upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation.  In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

If you do not use the AIR forms please consult your attorney and have your lease revised accordingly (or direct us to add the above language to your lease form).  Please also consider adding this language to your existing leases when you are negotiating lease extensions, rent reductions, or other terms with your existing tenants.

If you are a tenant, you should have the premises inspected (including common area compliance) before you sign a lease.

I am just forewarning all sides that it will be ugly after leases are signed and a city requires that the parking lot be upgraded because of the tenant’s interior improvement and both sides point to each other to pick up the tab.

Here are some resources to help you in dealing with this issue:

   Architects/CASp Inspectors

               Greg Izor / Izor & Associates                                      

               760-489-5892                                                 

               contact@izorarch.com

   

Manda Wallbridge / Smart Design

               619-573-4701

               manda@smartdesignci.com

              

Trevin Schall / Lahaina Architects

858-692-3835

   Contractors

               CGP Construction Services

               Jim Robinson

               858-454-7326

               jim@cgpconstruction.com

               Jacor Construction

               Jim Washam

               619-562-8183

               jim@jacor-sd.com

   Paving  Contractors

               George Weir Asphalt

               George Weir

               619-405-3456

               george@weirasphalt.com

               Joe’s Paving

               Alex Tapia

               760-445-8624

               alex123jpi@gmail.com

Well, “Mama didn’t raise no fool” so it’s time to address the law (so it doesn’t address you) and to honor our mothers.  Here’s to mothers…hope you enjoy the story.

April, 2013

March, 2013

March 1, 2013

RE: Monthly Letter

“In times like these, it helps to recall that there have always been times like these.”  ~Paul Harvey

Although the economy seems to be gaining some momentum as it transitions to a slightly stronger growth path, unresolved fiscal policy (sequestration could post some headwinds.  Increased taxes and reduced government spending will keep growth subdued (but at least there’s growth.)

This last month we did lease deals with our local State Assemblywoman and U.S. Congressman.  As part of our standard qualifying process we ask about who signs leases and financials and credit.  You will appreciate the humor of the congressman’s chief of staff’s sense of humor:

Nancy,

Thank you again for all your help yesterday.  I am asking our office manager to send you a copy of what our standard gov lease looks like.  We will have to confess regarding our current financial situation is that we are $16.3 trillion in debt, but we are working on raising everyone’s taxes to pay for it.  But truthfully, we think that this will be a good fit.  Thank again.

Needless to say the landlord took the deal despite the week financials!

One of those areas already being affected by government cut backs is the court system.  You should be aware that the Unlawful Detainer and eviction process is much slower because San Diego has reduced from four to two, the number of courts that hear these actions.

With things seemingly getting a little better and momentum building it is time to tighten up the reins on your tenants.  Many of you have let tenants get lax on paying rent or paying on time.  You may not want to evict yet but you should be sure to re-establish your right to on time payment.  Some tenants have routinely ignored their obligation to pay rent on the first of the month.  Not only does this tardiness hinder cash flow, but it also undermines your lease.  Fortunately, even if you’ve let a tenant consistently get away with late payments, you’re not stuck forever with late rent.  You can re-establish your right to on-time payment and to evict the tenant for late payment at a later time if needed. You should consult with your lawyer (or ask me for a referral to one) but your letter might say something like:

You have been paying your rent on the ___ day of the month.  However, the rent is due on the first day of every month.  This letter will serve as notice to  you that as of ##/ ##/#### any payment made after (late date) will be considered late and a breach of the lease.  If a rent payment is made late, we reserve the right to take all proper legal action against you pursuant to the lease and the laws of this state.

In the last month I have been enjoying watching old episodes of West Wing on Netflix.  I used to enjoy this show because it gave you a sense of the inner workings of the White House and Washington.  Now what amazes me is that nearly 20 years latter we are talking about the same issues; deficits, gun control, gays in the military and “revenue enhancements (taxes).”  Some things never seem to change.  On the other hand, Google is set to roll out retail stores and Apple is getting ready to release a wrist watch-technology seems to be ever-changing.  I recently read that Sharp Electronics started as a mechanical pencil company and Nintendo started by selling playing cars.

We have seen an interesting start to the new year. It appears that owners, tenants and buyers have all decided that “life is what it is” and it is time to make decisions and move on.  In some cases this is closing or downsizing in others selling or growing.  This has lead to a surge in activity (but nothing paid yet.) The residential market appears to be on fire.  This is leading to an uptick for the construction industry.  What we are missing so far is the formation of new small businesses.  Interestingly, despite the burst in activity, we had a 15% decline in inbound sign call activity.  This means either we are generating more business (cold calling & relationships) or the quality of the inbound call is better (ready to do a deal.) Either way we’ll take it.

So as you are feeling like you are banging your head against the wall, remember that in this time of transition and change that some things never change.  Hope you enjoy the story.

Regards,

Don S. Zech

CDC Commercial, Inc.

The Wall

A lady CNN journalist heard about a very old Jewish man who had been going to the Western Wall to pray, twice a day, every day, for a long, long time.

So she went to check it out.  She went to the Western Wall and there he was, walking slowly up to the holy site. 

She watched him pray and after about 45 minutes, when he turned to leave, using a cane and moving very slowly, she approached him for an interview.

“Pardon me, sir, I’m Rebecca Smith from CNN.  What’s your name?

“Morris Fienberg,” he replied.

“Sir, how long have you been coming to the Western Wall and praying?”

“For about 60 years.”

“60 years! That’s amazing!  What do you pray for?”

“I pray for peace between the Christians, Jews and the Muslims.”

“I pray for all the wars and all the hatred to stop.”

“I pray for all our children to grow up safely as responsible adults and to love their fellow 
man.”

“I pray that politicians tell us the truth and put the interests of the people ahead of their own interests.”

“How do you feel after doing this for 60 years?”

“Like I’m talking to a wall.”

February 2013

February 1, 2013

RE: Monthly Letter

Happy Valentines! The heart is the most common symbol of romantic love.  Ancient cultures believed the human soul lived in the heart.  Others thought it to be the source of emotion and intelligence.  The heart may be associated with love because the ancient Greeks believed it was the target of Eros, known as Cupid to the Romans.  Anyone shot in the heart by one of Cupids’ arrows would fall helplessly in love. Well we want you to know we have our heart and our soul in our work and we hope that you are helplessly in love with us here at CDC Commercial!

Well as I reported last month, “Love is in the air”, and things are looking up.  To qualify that a bit let me say that things are firming up more so than picking up.  The trend of gradual but below potential economic growth seen in 2012 is expected to carry over and compound through 2013 and into 2014.

The housing sector is a bright spot, appearing to have bottomed and showing signs of moving forward.  Foreclosures have fall by 45% and home prices rose by 7.5% (the largest increase since 2006.)  Finally construction on new properties rose in December at the fastest clip in four years.  I have always said, “If you want to stimulate the economy give a dollar to a construction worker.”  Most importantly for the future is that positive consumer attitudes toward the economy and the housing market continue to gather momentum.

More good news, San Diego’s unemployment rate dropped to 8.1 percent in December – down from 8.4 percent in November and the 9 percent rate of a year ago. The big changes were:

•        Retail – up 5200 jobs (500 in home and garden reflecting upward movement in the housing market.)
•        Hotels, bars and eateries – up 2500 jobs.
•        Manufacturing – down 2200 jobs. Zero growth in aerospace and government contract work waiting for the fiscal cliff hurt most companies.
•        Healthcare – up 1700 jobs – the most reliable employer in the region.
•        Real Estate: - Mortgage & banking – up 1500 jobs – showing signs of revival.
•        Construction – up 1600 jobs – After losing almost 50% of their workers, construction companies have a long way to go (we need to add 38,000  workers to get back to 2005!)

Venture Capital funds flowed into more San Diego firms in 2012 than the previous year.  The main flow is into local biotech, medical device companies, as well as, software firms.  The “stealth” industry in San Diego is the UAV or “Drone” market.  San Diego is the dominant market for the design and manufacture of their pilotless aircraft.  The industry directly employs more than 2000 workers (indirectly 7000) and contributes $2 billion to our economy.  Better yet this niche is expected to double over the next decade.’

Unless you have been hiding under a rock for the past few months you know that Congress finally passed a bill to avert the dreaded “fiscal cliff”.  There is a lot of speculation of what it means for the average American but let me be clear: If you sell real estate in 2013, you will pay more in taxes! A California resident selling a $1Million investment property in CA potentially faces:

•        20% Capital gains
•        3.8% Medicare
•        13% State tax in CA
•        25% Depreciation recapture

Needless to say these higher taxes don’t make California the land of milk and honey (just ask Phil Mickelson) for property owners looking to sell.  However, there is a solution.  Investors & owners are going to turn more and more to 1031 tax deferred exchanges (and we are here to help you do it).  My motto has long been – “defer until you die and refi to live”.  This is still the ultimate tax deferred /free investment plan.

As the economy picks up and you consider a 1031 exchange I thought you might appreciate this lending trends update & recent quotes.

Major Lending Trends Update

CRE lenders are extremely active and continue to seek properties with predictable long term and stable cash flow.  Challenges occur with properties that are not 85% leased, have larger non credit tenants, have over market rents or have near term or lumped lease terminations.

Interest rates remain at historic lows

Life companies

10 year rates from 3.5% to 4.5%

15,20 or 25 year fixed rates are available

Early rate locks up to 12 months adds 3-5bps per month to the rate

  

Conduits are extremely active.

5 or 10 year terms with 10 year rates in the low to mid 4%s

Banks

Most banks offer 3 to 7 year fixed rates from the mid 3%’s to the mid 4%’s.  Only a few offer 10 year fixed rates.

Fannie & Freddie

10 year fixed rates are in the low 3%’s for lower leverage and below 4% for higher leverage.

Underwriting Ratios have remained relatively constant throughout 2012

Loan to Value

Life Companies maximum LTV remains low, around 50% to 60%

Conduits will lend to up 75% LTV (but usually limited by debt ratios to 70% LTV)

Banks maximum is typically 75% LTV (but usually limited by debt ratios to 65% LTV)

Debt to Loan Ratios

Debt Yield (loan amount to NOI): ideally lenders prefer this ratio to be over 11% but some of the more aggressive lenders will consider as low as 9.0%.

Debt Service Coverage: With the current low interest rates this ratio typically does not limit the loan amount.  Some lenders have a refinance test and use an implied refinance rate of 7% with 25 year amortization to a 1.25x limitation.

Recourse

Life Company and Conduits are non-recourse lenders. 

Banks are typically recourse lenders however a few will consider non-recourse for loans below 50% LTV.

Well as we at CDC Commercial continue to put our heart (and blood, sweat and tears) into our work for you, we hope that you appreciate our new motto this year; “Confidence = Contracts.” We wish you a Happy Valentine’s Day and the hope that you find true love…and we hope you enjoy the story.

Regards,

Don S. Zech

CDC Commercial, Inc.

True Love

As related by a hospital nurse. Many years ago, when I worked as a volunteer at a hospital, I got to know a little girl named Liz who was suffering from a rate & serious disease.  Her only chance of recovery appeared to be a blood transfusion from her 5 year old brother, who had miraculously survived the same disease and had developed the antibodies needed to combat the illness.  The doctor explained the situation to her little brother, and asked the little boy if he would be willing to give his blood to his sister.

I saw him hesitate for only a moment before taking a deep breath and saying, “Yes I’ll do it if it will save her.”  As the transfusion progressed, he lay in bed next to his sister and smiled, as we all did, seeing the color returning to her cheek.  Then his face grew pale and his smile faded.

He looked up at the doctor and asked with a trembling voice, “Will I start to die right away”.

Being young, the little boy had misunderstood the doctor; he thought he was going to have to give his sister all of his blood in order to save her.

January, 2013

January 7, 2013

RE: Monthly Letter

As we bring 2012 to a close and look for a Lucky 2013, there are a few important things we can now put behind us, such as the frenzy of the presidential election, the fear of the fiscal cliff…and the worst real estate downturn in recent history.

I believe the buzzword for 2013 will be “up.” Taxes will most certainly be up based on recent actions in Washington. Costs across the board are going up. Inflation? Yup expected to go up in 2013. And finally, yes we expect rents and values to go up as well. So when I tell you things are looking up this year it may have a double meaning!

I know that at this time of the year many of you look forward to our annual Gold Report. Because of the fast pace of information (and the abundance of it), I have decided to retire the Gold Report. However, I do expect to have some new and exciting changes to my monthly letter (blog), website and some forecasting tools for you in the coming months – stay tuned!

If you just can’t wait and love to digest numbers and forecasts here is a link to, 2013 Emerging Trends in Real Estate by PWC and Urban Land Institute.

There are some new rules regarding ADA Laws in California that you need to be aware of. Here is a link to a brief summary provided by a local law firm ADA Law Changes. Please note we will have a follow up discussion of what we need to do about inspection reports and disclosure requirements by July of this year.

Please know that over the next two weeks the CDC Commercial teams are sitting down and discussing our marketing plans, target tenants and goals to achieve for 2013. I am pleased to report that this December was the busiest December we have seen in the last five years (normally December is slow but we were not as slow as previous years). I can only hope this turns into an “up” year in 2013 and that our incomes are all “up” to offset all the other things that are going “up.”

Regards,

Don S. Zech

CDC Commercial, Inc.

 

545 vs. 300,000,000 People  

        -By Charlie Reese

 

Politicians are the only people in the world who create problems and then campaign against them.  Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?

Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?

You and I don't propose a federal budget. The President does.

You and I don't have the Constitutional authority to vote on appropriations. The House of Representatives does.

You and I don't write the tax code, Congress does.

You and I don't set fiscal policy, Congress does.

You and I don't control monetary policy, the Federal Reserve Bank does.

One hundred senators, 435 congressmen, one President, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank. 

I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a President to do one cotton-picking thing. I don't care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator's responsibility to determine how he votes.

Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall.  No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The President can only propose a budget. He cannot force the Congress to accept it.

The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? John Boehner. He is the leader of the majority party. He and fellow House members, not the President, can approve any budget they want.  If the President vetoes it, they can pass it over his veto if they agree to.

It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted -- by present facts -- of incompetence and irresponsibility. I can't think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal  government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it's because they want it unfair.

If the budget is in the red, it's because they want it in the red.

If the Army & Marines are in Iraq and Afghanistan it's because they want them in  Iraq and Afghanistan ...

If they do not receive social security but are on an elite retirement plan not available to the people, it's because they want it that way.

There are no insoluble government problems.

Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like "the economy," "inflation," or "politics" that prevent them from doing what they take an oath to do.

Those 545 people, and they alone, are responsible.

They, and they alone, have the power.

They, and they alone, should be held accountable by the people who are their bosses.

Provided the voters have the gumption to manage their own employees...

We should vote all of  them out of office and clean up their mess!

Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.